Chapter 1 The Information System: An Accountants Perspective The Information environment: Information as a business resource.

Operations management is directly responsible for controlling day-to-day operations. Middle management is accountable for the short-term planning and coordination of activities necessary to accomplish organizational objectives. Top management is responsible for longer-term planning and setting organizational obejectives. Information flow within the organization. Operation personnel require highly detailed information. Management require information that is summarized and oriented towards reporting on overall performance and problems rather than routine operations. The information must identify potential problems in time for management to take corrective action. External stakeholders require financial statement information, based on generally accepted accounting principles that is accrual based and far too aggregated for most internal uses. System and Its Elements A system is a group of two ir more interrelated components or subsystems that serve a common purpose. Natural and artificial Multiple Components Relatedness System Versus Subsystem Purpose System Decomposition. The process of dividing the system into smaller subsystem parts. A convenient way of representing, viewing and understanding the relationships among subsystems System Interdependency. A systems ability to achieve its goal depends upon the effective functioning and harmonious interaction of its subsystems. The a defective vital subsystem cause the entire system to fail utterly. AIS vs. MIS Information system is the set of formal procedures by which data are collected , process into information, and distributed to users. Transaction is an event that affects or is of interest to the organization and that is processed by its information system as a unit of work. (The input accepted by the information system.) Financial transaction is an economic event that affects the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms. Nonfinancial transactions include all events processed by the organizations information system that do not meet the narrow definition of a financial transaction.

Accounting Information System process financial transactions and nonfinancial transactions that directly affect the processing of financial transactions. AIS is compised of 3 major subsystems. 1. the transaction processing system, 2. the general ledger/financial reporting system and 3. the management reporting system. Management Information System processes nonfinancial transactions that are not normally processed by traditional AIS. Legal and professional standards clearly distinguish the AIS from MIS. AIS subsystems Transaction Processing System is central to the overall function of the information system by converting economic events into financial transactions, recording financial transactions in the accounting records and distributing essential financial information to operations personnel to support their daily operations. The TPS deals with business events that occur frequently, which can be voluminous. To deal with the volume, similar transactions types are grouped into transaction cycles. The TPS deals with the revenue cycle, the expenditure cycle and the conversion cycle. General Ledger / Financial Reporting Sytems are two related subsystems integrated into a single system due to its operational interdependence. The GLS updates the general ledger and the FRS measures and reports the status of financial resources and the changes in those resources. Management Reporting System provides the internal information needed to manage a business. Elements of AIS End users Data sources Data collection Data processing Data Management Information generation Feedback Acquisition of Information Systems Turnkey systems Backbone systems Vendor-supported systems Organizational Structure Reflects the distribution of responsibility, authority and accountability throughout the organization. Business organization consist of functional units or segments. Firms organize segments to promote internal efficiencies through the specialization of labor and cost effective resource allocations. Geographic location, wherein firms have operations dispersed around the world. This way, they can gain access to resources, markets, or lines of distribution. Often, firms consider each geographic segment as a quasi-autonomous entity. Product Line

Business Function. Functional Segmentation Materials Management: objective is to plan and control the materials inventory of the company. Sufficient inventories must be on hand to meet production needs and avoid excessive inventory levels. Subfunctions: Purchasing (responsible for ordering inventory when levels reach reorder points. Purchase order and soliciting bids). Receiving (accepting the inventory previously ordered by purchasing. Counting and checking the physical condition of these items). Stores (physical custody of the inventory received and release as needed.) Production: activities in the conversion cycle where raw materials, labor and plant assets are used to create finished products. Primary manufacturing activities and production support activities. Subfunctions: Production planning involves scheduling the flow of materials, labor and machinery to efficiently meet production needs. Quality control monitors the manufacturing process to ensure that the finished products meet the firms quality standards. Effective quality control detects problems early to faciliatate corrective action. Maintenance keeps the firms machinery and other manufacturing facilities in running order. Marketing: deals with the strategic problems of product promotion, advertising and market research. Distribution: the activity of getting the product to the customer after the sale. Personnel: manage human resource. Activities: (recruiting, training, continuing education, counseling, evaluating, labor relations and compensation administration.). Finance: Manage the financial resources of the firm through banking and treasury activities, portfolio management, credit evaluation, cash disbursements and cash receipts. Accounting Computer Services Accounting Function Two important roles, first, accounting captres and records the financial effects of the firms transactions. Second, it distributes transaction information to operations personnel to coordinate many of their key tasks. The value of information to a user is determined by its reliability. For this to happen, information must possess the attributes of relevance, accuracy, completeness, summarization and timeliness, Information reliability also rest on the concept of accounting independence. As such, accounting activities must be separate and independent of the functional areas that maintain custody of physical resources.

Computer Services Function Centralized Data Processing, where all data processing is performed by on or more large computers housed at a central site that serve users throughout the organization. Database Administration. (responsible for the security and integrity of the dataae) Data processing (manages the computer resources used to perform the day-to-day processing of transaction. (subfunctions: data control, data conversion, computer operations and data library). System Development and Maintenance (responsible for analyzing user needs and for designing new systems to satisfy those needs. Also keeps it current with user needs.) Distributed Data processing involves reorganizing the computer services function into small information processing units that are distributed to end users and placed under their control. This eliminates the function from the structure. Disadvantages include: Mismanagement of organization wide resources. Hardware and information incompatibility. Redundant tasks Consolidating incompatible activities. Hiring qualified professionals Lack of standards Advantages include: Cost reductions Improved cost control responsibility Improved user satisfaction Backup AIS Models Manual Process Model Learning manual systems helps establish an important link between the AIS course and other accounting courses. The logic of a business process is more easily understood when it is not shrouded by technology. Manual procedures facilitate understanding internal control activities, including segregation of functions, supervision, independent verification, audit trails and access controls Flat File Model An environment where individual data files are not related to other files. End users own their data files rather than sharing them with other users. (Legacy systems). Significant problems of this model: Data Storage Data Updating Currency of Information

Task-Data Dependency Flat Files Limit Data Integration Database Model Centralizes data into a single database that is shared by all users. Trumps flat file model by: Eliminating data redundancy Single update Current values REA model An accounting framework for modeling and organizations critical Resources, Events, and Agents and the relationship between them. Allows the flexible use of transaction data and permits the development of accounting information systems that promote, rather than inhibit integration. ERP Systems An information systems model that enables an organization to automate and integrate its key business processes. The Role of The Accountant As users As system designers As system auditors