Ais Prelims

CPA = Certified Public Accountant
MBA = Master of Business Administration

CISA = Certified Information System Auditor
CIA = Certified Internal Auditor
CFSA = Certified Financial Services Auditor
ISA = International Standards on Auditing
PCHC = Philippine Clearing House Corporation
PICPA = Philippine Institute of Certified Public Accountants
ACPACI = Association of Certified Public Accountants in Commerce and Industry
GACPA = The Government Association of Certified Public Accountants
NACPAE = National Association of Certified Public Accountants in Education
CFA = Certified Financial Analyst
CMA = Certified Management Accountant
ACCPAC = A Complete and Comprehensive Program for Accounting Control
CPD = Continuing Professional Development
10 Step Accounting Cycle

1. analyzing transactions
2. journalizing transactions
3. post transactions
4. unadjusted trial balance
5. adjusting entries
6. adjusted trial balance
7. financial statements
8. closing entries
9. closing trial balance
10. reversing entries
It shows the business organization divided horizontally into several levels of activity.
Business operations form the base of the pyramid. These activities consist of the
product-oriented work of the organization, such as manufacturing, sales, and
distribution. Above the base level, the organization is divided into three management
tiers: operations management, middle management, and top management.
➢ Operations management is directly responsible for controlling day-to-day
operations.
➢ Middle management is accountable for the short-term planning and coordination

of activities necessary to accomplish organizational objectives.
➢ Top management is responsible for longer-term planning and setting

organizational objectives.
Every individual in the organization, from business operations to top management,

needs information to accomplish his or her tasks.
Information flows in two directions within the organization:

➢ horizontal flow - supports operations-level tasks with highly detailed information
about the many business transactions affecting the firm.
➢ vertical flow - distributes summarized information about operations and other
activities upward to managers at all levels.
*Information also flows downward from senior managers to junior managers and
operations personnel in the form of instructions, quotas, and budgets.
System
➔ generates mental images of computers and programming.
➔ Natural Systems (atom—a system of electrons, protons, and neutrons—to the
universe—a system of galaxies, stars, and planets. All life forms, plant and
animal)
➔ Artificial Systems (manmade)
6 Elements of a system
➔ Multiple Components - A system must contain more than one part.
➔ Relatedness - A common purpose relates the multiple parts of the system
➔ System versus Subsystem - A system is called a subsystem when it is viewed in
relation to the larger system of which it is a part. Likewise, a subsystem is called a
system when it is the focus of attention.
➔ Purpose - A system must serve at least one purpose, but it may serve several
➔ System Decomposition - Decomposition is the process of dividing the system
into smaller subsystem parts
➔ Subsystem Interdependency - A system’s ability to achieve its goal depends on
the effective functioning and harmonious interaction of its subsystems
Information System
➢ is the set of formal procedures by which data are collected, processed into
information, and distributed to users
2 broad classes of systems

1. AIS = accounting information system
a. GL/FRS = General Ledger / Financial Reporting System (bs,is, scf)
b. TPS = Transaction Processing System (reports, documents)
c. MRS = Management Reporting System (budget, variance & responsibility
report)
2. MIS = management information system
a. FMS = Financial Management Systems
b. MS = Marketing Systems
c. DS = Distribution Systems
d. HRS = Human Resource Systems
Transaction
➢ as an event that affects or is of interest to the organization and is processed by its
information system as a unit of work
Financial Transaction
➢ is an economic event that affects the assets and equities of the organization, is
reflected in its accounts, and is measured in monetary terms
Non Financial Transactions

➢ are events that do not meet the narrow definition of a financial transaction.
7 Elements of the General Model

1. End Users
a. External Users (creditors, stockholders)
b. Internal Users (management;every level, operations personnel)
2. Data Sources
3. Data Collection
4. Data Processing
5. Database Management
6. Information Generation
7. Feedback
Data
➢ are facts, which may or may not be processed (edited, summarized, or refined)
and have no direct effect on the user
Information
➢ causes the user to take an action that he or she otherwise could not, or would not,
have taken.
Data sources
➢ are financial transactions that enter the information system from both internal
and external sources.
➢ External financial transaction = the most common source of data
Data collection
➢ is the first operational stage in the information system.
➢ 2 rules:
- Relevance
- Efficiency
Data Processing
➢ stages range from simple to complex.
Database Management
➢ Database = is its physical repository for financial and nonfinancial data.
○ Data Attribute - is the most elemental piece of potentially useful data in
the database
■ Record = is a complete set of attributes for a single occurrence
within an entity class
■ File = is a complete set of records of an identical class.
➢ 3 Fundamental Tasks
1. Storage
2. Retrieval
3. Deletion
Information Generation
➢ is the process of compiling, arranging, formatting, and presenting information to
users.
➢ 5 Characteristics:
1. Relevance
2. Timeliness
3. Accuracy
4. Completeness
5. Summarization.
Feedback
➢ is a form of output that is sent back to the system as a source of data.
3 Information System Objectives
1. To support the stewardship function of management
2. To support management decision making
3. To support the firm’s day-to-day operations
Acquisition of Information Systems

