Accounting Information Systems: An Overview

1. Accounting Information Systems: An Overview Professor Martin Professor Xiong CSUS This lecture is based primarily on Romney & Steinbart(2003). It also draws on Martin (2002). Updated on: Monday, January 27, 2003

2. Agenda • The Accounting Information System (AIS) • Why study AIS? • The Role of AIS In the Value Chain

3. What is information System? • 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.

4. Components of AIS • People • Procedures • Data • Software • Information technology

5. AIS Functions • Collect and store data about activities and transactions • Transaction Processing Systems (TPS) • Process data into information useful for making decisions • Provide adequate controls to safeguard organization’s assets

6. Management Science • Behavioral & Organizational Science • Supply Chain • Computer Science MANAGEMENT INFORMATION SYSTEMS Distinguishing Feature = Transaction Processing for Accountability Purposes ACCOUNTING INFORMATION SYSTEMS • Financial Reporting • Managerial Decision Making • Auditing & Control • Taxation ACCOUNTING Extending the Scope of AIS Source: JIS editorial, 1989

7. cookie Exchange or Transformation cash BUSINESS PROCESS DEFINITION: A business process is a set of activities that takes one or more types of inputs and turns them into an output of greater value to the customer (Hammer)

8. $$ $$ Cash payment Cash payment $$ raw materials $$ payment purchase logistical operation shipment labor labor labor acquire payment $$ manufactured goods facilities, services & technology labor material issue manufacture job manufacture operation service acquire payment sale payment labor $$ service operation service contract product services delivered raw materials $$ delivered manufactured goods Example Value Chain (source, make, deliver) _______ ______ ______ Source: ebXML BP Catalog

9. $$ $$ Cash receipt Cash paymnt $$ raw materials $$ payment purchase logistical operation shipment labor labor labor acquire payment $$ manufactured goods facilities, services & technology labor material issue manufacture job manufacture operation service acquire payment sale cash rec labor $$ service operation service contract product services financing procurement transportation human resources delivered raw materials $$ manufacturing delivered manufactured goods procurement EXPLODE marketing & sales customer service Example Value Chain (per Porter and SCOR) Source: ebXML BP Catalog

10. AIS Subsystems • Expenditure cycle: buying and paying for goods or services used by organization • Production cycle: converting raw materials and labor into finished goods • Human resources/payroll cycle: hiring and paying employees

11. AIS Subsystems • Revenue cycle: selling goods or services and collecting payment • Financing cycle: obtaining necessary funds to • run organization • repay creditors • distribute profits to investors

12. Funds Funds Cash Labor Finished Goods Data AIS Subsystems Financing Expendi- ture Human Resources Raw Materials General Ledger Produc- tion Revenue

13. Agenda • The Accounting Information System (AIS) • Why Study AIS? • The Role of AIS in the Value Chain

14. 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.

15. 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

16. 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.

17. 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.

18. Long-term strategic planning Managing the accounting and finance function Accounting systems and financial reporting Internal consulting 5. Short-term budgeting 6. Process improvement 7. Computer systems and operations 8. Performance evaluation 9. Customer and product profitability analyses Ten Most Important Activities Performed By Accountants

19. Factors InfluencingDesign of the AIS Organizational Culture Strategy AIS Information Technology

20. Technology and the Accounting Curriculum Responses from 151 universities and 62 firms ( survey by Hastings et al. (2002) 5 areas out of 14 are seen by % of respondents as needing coverage to 3 weeks or more • Excel (80%) • Access (74%) • E-Business Concepts (61%) • System Security (52%) • Business Process Analysis (66%)

21. CITP Designation • Certified Information Technology Professional (CITP) • 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

22. CISA • Certified Information Systems Auditor-Newest Designation

23. Agenda • The Accounting Information System (AIS) • Why Study AIS? • The Role of AIS in the Value Chain

24. The Value Chain • Value chain consists of 9 interrelated activities • 5 primary activities consist of: • receiving and storing materials, manufacturing, marketing, and delivering products / services to customers • providing post-sales services and support • 4 support activities

25. Firm Infrastructure Human Resource Management Technology Development Inbound Logistics Operations Service Outbound Logistics Marketing / Sales Porter’s Value Chain Model Support Activities Profit Procurement Margin Primary Activities

26. The Value System • Value chain concept can be extended by recognizing that organizations must interact with suppliers, distributors, and customers • An organization’s value chain and value chains of its suppliers, distributors, and customers collectively form a value system

27. Demand Deliveries Orders E-Commerce Bypass Customer Supply Chain Retailer Wholesaler Distributor Manufacturer

28. How AIS Adds Value • An AIS adds value by: • providing accurate and timely information to perform various value chain activities • improving efficiency and effectiveness of value chain activities

29. Information • Data : facts collected, stored, and processed by information system • Information: data organized and processed so it is meaningful • for business decision making

30. Information and Decision Making Characteristics of Useful Information Relevant Timely Reliable Understandable Complete Verifiable Useable

31. Value of Information • Value of information • benefit produced by information • minus cost of producing it.

32. Topics Discussed • The Accounting Information System (AIS) • Why Study AIS? • The value of AIS