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
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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#.
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"nternal - %ternal "n!or#ation )lows
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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
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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.
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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
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What is a System
A group o! interrelated #ultiple co#ponents or
subsyste#s that serve a co##on purpose
$yste# or subsyste#7 A system is called a subsyste# when it is viewed as
a co#ponent o! a larger syste#.
A subsystem is considered a syste# when it is the
!ocus o! attention.
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System !ecomposition versus System
Inter"epen"ency
System !ecomposition
the process o! dividing the syste# into s#allersubsyste# parts
System Inter"epen"ency distinct parts are not sel!*contained
they are reliant upon the !unctioning o! the other partso! the syste#
all distinct parts #ust be !unctioning or the syste# will!ail
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What is an Information System
An in!or#ation syste# is the set o!
!or#al procedures by which data arecollected, processed into in!or#ation,
and distributed to users.
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#ransactions
A transaction is a business event$
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
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#ransactions
11
Financial
Transactions
Nonfinancial
Transactions
Information
System
User
DecisionsInformation
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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.
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&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"$? e.g., trac;ing custo#erco#plaints
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&IS versus (IS
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&IS Subsystems
#ransaction processin' system )#*S+
supports daily business operations
,eneral -e"'er. Financial Reportin'System ),-.FRS+
produces !inancial state#ents and reports
(ana'ement Reportin' System )(RS+
produces special*purpose reports !or internal use
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,eneral (o"el for &IS
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)igure 1*5
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!ata Sources
!ata sources are !inancial transactions thatenter the in!or#ation syste# !ro# internal andeternal sources. External financial transactions are the #ost co##on
source o! data !or #ost organi4ations.@ %.g., sale o! goods and services, purchase o! inventory,
receipt o! cash, and disburse#ent o! cash =including payroll>
Internal financial transactions involve the echange or
#ove#ent o! resources within the organi4ation.@ %.g., #ove#ent o! raw #aterials into wor;*in*process =">,application o! labor and overhead to ", trans!er o! " into!inished goods inventory, and depreciation o! euip#ent
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1$ !ata Collection
Capturing transaction data
Recording data onto !or#s
Ealidating and editing the data
1:
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/$ !ata *rocessin'
@ Classi!ying
@ 3ranscribing
@ $orting
@ atching
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@ Merging
@ Calculating
@ $u##ari4ing
@ Co#paring
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0$ !ata (ana'ement
$toring
Retrieving eleting
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$ Information ,eneration
Co#piling
Arranging
)or#atting
resenting
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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
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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
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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.
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Functional &reas
"nventoryFMaterials Manage#ent
purchasing, receiving and stores
roduction
production planning, uality control, and#aintenance
Mar;eting
istribution
ersonnel )inance
Accounting
Co#puter $ervices26
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&ccountin' In"epen"ence
"n!or#ation reliability reuires accountin'
in"epen"ence$
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.
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#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
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Or'ani4ation of I# Function in a
Centrali4e" System
2:
)igure 1*10
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Or'ani4ational Structure for a !istribute"
*rocessin' System
/0
)igure 1*11
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*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
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*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
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(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
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#he 5volution of IS (o"els6
#he Flat7File (o"el
/
)igure 1*12
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!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
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#he 5volution of IS (o"els6 #he !atabase
(o"el
/6
)igure 1*1/
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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
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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.
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&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.
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&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.
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&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