Accounting

Information
Systems
9th Edition
Marshall B. Romney
Paul John Steinbart

2003 Prentice Hall Business Publishing,

Accounting Information Systems, 9/e, Romney/Steinbart

1-1

Accounting Information
Systems: An Overview
Chapter 1

2003 Prentice Hall Business Publishing,

Accounting Information Systems, 9/e, Romney/Steinbart

1-2

Learning Objectives
1.

2.
3.

4.

Explain what an accounting information

system (AIS) is and describe the basic
functions it performs.
Discuss why studying the design and
management of an AIS is important.
Explain the role played by the AIS in a
companys value chain and discuss ways that
the AIS can add value to a business.
Describe and contrast the basic strategies
and strategic positions that a business can
adopt.
2003 Prentice Hall Business
Publishing,

1-3

Introduction: S&S Inc.

Scott Parry and Susan Gonzalez form
S&S, Inc., to sell consumer electronic
devices.
Parry and Gonzalez decide to pursue a
clicks and bricks strategy.
They plan to hold the grand opening of
S&S in five weeks.

2003 Prentice Hall Business

Publishing,

1-4

Introduction: S&S, Inc.

What types of important decisions do

Scott and Susan have to make?
How

to organize their accounting

records
How to design a set of procedures to
ensure that they meet all of their
government obligations
How to price their products
2003 Prentice Hall Business
Publishing,

1-5

Introduction: S&S, Inc.

Important decisions, continued
Whether

to extend credit, on what terms, and

how to accurately track what customers owe
and have paid
How to hire, train, and supervise their
employees
How to keep track of cash flows
The appropriate product mix and quantities to
carry
What functionality to provide on their website
2003 Prentice Hall Business
Publishing,

1-6

Introduction
This chapter defines an accounting
information system (AIS).
It discusses why AIS is an important topic
to study.
It describes how an AIS adds to an
organizations value chain.
It describes and contrasts the basic
strategies that a business can pursue.

2003 Prentice Hall Business

Publishing,

1-7

Learning Objective 1
Explain what an accounting
information system (AIS) is and
describe the basic functions it
performs.

2003 Prentice Hall Business

Publishing,

1-8

What Is An AIS?

A system is a set of two or more interrelated

components that interact to achieve a goal.
Systems are almost always composed of smaller
subsystems, each performing a specific function
supportive of the larger system.
An accounting information system (AIS) consists
of:
People
Procedures
Data
Software
Information

technology infrastructure

2003 Prentice Hall Business

Publishing,

1-9

What Is An AIS?

What important functions does the AIS

perform in an organization?
It collects and stores data about
activities and transactions.
It processes data into information that
is useful for making decisions.
It provides adequate controls to
safeguard the organizations assets.
2003 Prentice Hall Business
Publishing,

1-10

Learning Objective 2
Discuss

why studying the

design and management
of an AIS is important.

2003 Prentice Hall Business

Publishing,

1-11

Why Study AIS?

In Statement of Financial Accounting

Concepts No. 2, The FASB...
defined accounting as an information
system.
stated that the primary objective of
accounting is to provide information
useful to decision makers.

2003 Prentice Hall Business

Publishing,

1-12

Why Study AIS?

The Accounting Education Change

Commission recommended that the
accounting curriculum should provide
students with a solid understanding of
three essential concepts:
1. The use of information in decision making
2. The nature, design, use and implementation

of an AIS
3. Financial information reporting
2003 Prentice Hall Business
Publishing,

1-13

Why Study AIS?

To understand how the accounting

system works.
How

to collect data about an organizations

activities and transactions
How to transform that data into information
that management can use to run the
organization
How to ensure the availability, reliability, and
accuracy of that information

2003 Prentice Hall Business

Publishing,

1-14

Why Study AIS?

Auditors need to understand the
systems that are used to produce a
companys financial statements.
Tax professionals need to understand
enough about the clients AIS to be
confident that the information used for
tax planning and compliance work is
complete and accurate.

2003 Prentice Hall Business

Publishing,

1-15

Why Study AIS?

