Accounting Information Systems: 9 Edition

Accounting
Information
Systems
9th Edition
Marshall B. Romney
Paul John Steinbart
©2003 Prentice Hall Business Publishing, 1-1

Accounting Information Systems, 9/e, Romney/Steinbart
Accounting Information
Systems: An Overview
Chapter 1

Learning Objectives
1. Explain what an accounting information
system (AIS) is and describe the basic
functions it performs.
2. Discuss why studying the design and
management of an AIS is important.
3. Explain the role played by the AIS in a
company’s value chain and discuss ways that
the AIS can add value to a business.
4. Describe and contrast the basic strategies
and strategic positions that a business can
adopt.

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.

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

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

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
organization’s value chain.
 It describes and contrasts the basic
strategies that a business can pursue.
Learning Objective 1
Explain what an accounting

information system (AIS) is and
describe the basic functions it
performs.

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
What Is An AIS?
 What important functions does the AIS
perform in an organization?
1 It collects and stores data about
activities and transactions.
2 It processes data into information that
is useful for making decisions.
3 It provides adequate controls to
safeguard the organization’s assets.

 Discuss why studying the

design and management
of an AIS is important.

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.

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

Why Study AIS?
 To understand how the accounting
system works.
 How to collect data about an organization’s
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

Why Study AIS?
 Auditors need to understand the

systems that are used to produce a
company’s financial statements.
 Tax professionals need to understand
enough about the client’s AIS to be
confident that the information used for
tax planning and compliance work is
complete and accurate.

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.
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 long-
term strategic planning.

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 AICPA’s recognition of the
importance and interrelationship of IT
with accounting
Ten Most Important Activities
Performed By Accountants
1. Accounting systems 6. Financial and
and financial reporting economic analyses
2. Long-term strategic 7. Process improvement
planning 8. Computer systems
3. Managing the and operations
accounting and 9. Performance
finance function evaluation
4. Internal Consulting 10. Customer and product
5. Short-term budgeting profitability analyses

Factors Influencing
Design of the AIS
Organizational
Strategy
Culture
AIS
Information
Technology

 Explain the role played by the AIS in a

company’s value chain and discuss
ways that the AIS can add value to a
business.

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.

The Value Chain
 An organization’s 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.

The Value Chain
Primary Activities
Inbound Outbound
Operations
Logistics Logistics
Marketing
Service
and Sales
The Value Chain
 The four support activities in the value

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

The Value Chain
Support Activities
Infrastructure Technology
Human
Purchasing
Resources
The Value System
 The value chain concept can be

extended by recognizing that
organizations must interact with
suppliers, distributors, and customers.
 An organization’s value chain and the
value chains of its suppliers,
distributors, and customers
collectively form a value system.

The Supply Chain
Raw Materials
Supplier
Manufacturer
Distributor
Retailer
Consumer

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.

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.

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.
Data Needs For Activities
Generic Example Agent
Resource Event
Agent
Sales Transaction Customer
Inventory Sale
Sales
Payment to Supplier
Cashier
Cash Payment
Supplier
Information and Decision
Making
Characteristics of Useful Information
Relevant Timely
Reliable Understandable
Complete Verifiable
Information and
Decision Making
 What is decision making? Decision
making involves the following steps:
1. Identify the problem.
2. Select a method for solving the problem.
3. Collect data needed to execute the decision
model.
4. Interpret the outputs of the model.
5. Evaluate the merits of each alternative.
6. Choose and execute the preferred solution.

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

Decision Structure
 Structured decisions are repetitive,

routine, and understood well enough
that they can be delegated to lower-
level employees in the organization.
 An example is:
 Extending credit to customers.

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.

Decision Structure
 Unstructured decisions are

nonrecurring and nonroutine.
 An example is:
 Choosing the cover for a

magazine.

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.

 Describe and contrast the basic

strategies and strategic positions that a
business can adopt.

 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?

 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.
 Because an AIS functions within an
organization, it should be designed to
reflect the values of that organizational
culture.

Strategy and
Strategic Positions
Two Basic Strategies
To be a lower-cost producer than competitors
To differentiate products and services

from competitors

Strategy and
Strategic Positions
Three Basic Strategic Positions
Variety-based strategic position
Need-based strategic position
Access-based strategic position

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

What is the Value
of Information?
 The value of information is the benefit
produced by the information minus the
cost of producing it.

The Role of the AIS
 The Internet makes strategy more
important than ever
 Enterprise resource planning (ERP)
systems integrate all aspects of a
company’s operations with its traditional
AIS.
 The key feature of ERP systems is the
integration of financial data and other
nonfinancial operating data.

End of Chapter 1


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Accounting

©2003 Prentice Hall Business Publishing, 1-1

©2003 Prentice Hall Business Publishing, 1-2

©2003 Prentice Hall Business Publishing, 1-3

 Scott Parry and Susan Gonzalez form

©2003 Prentice Hall Business Publishing, 1-4

©2003 Prentice Hall Business Publishing, 1-5

©2003 Prentice Hall Business Publishing, 1-6

 This chapter defines an accounting

Explain what an accounting

©2003 Prentice Hall Business Publishing, 1-8

©2003 Prentice Hall Business Publishing, 1-10

 Discuss why studying the

©2003 Prentice Hall Business Publishing, 1-11

 In Statement of Financial Accounting

©2003 Prentice Hall Business Publishing, 1-12

©2003 Prentice Hall Business Publishing, 1-13

©2003 Prentice Hall Business Publishing, 1-14

 Auditors need to understand the

©2003 Prentice Hall Business Publishing, 1-15

©2003 Prentice Hall Business Publishing, 1-17

©2003 Prentice Hall Business Publishing, 1-19

©2003 Prentice Hall Business Publishing, 1-20

 Explain the role played by the AIS in a

©2003 Prentice Hall Business Publishing, 1-21

 The ultimate goal of any business is to

©2003 Prentice Hall Business Publishing, 1-22

 An organization’s value chain consists of

©2003 Prentice Hall Business Publishing, 1-23

 The four support activities in the value

©2003 Prentice Hall Business Publishing, 1-25

 The value chain concept can be

©2003 Prentice Hall Business Publishing, 1-27

©2003 Prentice Hall Business Publishing, 1-28

©2003 Prentice Hall Business Publishing, 1-29

A well-designed AIS can also help an

©2003 Prentice Hall Business Publishing, 1-30

©2003 Prentice Hall Business Publishing, 1-34

©2003 Prentice Hall Business Publishing, 1-35

 Structured decisions are repetitive,

©2003 Prentice Hall Business Publishing, 1-36

 Semistructured decisions are

©2003 Prentice Hall Business Publishing, 1-37

 Unstructured decisions are

 Choosing the cover for a

©2003 Prentice Hall Business Publishing, 1-38

©2003 Prentice Hall Business Publishing, 1-39

 Describe and contrast the basic

©2003 Prentice Hall Business Publishing, 1-40

©2003 Prentice Hall Business Publishing, 1-41

©2003 Prentice Hall Business Publishing, 1-43

To be a lower-cost producer than competitors

To differentiate products and services

©2003 Prentice Hall Business Publishing, 1-44

Variety-based strategic position

Need-based strategic position

Access-based strategic position

©2003 Prentice Hall Business Publishing, 1-46

©2003 Prentice Hall Business Publishing, 1-47

©2003 Prentice Hall Business Publishing, 1-48

©2003 Prentice Hall Business Publishing, 1-49

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