Chapter 1 – Accounting Information Systems and Firm Value
l l l l l l l l
Multiple Choice Questions
l l
1. c
2. d
3. a
4. c
5. d
6. b
7. d
8. a
9. d
10. b
11. b
12. c
13. a
14. c
15. a
Discussion Questions
l
1. Brainstorm a list of discretionary information that might be an output of an accounting
l l l l l l l l l l l l l
information system and be needed by Starbucks. Prioritize which items might be most
l l l l l l l l l l l l l
important and provide support.
l l l l
Answers will vary. Here are some potential answers:
l l l l l l l
The cost of a cup of coffee, by type: Breakfast blend, Cafe estima, caffe Verona, espresso roast,
l l l l l l l l l l l l l l l l
Ethiopia sidamo, french roast, Gold coast blend, Guatemala Antigua, house blend, Italian roast,
l l l l l l l l l l l l l
Kenya coffee, komodo dragon blend, organic Serena blend, organic shade grown Mexico,
l l l l l l l l l l l l
sumatra, decaf caffe Verona, decaf espresso roast, decaf house blend, and decaf Sumatra!
l l l l l l l l l l l l l
Monthly Sales per square foot of retail space.
l l l l l l l
Employee cost for each operating hour.
l l l l l l
Advertising expenditures per dollar of sales. l l l l l
The cost of condiments per dollar sales of coffee. Condiments might include sweeteners, liquid
l l l l l l l l l l l l l
creamers, cream canisters, sugar packets, sugar canisters, stir sticks!
l l l l l l l l l
The cost of electricity per operating hour each month of the year.
l l l l l l l l l l l
..
1
, Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 1 l l l l l l l l l l l
2. Explain the information value chain. How do business events turn into data then into information
l l l l l l l l l l l l l l
and then into knowledge? Give an example starting with the business event of thepurchase of a
l l l l l l l l l l l l l l l l l
DVD at Best Buy all the way to useful information for the CEO and other decision makers.
l l l l l l l l l l l l l l l l l
The information value chain represents the overall transformation from a business need and
l l l l l l l l l l l l
business event (like each individual sale of U.S. flag) to an ultimate decision. The information value
l l l l l l l l l l l l l l l l
chain might be represented considering the purchase of a DVD at Best Buy in the followingway:
l l l l l l l l l l l l l l l l l
The DVD will be recorded as sales revenue and then after deducting its costs will add to or subtract
l l l l l l l l l l l l l l l l l l
from corporate income. The cash from the DVD sale will also add to the operating cashflows.
l l l l l l l l l l l l l l l l l
The specific DVD will be recorded in the information as a sale to monitor which DVDs are selling
l l l l l l l l l l l l l l l l l
within Best Buy. This will help Best Buy and its suppliers know which DVDs are selling and whichtype
l l l l l l l l l l l l l l l l l l l
of DVDs should be reordered. The type of DVD will also help the marketing department better
l l l l l l l l l l l l l l l l
understand its customers and their respective demographic profile to better market to them.
l l l l l l l l l l l l l
In addition, knowing the location of the DVD sale will also help decision makers know where its
l l l l l l l l l l l l l l l l
sales are occurring.
l l l
The CEO can look at the profitability of DVDs overall, the specific types of DVDs that are sellingand
l l l l l l l l l l l l l l l l l l
the location of those sales all due to the information value chain.
l l l l l l l l l l l l
3. Give three examples of types of discretionary information at your college or university and
l l l l l l l l l l l l l
explain how the benefits of receiving that information outweigh the costs.
l l l l l l l l l l l
Answers will vary. This represents a potential answer. l l l l l l l
Universities are often interested in their freshmen retention (the percentage of sophomores l l l l l l l l l l l
that return after their freshman year). They also quite interested in their four- or five-year
l l l l l l l l l l l l l l l
graduation rates.
l l
Universities are also interested in their production of research grants. This is often used to l l l l l l l l l l l l l l
monitor the success of their research and their ability to get interested sponsors (such as the
l l l l l l l l l l l l l l l l
National Institute of Health or the National Science Foundation).
l l l l l l l l l
Information for each of these three examples can be gained by the information system at the l l l l l l l l l l l l l l l
university. However, a university generic information system does not usually offer this
l l l l l l l l l l l l
information as a standard report or standard output of the system. Therefore, work must be done
l l l l l l l l l l l l l l l l
to capture (and potentially digitize) this information, ensure its validity and then report it in an
l l l l l l l l l l l l l l l l
appropriate useful format. The cost of getting useful information will depend on the university and
l l l l l l l l l l l l l l l
its technology. However, since these represent three keys metrics of a university
l l l l l l l l l l l l
..
