Accounting

Information
Systems: An
Overview
 Presentation Outline
I. The Users of Accounting Information
II. Information Systems
III. Transaction Processing Cycles
IV. The Internal Control Process
V. Organization Interaction with
Information Systems
VI. The Development of Systems
I. The Users of Accounting Information

A. External Users of Accounting Information

B. Internal Users of Accounting Information
C. Mandatory vs. Discretionary Information
A. External Users of Accounting Information

Creditors

Investors

Stockholders

Customers and Vendors

Government Agencies
 B. Internal Users of Accounting Information

Lower Level Middle Top-Level

Managers Managers Managers
Characteristic Operational Management Strategic
of Information Control Control Planning
Source Largely External
internal
Level of
Aggregation Detailed Aggregate
Time Horizon Historical Future
Required
Accuracy High Low
 C. Mandatory vs. Discretionary Information

Mandatory Information Evaluation Criteria

Certain types of  For mandatory
information must be information, the primary
generated regardless concern is minimization
of the cost: of cost.
 In contrast,
 Government reports
discretionary information
 Payroll should provide greater
 Basic bookkeeping benefits than the cost of
generating it.
 II. Information Systems
The term information system suggests the use of
computer technology in an organization
Information
System Information for
Decision Making
Hardware
Data
Software

A. Electronic Data Processing (EDP) or Data Processing (DP)

B. Management Information Systems (MIS)
C. Decision Support Systems (DSS)
D. Expert Systems (ES)
E. Executive Information Systems (EIS)
F. Accounting Information Systems (AIS)
 A. Electronic Data Processing
(EDP) or Data Processing (DP)
Use of computer
technology to perform
an organization’s
transaction-oriented
data processing. DP
systems serve routine,
recurring, general
information needs.
 B. Management Information Systems
(MIS)
Use of computer technology to
provide managers with
decision-oriented information
beyond what a normal DP
system provides. Subsystems
include:
 Marketing information system
 Manufacturing information
system
 Human resource information
system
 Financial information system

Functional MIS subsystems provide a logical rather than physical

way of implementing the MIS concept in organizations.
C. Decision Support Systems
(DSS)
Processes data into a decision
making format for end
users. Decision support
systems (DSS’s) process
nonroutine information
requests on an ad hoc
basis. Requires the use of
decision models and
specialized databases
beyond what is in a DP
system.
 D. Expert Systems (ES)
Emulates an experts decision I know
making process to provide a the
decision. Different from DSS answer
which only provides .
information for making a
decision. Two components of
the ES are as follows:
 Knowledge base – special
knowledge that an expert
possesses in the decision area.
 Inference engine – process by
which expert makes the
decision.
 E. Executive Information System
(EIS)
 Executive information
systems tailor
information to the
strategic needs of top-
level management.
 Much of the information Which
used by top-level direction?
management comes from
sources outside the
organizations
information system. (i.e.,
meetings, memos,
television, periodicals,
and social activities).
F. Accounting Information
Systems (AIS)
 A computer-based
system designed to
transform accounting
data into information.
 Can also include
transactions
processing cycles, the
use of information
technology, and the
development of
information systems.
III. Transaction Processing Cycles
The transaction processing
cycles provide a means of
viewing the activities of a
business.

A. Revenue Cycle
B. Expenditure Cycle
C. Production Cycle
D. Finance Cycle
E. Financial Reporting Cycle
 A. Revenue Cycle

Events related to the

distribution of goods
and services to other
entities and the
collection of related
payments
B. Expenditure Cycle

Events related to the

acquisition of goods
and services from
other entities and the
settlement of related
obligations.
 C. Production Cycle

Events related to the

transformation of
resources into goods
and services.
D. Finance Cycle

Events related to the

acquisition and
management of capital
funds, including cash.
The treasurer is
responsible for the
finances of the
business.
 E. Financial Reporting Cycle
 Not an operating cycle
 This cycle obtains
accounting and operating
data from other cycles and
processes this data so that
financial reports can be
prepared.
 A controller is in charge
of the accounting
function.
IV. The Internal Control Process
Since management is far removed from the scene of
operations in a large organization, personal
supervision of employees is often replaced with
various control techniques.

