Accounting information systems (AIS)
Part 1: understanding information systems
Chapter 1: introduction to AIS
All decision makers within an organization benefit from accounting technology
Three themes of the book:
- Enterprise systems: integrate the business processes and information from all of an
organization’s functional areas
o ERP systems are software packages that can be used to support enterprise
systems
o To install an enterprise system: the business processes of an organization
must be understood and documented configuring the system to tailor the
needs of the business
o Store all information about business events for an organization
- E-business: the use of electronic networks (including the internet) to enable business
processes between individuals and organizations (back-office and front-office
processes)
o Has created new ways of working within and across organizations
o Accountants need to be aware of the opportunities and risks
- Internal control: a process designed to provide confidence that the organization is
achieving its objectives in the following categories:
o Efficiency and effectiveness of operations
o Reliability of reporting
o Compliance with applicable laws and regulations
Sarbanes-Oxley act of 2002 (SOX):
- Section 404: management must identify, document and evaluate significant internal
controls. Auditors must report on the effectiveness of the organization’s system of
internal control
- Section 409: requires disclosure to the public on a “rapid and current basis” of
material changes in an organization’s financial condition requires application of
legal, financial, and technical expertise to ensure that the AIS is able to produce
financial data in an accurate and timely manner
- Financial accountants must be sure that their AIS can produce financial statements to
comply with SOX and other regulations
- Management accountants must be sure that a new information system (IS) has the
necessary features and the ability to access and trace data
How can you determine the reliability of financial information?
- Nonfinancial information
- Use of information technology to create or summarize information from databases
- Information interpretation to determine the quality and relevance of information to
be used for decision making
,Elements in the study of AIS
- Technology: foundation on which AIS and business operations rest; knowledge of
technology is critically important for understanding the AIS discipline
- Databases: data collection and storage in public and private databases
- Reporting: accountant must know what outputs are required or desirable
- Control: make sure the indented actually happens
- Business operations: AIS in light of the work being performed by the organization
- Events processing: data about business operations must be captured and recorded
- Management decision making: information is used for decision-making
- Systems development and operation: the IS that process business events and provide
information for management decision-making must be designed, implemented, and
effectively operated
- Communications: to present the results effectively
- Accounting and auditing principles: an accountant must know the proper accounting
procedures to design and operate the AIS
What is an accounting information system (AIS)?
- Information: data presented in a form that is useful for decision-making activity
- Data: facts or figures in a raw form; measurement of objects/events to become
useful: data must be transformed into information
- Decision-making: process of making choices, which is the central activity of all
management
- System: set of interdependent elements (subsystems) that together accomplish
specific objectives you must know an organization’s objectives to understand that
business as a system and to understand the actions and interactions of that
business’s subsystems
- Information system (IS) or management information system (MIS): man-made system
that generally consists of an integrated set of computer-based components and
manual components established to collect, store, and manage data and to provide
output information to users
o Functional components of an IS: storage, processing, users, input, and output
o IS facilitates operational functions and supports management decision-
making by providing information
- Accounting information system (AIS): specialized subsystem of IS with a purpose to
collect, process, and report information related to the financial aspects of business
events AIS can often not be distinguished from the IS
Logical components of a business process
- Information process (IS)
- Operations process (include production, personnel, marketing, sales, accounting, etc)
- Management process: three most prominent management activities: planning,
controlling, and decision-making
Management uses of information
IS has to important functions within an organization:
, - Assisting in daily operations: can be used to improve operational effectiveness and
efficiency; and monitors actions in the operations system
- Supporting managerial activities: monitor current operations, help measure results,
recognize/adapt trends in the environment
COBIT information criteria:
- Effectiveness: information that is useful for decision-making
- Efficiency: process of obtaining and using information
- Integrity: free of error and complete
- Reliability: true and credible (subjective)
- Availability: information quality
- Confidentiality: restricted access information
- Compliance: information must conform to regulations
Effectiveness understandability enables users to perceive information’s significance
- Relevance: capable of making a difference in decision-making
o Predicted/feedback value: improve capacity to predict expectations
o Timeliness: information that is available before is loses ability to influence
decision
- Reliability
o Validity: information about actual events
o Accuracy: agreement between information and actual events
o Neutrality: freedom from bias = objective
o Completeness: degree to which data about every relevant event is included
o Verifiability: high degree of consensus about information
- Comparability: enables users to identify similarities and differences in information
Decision-making as a three-step process:
1. Intelligence (environmental information, organizational information)
2. Design (information related to possible courses of action)
3. Choice (information about outcomes of possible courses of action)
structured decisions
Vertical data flows for processing business events: (managerial decision support)
1. Operations and business event processing
2. Operations management: to monitor daily functioning (timely, accurate information)
3. Tactical management: focuses on relevant operational units
4. Strategic management: requires information to assess the environment (future)
Horizontal data flows: relate to specific business operations
Input for decision-making
- Directly from the environment or direct observations form business processes
- Indirectly through the IS which retrieves and presents operational and environmental
information
o Key component of IS to meet the needs of the decision-maker = enterprise
database (central repository for all data related to the enterprise’s business
activities and resources)
Part 1: understanding information systems
Chapter 1: introduction to AIS
All decision makers within an organization benefit from accounting technology
Three themes of the book:
- Enterprise systems: integrate the business processes and information from all of an
organization’s functional areas
o ERP systems are software packages that can be used to support enterprise
systems
o To install an enterprise system: the business processes of an organization
must be understood and documented configuring the system to tailor the
needs of the business
o Store all information about business events for an organization
- E-business: the use of electronic networks (including the internet) to enable business
processes between individuals and organizations (back-office and front-office
processes)
o Has created new ways of working within and across organizations
o Accountants need to be aware of the opportunities and risks
- Internal control: a process designed to provide confidence that the organization is
achieving its objectives in the following categories:
o Efficiency and effectiveness of operations
o Reliability of reporting
o Compliance with applicable laws and regulations
Sarbanes-Oxley act of 2002 (SOX):
- Section 404: management must identify, document and evaluate significant internal
controls. Auditors must report on the effectiveness of the organization’s system of
internal control
- Section 409: requires disclosure to the public on a “rapid and current basis” of
material changes in an organization’s financial condition requires application of
legal, financial, and technical expertise to ensure that the AIS is able to produce
financial data in an accurate and timely manner
- Financial accountants must be sure that their AIS can produce financial statements to
comply with SOX and other regulations
- Management accountants must be sure that a new information system (IS) has the
necessary features and the ability to access and trace data
How can you determine the reliability of financial information?
