Reviewer in AIS
nonfinancial transactions that directly affect the
Chapter 1:
The organization is divided into three management
tiers:
1. Operations Management – is directly responsible for
controlling day-to-day activities.
2. Middle Management- is accountable for the short-
term planning and coordination of activities necessary
to accomplish organizational objectives.
3. Top Management – is responsible for longer term
planning and setting organizational objectives.
External users fall into two groups:
1. Trading partners
2. Stakeholders
Three fundamental objectives of Information:
1. To support the firm’s day to day operations
2. To support management decision-making
3. To support the stewardship function of management
Information System – is the set of formal procedures by
which data are collected, stored, processed into
information and distributed to users.
Two broad classes of systems:
1. Accounting Information System (AIS)
2. Management Information System (MIS)
Transaction – is an event that affects or is of interest to
the organization and is processed by its information
system as a unit of work.
Classes of Transaction:
1. Financial Transaction – is an economic event that
affects and equities of the organization, is reflected in
its accounts, and is measured in monetary terms.
2. Non-financial transactions – are events that do not
meet the narrow definition of a financial transaction.
AIS Subsystems – process financial transaction and
processing of financial transactions.
The AIS is composed of three major subsystems:
1. Transaction Processing System (TPS) – supports daily
business operations with numerous reports,
documents, and messages for users throughout the
organization.
2. General Ledger/ Financial Reporting System (FRS) –
which produces the traditional financial statements,
such as the income statement, balance sheet,
statement of cash flows, tax returns and other reports
required by law.
3. Management Reporting System (MRS) -provides
internal management with special-purpose financial
reports and information needed for the decision-
making such as budgets, variance reports, and
responsibility reports.
SOX legislation – requires that corporate management
design and implement internal controls over the entire
financial reporting process.
Transaction Processing System – is central to the
overall function of the information system. It converts
economic events into financial transactions.
General Ledger/Financial Reporting System – are two
closely related subsystems. Summaries of transaction
activity are processed by the GLS to update the General
Ledger control accounts.
Nondiscretionary reporting – organization has a few or
no choices in the information it provides.
Management Reporting System – provides the internal
financial information needed to manage a business.
Discretionary Reporting – the organization can choose
what information to report and how to present it.
Two General Groups of End Users:
1. External Users – include creditors, stockholders,
potential investors, regulatory agencies, tax authorities,
suppliers, and customers.
2. Internal Users – include management at all levels of
the organization, as well as operations.
Data – are facts which may or may not be processed
(edited, summarized or refined) and have no direct
effect on a user’s action.
Information – causes the user to take an action that he
or she otherwise could not, or would not, have taken.
Data Sources – are financial transactions that enter the
information system from either internal or external
sources.
- External Financial Transactions are the most
common source of data.
Data Collection – is the first operational stage in the
information system.
- The objective is to ensure that event data
entering the system are valid, complete and
free from material errors.
- Most important stage in the system.
Two rules govern the design data collection procedures:
1. Relevance
2. Efficiency
Data Processing – tasks range from simple to complex.
Organization’s database – is its physical repository for
financial and nonfinancial data.
Data Attribute – is the most elemental piece of
potentially useful data in the data base.
 Attribute – is a logical and relevant
characteristic of an entity about which the firm
captures data.
Record – is a complete set of attributes for a single
occurrence within an entity class.
File – is a complete set of records of an identical class.
Database Management Three Fundamental Tasks:
1. Storage – restoring the updated record to its place in
database.
2. Retrieval – is the task of locating and extracting an
existing record from database for processing.
3. Deletion – is the task of permanently removing
obsolete or redundant records from the database.
Information Generation – is the process of compiling,
arranging, formatting, and presenting information to
users.
Characteristics of Useful Information.
Relevance – must serve a purpose
Timeliness – The age of information is a critical factor in
determining its usefulness.
Accuracy – free from material errors.
Completeness – no missing essential information
Summarization – should be aggregated in accordance
with the user’s needs.
Feedback – is a form of output that is sent back to the
system as a source of data.
Segmentation – by business function is a common
method of organizing a business entity.
- Functional segments derive from the flow of
resources through the firm.
 The objective of material misstatements is to
plan and control the materials inventory of the
company.
Material Management has three sub-functions
1. Purchasing – responsible for ordering inventory from
vendors.
2. Receiving – is the task of accepting the inventory.
3. Stores – takes physical custody of the inventory
received and releases three resources into the
production process as needed.
Production- activities occur in the conversion cycle in
which raw materials are used to create finished
products.
Production Planning – involves scheduling the flow of
materials, etc.
Quality Control – monitors the manufacturing process
Maintenance – keeps the firm’s machinery and other
manufacturing facilities.
Marketing – deals with the strategic problems of
product production.
Distribution – is the activity of getting the product to
customer.
Network Administration – is responsible for the
effective functioning of the software and hardware that
constitute the organization’s network.
IT outsourcing – the organization sells its IT resources
Cloud Computing – is a location independent
computing.
Domain Experts – Accountants play a prominent role on
system development.
Audit report – external audit

Personnel – competent and reliable employees. Internal auditing – is an independent appraisal

function.
Finance – manages the financial resources of the firm.
Fraud audit – to investigate anomalies.
 The value of information to a user is
determined by its reliability
 Information reliability rests heavily on the
concept of accounting independence.

Four information technology functions:

1. Data Processing – to support user information needs

through transaction processing and information
reporting.

 Centralized Data Processing – all data

processing is performed by one or more large
computers housed in a common data center
that serves users throughout the organization.
 Distributed Data Processing – users process
their transactions locally.

2. Systems Development and Maintenance.

 Systems Development – function is the process

by which organizations acquire information
systems.
 Systems Maintenance – function is responsible
for making changes to existing systems to
accommodate changes in users needs.

Network – is a collection of interconnected computers

and communications devices that allows users to
communicate, access data and applications, and share
information and resources.