Accounting

Information
Systems: An
Overview
The Users of Accounting Information
A. External Users of Accounting Information
B. Internal Users of Accounting Information
C. Mandatory vs. Discretionary Information
External Users of Accounting Information
Investors
Creditors
Stockholders
Customers and Vendors
Government Agencies
Internal Users of Accounting Information
Lower Level
Managers
Middle
Managers
Top-Level
Managers
Information Operational
Control
Management
Control
Strategic
Planning
Source Largely
internal
External
Level
Detailed

Aggregate
Time Horizon Historical Future
Required
Accuracy

High

Low
Mandatory vs. Discretionary Information
Mandatory Information
Certain types of
information must be
generated regardless
of the cost:
Government reports
Payroll
Basic bookkeeping
Evaluation Criteria
For mandatory
information, the primary
concern is minimization
of cost.
In contrast,
discretionary information
should provide greater
benefits than the cost of
generating it.

Information Systems

Accounting Information Systems (AIS)
The term information system suggests the use of
computer technology in an organization
Hardware
Software
Information
System
Data
Information for
Decision Making
Electronic Data Processing
(EDP) or Data Processing (DP)
Use of computer
technology to perform
an organizations
transaction-oriented
data processing. DP
systems serve routine,
recurring, general
information needs.
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.
Transaction Processing Cycles
A. Revenue Cycle
B. Expenditure Cycle
C. Production Cycle
D. Finance Cycle
E. Financial Reporting Cycle
The transaction processing
cycles provide a means of
viewing the activities of a
business.
A. Revenue Cycle
Events related to the
distribution of goods
and services to other
entities and the
collection of related
payments
Expenditure Cycle
Events related to the
acquisition of goods
and services from
other entities and the
settlement of related
obligations.
Production Cycle
Events related to the
transformation of
resources into goods
and services.
Finance Cycle
Events related to the
acquisition and
management of capital
funds, including cash.
The treasurer is
responsible for the
finances of the
business.
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.
The Internal Control Process
A. Definition of Internal Control
B. The Five Elements of the Internal Control
Process
C. Segregation of Accounting Functions
D. The Internal Audit Function
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.
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: managements responsibility and reasonable assurance.
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.
Segregation of Accounting
Functions
Segregate the following
duties:
Authorization
Record keeping
Custody of assets
I kept the
records and
the cash.
Internal Audit Function
Internal auditing is an
independent appraisal
function charged with
monitoring and
assessing compliance
with organizational
policies and
procedures.
Organization Interaction With
Information Systems
A. The Steering Committee
B. End-User Computing
C. Quick-Response Technology
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.
End-User Computing (EUC)
Functional end users do
their own information
processing activities
through an EUC
application such as a
database that uses a
query language feature
to generate specific
information needed by
the end user to make
decisions.
Inadequate system
development May solve
wrong problem or have
poor documentation.
Ineffective use of resources
Underutilized equipment
or inefficient design.
Data integrity and security
problems Inadvertent
alteration of data or
failure to implement
security controls.
Potential EUC Problems
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
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.
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.
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.
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.
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.

Electronic Payment Systems
Electronic funds transfer
(EFT) systems are
electronic payment
systems in which
processing and
communication are
primarily or totally
electronic.