topic 1 introduction to ais

8/2/2019 Topic 1 Introduction to AIS

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Introduction toAISChapter

1


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1. To describe the purpose and importance of

learning AIS.

2. To explain AIS objective: collects and stores data

processes data for decision and

provides adequate controls.

3. To identify components of AIS, i.e. people,

procedure, Information technology.

Learning Objectives


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4. To describe AIS subsystems i.e.transaction processing system, generalledger/financial reporting system,

management reporting system.

5.To familiarize with the concepts ofaccounting independence.

6. To elaborate three different level of decisionmaking i.e. structured decision, semistructured decision and unstructured

decision.

Learning Objectives


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7.To explain how AIS can assist in decisionmaking process.

8. To elaborate different roles of accountantsas:

System user

System auditor System design

Learning Objectives


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Topic to Cover

The Information System

Environment

Definition of AIS

AIS Framework

Transaction Processing System

Overview of TPS

Components of TPS

Organisational Structure and

Accounting Function

Accounting Information andDecision Making

Accountants Roles in AIS

1.1 The Information System

Environment

1.1.1 Definition of AIS1.1.2 AIS Framework

1.2 Transaction Processing System

(TPS)

1.2.1 Overview of TPS

1.2.2 Components of TPS

1.3 Organizational Structure

and Accounting

Independence1.4 Accounting Information

and Decision Making

1.5 Accountants Roles in AIS


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Learning Objective 1

1.1 TheInformationSystem

Environment


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Identifies

Records

CommunicatesRelevant

Reliable

Comparable

What is Accounting?

Accountingis a

system that

information

that is

to help users makebetter decisions.


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Info vs. data

Data is facts that are collected, stored andprocessed (edited, summarized, or refined)by an information system.

Information is data that has been organized

and processed so that it is meaningful anduseful to users to make decision, resolveconflicts, and/or reduce uncertainty.


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Information in Business

Information is a business resource:

... needs to be appropriately managed

...is vital to the survival of contemporarybusinesses


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Internal & ExternalFlows of Information

TopManagement

Middle

Management

Operations

Management

Operations Personnel

Day-to-Day Operations Personnel

Customers

Stakeholders

Suppliers


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Internal Information Flows

Horizontalflows of information usedprimarily at the operations level to capturetransaction and operations data (detailedinformation)

Verticalflows of information

downward flows--instructions, quotas,and budgets

upward flows--aggregated transactionand operations data


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Information Requirements

Each user group has unique informationrequirements.

The higher the level of the organization, thegreater the need for more aggregatedinformation and less need for detail.


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What is a System?

A group of two or more interrelatedcomponents or subsystemsthat serve acommon purpose

System or subsystem?

A system is called a subsystem when it

is viewed as a component of a larger

system.

A subsystem is considered a system

when it is the focus of attention.


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System Decomposition vs.Subsystem Interdependency

System Decomposition

the process of dividing the system intosmaller subsystem parts

Subsystem Interdependency

Effective functioning and harmoniousinteractions of all subsystems

All vital subsystem must be functioning oroverall system will fail to meet itsobjective


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Examples of Systems

Biological

cell

human body Mechanical

water heater

computer Others

solar system

mathematics

E = mc2


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1.1.1Definition of

AIS


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What is an Information System?

An information system is theset of formal procedures by

which data are collected,processed into information, anddistributed to users.


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Information System Objectives in aBusiness Context

The goal of an information system is to

support

...the stewardship function ofmanagement.

...management decision making.

...the firms day-to-day operations

(transaction processing).


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Transactions

Atransaction is a business event that isprocessed by IS.

Financialtransactions

economic events that affect the assets andequities of the organization

e.g., purchase of an airline ticket

Nonfinancialtransactions

all otherevents processed by theorganizations information system

e.g., an airline reservation--no commitment bythe customer


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Financial

Transactions

Nonfinancial

Transactions

Information

System

User

Decisions

Information

Transactions


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What is Accounting InformationSystems?

Accounting is an information system which

identifies, collects, processes, and

communicates economic informationabout an entity to a wide variety ofpeople regardless of the technology

captures and records the financial effects

of the firms transactions distributes transaction information to

operations personnel to coordinate many

key tasks


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The functions of an AIS are to: Collect, record and store data about

events, resources, and agents.

Transform that data into information thatmanagement can use to make decisionsabout events, resources, and agents.

Provide adequate controls to ensurethat the entitys resources (includingdata) are:

Available when needed

Accurate and reliable

What is Accounting InformationSystems?


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Its fundamental to accounting.

Why Study Accounting InformationSystems?

