Chapter 1-1

Introduction to AIS
Chapter 1-2

Accounting Information Systems, 1st Edition

Study Objectives
1. 2. An overview of business processes An overview of an accounting information system

3.
4. 5.

The business process linkage throughout the supply chain

The IT enablement of business processes Basic computer and IT concepts

6.
7. 8. 9.
Chapter 1-3

Examples of IT enablement
The internal control structure of organizations The importance of accounting information systems to accountants The relation of ethics to accounting information systems

An Introduction To Business Processes

Accounting Information System must identify
Transactions to record,
Capture all details,

Properly process into correct accounts, and

Provide reports externally and internally.

Chapter 1-4

SO 1 An overview of business processes

An Introduction To Business Processes

Business Process - a sequence of work steps
performed in order to produce a desired result.
Examples: Completing a sale Purchasing raw materials Paying employees

Paying vendors

Chapter 1-5

SO 1 An overview of business processes

An Introduction To Business Processes

Four general types of business processes:
1. Revenue Processes (Chapter 8)
a. Sales b. Sales return

c. Cash collection

Chapter 1-6

SO 1 An overview of business processes

An Introduction To Business Processes

Four general types of business processes:
2. Expenditure Processes (Chapters 9 and 10)
a. Purchase b. Purchase return

c. Cash disbursement
d. Payroll

e. Fixed asset
Chapter 1-7

SO 1 An overview of business processes

An Introduction To Business Processes

Four general types of business processes:
3. Conversion Processes (Chapter 11)
a. Planning b. Resource management

c. Logistics

Chapter 1-8

SO 1 An overview of business processes

An Introduction To Business Processes

Four general types of business processes:
4. Administrative Processes (Chapter 12)
a. Capital b. Investment

c. General ledger

Chapter 1-9

SO 1 An overview of business processes

An Introduction To Business Processes

Internal controls are the set of procedures and policies adopted to:

1. safeguard assets,
2. check accuracy and reliability of data, 3. promote operational efficiency, and 4. encourage adherence to prescribed managerial practices.

Chapter 1-10

SO 1 An overview of business processes

An Introduction To Business Processes

Quick Review
When a customer returns goods that were purchased, the business process to accept the return would most likely be a(n) a. administrative process b. conversion process c. expenditure process
1. Revenue Processes a. Sales b. Sales return c. Cash collection
SO 1 An overview of business processes

d. revenue process
Chapter 1-11

The Accounting Information System

Various Business Processes
Exhibit 1-1

Chapter 1-12

SO 2 An overview of an accounting information system

The Accounting Information System

Quick Review
Which of the following is least likely to be an output of the accounting information system? a. a check b. a report c. an invoice d. a bar code
A bar code is usually an input to the accounting information system.

Chapter 1-13

SO 2 An overview of an accounting information system

Business Processes Throughout The Supply Chain

Supply Chain - processes and information flows that
involve the movement of materials, funds, and related information through the full logistics process, from the acquisition of raw materials to the delivery of finished products to the end user.

The supply chain includes all:

Vendors Service providers

Customers
Intermediaries

Chapter 1-14

SO 3 The business process linkage throughout the supply chain

Business Processes Throughout The Supply Chain

A simplified Supply Chain for McDonalds
Exhibit 1-2

Chapter 1-15

SO 3 The business process linkage throughout the supply chain

Business Processes Throughout The Supply Chain

Quick Review
Which of the following is not true of the supply chain? a. The supply chain includes vendors. b. The supply chain excludes customers. c. The supply chain includes information flows. d. The supply chain includes secondary suppliers.

Chapter 1-16

SO 3 The business process linkage throughout the supply chain

IT Enablement of Processes and the AIS

Information Technology - Computers, ancillary
equipment, software, services, and related resources as applied to support business processes.

IT Enablement - Using IT systems to enhance

efficiency and effectiveness of internal or supply chain processes.

Chapter 1-17

SO 4 The IT enablement of business processes

IT Enablement of Processes and the AIS

IT usage accomplishes one or more of the following objectives:

1. Increased efficiency of business processes

2. Reduced cost of business processes 3. Increased accuracy of the data related to business processes Business Process Reengineering (BPR) is the purposeful and organized changing of business processes to make them more efficient.
Chapter 1-18

SO 4 The IT enablement of business processes

IT Enablement of Processes and the AIS

Quick Review
Which of the following is not an objective of IT enablement? a. increased accuracy of data b. reduced cost c. reduced security problems d. increased efficiency

Chapter 1-19

SO 4 The IT enablement of business processes

Basic Computer and IT Concepts

Basic Computer Data Structures
Data hierarchy: 1. Bit, or binary digit 2. Byte 3. Field 4. Record 5. File 6. Database
Chapter 1-20

Smallest unit Values = zero or one One character Eight bits One item within record Example - last name Set of related fields Example employee #, name, pay rate, etc. Set of related records Entire collection of files
SO 5 Basic computer and IT concepts

Basic Computer and IT Concepts

Quick Review
The correct order of the computer data hierarchy is a. byte, bit, record, field, file, database b. bit, byte, record, field, file, database c. bit, byte, field, record, file, database

d. bit, byte, field, record, database, file

Chapter 1-21

SO 5 Basic computer and IT concepts

Basic Computer and IT Concepts

Relational Database
Example - relationship in data of a customer having more than one order.

