Ais10 Ab Az Ch01

2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 1 of 43
C
HAPTER 1

Accounting Information
Systems:
An Overview
INTRODUCTION
Questions to be addressed in this chapter
include:
What is the meaning of system, data, and
information?
What is an accounting information system (AIS)?
Why is the AIS an important topic to study?
What is the role of the AIS in the value chain?
How does the AIS provide information for decision
making?
What are the basic strategies and strategic positions
an organization can pursue?
SYSTEMS, DATA, AND INFORMATION
A system is:
A set of interrelated components
That interact
To achieve a goal
Most systems are composed of smaller
subsystems . . .
. . . And vice versa!
Every organization has goals.
The susbsystems should be designed to
maximize achievement of the organizations
goals
Even to the detriment of the subsystem itself
EXAMPLE: The production department (a
subsystem) of a company might have to
forego its goal of staying within its budget in
order to meet the organizations goal of
delivering product on time.

Goal conflict occurs when the activity of a
subsystem is not consistent with another
subsystem or with the larger system.
Goal congruence occurs when the
subsystems goals are in line with the
organizations goals.
The larger and more complicated a
system, the more difficult it is to achieve
goal congruence.

The systems concept encourages integration
(i.e., minimizing the duplication of recording,
storing, reporting and processing).
Data are facts that are collected, recorded,
stored, and processed by an information system.
Organizations collect data about:
Events that occur
Resources that are affected by those events
Agents who participate in the events

Information is different from data.
Information is data that have been
organized and processed to provide
meaning to a user.
Usually, more information and better
information translates into better
decisions.

However, when you get more information
than you can effectively assimilate, you
suffer from information overload.
Example: Final exams week!
When youve reached the overload point,
the quality of decisions declines while the
costs of producing the information
increases.
Benefits of information
- Cost of producing information
Value of information
Benefits of information may include:
Reduction of uncertainty
Improved decisions
Improved ability to plan and schedule activities
Costs may include time and resources spent:
Collecting data
Processing data
Storing data
Distributing information to users
Costs and benefits of information are often
difficult to quantify, but you need to try when
youre making decisions about whether to
provide information.
Characteristics that make information
useful:
Relevance
It reduces uncertainty by helping you predict
what will happen or confirm what already has
happened.
useful:
Relevance
Reliability
Its dependable, i.e., free from error or bias
and faithfully portrays events and activities.
useful:
Relevance
Reliability
Completeness
It doesnt leave out anything thats important.
useful:
Relevance
Reliability
Completeness
Timeliness
You get it in time to make your decision.
useful:
Relevance
Reliability
Completeness
Timeliness
Understandability
Its presented in a manner you can
comprehend and use.
useful:
Relevance
Reliability
Completeness
Timeliness
Understandability
Verifiability
A consensus notionthe nature of the
information is such that different people
would tend to produce the same result.
useful:
Relevance
Reliability
Completeness
Timeliness
Understandability
Verifiability
Accessibility
You can get to it when you need it and in a
format you can use.
Information is provided to both:
External users
Internal Users
External users
Internal Users
External users primarily use information
that is either:
MANDATORY INFORMATIONRequired by
a governmental entity, such as Form 10-Ks
required by the SEC; or
ESSENTIAL INFORMATIONRequired to
conduct business with external parties, such
as purchase orders.
In providing mandatory or essential
information, the focus should be on:
Minimizing costs
Meeting regulatory requirements
Meeting minimum standards of reliability and
usefulness
External users
Internal Users
Internal users primarily use discretionary
information.
The primary focus in producing this
information is ensuring that benefits
exceed costs, i.e., the information has
positive value.
An AIS is a system that collects, records,
stores, and processes data to produce
information for decision makers.
It can:
Use advanced technology; or
Be a simple paper-and-pencil system; or
Be something in between.
Technology is simply a tool to create,
maintain, or improve a system.
WHAT IS AN AIS?
The functions of an AIS are to:
Collect and store data about events,
resources, and agents.
Transform that data into information that
management can use to make decisions
about events, resources, and agents.
Provide adequate controls to ensure that the
entitys resources (including data) are:
Available when needed
Accurate and reliable
WHAT IS AN AIS?
Its fundamental to accounting.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
Accounting is an information-providing
activity, so accountants need to
understand:
How the system that provides that
information is designed, implemented
and used.
How financial information is reported
How information is used to make
decisions

Other accounting courses focus on how
the information is provided and used.
An AIS course places greater emphasis
on:
How the data is collected and
transformed
How the availability, reliability, and
accuracy of the data is ensured
AIS courses are not number-crunching
courses
The skills are critical to career success.