Accounting is an information-providing activity, sostudents/accountants need to understand:

How the system that provides that information is

designed, implemented and used. How financial information is reported

How information is used to make decisions

Other accounting courses (FA, MA, tax, and audit) focus

on how the information is provided or reported and used,whereas an AIS course places greater emphasis on:

How the data is collected and transformed intoinformation

How the availability, reliability, and accuracy of thedata/information is ensured

AIS courses are not number-crunching courses


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The skills are critical to career success.


Auditors need to evaluate the accuracy and reliability ofinformation produced by the AIS.

Tax accountantsmust understand the clients AISadequately to be confident that it is providing completeand accurate information for tax planning and compliancework.

In private industry and not-for-profits, accountingsystems work is considered the most important activityperformed by accountants AIS is one of the largestsystems

In management consulting, the design, selection, andimplementation of accounting systems is a rapid growth

area.


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The AIS course complements other systems courses

AIS topics are tested on the new CPA exam.

AIS topics impact corporate strategy and culture.


Other systems courses focus on design andimplementation of information systems, databases,expert systems, and telecommunications.

AIS courses focus on accountability and control.

Makes up about 25% of the Business Environment &Concepts section of the CPA exam.


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AIS vs. MIS

Accounting Information Systems(AISs)process financial (e.g., sale of goods) andnonfinancial transactions (e.g., addition ofnewly approved vendor) that directly affectthe processing of financial transactions.

Management Information Systems(MISs)

process nonfinancial transactions that arenot normally processed by traditional AISs(e.g., tracking customer complaints).


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AIS vs. MIS?

GLS/FRS TPS MRS

AIS

Finance Marketing Production HRS Distribution

MIS

IS


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The General AIS Model

The InformationSystem

DatabaseManagement

DataCollection

DataProcessing

InformationGeneration

The External Environment

InternalSources of Data

InternalEnd Users

ExternalDataSources

ExternalEnd Users

Feedback

The Business Organization

Feedback


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Data Source

Financial transactions that enter to thesystem from internal/external

These data should be first captured bythe system ---- source documents


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Transforming the Data intoInformation

Functions for transforming data intoinformation according to the general AISmodel:

1. Data Collection

2. Data Processing

3. Data Management4. Information Generation


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1. Data Collection

capturing transaction data

recording data onto forms source

documents validating and editing the data


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2. Data Processing

classifying

transcribing

sorting batching

merging

calculating

summarizing

comparing


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3. Data Management

storing

retrieving deleting


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4. Information Generation

compiling

arranging formatting

Presenting

.....information to users


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Briefly define three (3) primary

Accounting Information Systemsfunctions in the organisation.

Exercise


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Exercise

The Accounting Information Systems (AIS) model below

shows an application of AIS. The model describesaccounting information systems structure, regardless of itstechnological architecture

Hall, 2007

1

2 3

4


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Exercise

REQUIRED:Label each of the empty boxes

numbered as 1 to 4 above tocomplete the accountinginformation system (AIS)model.


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Learning Objective 2, 3 & 4

1.1.2, 1.2.1 &1.2.2

AISFramework and

TransactionProcessingSystem (TPS)


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AIS Framework

A. Objectives

B. ComponentsC. Subsystems


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A. AIS Objectives

What important functions does the AISperform in an organization?

1. It collects and stores data about

activities and transactions.2. It processes data into information that is

useful for making decisions.

3. It provides adequate controls tosafeguard the organizations assets


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B. AIS Components

An AIS consists of:

People

Procedures and instructions

Data Software

Information technology infrastructure

Have 4 components:

Inputs

Processes

Outputs

feedback


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C. AIS Subsystems

There are 3 subsystems:

1. Transaction Processing System

(TPS)2. General Ledger/ FinancialReporting System (GL/FRS)

3. Management Reporting System(MRS)


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1. Transaction Processing System(TPS)

Supports daily business operations with numerous documents andmessages for users throughout the organization

Converting economic events into financial transactions

Recording financial transactions in the accounting records(journals and ledgers)

Distributing essential financial information to operatingpersonnel

Consists of:

1. Revenue Cycle

Activities of selling goods or services and collecting payment

for those sales.2. Expenditure Cycle

Activities of buying and paying for goods or services.

3. Conversion Cycle

Activities of converting raw materials and labor into finishedgoods.


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2. General Ledger/FinancialReporting System

Produces financial statements and other reportsrequired by law

Consists of two closely related subsystems:

(a) General Ledger SystemProcess the summaries of transaction cycle

activity from the transaction cycles toupdate the general ledger control accounts.