2
, Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 1 l l l l l l l l l l l
and will likely be used as a key input to manage the university, the benefits will potentiallyoutweigh
l l l l l l l l l l l l l l l l l
those costs.
l l
4. After a NBA basketball game a box score is produced detailing the number of points scored, assists
l l l l l l l l l l l l l l l l
made and rebounds retrieved (among other statistics). Using the characteristics of useful
l l l l l l l l l l l l
information discussed at the beginning of the chapter, please explain how this box score meets (or
l l l l l l l l l l l l l l l l
does not meet) the characteristics of useful information.
l l l l l l l l
A box score of a NBA basketball game (or other sports) produces overall team statistics by half and
l l l l l l l l l l l l l l l l l
quarter and details player performance including minutes played, shots taken, shots made,free
l l l l l l l l l l l l l
throw shots taken and made, assists, rebounds, steals, blocks and fouls.
l l l l l l l l l l l
To be relevant, the information must potentially impact a decision that a decision maker must
l l l l l l l l l l l l l l
make. Relevant information is usually characterized by having predictive value, feedback value and
l l l l l l l l l l l l l
receiving it on a timely basis. This information provides feedback value to explain how players
l l l l l l l l l l l l l l l
performed in the game. The box score provides predictive value to the extent that prior
l l l l l l l l l l l l l l l
performance (as reflected in the box score) is predictive of future performance. Since box scores
l l l l l l l l l l l l l l l
are available immediately following the game, it is also received on a timely enough basisto make
l l l l l l l l l l l l l l l l l
decisions for a subsequent game.
l l l l l
To be reliable, the information must be verifiable, be representationally faithful and be neutral.
l l l l l l l l l l l l l
There are often some allegations that the statistics included in a box score is affected by the biasof
l l l l l l l l l l l l l l l l l l l
the scorekeeper. While the actual points scored by the team is verified by the officials, more minute
l l l l l l l l l l l l l l l l l
details are not verified and may be subject to bias, thus limiting their reliability.
l l l l l l l l l l l l l l
The information is potentially relevant to the coach in helping to figure out which players are
l l l l l l l l l l l l l l l
most efficient and productive. Which players play well against different teams and which
l l l l l l l l l l l l l
players are good at particular aspects of offense and defense, among others.
l l l l l l l l l l l l
5. Some would argue that the role of accounting is simply as an information provider. Will a
l l l l l l l l l l l l l l l
computer ultimately completely take over the job of the accountant? As part of your
l l l l l l l l l l l l l l
explanation, explain how the role of accountants in information systems continues to evolve.
l l l l l l l l l l l l l
Accountants have a role as a business analyst. That is, they gather information to solve business l l l l l l l l l l l l l l l
problems or address business opportunities. They determine what information is relevant in solving
l l l l l l l l l l l l l
business problems, then create or extract that information and finally analyze the information to
l l l l l l l l l l l l l l
solve the problem. An AIS provides a systematic means for accountants to get needed information
l l l l l l l l l l l l l l l
and solve a problem.
l l l l
While a computer is very good at reliably collecting, processing and producing information, the
l l l l l l l l l l l l l
role of the accountant when serving as a business analyst will continue to be able to assess the
l l l l l l l l l l l l l l l l l l
problems the business is facing and work to provide information that will address it.
l l l l l l l l l l l l l l
..
3
, Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 1 l l l l l l l l l l l
6. How do you become a Certified Information Technology Professional (CITP)? What do they doon
l l l l l l l l l l l l l l
a daily basis?
l l l
A CPA can earn a CITP designation with a combination of business experience, lifelong learning
l l l l l l l l l l l l l l
and an optional exam.
l l l l
The CITP designation identifies accountants (CPAs) with a broad range of technology knowledge
l l l l l l l l l l l l
and experience. On a daily basis, CITPs may help devise a more efficient financial reporting system,
l l l l l l l l l l l l l l l l
help figure out how an information system can provide needed decision-relevant information,
l l l l l l l l l l l l
help the accounting function go paperless or consult on how an IT function may transform the
l l l l l l l l l l l l l l l l
business.
l
7. Explain the value chain for an appliance manufacturer, particularly the primary activities. Which
l l l l l l l l l l l l
activities are most crucial for value creation (or in other words, which activities would you want to
l l l l l l l l l l l l l l l l l
make sure are the most effective)? Rank the five value-chain enhancing activities in importance for
l l l l l l l l l l l l l l l
an appliance manufacturer.
