Accounting Information Systems: Essential Concepts and Applications

Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing

The Study of Accounting Information Systems

What Is Accounting?
It is the principal way of organizing and reporting financial information. It has been called the language of business. Accounting and information systems comprise the functional area of business responsible for providing information to the other areas to enable them to do their jobs and for reporting the results to interested parties. To that end, an accounting system is used to identify, analyze, measure, record, summarize, and communicate relevant economic information to interested parties.

What Is a System?
A System is an entity consisting of interacting parts that are coordinated to achieve one or more common objectives. Systems must possess

SYSTEM

INPUT

PROCESS

OUTPUT

FEEDBACK

INFORMATION SYSTEM
DATA
INPUT PROCESS

INFORMATION
OUTPUT

FEEDBACK

Data Versus Information

Data are raw facts and figures that are processed to produce information Information is data that have been processed and are meaningful and useful to users. The terms meaningful and useful are value-laden terms and usually subsume other qualities such as timeliness, relevance, reliability, consistency, comparability, etc.

Functional Steps in Transforming Data into Information

Data collection - capturing, recording, validating and editing data for completeness and accuracy Data Maintenance/Processing classifying, sorting, calculating data Data Management - storing, maintaining and retrieving data Data Control - safeguarding and securing data and ensuring the accuracy and completeness of the same Information Generation - interpreting, reporting, and communicating information

What Is an Information System?

An Information system is a framework in which data is collected, processed, controlled and managed through stages in order to provide information to users It evolves over time and becomes more formalized as a firm grows and becomes more complex. It can be a manual or computerized system Firms depend on information systems in order to survive and stay competitive

The Universal Data Processing Model

Storage

Processing

Consumers
Exchange Events Internal Events Environmental Events

Accounting Information System

An Accounting Information System is a unified structure that employs physical resources and components to transform economic data into accounting information for external and internal users.

The Business Firm as a System

Environment of the Firm Business Firm

Organization Information System Operational System

Organizations functions AIS Transaction Cycles Business Events from Operations

System Characteristics of Business Firms

Objectives Environment Constraints Input-Process-Output Feedback Controls Subsystems

FUNCTIONS OF AN INFORMATION SYSTEM ENVIRONMENT

Customers Suppliers

ORGANIZATION INFORMATION SYSTEM

INPUT PROCESS OUTPUT

FEEDBACK

Regulatory Agencies

Stockholders

Competitors

TYPES OF INFORMATION SYSTEMS

KIND OF SYSTEM
STRATEGIC LEVEL

GROUPS SERVED
SENIOR MANAGERS

MANAGEMENT LEVEL

MIDDLE MANAGERS

KNOWLEDGE LEVEL

KNOWLEDGE & DATA WORKERS

OPERATIONAL MANAGERS
SALES & MARKETING MANUFACTURING FINANCE ACCOUNTING

OPERATIONAL LEVEL

HUMAN RESOURCES

AIS as an MIS Subsystem

Sales/ Marketing

Production Info AIS

Personnel

Finance

Relationship of AIS & MIS

MIS Finance Sales/Marketing Production AIS Personnel

Order entry/Sales Billing/A.Rec./Cash receipts Purchasing/A. Pay./Cash disb. Inventory Payroll General ledger Production

Examples of AIS Subsystems (Merchandising)

Order entry Sales System
Shipping

Inventory System

Purchasing/ A. Payable/ Cash Disb. System

Receiving

Revenue Cycle Billing/ A. Receivable Cash Receipts System

General Ledger System

Expenditure Cycle Human Resource Management (Payroll) System

Ext/Fin. reporting Tax & req. reporting Internal reporting

No Planning/Control, Investment, or Production Cycles reflected here

The Operational System of a Manufacturing Firm

Facilities Labor (human services)
Material from Supplier Acquiring Materials

Manufacturing Firm

Supporting Operations
Producing Finished Goods Storing Finished Goods Shipping Finished Goods Goods to Customer

Data AIS Funds

Data and information flow Physical flows

Information

Funds

Examples of AIS Subsystems: Production Cycle

Inventory System Production System
Purchasing/ A. Payable/ Cash Disb. System

Production Cycle General Ledger System Human Resource Management (Payroll System

No Revenue, and Investment Cycles reflected here

Organizational Structure in Business Firms

Hierarchical
Matrix: Blend functional and projectoriented structures Decentralized Network

Objectives and Users of AIS

Support day-to-day operations
Transaction processing

Support Internal Decision-Making

Trend Analyses Quantitative & Qualitative Data Non-transactional sources

Help fulfill Stewardship Role

Resources Required for an AIS

Processor(s): Manual or Computerized
Data Base(s): Data Repositories Procedures: Manual or

Computerized

Input/Output Devices Miscellaneous Resources

Reasons for Studying Accounting Information Systems

Career accountants will be users, auditors, and developers of AIS Modern-day AIS are complex because of new technologies Concepts studied in AIS are integrated into every other accounting course

Information-Oriented Professionals
An array of professionally trained persons from different fields of study have focused on providing information to users These professionals include system and managerial accountants and auditors, system analysts and industrial engineers Professional certifications are increasing. These include Certified Computing Professional, Certified Information Systems Auditor, Certified Managerial Accountant, Certified Fraud Examiner, etc.

Roles of Accountants With Respect to an AIS

Financial accountants prepare financial information for external decision-making in accordance with GAAP Managerial accountants prepare financial information for internal decision-making

Roles of Accountants With Respect to an AIS

Auditors - evaluate controls and attest to the fairness of the financial statements. Accounting managers control all accounting activities of a firm. Tax specialists - develop information that reflects tax obligations of the firm. Consultants - devise specifications for the AIS.

Ethical Standards for Consulting

Professional competence Exercise due professional care Plan and supervise all work Obtain relevant data to support reasonable recommendations Maintain integrity and objectivity Understand and respect the responsibilities of all parties Disclose any conflicts of interest