(b) Financial Reporting SystemMeasures and reports the status of

financial resources and changes in thoseresources.


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3. Management Reporting System(MRS)

Produces special-purpose reportsand information for internal use

budgets, variance reports, cost-volume-profit analyses ad reportusing current (rather than

historical) cost data.


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Briefly explain the difference

between financial reporting

system (FRS) and managementreporting system (MRS).

Briefly explain 3 functions of

transaction processing system

and its components

Exercise


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1.3

OrganizationalStructure and

AccountingFunction


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Two reasons:

1. To assess the information needs of

users

2. To design the AIS to meet those

needs

Why Accountants Need to UnderstandOrganizational Structure


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Organizational Structure

The structure of an organization helps

to allocate

responsibility authority

accountability


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Responsibility, Authority and Accountability

President

Vice

PresidentMarketing

Vice

PresidentProduction

Vice

PresidentFinance

Vice President

ComputerServices

Manager

Plant 1

Manager

Plant 2

Manager

Plant 3

Manager

Unit 1

Manager

Unit 2

Manager

Unit 3

Responsibility

and Authority

Accountability


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Why is it important to

organizationally separate theaccounting function from otherfunctions of the organization?

Exercise


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Learning Objectives 6

1.4

AccountingInformation and

Decision

Making(Decision scope

and structure


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Timely - Provided in time to enable decision makers

to use it to make decisions

Understandable - Presented in a useful andintelligible format

Verifiable - Two knowledgeable people acting

independently each produce the same

information

Characteristics of Useful information


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Exercise

Information refers to the data that have beenorganised and processed to provide meaning tothe users. Users typically use information to make

decisions or to improve the decision makingprocess. Users can make better decisions as thequantity and quality of information increase.

Romney and Steinbart (2006)

Explain TWO (2) characteristics of good or usefulinformation.

Exercise what information you need in


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Exercisewhat information you need indeciding

1. What course to choose when u apply for university?2. What product to produce?

3. Where to invest?

4. Which supplier to choose?

5. To hire an accountant

6. In marketing your product


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Decision Scope

Operational control

Management control

Strategic planning


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Strategic planning is concernedwith establishing organizational

objectives and policies foraccomplishing those objectives.

Decision Scope

Decision Making


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Decision Making(Scope vs. Structure)

Strategic planning -------- Unstructured

Management control -------- Semi

structured Operational control -------- Structured


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Exercise

Mrs. Lim is a secretary at Syarikat Pelangi. She receives alist of activities that requires Board of Directors decision ina weekly meeting. The lists of activities are as follows:

Extending credit limit for customer

Hiring chief internal auditor

Selecting basic research projects to undertakes

Issuing raw materials from warehouse for production

REQUIRED:

Classify each of the above activity as a structured, a semistructured or an unstructured decision. Justify the answer.


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Exercise

Define structured decisions and unstructureddecisions. Provide one (1) example for each typeof the decisions.


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Learning Objectives 8

1.5

Accountants

Roles in AIS


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IS USERS

Accountants must be able to clearly

convey their needs to the systemsprofessionals who design the system.

The accountant should actively participatein systems developmentprojects to ensureappropriate systems design.

ACCOUNTANT AS


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ACCOUNTANT AS


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SYSTEM AUDITORS

External Auditors

attest to fairness of financial statements

assurance service: broader in scope thantraditional attestation audit

IT Auditors

evaluate IT, often as part of external audit

Internal Auditors in-house IS and IT appraisal services

ACCOUNTANT AS


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Careers InAccounting

Roles of Accountants With


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Roles of Accountants WithRespect to an AIS

Financial accountantsprepare financial information

for external decision-making inaccordance with GAAP

Managerial accountantsprepare financial information

for internal decision-making

Roles of Accountants With


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Roles of Accountants WithRespect to an AIS

Auditors - evaluate controlsand attest to the fairness of thefinancial statements.

Accounting managers-control all accounting activitiesof a firm.

Tax specialists- develop

information that reflects taxobligations of the firm.

Consultants- devisespecifications for the AIS.


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Exercise

Accounting Information System (AIS) is a system thatcollects, records and stores data about events, resources,and agents; convert them into information, andcommunicate those information to the users for better

decision making.

REQUIRED:

(a) Differentiate between Accounting Information System(AIS) and Management Information System (MIS).

Provide two (2) differences of each.

(b) What important functions do the AIS perform in anorganization? Briefly explain two (2) of them.

(c) Explain the three (3) roles of accountant in an AIS.


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End of Topic 1

topic 1 introduction to ais

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