l l l
The value chain goes all the way from product design, through sourcing to manufacturing to
l l l l l l l l l l l l l l
shipping the final product to the warranty and repair business. Many would consider the product
l l l l l l l l l l l l l l l
design, which ensures that the appliance has the desired functionality at the right priced points, to
l l l l l l l l l l l l l l l l
be a critical activity for value creation. Sourcing the product components to low cost, yet high
l l l l l l l l l l l l l l l l
quality component providers is also key to creating value. Final assembly (oroperations) of the
l l l l l l l l l l l l l l l
product components is also key to ensuring high product quality at reasonable prices. Marketing
l l l l l l l l l l l l l l
the final product through appropriate distribution channels and supporting the final product
l l l l l l l l l l l l
through the warranty and repair process also are crucial parts of the value chain.
l l l l l l l l l l l l l l
My opinion of the ranking of the five primary activities would be that product design would be the
l l l l l l l l l l l l l l l l l
most important, then sourcing (inbound logistics), then marketing, then warranty and repairand
l l l l l l l l l l l l l
finally final assembly (or operations).
l l l l l
8. Which value chain supporting activities would most be most important to support a health
l l l l l l l l l l l l l
insurance provider’s primary activities? How about the most important primary activities for auniversity?l l l l l l l l l l l l l
Of course, all of the supporting activities are important. Human Resources perhaps can be viewed
l l l l l l l l l l l l l l
as most important to make sure the right nurses and right doctors with the appropriateskills are
l l l l l l l l l l l l l l l l l
available at the right time to service the sick and injured. Technology is increasingly becoming an
l l l l l l l l l l l l l l l l
important part of hospitals, especially with the digital medical records are becoming increasingly
l l l l l l l l l l l l l
available and useful. Certainly, other arguments can be made for other supporting activities.
l l l l l l l l l l l l l
The primary activities of a university would be to attract students, educate them and then helping
l l l l l l l l l l l l l l l
them find a good job once they have graduated. Educating students is probably themost important
l l l l l l l l l l l l l l l l
primary activities in the university as that is its primary mission.
l l l l l l l l l l l
..
4
l l l l l l l l
Multiple Choice Questions
l l
1. c
2. d
3. a
4. c
5. d
6. b
7. d
8. a
9. d
10. b
11. b
12. c
13. a
14. c
15. a
Discussion Questions
l
1. Brainstorm a list of discretionary information that might be an output of an accounting
l l l l l l l l l l l l l
information system and be needed by Starbucks. Prioritize which items might be most
l l l l l l l l l l l l l
important and provide support.
l l l l
Answers will vary. Here are some potential answers:
l l l l l l l
The cost of a cup of coffee, by type: Breakfast blend, Cafe estima, caffe Verona, espresso roast,
l l l l l l l l l l l l l l l l
Ethiopia sidamo, french roast, Gold coast blend, Guatemala Antigua, house blend, Italian roast,
l l l l l l l l l l l l l
Kenya coffee, komodo dragon blend, organic Serena blend, organic shade grown Mexico,
l l l l l l l l l l l l
sumatra, decaf caffe Verona, decaf espresso roast, decaf house blend, and decaf Sumatra!
l l l l l l l l l l l l l
Monthly Sales per square foot of retail space.
l l l l l l l
Employee cost for each operating hour.
l l l l l l
Advertising expenditures per dollar of sales. l l l l l
The cost of condiments per dollar sales of coffee. Condiments might include sweeteners, liquid
l l l l l l l l l l l l l
creamers, cream canisters, sugar packets, sugar canisters, stir sticks!
l l l l l l l l l
The cost of electricity per operating hour each month of the year.
l l l l l l l l l l l
..
