Accounting information systems: an overview ( Topic 1 )

Question 1

Drivers of business and information system change

Answer 1

• Globalisation -> interenation between nations, international trends
• Deregulation – govt taking a more laissez faire approach enable the market
  to operate within the confindes of the law, this increase competitions. Companies then use systems to be innovative. Deregulation Drives systems.
• Advances in technology
  • Metcalfe’s Law (value of network doubles with each new connection) 

  • Moore’s Law (chip density double every 18 months) 

• Outsourcing and downsizing (this cuts cost, technology facilitates this)

Question 2

System

Answer 2

• A set of two or more interrelated components interacting to achieve a goal.

Question 3

Goal Conflict

Answer 3

• Occurs when components act in their own interest without regard for the overall goal.

Question 4

Goal Congruence

Answer 4

• Occurs when components acting in their own interest contribute toward the overall goal.

Question 5

Data vs. Information

Answer 5

Data are facts that are collected, recorded, stored and processed.
• Insufficient for decision making
Information is processed data used in decision making.

• Too much information however, will make it more, not less, difficult to make decisions. This is known as ‘data overload’ or ‘information overload’.. This is the limit to the amount of information a human brain can absorb, beyond this poiny decision making significantly declines

– information has meaning, what is data and information depends on the user – what is valauble to them.

Question 6

Value of Information

- benefit and costs

Answer 6

Benefit produced by the information minus the cost of producing it

Benefits  - often less measurable eg satisfaction 
•Reduce Uncertainty
 •Improve Decisions 
•Improve Planning 
•Improve Scheduling 

Costs - costs are often more straightforward as they have a dollar value, more measurable
• Time and Resources

• Produce Information

• Distribute Information

Question 7

Value of information

Answer 7

Information is valuable when Benefit $s > Cost $s

Challenging process as they can be both tangible and intangible, or short vs long term , however the expected value of information should be calculated effectively as possible so that the cost of producing does not exceed the benefits

Question 8

Characteristics of Useful Information

Answer 8

Relevant - Reduces uncertainty, improves decision-making, or confirms or corrects prior expectations.

Reliable -Free from error or bias; accurately represents organisation events or activities.

Existence - The transactions, assets, obligations and equity generated in the system exist.

Valid - Only those transactions and reports that are authorised by the firm should be processed. – related to internal controls

Complete - Does not omit important aspects of the events or activities it measures. – place controls to ensure information is complete

Timely - Provided in time for decision-makers to make decisions.

Measurable - Transactions, assets, liabilities, and equities processed in the system are measured accurately.

Understandable - Presented in a useful and intelligible format.

Verifiable - Two independent, knowledgeable people can produce the same information.

Accessible - Available to users when they need it and in a format they can use.

Question 9

Business processes

Answer 9

A set of related, coordinated, and structured activities and tasks, performed by a person, a computer, or a machine, that help accomplish a specific organizational goal

To make effect decisions a business must decide what information is required to make decisions and how to gather such information

This can be completed by outlining the business process and then corresponding key decisions and information needs

Question 10

Data and business transactions

Answer 10

Data comes from business transactions

Question 11

Transaction

Answer 11

A transaction is an agreement between two entities to exchange goods or services or any other event that can be measured in economic terms by an organisation.

Examples include selling goods to customers, buying inventory from suppliers, and paying employees.

Question 12

Transaction processing

Answer 12

Process of capturing transaction data, processing it, storing it for later use, and producing information output, such as a managerial report or a financial statement.
It is any event that both affects the financial position of the business and can be reliably recorded.
‘Involves Give–Get’ exchanges between two entities

Question 13

give-get exchange

Answer 13

Transactions that happen a great many times, such as giving up cash to get inventory from a supplier and giving employees a paycheck in exchange for their labor.

Question 14

These exchanges can be grouped into five major business processes or transaction cycles

Answer 14

• Revenue cycle
• The expenditure cycle
• The production or conversion cycle
• The human resources/payroll cycle
• The financing cycle

Question 15

Revenue cycle

Answer 15

Activities associated with selling goods and ser- vices in exchange for cash or a future promise to receive cash

Question 16

The expenditure cycle

Answer 16

The expenditure cycle, where companies purchase inventory for resale or raw materials to use in producing products in exchange for cash or a future promise to pay cash.

Question 17

The production or conversion cycle

Answer 17

Where raw materials are transformed into finished goods.

Question 18

The human resources/payroll cycle

Answer 18

Where employees are hired, trained, compensated, evaluated, promoted, and terminated.

Question 19

The financing cycle

Answer 19

Where companies sell shares in the company to investors and bor- row money, and where investors are paid dividends and interest is paid on loans

Question 20

Business Process

Answer 20

Activities of Revenue Cycle ( process) – revenue cycle is selling to customers and getting cash in return – several meticulous steps within a given process, more complex greater scope of fraud

Question 21

Accounting Information Systems

Answer 21

A system to Collect, process, and store data and report information – data is used to establish verifiability eg profit vs loss

If accounting = language of business


AIS = information providing vehicle


Accounting = AIS

Question 22

Nature of an AIS

Answer 22

• Can be a simple pencil & paper manual system
  OR
  -A state of the art system using the latest computers and information technology. 

  -Regardless of the tools used, the process is the same.

