Accounting Information Systems: An Overview e) Understandable

“The quality of information that enables users to perceive

System its significance.”
 A set of two or more interrelated components that f) Verifiable (consensus notion-2 ppl can get same result)
interact to achieve a goal. “The ability through consensus among measurers to
 It composed of smaller subsystem, performing specific ensure that information represents what it purports to
function important to and supportive of the larger system represent or that the chosen method of measurement has
 Eg, system consists of HR, Accounting, Production, been used without error or bias.”
Sales department and etc. g) Accessible (able to access to info when is needed)
Available when needed (see Timely) and in a useful
Goal Conflict format (see Understandable).
Occurs when components act in their own interest without
regard for overall goal Business process (similar to definition of
system)
Goal Congruence A set of related, coordinated, and
Occurs when components acting in their own Proc
ess1
structured activities and tasks that are
interest contribute toward overall goal performed by a
Goal
Proc
person/computer/machine, and that help
ess2
accomplish a specific organizational
Data vs. Information goal.
 Data are facts that are recorded and stored. (Eg. sales data,
purchasing data, payroll data) A business process cycle consists of:
 Data itself is insufficient for decision making.  Revenue cycle
 Information is processed data used in Goods and services are sold for cash or a future promise
decision making, resolve conflict and to receive cash.
reduce uncertainty  Expenditure cycle
 Too much information however, Companies purchase inventory for resale or raw
will make it more, not less, materials to use in producing products in exchange for
data
difficult to make decisions. This data
cash or a future promise to pay cash.
is known as Information data
 Production cycle
Overload. Raw materials are transformed into finished goods.
Information
 Information overload will reduce  Human Resources
the quality of decisions while the Employees are hired, trained, compensated, evaluated,
cost of producing the promoted, and terminated.
information will increase.  Financing cycle
Companies sell shares in the company to investors and
Value of information borrow money and where investors are paid dividends
Benefits Costs and interest is paid on loans.
 Reduce uncertainty  Time & resources ($)
 Improve decision (use of - Produce information Business Transactions
store data & info, analyse) - Distribute information  Transaction
 Improve planning - Store information Agreement between two entities to exchange goods or
 Improve scheduling services or any other event that can be measured in
economic terms.
*Benefit $ > Cost $*
 Transaction processing (input>process>output)
Characteristics of useful information The process that begins with capturing transaction data
a) Relevant (info must be related; to reduce uncertainty & and ends with informational output
help to predict what will happen)  Give–Get exchanges (in business cycle)
“The capacity of information to make a difference in a Pair of events
decision by helping users to form predictions about the occurring between
outcomes of past, present, and future events or to confirm business activities.
or correct prior expectations.” (exchange smtg in
b) Reliable (dependable) order to get smtg
“The quality of information that assures that information in return)
is reasonably free from error and bias and faithfully
represents what it purports to represent.”
c) Complete (do not leave out anything important)
“The inclusion in reported information of everything
material that is necessary for faithful representation of
the relevant phenomena.”
d) Timely (on time)
“Having information available to a decision maker
before it loses its capacity to influence decisions.”
Accounting Information Systems Role of AIS in the Value Chain
 Is a process of collecting, recording, store, process and  Although “adding value” is a commonly used buzzword,
report data and information for decision making in its genuine sense, it means making the value of the
 If Accounting = language of business, then finished component greater than the sum of its parts.
AIS = information providing vehicle (is a medium to help  It may mean:
you to deliver what is required)  Making it faster
 It can:  Making it more reliable
 Use advanced technology; or  Providing better service or advice
 Be a simple paper-and-pencil system; or  Providing something in limited supply (like O-
 Be something in between. negative blood or rare gems)
 Technology is simply a tool to create, maintain, or  Providing enhanced features
improve a system.  Customizing it
 Information technology can significantly impact the
Components of an AIS efficiency and effectiveness with which the preceding
1. People using the system (user) activities are carried out.
2. Procedures and Instructions  An organization’s value chain can be connected with the
For collecting, processing, and storing data value chains of its customers, suppliers, and distributors.
3. Data (data must be accurate and reliable when data is
enter into the system; related to business activities) Value Chain
4. Software (to process the data)  The set of activities a product or service moves along
5. Information Technology (IT) Infrastructure (hardware) before as output it is sold to a customer (from raw material
Computers, peripherals, networks, and so on to final goods)
6. Internal Control and Security o At each activity the product or service gains value
Safeguard the system and its data (Eg, user ID and  Value is provided by performing a series of activities
password) referred to as the value chain. These include:
o Primary activities
AIS and Business Function  Inbound logistics
 Collect and store data about organizational: (data input) Receiving, storing, and distributing the
 Activities (sales, purchasing, payroll) materials that are inputs to the organization’s
 Resources ($) product or service.
 Personnel (who is the person involve)  Operations
 Transform data into information (processing) Transforming those inputs into products or
 Enables management to plan, execute, control, and services
evaluate activities, resources, and personnel  Outbound logistics
 Provide adequate control to safeguard: Distributing products or services to customers
 Assets and data  Marketing/sales
Helping customer to buy the organization’s
How AIS add value in an organization products or services
 Improve Quality and Reduce Costs (quality control  Service
 , as a monitoring machine. When product falls under acceptable quality Post-sale support provided to customers such
level, it notify the personnel) as repair and maintenance function
 Improve Efficiency (timely info)
 Improve Sharing Knowledge (problem; solution is stored in o Support activities (allow primary activities to be performed
system/ info is accessible between department) efficiently & effectively)
 Improve Supply Chain (manage customer’s inventory; save time  Firm infrastructure
& cost) Accountants, lawyers, and administration.
 Improve Internal Control (protect system from fraud &error) Includes the company’s AIS
 Improve Decision Making (store previous info, analyse data)  Human resources
Involves recruiting and hiring new employees,
Improve Decision Making and paying employees and handling employee
 Decision making involves several steps: benefits
o Identify the problem  Technology
o Collect and interpret information (analyze cause of Activities to improve the products or services
problem) (e.g. R&D, website development)
o Evaluate ways to solve the problem  PurchasingBuying the resources (e.g.
o Select a solution methodology (best solution to solve the materials, inventory, fixed assets) needed to
problem) carry out the entity’s primary activities)
o Implement the solution
 AIS can help improve decision making in several ways:
o Identify situations that require action.
o Provide alternative choices.
o Reduce uncertainty.
o Provide feedback on previous decisions.
o Provide accurate and timely information.
Example:

 For example, the inbound logistics of Pharmaceuticals,

Inc., links to the outbound logistics of its suppliers
 And the outbound logistics of Pharmaceuticals, Inc.,
links to the inbound logistics of its customers
 The linking of these separate value chains creates a larger
system known as a supply chain.
 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
company’s value chain.

AIS and Corporate Strategy

 Organizations have limited resources, thus investments
to AIS should have greatest impact on ROI.
 Organizations need to understand:
a) IT developments
 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
b) Business strategy
 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.
 Example: Predictive data analysis (data
warehousing/mining) adds to competitive
advantage by forecasting future events
based on historical trends
c) Organizational culture
 The AIS design influence the
organization’s culture by controlling the
flow of information within the organization.
 Flattening the hierarchy (bottom level able
to access to data)