1
, Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 1 l l l l l l l l l l l
2. Explain the information value chain. How do business events turn into data then into information
l l l l l l l l l l l l l l
and then into knowledge? Give an example starting with the business event of thepurchase of a
l l l l l l l l l l l l l l l l l
DVD at Best Buy all the way to useful information for the CEO and other decision makers.
l l l l l l l l l l l l l l l l l
The information value chain represents the overall transformation from a business need and
l l l l l l l l l l l l
business event (like each individual sale of U.S. flag) to an ultimate decision. The information value
l l l l l l l l l l l l l l l l
chain might be represented considering the purchase of a DVD at Best Buy in the followingway:
l l l l l l l l l l l l l l l l l
The DVD will be recorded as sales revenue and then after deducting its costs will add to or subtract
l l l l l l l l l l l l l l l l l l
from corporate income. The cash from the DVD sale will also add to the operating cashflows.
l l l l l l l l l l l l l l l l l
The specific DVD will be recorded in the information as a sale to monitor which DVDs are selling
l l l l l l l l l l l l l l l l l
within Best Buy. This will help Best Buy and its suppliers know which DVDs are selling and whichtype
l l l l l l l l l l l l l l l l l l l
of DVDs should be reordered. The type of DVD will also help the marketing department better
l l l l l l l l l l l l l l l l
understand its customers and their respective demographic profile to better market to them.
l l l l l l l l l l l l l
In addition, knowing the location of the DVD sale will also help decision makers know where its
l l l l l l l l l l l l l l l l
sales are occurring.
l l l
The CEO can look at the profitability of DVDs overall, the specific types of DVDs that are sellingand
l l l l l l l l l l l l l l l l l l
the location of those sales all due to the information value chain.
l l l l l l l l l l l l
3. Give three examples of types of discretionary information at your college or university and
l l l l l l l l l l l l l
explain how the benefits of receiving that information outweigh the costs.
l l l l l l l l l l l
Answers will vary. This represents a potential answer. l l l l l l l
Universities are often interested in their freshmen retention (the percentage of sophomores l l l l l l l l l l l
that return after their freshman year). They also quite interested in their four- or five-year
l l l l l l l l l l l l l l l
graduation rates.
l l
Universities are also interested in their production of research grants. This is often used to l l l l l l l l l l l l l l
monitor the success of their research and their ability to get interested sponsors (such as the
l l l l l l l l l l l l l l l l
National Institute of Health or the National Science Foundation).
l l l l l l l l l
Information for each of these three examples can be gained by the information system at the l l l l l l l l l l l l l l l
university. However, a university generic information system does not usually offer this
l l l l l l l l l l l l
information as a standard report or standard output of the system. Therefore, work must be done
l l l l l l l l l l l l l l l l
to capture (and potentially digitize) this information, ensure its validity and then report it in an
l l l l l l l l l l l l l l l l
appropriate useful format. The cost of getting useful information will depend on the university and
l l l l l l l l l l l l l l l
its technology. However, since these represent three keys metrics of a university
l l l l l l l l l l l l
..
2
, Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 1 l l l l l l l l l l l
and will likely be used as a key input to manage the university, the benefits will potentiallyoutweigh
l l l l l l l l l l l l l l l l l
those costs.
l l
4. After a NBA basketball game a box score is produced detailing the number of points scored, assists
l l l l l l l l l l l l l l l l
made and rebounds retrieved (among other statistics). Using the characteristics of useful
l l l l l l l l l l l l
information discussed at the beginning of the chapter, please explain how this box score meets (or
l l l l l l l l l l l l l l l l
does not meet) the characteristics of useful information.
l l l l l l l l
A box score of a NBA basketball game (or other sports) produces overall team statistics by half and
l l l l l l l l l l l l l l l l l
quarter and details player performance including minutes played, shots taken, shots made,free
l l l l l l l l l l l l l
throw shots taken and made, assists, rebounds, steals, blocks and fouls.
l l l l l l l l l l l
To be relevant, the information must potentially impact a decision that a decision maker must
l l l l l l l l l l l l l l
make. Relevant information is usually characterized by having predictive value, feedback value and
l l l l l l l l l l l l l
receiving it on a timely basis. This information provides feedback value to explain how players
l l l l l l l l l l l l l l l
performed in the game. The box score provides predictive value to the extent that prior
l l l l l l l l l l l l l l l
performance (as reflected in the box score) is predictive of future performance. Since box scores
l l l l l l l l l l l l l l l
are available immediately following the game, it is also received on a timely enough basisto make
l l l l l l l l l l l l l l l l l
decisions for a subsequent game.
l l l l l
To be reliable, the information must be verifiable, be representationally faithful and be neutral.
l l l l l l l l l l l l l
There are often some allegations that the statistics included in a box score is affected by the biasof
l l l l l l l l l l l l l l l l l l l
the scorekeeper. While the actual points scored by the team is verified by the officials, more minute
l l l l l l l l l l l l l l l l l
details are not verified and may be subject to bias, thus limiting their reliability.