- Nonfinancial information
- Use of information technology to create or summarize information from databases
- Information interpretation to determine the quality and relevance of information to
be used for decision making
,Elements in the study of AIS
- Technology: foundation on which AIS and business operations rest; knowledge of
technology is critically important for understanding the AIS discipline
- Databases: data collection and storage in public and private databases
- Reporting: accountant must know what outputs are required or desirable
- Control: make sure the indented actually happens
- Business operations: AIS in light of the work being performed by the organization
- Events processing: data about business operations must be captured and recorded
- Management decision making: information is used for decision-making
- Systems development and operation: the IS that process business events and provide
information for management decision-making must be designed, implemented, and
effectively operated
- Communications: to present the results effectively
- Accounting and auditing principles: an accountant must know the proper accounting
procedures to design and operate the AIS
What is an accounting information system (AIS)?
- Information: data presented in a form that is useful for decision-making activity
- Data: facts or figures in a raw form; measurement of objects/events to become
useful: data must be transformed into information
- Decision-making: process of making choices, which is the central activity of all
management
- System: set of interdependent elements (subsystems) that together accomplish
specific objectives you must know an organization’s objectives to understand that
business as a system and to understand the actions and interactions of that
business’s subsystems
- Information system (IS) or management information system (MIS): man-made system
that generally consists of an integrated set of computer-based components and
manual components established to collect, store, and manage data and to provide
output information to users
o Functional components of an IS: storage, processing, users, input, and output
o IS facilitates operational functions and supports management decision-
making by providing information
- Accounting information system (AIS): specialized subsystem of IS with a purpose to
collect, process, and report information related to the financial aspects of business
events AIS can often not be distinguished from the IS
Logical components of a business process
- Information process (IS)
- Operations process (include production, personnel, marketing, sales, accounting, etc)
- Management process: three most prominent management activities: planning,
controlling, and decision-making
Management uses of information
IS has to important functions within an organization:
, - Assisting in daily operations: can be used to improve operational effectiveness and
efficiency; and monitors actions in the operations system
- Supporting managerial activities: monitor current operations, help measure results,
recognize/adapt trends in the environment
COBIT information criteria:
- Effectiveness: information that is useful for decision-making
- Efficiency: process of obtaining and using information
- Integrity: free of error and complete
- Reliability: true and credible (subjective)
- Availability: information quality
- Confidentiality: restricted access information
- Compliance: information must conform to regulations
Effectiveness understandability enables users to perceive information’s significance
- Relevance: capable of making a difference in decision-making
o Predicted/feedback value: improve capacity to predict expectations
o Timeliness: information that is available before is loses ability to influence
decision
- Reliability
o Validity: information about actual events
o Accuracy: agreement between information and actual events
o Neutrality: freedom from bias = objective
o Completeness: degree to which data about every relevant event is included
o Verifiability: high degree of consensus about information
- Comparability: enables users to identify similarities and differences in information
Decision-making as a three-step process:
1. Intelligence (environmental information, organizational information)
2. Design (information related to possible courses of action)
3. Choice (information about outcomes of possible courses of action)
structured decisions
Vertical data flows for processing business events: (managerial decision support)
1. Operations and business event processing
2. Operations management: to monitor daily functioning (timely, accurate information)
3. Tactical management: focuses on relevant operational units
4. Strategic management: requires information to assess the environment (future)
Horizontal data flows: relate to specific business operations
Input for decision-making
- Directly from the environment or direct observations form business processes
- Indirectly through the IS which retrieves and presents operational and environmental
information
o Key component of IS to meet the needs of the decision-maker = enterprise
database (central repository for all data related to the enterprise’s business
activities and resources)
