hall asia edition pp_ch01

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rinciples o! Accounting "n!or#ation$yste#s, Asia %dition

&a#es A. 'all

Chapter 1The Information System:

An Accountant’s Perspective




Objectives for Chapter 1• (nderstand the pri#ary in!or#ation !lows within the business

environ#ent.

• (nderstand the di!!erence between accounting in!or#ation

syste#s and #anage#ent in!or#ation syste#s.

• (nderstand the di!!erence between )inancial transactions and

non*!inancial transactions.• +now the general #odel !or in!or#ation syste#s.

• e !a#iliar with the !unctional areas o! a business.

• (nderstand the stages in the evolution o! in!or#ation syste#s.

• (nderstand the relationship between the three roles o!accountants in an in!or#ation syste#.

2




"nternal - %ternal "n!or#ation )lows

/




Internal Information Flows

Horizontal !lows o! in!or#ation used pri#arily

at the operations level to capture transaction

and operations data Vertical !lows o! in!or#ation

downward !lows instructions, uotas, and

budgets

upward !lows aggregated transaction andoperations data




Information Requirements

%ach user group has uniue in!or#ation

reuire#ents. 3he higher the level o! the organi4ation, the

greater the need !or #ore aggregated

in!or#ation and less need !or detail.

5




Information in Business

"n!or#ation is a business

resource that:

needs to be appropriately

#anaged

is vital to the survival o!conte#porary businesses

6




What is a System

A group o! interrelated #ultiple co#ponents or

subsyste#s that serve a co##on purpose

$yste# or subsyste#7 A system is called a subsyste# when it is viewed as

a co#ponent o! a larger syste#.

A subsystem is considered a syste# when it is the

!ocus o! attention.

8




System !ecomposition versus System

Inter"epen"ency

System !ecomposition

the process o! dividing the syste# into s#allersubsyste# parts

System Inter"epen"ency distinct parts are not sel!*contained

they are reliant upon the !unctioning o! the other partso! the syste#

all distinct parts #ust be !unctioning or the syste# will!ail

9




What is an Information System

An in!or#ation syste# is the set o!

!or#al procedures by which data arecollected, processed into in!or#ation,

and distributed to users.

:




#ransactions

A transaction is a business event$

Financial transactions econo#ic events that a!!ect the assets and

euities o! the organi4ation e.g., purchase o! an airline tic;et

%onfinancial transactions all other events processed by the organi4ation<s

in!or#ation syste# e.g., an airline reservation no co##it#ent by

the custo#er

10




#ransactions

11

Financial

Transactions

Nonfinancial

Transactions

Information

System

User

DecisionsInformation




What is an &ccountin' Information

System

Accounting is an in!or#ation syste#.

"t identi!ies, collects, processes, and

co##unicates econo#ic in!or#ation abouta !ir# using a wide variety o! technologies.

"t captures and records the !inancial e!!ectso! the !ir#<s transactions.

"t distributes transaction in!or#ation tooperations personnel to coordinate #any;ey tas;s.

12




&IS versus (IS

&ccountin' Information Systems =A"$>process !inancial transactions? e.g., sale o! goods

non!inancial transactions that directly a!!ect theprocessing o! !inancial transactions? e.g., addition o!newly approved vendors

(ana'ement Information Systems =M"$>

process non!inancial transactions that are not nor#ally

processed by traditional A"$? e.g., trac;ing custo#erco#plaints

1/




&IS versus (IS

1




&IS Subsystems

#ransaction processin' system )#*S+

supports daily business operations

,eneral -e"'er. Financial Reportin'System ),-.FRS+

produces !inancial state#ents and reports

(ana'ement Reportin' System )(RS+

produces special*purpose reports !or internal use

15




,eneral (o"el for &IS

16

)igure 1*5




!ata Sources

!ata sources are !inancial transactions thatenter the in!or#ation syste# !ro# internal andeternal sources. External financial transactions are the #ost co##on

source o! data !or #ost organi4ations.@ %.g., sale o! goods and services, purchase o! inventory,

receipt o! cash, and disburse#ent o! cash =including payroll>

Internal financial transactions involve the echange or

#ove#ent o! resources within the organi4ation.@ %.g., #ove#ent o! raw #aterials into wor;*in*process =">,application o! labor and overhead to ", trans!er o! " into!inished goods inventory, and depreciation o! euip#ent

18




1$ !ata Collection

Capturing transaction data

Recording data onto !or#s

Ealidating and editing the data

1:




/$ !ata *rocessin'

@ Classi!ying

@ 3ranscribing

@ $orting

@ atching

20

@ Merging

@ Calculating

@ $u##ari4ing

@ Co#paring




0$ !ata (ana'ement

$toring

Retrieving eleting

21




$ Information ,eneration

Co#piling

Arranging

)or#atting

resenting

22




Characteristics of 2seful

Information Regardless o! physical !or# or technology,

useful in!or#ation has the !ollowing

characteristicsB Relevance: serves a purpose

Timeliness: no older than the ti#e period o! theaction it supports

Accuracy: !ree !ro# #aterial errors

Completeness: all in!or#ation essential to a decisionor tas; is present

Summarization: aggregated in accordance with theuser<s needs

2/




Information System Objectives

in a Business Conte3t

3he goal o! an in!or#ation syste# is

to support

the stewardship !unction o!