A.Definition of Internal Control

B. The Five Elements of the Internal Control
Process
C. Segregation of Accounting Functions
D. The Internal Audit Function
 A. Definition of Internal Control
Internal control is a process
designed to provide reasonable
assurance regarding the
achievement of objectives
relating to:
 Reliability of financial
reporting
 Effectiveness and efficiency of
operations
 Compliance with applicable
laws and regulations

The concept of internal control structure is based on two major

premises: management’s responsibility and reasonable assurance.
B. Five Elements of the Internal
Control Process
 Control environment – Overall values and integrity of
organization.
 Risk assessment – Identification and evaluation of risks
(Potential loss x Probability = Exposure).
 Control activities – Activities undertaken to reduce
probability of loss due to significant risks.
 Information and communication – Communicating
information about the control environment and control
activities.
 Monitoring – Keeping watch over and changing
internal controls so that they function effectively and
efficiently.
 C. Segregation of Accounting
Functions I kept the
records and
the cash.
Segregate the following
duties:
Authorization
Record keeping
Custody of assets
D. Internal Audit Function

Internal auditing is an
independent appraisal
function charged with
monitoring and
assessing compliance
with organizational
policies and
procedures.
V. Organization Interaction With
Information Systems
A. The Steering Committee
B. End-User Computing
C. Quick-Response Technology
A. The Steering Committee
A committee advising the
Chief Information
Officer that is
composed of high-level
members of user
functions such as
manufacturing and
marketing. The
committee provides a
means by which
managers from other
areas can influence the
information services
process.
 B. End-User Computing (EUC)
Functional end users do Potential EUC Problems
their own information  Inadequate system
processing activities development – May solve
through an EUC wrong problem or have
application such as a poor documentation.
database that uses a  Ineffective use of resources
query language feature – Underutilized equipment
to generate specific or inefficient design.
 Data integrity and security
information needed by
problems – Inadvertent
the end user to make alteration of data or
decisions. (See Fig. failure to implement
1.7 on p. 13) security controls.

See contrast to traditional approach in Figure 1.8 on page 14.

C. Quick-Response Technology

1. Just-In-Time
2. Web Commerce
3. Electronic Data Interchange
4. Extensible Business Reporting Language
5. Computer Integrated Manufacturing
6. Electronic Payment Systems
1. Just-in-Time

Purchase orders for

inventory items are
made on a “demand-
pull” basis rather than
a fixed interval “push”
basis to restock store
inventory levels.
Adds flexibility to
meet customer needs
and reduces product
rework.
 2. Web Commerce
 Provides worldwide
availability of
products on a single
computer.
 Specially trained
CPAs offer the Web
Trust seal to sites that
meet certain security
and privacy criteria.
 3. Electronic Data Interchange

Electronic data interchange (EDI) is the direct

computer-to-computer exchange of business
documents via a communications network. EDI
differs from e-mail in that EDI messages are created
and interpreted by computers without human
intervention. Also makes use of universal product
code (UPC) bar code. (See Fig. 1.10 on p. 15)
 4. Extensible Business Reporting
Language

Extensible Business Reporting Language (XBRL) is

a language that facilitates the exchange over the
Internet of all kinds of business documents and
financial statements. The SEC permits companies
to file their financial reports electronically using
XBRL format.
5. Computer-Integrated
Manufacturing (CIM)
 Components of CIM
typically include
computer-aided design
(CAD) workstations, real-
time production
monitoring and control
systems, and order
inventory and control
systems.
 Makes use of scanner
technology and machine-
readable bar codes.
 6. Electronic Payment Systems
Electronic funds transfer
(EFT) systems are
electronic payment
systems in which
processing and
communication are
primarily or totally
electronic.
VI. The Development of Systems

A. Blueprinting
B. Systems Development
C. Behavioral Considerations
A. Blueprinting

The company uses

generic or industry
standard stock
blueprints rather than
designing its own
system.
 B. Systems Development
A systems development project ordinarily consists of three
phases: systems analysis, systems design, systems
implementation. The procedure attempts of improve
information quality, internal control, and minimize cost.
The systems approach consists of six steps:
The Result of Poor
1. Statement of system
Systems
objective(s)
Development
2. Creation of
alternatives
3. Systems analysis
4. Systems design
5. Systems
implementation
6. Systems evaluation
 C. Behavioral Considerations
 The users of systems
should be included
throughout the steps of
systems development.
 Users provide valuable
input into what is
needed and must
accept the system that
is developed.
 Summary
I. Five Types of Information Systems
II. Five Transaction Processing Cycles
III. The Internal Control Process
IV. Steering Committee and EUC
V. Quick-Response Technology
VI. The Steps of Systems Development