➢ 2 ways:
1. they develop customized systems from scratch through in-house systems
development activities
2. They purchase preprogrammed commercial systems from software
vendors.
➢ System Development Life Cycle = the formal process by which this is
accomplished
➢ 3 basic types of commercial software
1. turnkey systems
2. backbone systems
3. vendor-supported systems.
Turnkey systems
➢ are completely finished and tested systems that are ready for implementation
Backbone systems
➢ consist of a basic system structure on which to build
Vendor-supported systems
➢ are custom (or customized) systems that client organizations purchase
commercially rather than develop in-house.
Business Segments
➢ 3 most common approaches include segmentation
1. Geographic Location
2. Product Line
3. Business Function
Functional Segmentation
➢ by business function is the most common method of organizing.Segmentation
➢ Materials Management
➔ 3 subfunctions
1. Purchasing
2. Receiving
3. Stores
➢ Production
➔ Two broad classes
1. primary manufacturing activities
2. production support activities.
a. Production planning
b. Quality control
c. Maintenance
➢ Marketing
➔ Deals with the strategic problems of product promotion, advertising, and
market research
➢ Distribution
➔ is the activity of getting the product to the customer after the sale
➢ Personnel
➔ Competent and reliable employees
➔ is to effectively manage this resource
➔ Personnel function:
- recruiting,
- training,
- continuing education,
- counseling,
- evaluating,
- labor relations,
- compensation administration
➢ Finance function
➔ manages the financial resources of the firm through banking and treasury
activities, portfolio management, credit evaluation, cash disbursements,
and cash receipts.
The accounting function

➢ manages the financial information resource of the firm
➢ two important roles in transaction processing
1. accounting captures and records the financial effects of the firm’s
transactions
2. the accounting function distributes transaction information to operations
personnel to coordinate many of their key tasks
➢ The value of information to a user is determined by its reliability.
➢ Information reliability rests heavily on the concept of accounting
independence.
Centralized data processing model
➢ all data processing is performed by one or more large computers housed at a
central site that serve users throughout the organization
Database Administration
➢ Centrally organized companies maintain their data resources in a central location
that is shared by all end users.
Data Processing
➢ The data processing group manages the computer resources used to perform the
day-to-day processing of transactions.
Systems Development and Maintenance

1. systems professionals
2. end users
3. Stakeholders.
Distributed Data Processing (DDP)

➢ An alternative to the centralized model
➢ Disadvantages of DDP
1. Mismanagement of organization-wide resources.
2. Hardware and software incompatibility.
3. Redundant tasks.
4. Consolidating incompatible activities
5. Hiring qualified professionals.
6. Lack of standards
➢ Advantages of DDP
1. Cost reductions
2. Improved cost control responsibility
3. Improved user satisfaction
4. Backup
The Evolution of Information System Models

➔ The Manual Process Model
➢ is the oldest and most traditional form of accounting systems
➔ The Flat-File Model
➢ The flat-file approach is a single-view model
➢ describes an environment in which individual data files are not related to
other files.
➢ most often associated with so-called legacy systems
➢ 3 significant problems:
1. data storage,
2. data updating,
3. currency of information.
4. Task-data dependency
➔ The Database Model
➢ An organization can overcome the problems associated with flat files by
implementing the database model to data management
➢ DBMS = Database Management System
- is a special software system that is programmed to know which
data elements each user is authorized to access.
➔ The REA Model
➢ is an accounting framework for modeling an organization’s critical
resources, events, and agents (REA) and the relationships between them.
➢ Key elements of REA:
1. Resources
2. Events
3. Agents
Enterprise Resource Planning Systems
Enterprise resource planning (ERP)

➢ is an information system model that enables an organization to automate and
integrate its key business processes.
➢ Some common ERP modules include:
1. Asset Management
2. Financial Accounting
3. Human Resources
4. Industry-Specific Solutions
5. Plant Maintenance
6. Production Planning
7. Quality Management S
8. ales and Distribution
9. Inventory Management
The Role of the Accountant
Accountants as Users = the accounting function is the single largest user of IT.
Accountants as System Designers

➢ Conceptual system = involves specifying the criteria for identifying delinquent
customers and the information that needs to be reported.
➢ Physical system is the medium and method for capturing and presenting the
information.
Accountants as System Auditors

➢ Auditing = is a form of independent attestation performed by an expert—the
auditor—who expresses an opinion about the fairness of a company’s financial
statements
➢ This service is often referred to as the attest function.
The external accountant’s responsibility as a systems auditor was limited to the attest
function described previously.
Assurance services are professional services, including the attest function, that are
designed to improve the quality of information, both financial and nonfinancial, used by
decision makers.
IT auditing is usually performed as part of a broader financial audit. The

organizational unit responsible for conducting IT audits may fall under the assurance
services group or be independent.
Internal auditing is an appraisal function housed within the organization.

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Ais Prelims

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CPA = Certified Public Accountant

MBA = Master of Business Administration

10 Step Accounting Cycle

➢ Middle management is accountable for the short-term planning and coordination

➢ Top management is responsible for longer-term planning and setting

Every individual in the organization, from business operations to top management,

Information flows in two directions within the organization:

2 broad classes of systems

Non Financial Transactions

7 Elements of the General Model

Acquisition of Information Systems

The accounting function

Systems Development and Maintenance

Distributed Data Processing (DDP)

The Evolution of Information System Models

Enterprise Resource Planning Systems

Enterprise resource planning (ERP)

The Role of the Accountant

Accountants as System Designers

Accountants as System Auditors

IT auditing is usually performed as part of a broader financial audit. The

Internal auditing is an appraisal function housed within the organization.

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