Master File

Example - payroll master file maintains the relatively permanent data to process payroll transactions. Example - transaction file is processed against the master file, and year-to-date balances are updated in the master file.
SO 5 Basic computer and IT concepts

Transaction File
Chapter 1-22

Basic Computer and IT Concepts

File Access and Processing Modes
Sequential access Random access Indexed Sequential Access Method (ISAM) Batch processing Online processing

Real-time processing

Chapter 1-23

SO 5 Basic computer and IT concepts

Basic Computer and IT Concepts

Data Warehouse and Data Mining
Data warehouse Operational database Data mining

Chapter 1-24

SO 5 Basic computer and IT concepts

Basic Computer and IT Concepts

Quick Review
The process of searching for identifiable patterns in data is called a. sequential processing b. data warehousing c. data mining d. real-time processing

Chapter 1-25

SO 5 Basic computer and IT concepts

Basic Computer and IT Concepts

Networks and the Internet
Network (two or more computers linked together)
Types important to accounting: Local Area Network (LAN) Internet Extranet

Intranet

Chapter 1-26

SO 5 Basic computer and IT concepts

Examples of IT Enablement
E-Business
Encompasses all forms of: Online electronic trading

Consumer-based e-commerce
Business-to-business electronic trading Business-to-business process integration Internal use of IT
Examples, buying: a book at Amazon.com clothes at Landsend.com
SO 6 Examples of IT enablement

Chapter 1-27

Examples of IT Enablement
Electronic Data Interchange
The intercompany, computer-to-computer transfer of business documents in a standard business format. Example: Transmit purchase orders, invoices, and
payments electronically between trading partners.

Chapter 1-28

SO 6 Examples of IT enablement

Examples of IT Enablement
Point of Sale System
A system of hardware and software that captures retail sales transactions by standard bar coding. Example: Customer

checks out through the cash register, bar codes are scanned on the items purchased, prices are determined by access to inventory and price list data, sales revenue is recorded, and inventory values are updated.
SO 6 Examples of IT enablement

Chapter 1-29

Examples of IT Enablement
Automated Matching
A computer system in which the software matches an invoice to its related purchase order and receiving report. Example: Ford Motor Company described in text
illustrated an automated matching system.

Chapter 1-30

SO 6 Examples of IT enablement

Examples of IT Enablement
Evaluated Receipt Settlement (ERS)
An invoice-less system in which computer software completes an invoice-less match that is a comparison of the purchase order with the goods received.

E-Payables and Electronic Invoice Presentment and Payment (EIPP)

Web-enabled receipt and payment of vendor invoices.
Chapter 1-31

SO 6 Examples of IT enablement

Examples of IT Enablement
Enterprise Resource Planning Systems (ERP)
Multi-module software system designed to manage all aspects of an enterprise. Usually broken down into modules such as financials, sales, purchasing, inventory management, manufacturing, and human resources.

Chapter 1-32

SO 6 Examples of IT enablement

Examples of IT Enablement

Quick Review
An IT enabled system for purchasing that is an invoice-less system is called a(n) a. automated matching system b. evaluated receipt settlement c. e-payables d. point of sale system

Chapter 1-33

SO 6 Examples of IT enablement

The Control Environment of Organizations

Risks that impact financial standing:
1. Assets will be stolen or misused
2. Errors in accounting data or information 3. Fraudulent activity 4. Risks inherent in IT systems, such as
a. Erroneous input of data b. Erroneous processing of data c. Computer fraud

d. Computer security breaches

e. Hardware or software failure f. Natural disasters
Chapter 1-34

SO 7 The internal control structure of organizations

The Control Environment of Organizations

Enterprise Risk Management (ERM)
ERM is defined as
. . . a process, effected by an entitys board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

Chapter 1-35

SO 7 The internal control structure of organizations

The Control Environment of Organizations

Enterprise Risk Management (ERM)
Requires management set policies and procedures related to:
Internal Environment Objective Setting

Event Identification
Risk Assessment Risk Response Control Activities Information and Communication Monitoring
Chapter 1-36

SO 7 The internal control structure of organizations

The Control Environment of Organizations

Enterprise Risk Management (ERM)
Management should ensure the following types of control structures exist:
1. Code of ethics (Chapter 3) 2. COSO accounting internal control structure (Chapter 3) 3. IT system control structure (Chapter 4) 4. Corporate governance structure (Chapter 5) 5. IT governance structure (Chapter 6)

Chapter 1-37

SO 7 The internal control structure of organizations

The Control Environment of Organizations

Quick Review
The COSO report written for the purpose of assisting managers in the challenge of managing risk in their organizations is entitled a. Internal ControlsIntegrated Framework b. Enterprise Risk ManagementIntegrated Framework c. Corporate Governance d. IT Governance
Chapter 1-38

SO 7 The internal control structure of organizations

The Accountants Role in AIS

Accountants may be

users of the AIS,

part of the design or implementation team of an AIS, and/or

auditors of an AIS.

Chapter 1-39

SO 8 The importance of accounting information systems to accountants

The Accountants Role in AIS

Quick Review
Accountants have some form of use of the AIS in all but which role? a. user b. programmer c. auditor d. designer

Chapter 1-40

SO 8 The importance of accounting information systems to accountants

Ethics and the AIS

Examples of potential unethical behaviors:
Fraudulent financial reporting
Revenue inflation Expense account fraud

Inflating hours worked for payroll purposes

Computer fraud Hacking

Browsing confidential data

Chapter 1-41

SO 9 The relation of ethics to accounting information systems

Ethics and the AIS

Quick Review
Which of the following is not true of unethical behavior?
a. The only category of unethical behavior for accountants is inflating revenue. b. Accountants are often pressured to help commit or cover up unethical behavior. c. Hacking is an unethical behavior that accountants should be concerned about. d. An accounting information system can be used to cover up unethical behavior.
Chapter 1-42

SO 9 The relation of ethics to accounting information systems

Copyright
Copyright 2008 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

Chapter 1-43