THE INFORMATION SYSTEM:

AN ACCOUNTANT’S
PERSPECTIVE
Accounting Information Systems

© Stephen Sonn Centeno, 2024

KEY TOPICS

1.1 The Information Environment

1.2 Organizational Structure and AIS
1.3 The Role of Accountant in AIS

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LEARNING OBJECTIVES

▪ Recognize the primary information flows within the business

environment.
▪ Understand the difference between accounting information
systems and management information systems.
▪ Understand the difference between financial transactions and
non-financial transactions.
▪ Know the principal features of the general model for information
systems.
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LEARNING OBJECTIVES

▪ Understand the organizational structure and functional areas of

a business.
▪ Be able to distinguish between external auditing, internal
auditing, and advisory services as they related to accounting
information systems.

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 © Stephen Sonn Centeno, 2024

THE INFORMATION
ENVIRONMENT
INFORMATION
is a business resource.

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INTERNAL & EXTERNAL INFORMATION FLOWS

INTERNAL FLOW
Interaction and exchange of information
with entities within the organization.

EXTERNAL FLOW
Interaction and exchange of
information with entities
outside the organization.

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INTERNAL INFORMATION FLOWS

HORIZONTAL VERTICAL
▪ Lateral exchange of ▪ Movement of information up
information among and down the hierarchical
individuals or departments structure.
at the same hierarchical o Downward Flows
level. ‐ instructions, quotas, and budgets

o Upward Flows
‐ aggregated transactions & operations
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EXTERNAL INFORMATION FLOWS

TRADING PARTNERS STAKEHOLDERS

▪ Exchange of information ▪ Engagement with external
with suppliers, customers, stakeholders such as
distributors, and other investors, regulators,
business partners. communities, and media.

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INFORMATION OBJECTIVES

The goal of information system is:

▪ To support the firm's day-to-day
operations.
▪ To support management
decision-making.
▪ To support stewardship function
of management.

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WHAT IS AN INFORMATION SYSTEM?

An information system (IS) is a

combination of people,
processes, and technology that
collect, process, store, and
distribute information to support
decision-making, coordination,
control, analysis, and visualization
within an organization.
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TRANSACTIONS

TRANSACTION
Refers to any business activity or event that involves the exchange
of goods, services, money, or information between two or more
parties.

FINANCIAL TRANSACTIONS NON- FINANCIAL TRANSACTIONS

economic events that affect the encompass business activities that
assets and equities of the do not involve the exchange of
organization. money or monetary assets.
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TRANSACTIONS

TRANSACTION
Refers to any business activity or event that involves the exchange
of goods, services, money, or information between two or more
parties.

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ACCOUNTING INFORMATION SYSTEM (AIS)

▪ Focuses specifically on collecting,

processing, storing, and reporting
financial data.
▪ AIS supports financial accounting
functions such as recording
transactions, preparing financial
statements, managing accounts payable
and receivable, and ensuring compliance
with regulatory requirements.
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AIS VS. MIS

ACCOUNTING INFORMATION MANAGEMENT INFORMATION

SYSTEM (AIS) SYSTEM (MIS)
▪ AIS primarily deals with financial ▪ Deals with a broader range of
data and is oriented towards information, including non-
supporting accounting and financial data, and is oriented
financial reporting functions. towards supporting management
decision-making across various
functional areas.

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AIS SUBSYSTEMS
TPS MRS
Responsible for capturing, Provide managers with
processing, and storing customized reports and analysis
transaction data resulting from to support decision-making and
day-to-day business operations. performance monitoring.

GL/FRS
Consolidate transaction data from
various sources and generate financial
reports such as balance sheets, income
statements, and cash flow statements.
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GENERAL MODEL FOR AIS

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GENERAL MODEL FOR AIS

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DATA SOURCES

▪ Refer to the origins or locations from which data is obtained for

use within an information system.

INTERNAL SOURCES EXTERNAL SOURCES

Data generated or collected within Information originating from
the organization, including entities outside the organization,
inventory records, employee such as customers, suppliers,
information, and financial regulatory agencies, and market
statements. data providers.
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GENERAL MODEL FOR AIS

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DATA TRANSFORMATION

▪ Involves the process of converting raw data into a more useful

format for analysis, reporting, or storage within an information
system.
▪ Functions for transforming data into information according to the
general AIS model:
▪ Data Collection
▪ Data Processing
▪ Database Management
▪ Information Generation
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DATA COLLECTION

▪ Gathering raw data from various

sources, both internal and external,
and entering it into the information
system for processing.
▪ Example: A retail store uses point-
of-sale (POS) terminals to collect
data on customer purchases.