One of the fastest growing types of

consulting services entails the design,
selection, and implementation of new
Accounting Information Systems.
A survey conducted by the Institute of
Management Accountants (IMA)
indicates that work relating to accounting
systems was the single most important
activity performed by corporate
accountants.
2003 Prentice Hall Business
Publishing,

1-16

Information Technology
and Corporate Strategy
The same survey conducted by
the Institute of Management
Accountants (IMA) also
indicates that the second most
important job activity of
corporate accountants is longterm strategic planning.

2003 Prentice Hall Business

Publishing,

1-17

The CITP Designation

CITP: certified information technology

professional
Identifies CPAs who possess a broad
range of technological knowledge and the
manner in which information technology
(IT) can be used to achieve business
objectives
Reflects the AICPAs recognition of the
importance and interrelationship of IT with
accounting
2003 Prentice Hall Business
Publishing,

1-18

Ten Most Important Activities

Performed By Accountants
1. Accounting systems
and financial reporting
2. Long-term strategic
planning
3. Managing the
accounting and
finance function
4. Internal Consulting
5. Short-term budgeting

6. Financial and
economic analyses
7. Process improvement
8. Computer systems
and operations
9. Performance
evaluation
10. Customer and product
profitability analyses

2003 Prentice Hall Business

Publishing,

1-19

Factors Influencing
Design of the AIS
Organizational
Culture

Strategy

AIS

Information
Technology
2003 Prentice Hall Business
Publishing,

1-20

Learning Objective 3

Explain the role played by the AIS in a

companys value chain and discuss
ways that the AIS can add value to a
business.

2003 Prentice Hall Business

Publishing,

1-21

The Value Chain

The ultimate goal of any business is to
provide value to its customers.
A business will be profitable if the
value it creates is greater than the
cost of producing its products or
services.

2003 Prentice Hall Business

Publishing,

1-22

The Value Chain

An organizations value chain consists of

nine interrelated activities that collectively
describe everything it does.
The five primary activities consist of the
activities performed in order to create,
market, and deliver products and services
to customers and also to provide post-sales
services and support.

2003 Prentice Hall Business

Publishing,

1-23

The Value Chain

Primary Activities
Inbound
Logistics

Outbound
Logistics

Operations

Marketing
and Sales

Service

2003 Prentice Hall Business

Publishing,

1-24

The Value Chain

The four support activities in the value

chain make it possible for the primary
activities to be performed efficiently
and effectively.

2003 Prentice Hall Business

Publishing,

1-25

The Value Chain

Support Activities
Infrastructure

Technology

Human
Resources

Purchasing

2003 Prentice Hall Business

Publishing,

1-26

The Value System

The value chain concept can be
extended by recognizing that
organizations must interact with
suppliers, distributors, and customers.
An organizations value chain and the
value chains of its suppliers,
distributors, and customers
collectively form a value system.

2003 Prentice Hall Business

Publishing,

1-27

The Supply Chain

Raw Materials
Supplier
Manufacturer

Distributor

Retailer

Consumer

2003 Prentice Hall Business

Publishing,

1-28

How An AIS Can Add Value

To An Organization

An AIS adds value...

by providing accurate and timely

information so that five primary value
chain activities can be performed more
effectively and efficiently.

2003 Prentice Hall Business

Publishing,

1-29

How An AIS Can Add Value

To An Organization

An AIS adds value by:

improving the quality and reducing the costs
of products or services.
improving efficiency.
Improving decision making capabilities.
increasing the sharing of knowledge.

A well-designed AIS can also help an

organization profit by improving the
efficiency and effectiveness of its supply
chain.
2003 Prentice Hall Business
Publishing,

1-30

Information and
Decision Making
What is information?
The term data refers to any and all of
the facts that are collected, stored,
and processed by an information
system.
Information is data that has been
organized and processed so that it is
meaningful.