#anage#ent

#anage#ent decision #a;ing

the !ir#<s day*to*day operations

2




Or'ani4ational Structure

3he structure o! an organi4ation helps to allocate

responsibility

authority

accountability

Se'mentin' by business !unction is a very

co##on #ethod o! organi4ing.

25




Functional &reas

"nventoryFMaterials Manage#ent

purchasing, receiving and stores

roduction

production planning, uality control, and#aintenance

Mar;eting

istribution

ersonnel )inance

Accounting

Co#puter $ervices26




&ccountin' In"epen"ence

"n!or#ation reliability reuires accountin'

in"epen"ence$

Accounting activities #ust be separate andindependent o! the !unctional areas #aintaining

resources.

Accounting supports these !unctions with

in!or#ation but does not actively participate. ecisions #a;ers in these !unctions reuire that

such vital in!or#ation be supplied by an

independent source to ensure its integrity.

28




#he Computer Services Function

29

Centrali4e" !ata

*rocessin'

!istribute" !ata

*rocessin' Most companies fall in between.

All data processing

is per!or#ed by

one or #ore largeco#puters housed

at a central site

that serves users

throughout the

organi4ation.

ri#ary areasB

database ad#inistration

data processing

syste#s develop#ent

syste#s #aintenance

Reorgani4ing the

co#puter services

!unction into s#allin!or#ation processing

units that are distributed

to end users and

placed under their control




Or'ani4ation of I# Function in a

Centrali4e" System

2:

)igure 1*10




Or'ani4ational Structure for a !istribute"

*rocessin' System

/0

)igure 1*11




*otential &"vanta'es of !!*

Cost reductions in hardware and data entry

tas;s

"#proved cost control responsibility "#proved user satis!action since control is closer

to the user level

ac;up o! data can be i#proved through the use

o! #ultiple data storage sites

/1




*otential !isa"vanta'es of !!*

Loss o! control

Mis#anage#ent o! co#pany resources

'ardware and so!tware inco#patibility Redundant tas;s and data

Consolidating tas;s usually segregated

i!!iculty attracting uali!ied personnel

Lac; o! standards

/2




(anual *rocess (o"el

3ransaction processing, in!or#ation processing,and accounting are physically per!or#ed bypeople, usually using paper docu#ents.

(se!ul to study becauseB helps lin; A"$ courses to other accounting courses

o!ten easier to understand business processes whennot shrouded in technology

!acilitates understanding internal controls

//




#he 5volution of IS (o"els6

#he Flat7File (o"el

/

)igure 1*12




!ata Re"un"ancy *roblems

!ata Stora'e * ecessive storage costs o!paper docu#ents andFor #agnetic !or#

!ata 2p"atin' * changes or additions #ustbe per!or#ed #ultiple ti#es

Currency of Information * potentialproble# o! !ailing to update all a!!ected !iles

#as87!ata !epen"ency * user<s inability toobtain additional in!or#ation as needs

change !ata Inte'ration * separate !iles are di!!icult

to integrate across #ultiple users

/5




#he 5volution of IS (o"els6 #he !atabase

(o"el

/6

)igure 1*1/




34

&n R5& !ata (o"el 53ample

/8

Inventory Line items Sales Party to Sales

person

Pays for

Cash

CollectionsIncreasesCash

Made to

Cstomer

Cashier

!eceived

from

!eceived

"y

M

#

M

M

M

M

M

M

M

M

#

#

#

#

R E A




R5& (o"el

3he R%A #odel is an accountin' framewor8

for mo"elin' an organi4ation<s

econo#ic resources? e.g., assets

econo#ic events? i.e., a!!ect changes in resources

econo#ic a'ents? i.e., individuals and depart#ents

that participate in an econo#ic event

Interrelationships a#ong resources, events and

agents

5ntity7relationship "ia'rams )5R!+ are o!ten

used to #odel these relationships.

/9




&ccountants as Information System2sers

Accountants #ust be able to clearly convey their

needs to the syste#s pro!essionals who designthe syste#.

3he accountant should actively participate

in syste#s develop#ent proGects

to ensure appropriate syste#s

design.

/:




&ccountants as System !esi'ners

3he accounting !unction is responsible !or the

conceptual system, while the co#puter

!unction is responsible !or the physical syste#.

3he conceptual system deter#ines the nature

o! the in!or#ation reuired, its sources, its

destination, and the accounting rules that #ustbe applied.

0



&ccountants as System &u"itors

%ternal Auditors

attest to !airness o! !inancial state#ents assurance serviceB broader in scope than

traditional attestation audit

"3 Auditors

evaluate "3, o!ten as part o! eternal audit

"nternal Auditors

in*house "$ and "3 appraisal services

1

hall asia edition pp_ch01

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