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Chapter 1

Accounting Information Systems: An Overview

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What Is a System?

System
A set of two or more interrelated components interacting to achieve a goal
Goal Conflict
Occurs when components act in their own interest without regard for overall goal
Goal Congruence
Occurs when components acting in their own interest contribute toward overall goal

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Data vs. Information

Data are facts that are recorded and stored.
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 Information Overload.

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Value of Information

Benefits

Reduce Uncertainty
Improve Decisions
Improve Planning
Improve Scheduling

Costs

Time & Resources

Produce Information
Distribute Information

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Benefit $’s > Cost $’s

What Makes Information Useful?

Necessary characteristics:
Relevant
“The capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations.”
Reliable
“The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports to represent.”
Complete
“The inclusion in reported information of everything material that is necessary for faithful representation of the relevant phenomena.”

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Point out to students that these characteristics are from the SFAC #2 Quality of Accounting Information (maybe have them read it). http://www.fasb.org/pdf/aop_CON2.pdf

What Makes Information Useful?

Timely
“Having information available to a decision maker before it loses its capacity to influence decisions.”
Understandable
“The quality of information that enables users to perceive its significance.”
Verifiable
“The ability through consensus among measurers to ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias.”
Accessible
Available when needed (see Timely) and in a useful format (see Understandable).

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Point out to students that these characteristics are from the SFAC #2 Quality of Accounting Information (maybe have them read it).

Business Process

Systems working toward organizational goals

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Business Process Cycles

Revenue
Expenditure
Production
Human Resources
Financing

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Business Transactions

Give–Get exchanges
Between two entities
Measured in economic terms

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Business Cycle Give–Get

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Accounting Information Systems

Collect, process, store, and report data and information
If Accounting = language of business
AIS = information providing vehicle
Accounting = AIS

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Components of an AIS

People using the system
Procedures and Instructions
For collecting, processing, and storing data
Data
Software
Information Technology (IT) Infrastructure
Computers, peripherals, networks, and so on
Internal Control and Security
Safeguard the system and its data

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AIS and Business Functions

Collect and store data about organizational:
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

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AIS Value Add

Improve Quality and Reduce Costs
Improve Efficiency
Improve Sharing Knowledge
Improve Supply Chain
Improve Internal Control
Improve Decision Making

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Improve Decision Making

Identify situations that require action.
Provide alternative choices.
Reduce uncertainty.
Provide feedback on previous decisions.
Provide accurate and timely information.

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Value Chain

The set of activities a product or service moves along before as output it is sold to a customer
At each activity the product or service gains value

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Value Chain—Primary Activities

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AIS and Corporate Strategy

Organizations have limited resources, thus investments to AIS should have greatest impact on ROI.

Organizations need to understand:

IT developments

Business strategy

Organizational culture

Will effect and be effected by new AIS

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