l l l l l l l l l l l l l l
The information is potentially relevant to the coach in helping to figure out which players are
l l l l l l l l l l l l l l l
most efficient and productive. Which players play well against different teams and which
l l l l l l l l l l l l l
players are good at particular aspects of offense and defense, among others.
l l l l l l l l l l l l
5. Some would argue that the role of accounting is simply as an information provider. Will a
l l l l l l l l l l l l l l l
computer ultimately completely take over the job of the accountant? As part of your
l l l l l l l l l l l l l l
explanation, explain how the role of accountants in information systems continues to evolve.
l l l l l l l l l l l l l
Accountants have a role as a business analyst. That is, they gather information to solve business l l l l l l l l l l l l l l l
problems or address business opportunities. They determine what information is relevant in solving
l l l l l l l l l l l l l
business problems, then create or extract that information and finally analyze the information to
l l l l l l l l l l l l l l
solve the problem. An AIS provides a systematic means for accountants to get needed information
l l l l l l l l l l l l l l l
and solve a problem.
l l l l
While a computer is very good at reliably collecting, processing and producing information, the
l l l l l l l l l l l l l
role of the accountant when serving as a business analyst will continue to be able to assess the
l l l l l l l l l l l l l l l l l l
problems the business is facing and work to provide information that will address it.
l l l l l l l l l l l l l l
..
3
, Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 1 l l l l l l l l l l l
6. How do you become a Certified Information Technology Professional (CITP)? What do they doon
l l l l l l l l l l l l l l
a daily basis?
l l l
A CPA can earn a CITP designation with a combination of business experience, lifelong learning
l l l l l l l l l l l l l l
and an optional exam.
l l l l
The CITP designation identifies accountants (CPAs) with a broad range of technology knowledge
l l l l l l l l l l l l
and experience. On a daily basis, CITPs may help devise a more efficient financial reporting system,
l l l l l l l l l l l l l l l l
help figure out how an information system can provide needed decision-relevant information,
l l l l l l l l l l l l
help the accounting function go paperless or consult on how an IT function may transform the
l l l l l l l l l l l l l l l l
business.
l
7. Explain the value chain for an appliance manufacturer, particularly the primary activities. Which
l l l l l l l l l l l l
activities are most crucial for value creation (or in other words, which activities would you want to
l l l l l l l l l l l l l l l l l
make sure are the most effective)? Rank the five value-chain enhancing activities in importance for
l l l l l l l l l l l l l l l
an appliance manufacturer.
l l l
The value chain goes all the way from product design, through sourcing to manufacturing to
l l l l l l l l l l l l l l
shipping the final product to the warranty and repair business. Many would consider the product
l l l l l l l l l l l l l l l
design, which ensures that the appliance has the desired functionality at the right priced points, to
l l l l l l l l l l l l l l l l
be a critical activity for value creation. Sourcing the product components to low cost, yet high
l l l l l l l l l l l l l l l l
quality component providers is also key to creating value. Final assembly (oroperations) of the
l l l l l l l l l l l l l l l
product components is also key to ensuring high product quality at reasonable prices. Marketing
l l l l l l l l l l l l l l
the final product through appropriate distribution channels and supporting the final product
l l l l l l l l l l l l
through the warranty and repair process also are crucial parts of the value chain.
l l l l l l l l l l l l l l
My opinion of the ranking of the five primary activities would be that product design would be the
l l l l l l l l l l l l l l l l l
most important, then sourcing (inbound logistics), then marketing, then warranty and repairand
l l l l l l l l l l l l l
finally final assembly (or operations).
l l l l l
8. Which value chain supporting activities would most be most important to support a health
l l l l l l l l l l l l l
insurance provider’s primary activities? How about the most important primary activities for auniversity?l l l l l l l l l l l l l
Of course, all of the supporting activities are important. Human Resources perhaps can be viewed
l l l l l l l l l l l l l l
as most important to make sure the right nurses and right doctors with the appropriateskills are
l l l l l l l l l l l l l l l l l
available at the right time to service the sick and injured. Technology is increasingly becoming an
l l l l l l l l l l l l l l l l
important part of hospitals, especially with the digital medical records are becoming increasingly
l l l l l l l l l l l l l
available and useful. Certainly, other arguments can be made for other supporting activities.
l l l l l l l l l l l l l
The primary activities of a university would be to attract students, educate them and then helping
l l l l l l l l l l l l l l l
them find a good job once they have graduated. Educating students is probably themost important
l l l l l l l l l l l l l l l l
primary activities in the university as that is its primary mission.
l l l l l l l l l l l
..
4