Auditors need to evaluate the accuracy
and reliability of information produced by
the AIS.

Tax accountants must understand the
clients AIS adequately to be confident that
it is providing complete and accurate
information for tax planning and
compliance work.

In private industry and not-for-profits,
systems work is considered the most
important activity performed by
accountants.

In management consulting, the design,
selection, and implementation of
accounting systems is a rapid growth area.
The AIS course complements other
systems courses.

Other systems courses focus on design and
implementation of information systems,
databases, expert systems, and
telecommunications.
AIS courses focus on accountability and
control.
systems courses.
AIS topics are tested on the new CPA
exam.

Makes up about 25% of the Business
Environment & Concepts section of the CPA
exam.
systems courses.
AIS topics are tested on the new CPA
exam.
AIS topics impact corporate strategy
and culture.

AIS
Occupational
Culture
Strategy
Information
Technology
AIS design is
affected by
information
technology, the
organizations
strategy, and the
organizations
culture.
AIS
Occupational
Culture
Strategy
Information
Technology
Information technology
affects the companys
choice of business
strategy. To perform
cost-benefit analyses on
IT changes, you need to
understand business
strategy.
AIS
Occupational
Culture
Strategy
Information
Technology
While culture affects
the design of the AIS,
its also true that the
AIS affects culture by
altering the
dispersion and
availability of
information.
The objective of most organizations is to
provide value to their customers.
What does it mean to deliver value?
Lets peek in on a conversation at Joes
pharmacy . . .
ROLE OF THE AIS IN THE VALUE CHAIN
Well, Mr. Pharmaceutical
Salesman, your proposal looks
good, but your prices are about
5% higher than your competitors.
Thats true, but were
comfortable with that
because of the value-
added that we bring to
this arrangement.
What is that value-added,
and how do you convert it
into dollars?
Blahblahblah
customer service
blahblah--blah
While adding value is a commonly used
buzzword, in its genuine sense, it means making
the value of the finished component greater than
the sum of its parts.
It may mean:
Making it faster
Making it more reliable
Providing better service or advice
Providing something in limited supply (like O-negative
blood or rare gems)
Providing enhanced features
Customizing it
Value is provided by performing a series of
activities referred to as the value chain.
These include:
Primary activities
Support activities
These activities are sometimes referred to
as line and staff activities respectively.
These include:
Primary activities
Support activities
Primary activities include:
Inbound logistics
Receiving, storing, and distributing the
materials that are inputs to the
organizations product or service.

For a pharmaceutical company, this activity
might involve handling incoming chemicals
and elements that will be used to make their
drugs.
Inbound logistics
Operations
Transforming those inputs into products or
services.

For the pharmaceutical company, this step
involves combining the raw chemicals and
elements with the work of people and equipment to
produce the finished drug product that will be sold
to customers.
Inbound logistics
Operations
Outbound logistics
Distributing products or services to customers.

For the pharmaceutical company, this step involves
packaging and shipping the goods to drug stores,
doctors, and hospitals.
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Helping customers to
buy the organizations
products or services.

A pharmacy rep may
visit with drug stores,
doctors, etc. to inform
them about their
products and take
orders.
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
Post-sale support provided to
customers such as repair and
maintenance function.

A pharmaceutical firm will
typically not be repairing its
product (though the product may
be periodically reformulated).
The pharmaceutical company is
more likely to be providing
advisory services to pharmacists,
etc.
These include:
Primary activities
Support activities
Support activities include:
Firm infrastructure
Accountants, lawyers, and administration.
Includes the companys accounting
information system.
Firm infrastructure
Human resources
Involves recruiting and hiring new
employees, training employees, paying
employees, and handling employee
benefits.
Firm infrastructure
Human resources
Technology
Activities to improve the products or services
(e.g., R&D, website development).

For the pharmaceutical company, these activities
would include research and development to
create new drugs and modify existing ones.
Firm infrastructure
Human resources
Technology
Purchasing
Buying the resources (e.g.,
materials, inventory, fixed
assets) needed to carry out the
entitys primary activities.