Question 23

Components of an AIS

Answer 23

•	People using the system 

•	Procedures and instructions 

- For collecting, processing, and storing data 
•	Data 

•	Software 

•	Information Technology (IT) Infrastructure
Computers,peripherals,networks,andsoon 

•	Internal Control and Security 

- Safeguard the system and its data 


Question 24

How AIS assists in fulfilling business functions ?

Answer 24

Collect and store data about organisational
- Activities, resources, and personnel

Transform data into information enabling Management to Plan, execute, control, and evaluate
-Activities, resources, and personnel

Provide adequate control to safeguard
-Assets and data

Question 25

How AIS adds Value

Answer 25

Improve quality and reduce costs
Eg monitor machinery anf notify when production falls

Improve efficiency
-
constant up to date info

Improve sharing knowledge
For example, CPA firms use their information systems to share best practices and to support communication between offices

Improve supply chain -> improved interaction with suppliers, share information such as inventory etc.

Improve efficiency and effectiveness
For example, allowing customers to directly access inventory and sales order entry systems can reduce sales and marketing costs, thereby increasing customer retention rates.

Improve internal control 

An AIS with the proper internal control struc- ture can help protect systems from fraud, errors, system failures, and disasters.

Improve decision making
– more detail is provided

Question 26

How AIS improves decision making

Answer 26

Identify situations that require action (sooner) 


For example, a cost report with a large variance might stimulate management to investigate and, if necessary, take corrective action.

Reduce uncertainty 


Provide alternative choices (e.g., what if analysis) 


Provide feedback on previous decisions (to take corrective action) 

-For example, if a company tries a particular marketing strategy and the information gathered indicates that it did not suc- ceed, the company can use that information to select a different marketing strategy.

Provide accurate and timely information 

-For example, Walmart has an enor- mous database that contains detailed information about sales transactions at each of its stores. It uses this information to optimize the amount of each product carried at each store.

Question 27

How AIS interacts with corporates strategy

Answer 27

Organisations have limited resources, therefore investments to AIS should have greatest impact on ROI.
Organisations need to understand:

IT developments


- IT developments can affect business strategy.
For example, the Internet has profoundly affected the way many activities are performed, significantly affecting both strategy and strategic positioning.
- The Internet dramatically cuts costs
-provide an oppor- tunity to gain a competitive advantage , predictive analysis )

Business strategy

An organization’s AIS plays an important role in helping it adopt and maintain a strategic position. Achieving a close fit among activities requires that data be collected about each ac- tivity. It is also important that the information system collect and integrate both financial and nonfinancial data about the organization’s activities.

Organisational culture -> culture that values technology

They will effect and be effected by new AIS

Question 28

predictive analysis

Answer 28

The use of data warehouses and com- plex algorithms to forecast future events, based on his- torical trends and calculated probabilities.

Question 29

Value Chain – Primary and Support Activities

Answer 29

The set of activities a product or service moves along before as output it is sold to a customer. How does each process add value ? add value – keep it – value chain analysis proposed by porter is important as it identifies what process add or detract from the value of the business

At each activity the product or service gains value
- This process require AIS as there is enchanges of data throughout this process

Question 30

Primary activities (types)

Answer 30

1. Inbound logistics consists of receiving, storing, and distributing the materials an organi- zation uses to create the services and products it sells. For example, an automobile manu- facturer receives, handles, and stores steel, glass, and rubber.
2. Operations activities transform inputs into final products or services. For example, as- sembly line activities convert raw materials into a finished car and retailers remove goods from packing boxes and place the individual items on shelves for customers to purchase.
3. Outbound logistics activities distribute finished products or services to customers. An example is shipping automobiles to car dealers.
4. Marketing and sales activities help customers buy the organization’s products or ser- vices. Advertising is an example of a marketing and sales activity.
5. Service activities provide post-sale support to customers. Examples include repair and maintenance services.

Question 31

Support activities ( types)

Answer 31

Allow the five primary activities to be performed efficiently and effectively. They are grouped into four categories:

1. Firm infrastructure is the accounting, finance, legal, and general administration activi- ties that allow an organization to function. The AIS is part of the firm infrastructure.
2. Human resources activities include recruiting, hiring, training, and compensating employees.
3. Technology activities improve a product or service. Examples include research and devel- opment, investments in IT, and product design.
4. Purchasing activities procure raw materials, supplies, machinery, and the buildings used to carry out the primary activities.

Question 32

value chain

Answer 32

linking together of all the primary and support activities in a business. value is added as a product passes through the chain.

Question 33

primary activities

Answer 33

value chain activities that produce, mar- ket, and deliver products and services to customers and pro- vide post-delivery service and support.

Question 34

supply chain

Answer 34

An extended system that includes an orga- nization’s value chain as well as its suppliers, distributors, and customers.

Question 35

Why study accounting information systems?

Answer 35

Since accounting data comes from an AIS, AIS knowledge and skills are critical to an accountant’s career success. 


Most accounting courses assume that data has been collected and stored and you have access to that data - information system is treated as a ‘black box’. 


As an accountant you need to provide advice, if not a full solution, to issues that arise from an AIS. 


All accounting bodies in Australia, New Zealand and Asia require inclusion of information systems design, development and applications in accredited accounting degrees.


Need to understand that an organisation’s AIS may be vulnerable to attack from inside and outside. 


With continuous change in IT sector, you need to keep up with future trends so that you can make suggestions and recommendations.