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Criticisms of the Traditional Accounting System Architecture and a Solution

Slides 2. Criticisms of the Traditional Accounting System Architecture and a Solution. Criticisms of Traditional Accounting Systems. There are non-integrated systems in an organization

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Criticisms of the Traditional Accounting System Architecture and a Solution

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  1. Slides 2 Criticisms of the Traditional Accounting System Architecture and a Solution

  2. Criticisms of Traditional Accounting Systems • There are non-integrated systems in an organization • The architecture captures data about a subset of an organization's business events (the accounting transactions) - FILTERED • The architecture stores and processes only a limited number of characteristics about these accounting transactions – FILTERED EVEN MORE • The architecture captures and stores duplicate data in a highly summarized form - AGGREGATED • The architecture stores financial data to satisfy one primary view - ACCOUNTANT’S PERSPECTIVE • Data are not recorded and processed in real-time

  3. Accounting Data: A Subset of Business Data (Limited view & limited data) Data that describes Business Events Accounting Data Business Events Accountants filter data General Ledger Limited Output: Views & Formats

  4. Evolution Of AIS Stage 1 Stage 2 Stage 3 Manual Systems Automated Systems Resources: Information Technology Process: Accounting Cycle Data Stores (Flat-Files): Journals & Ledgers Resources: Manual Process: Accounting Cycle Data Stores (Files): Journals & Ledgers ? Objective: Generate financial statements Objective: Generate financial statements

  5. The solution: An event-driven, enterprise-wide information system, sitting on top of a relational database management system

  6. Evolution Of AIS Stage 1 Stage 2 Stage 3 Manual Systems Automated Systems Event-Driven, Enterprise- Wide IT Applications Resources: Information Technology Process: Accounting Cycle Data Stores (Flat-Files): Journals & Ledgers Resources: Information Technology Process: Record, Maintain, Report All Business Event Data of Interest Data Stores (Tables): RBMS Resources: Manual Process: Accounting Cycle Data Stores (Files): Journals & Ledgers Objective: Generate financial statements Objective: Generate financial statements Objective: Support Planning, Executing, Control And Evaluation Activities (PEACE)

  7. Source: Hollander, Denna & Cherrington, 2000 (adapted) Customers Suppliers Requestinput resources Pay for input resources Supply goods and services Receive payment ORGANIZATION AMP Processes ConversionProcesses MSC Processes Provides Finished Goods and Services Provides Input of Resources to Organization Activity Models:Template for Decomposition of Business Processes (IPSO template) Add value Data Storage and Retrieval: Relational Database Management System

  8. Creating Value Organizations add value by converting resources to develop and provide the goods and services that customers desire.

  9. Types of High-Level Business Processes • Acquisition/ Maintenance /Payment Processes - (AMP) - acquire, maintain, and pay for resources needed (e.g. labor, finance, fixed assets, raw materials, supplies, research & development) to provide goods and services. • Conversion Processes - adding value; converting the resources into goods and services for customers. • Marketing/Sales/Collection Processes (MSC) – marketing, delivering goods and services to customers, and collecting payment.

  10. Traditional Accounting “Stovepipe” Systems

  11. What is a process? A process is group of related business events intended to accomplishthe strategic objectives of the enterprise Business event (often used synonymous with business activity): an activity performed by the business, e.g., “take customer order” (Hint:Each event should contain at least a verb and a noun)

  12. Business Processes and Events Place TV ad Take customer order Collect payment Ship goods Business Process: MSC

  13. Managing Business and Information Processes (PEACE) Should Do Do Feedback Control; Evaluate Plan Execute And Trigger Measures Business Rules Business Processes Information System Data Record Data & Convert to Information How to Value Add

  14. P - Plan Planningrequires leaders to define the business objectives, to prioritize business processes, and to provide a blueprint for achieving the objectives. They must identify opportunities available to the organization as well as assess the risk associated with each opportunity.

  15. E - Execute Managers executetheir plan by dividing business processes into smaller activities, assigning people to perform each activity, and motivating them to do a good job. A clearly defined plan increases the likelihood of proper execution. A - And

  16. C - Control Control is exercised by reviewing the results of an activity or an entire business process to see if they are consistent with expectations. The review may cause a change in expectations or a change in the way an activity or a process is performed to bring the actual results in line with expectations.

  17. E - Evaluate Periodically, managers evaluate the operating results to see if the business processes are achieving the organization's objectives. The results of the evaluation are used to modify the plans, objectives, and expectations.

  18. Business Processes Management Activities Manage Business Processes AMP Processes Plan Capture Data Execute & ConversionProcesses Provide Reports Control MSC Processes Evaluate Manage Business Processes Relationship between Business Processes, Information Processes and Management Activities Information System RDMS: Data Source: Hollander, Denna & Cherrington, 2000

  19. Managing Organizations:Business & Information Processes • PEACE (Management) • Plan • Execute, And • Control • Evaluate • Business Processes • AMP: Acquire, Maintain, Pay for Business Resources • Convert: Add value, particularly unique to organization • MSC: Market, Sell goods/services, Collect payment • Information Processes • Record, Maintain, Report

  20. Modeling A Business Cash Disbursements Cash Receipts $ $ “Suppliers” Enterprise Customers AMP: Raw Materials, Supplies, Labor, Finance, Fixed assets MSC: Marketing Sales Collection Convert: Operations Job Costing

  21. How Can Accountants Add Value In The Information Age? • Provide useful information for decision makers who are responsible for planning, executing, controlling or evaluating activities of an organization • Help embed information processes in the business processes (to capture and store data about the processes in real time) • Help embed controls in the business processes • Help management define business rules or policies that shape the nature of its business processes

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