In the pharmaceutical company,
the purchasing folks are trying
to get the best combination of
cost and quality in buying
chemicals, supplies, and other
assets the company needs to
run its operations.
Information technology can significantly
impact the efficiency and effectiveness
with which the preceding activities are
carried out.
An organizations value chain can be
connected with the value chains of its
customers, suppliers, and distributors.
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
For example, the inbound logistics of
Pharmaceuticals, Inc., links to the outbound
logistics of its suppliers.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
And the outbound logistics of
Pharmaceuticals, Inc., links to the inbound
logistics of its customers.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
The linking of these separate value chains
creates a larger system known as a supply
chain.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
The linking of these separate value chains
creates a larger system known as a supply
chain.
Information
technology can
facilitate synergistic
linkages that improve
the performance of
each companys value
chain.
There is variation in the degree of
structure used to make decisions:
Structured decisions
Repetitive and routine
Can be delegated to lower-level employees
EXAMPLE: Deciding whether to write an
auto insurance policy for a customer with a
clean driving history.
Semistructured decisions
Incomplete rules
Require subjective assessments
EXAMPLE: Deciding whether to sell auto
insurance to a customer with a tainted
driving history.
Semistructured decisions
Non-recurring and non-routine
Require a great deal of subjective
assessment
EXAMPLE: Deciding whether to begin
selling a new type of insurance policy
There is also variation in the scope of a
decisions effect:
Occupational control decisions
Relate to performance of specific tasks
Often of a day-to-day nature
EXAMPLE: Deciding whether to order
inventory
decisions effect:
Management control decisions
Relate to utilizing resources to accomplish
organizational objectives
EXAMPLE: Budgeting
decisions effect:
Management control decisions
Strategic planning decisions
The what do we want to be when we grow
up types of questions
Involves establishing
Organizational objectives
Policies to achieve those objectives
EXAMPLE: Deciding whether to diversify the
company into other product lines
In general, the higher a manager is in the
organization, the more likely he/she is to
be engaging in:
Less structured decisions
Broader scope (i.e., strategic planning)
decisions
Corporations have:
Unlimited opportunities to invest in technology
Limited resources to invest in technology
Consequently, they must identify the
improvements likely to yield the highest
return.
This decision requires an understanding of
the entitys overall business strategy.
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are two
basic business strategies companies can
follow:
Product-differentiation strategy
Low-cost strategy
follow:
Low-cost strategy
A product differentiation strategy involves
setting your product apart from those of
your competitors, i.e., building a better
mousetrap by offering one thats faster,
has enhanced features, etc.
follow:
Low-cost strategy
A low-cost strategy involves offering a
cheaper mousetrap than your competitors.
The low cost is made possible by
operating more efficiently.
Sometimes a company can do both, but
they normally have to choose.
Porter also argues that companies must
choose a strategic position among three
choices:
Variety-based strategic position
Offer a subset of the industrys
products or services.
EXAMPLE: An insurance company
that only offers life insurance as
opposed to life, health, property-
casualty, etc.
choices:
Needs-based strategic position
Serve most or all of the needs of a particular
group of customers in a target market.
EXAMPLE: The original Farm Bureau-based
insurance companies provided a portfolio of
insurance and financial services tailored to the
specific needs of farmers.
choices:
Access-based strategic position
Serve a subset of customers who differ from
others in terms of factors such as geographic
location or size..
EXAMPLE: Satellite Internet services are
intended primarily for customers in rural areas
who cannot get DSL or cable services.
choices:
Access-based strategic position
These strategic positions are not
mutually exclusive and can overlap.
Choosing a strategic position is important
because it helps a company focus its efforts as
opposed to trying to be everything to everybody.
EXAMPLE: A radio station that tries to play all types
of music will probably fail.
Its critical to design the organizations activities
so they reinforce one another in achieving the
selected strategic position. The result is
synergy, which is difficult for competitors to
imitate.
The growth of the Internet has profoundly
affected the way value chain activities are
performed:
Inbound and outbound logistics can be streamlined
for products that can be digitized, like books and
music.
The Internet allows companies to cut costs, which
impacts strategy and strategic position.
Because the Internet is available to everyone, intense
price competition can result. The outcome may be
that many companies shift from low-cost to product-
differentiation strategies.
The Internet may impede access-based strategic
positions.
The AIS should help a company adopt and
maintain its strategic position.
Requires that data be collected about each
activity.
Requires the collection and integration of both
financial and nonfinancial data.
The authors believe:
Accounting and information systems should
be closely integrated.
The AIS should be the primary information
system to provide users with information they
need to perform their jobs.
SUMMARY
What weve learned so far:
The meaning of system, data, and
information
What an AIS is
Why its an important topic to stody
What its role is in the value chain
How it provides information for decision making
What are the basic strategies and strategic
positions an organization can pursue
How these interact with the AIS

Ais10 Ab Az Ch01

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ais10 Ab Az Ch01

Uploaded by

Copyright:

Available Formats

2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 1 of 43

You might also like