2003 Prentice Hall Business

Publishing,

1-31

Data Needs For Activities

Generic Example

Agent

Resource

Event
Agent

Sales Transaction
Inventory

Sale

Payment to Supplier
Cash

Customer

Payment

Sales
Cashier
Supplier

2003 Prentice Hall Business

Publishing,

1-32

Information and Decision

Making
Characteristics of Useful Information
Relevant

Timely

Reliable

Understandable

Complete

Verifiable

2003 Prentice Hall Business

Publishing,

1-33

Information and
Decision Making

What is decision making? Decision

making involves the following steps:

1.

5.

Identify the problem.

Select a method for solving the problem.
Collect data needed to execute the decision
model.
Interpret the outputs of the model.
Evaluate the merits of each alternative.

6.

Choose and execute the preferred solution.

2.
3.

4.

2003 Prentice Hall Business

Publishing,

1-34

Information and
Decision Making
Decisions can be categorized as
follows:
in terms of the degree of structure that
exists
by the scope of the decision

2003 Prentice Hall Business

Publishing,

1-35

Decision Structure
Structured decisions are repetitive,
routine, and understood well enough
that they can be delegated to lowerlevel employees in the organization.
An example is:

Extending

credit to customers.

2003 Prentice Hall Business

Publishing,

1-36

Decision Structure
Semistructured decisions are
characterized by incomplete rules for
making the decision and the need for
subjective assessments and
judgments to supplement formal data
analysis.
An example is:

Setting

a marketing budget for a new

product.
2003 Prentice Hall Business
Publishing,

1-37

Decision Structure
Unstructured decisions are
nonrecurring and nonroutine.
An example is:

Choosing

the cover for a

magazine.

2003 Prentice Hall Business

Publishing,

1-38

Decision Scope

Decisions vary in terms of the scope of

their effect.
Operational control is concerned with the
effective and efficient performance of
specific tasks.
Management control is concerned with the
effective and efficient use of resources for
accomplishing organizational objectives.
Strategic planning is concerned with
establishing organizational objectives and
policies for accomplishing those objectives.
2003 Prentice Hall Business
Publishing,

1-39

Learning Objective 4

Describe and contrast the basic

strategies and strategic positions that a
business can adopt.

2003 Prentice Hall Business

Publishing,

1-40

Information Technology
and Corporate Strategy
New developments in IT affect the
design of an AIS.
What basic requirements are needed
to evaluate the costs and benefits of
new IT developments?

2003 Prentice Hall Business

Publishing,

1-41

Information Technology
and Corporate Strategy

Develop a basic understanding of

corporate strategies.
how IT developments can be used to
implement existing organizational
strategies.
how IT developments can be used to
create an opportunity to modify
existing strategies.
2003 Prentice Hall Business
Publishing,

1-42

Information Technology
and Corporate Strategy

Because an AIS functions within an

organization, it should be designed to
reflect the values of that organizational
culture.

2003 Prentice Hall Business

Publishing,

1-43

Strategy and
Strategic Positions
Two Basic Strategies
To be a lower-cost producer than competitors
To differentiate products and services
from competitors
2003 Prentice Hall Business
Publishing,

1-44

Strategy and
Strategic Positions
Three Basic Strategic Positions
Variety-based strategic position
Need-based strategic position
Access-based strategic position
2003 Prentice Hall Business
Publishing,

1-45

Strategy and
Strategic Positions

What role does the AIS play in helping

organizations adopt and maintain a
strategic position?
Data collection about each activity
Transforming data into information
that can be used by management to
coordinate those activities

2003 Prentice Hall Business

Publishing,

1-46

What is the Value

of Information?

The value of information is the benefit

produced by the information minus the
cost of producing it.

2003 Prentice Hall Business

Publishing,

1-47

The Role of the AIS

The Internet makes strategy more

important than ever
Enterprise resource planning (ERP)
systems integrate all aspects of a
companys operations with its traditional
AIS.
The key feature of ERP systems is the
integration of financial data and other
nonfinancial operating data.
2003 Prentice Hall Business
Publishing,

1-48

End of Chapter 1

2003 Prentice Hall Business

Publishing,

1-49