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DATA PROCESSING

▪ Organizing, manipulating, and analyzing

collected data to derive meaningful
insights and support decision-making.
▪ Example: The data processing system
within the POS terminal processes this
raw transaction data by validating the
items, calculating the total amount,
applying discounts or promotions, and
updating inventory levels in real-time.
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DATABASE MANAGEMENT

▪ Storing, retrieving, updating, and

deleting data efficiently through
the use of database systems.
▪ Example: The retail store maintains
a centralized database to store
transactional data collected from
POS terminals.

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DATABASE MANAGEMENT

DATA ATTRIBUTE
A characteristic or property of
a data entity, such as customer
name, product price, or
transaction date.

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DATABASE MANAGEMENT

RECORD
A collection of related data
attributes representing a single
instance of an entity, such as a
customer record or a sales
transaction record.

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DATABASE MANAGEMENT

FILE
A collection of related records
stored together, typically
organized by a common
identifier or key field.

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INFORMATION GENERATION

▪ Involves compiling, arranging,

formatting and presenting data in
a format that is understandable and
useful for decision-making.
▪ Example: Information generated
includes sales trends, top-selling
products, average transaction
values, peak sales hours, and
customer purchase patterns.
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CHARACTERISTICS OF USEFUL INFORMATION
RELEVANCE
Ensuring that the information produced by is
pertinent to the needs of users and supports their
decision-making processes.

COMPLETENESS TIMELINESS
Providing information in a timely manner
Providing comprehensive information that
to enable users to make timely decisions
covers all relevant aspects of the business
and take appropriate actions.
process or transaction.

SUMMARIZATION ACCURACY
Ensuring that the information
Aggregating and condensing detailed
generated is free from errors and
data into summarized formats to
reflects the true state of affairs within
facilitate analysis and decision-making.
the organization. 30
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GENERAL MODEL FOR AIS

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END USERS

▪ Individuals or entities who directly interact with or utilize the

outputs of an information system to perform their tasks or
achieve their objectives.
INTERNAL USERS EXTERNAL USERS
Individuals within the organization Entities outside the organization
who rely on the AIS for information who utilize AIS-generated
to support their operational, information for decision-making or
managerial, and strategic roles. reporting purposes.

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GENERAL MODEL FOR AIS

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FEEDBACK

▪ Incorporating feedback from users

and stakeholders to improve the
effectiveness and efficiency of the
AIS and its outputs.
✓ Collection of feedback
✓ Analysis of feedback
✓ Implementation of improvements
✓ Monitoring and iteration

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 © Stephen Sonn Centeno, 2024

ORGANIZATION STRUCTURE &

AIS
ORGANIZATION STRUCTURE & AIS

FUNCTIONAL SEGMENTATION
▪ Refers to the division of an
organization into specialized
departments or functions based on
the tasks they perform.
▪ Functional segmentation promotes
efficiency, specialization, and
coordination within the organization.
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MATERIALS MANAGEMENT

▪ Ensures the efficient use of

resources to meet production
schedules while minimizing costs
and maintaining quality.
▪ Three (3) Sub-Functions
o Purchasing
o Receiving
o Stores

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PRODUCTION

▪ Process of converting raw

materials or components into
finished goods or products.
▪ Production activities fall into two
(2) broad classes:
▪ Primary Manufacturing
Activities
▪ Production Support Activities
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MARKETING

▪ Identifying customer needs,

developing products or services to
meet those needs, and promoting
them through advertising,
branding, and sales strategies.
▪ It encompasses market research,
product development, pricing,
distribution, and customer
relationship management.
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DISTRIBUTION

▪ Efficient movement and storage

of goods from production
facilities to end-users or retail
outlets.
▪ It includes logistics,
transportation, warehousing,
inventory management, and order
fulfillment processes.

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PERSONNEL

▪ Focuses on recruiting, training,

managing, and developing
employees to support
organizational objectives.
▪ It includes activities such as hiring,
performance management,
compensation, benefits
administration, and employee
relations.
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FINANCE

▪ Manages the organization's

financial resources, including
budgeting, forecasting, financial
planning, and capital investment
decisions.
▪ It involves financial analysis, risk
management, cash flow
management, and financial
reporting to stakeholders.
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ACCOUNTING

▪ Records, analyzes, and reports

financial transactions to track
assets, liabilities, income, and
expenses.
▪ It includes financial accounting,
management accounting, auditing,
and tax compliance to ensure
accurate financial information and
regulatory compliance.
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INFORMATION TECHNOLOGY (IT)

▪ Manages the organization's

technology infrastructure,
systems, and software to support
business operations.
▪ It includes network management,
software development,
cybersecurity, data management,
and IT support services to enhance
productivity and innovation.
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FUNCTIONS OF IT
President

Marketing Finance IT Legal Operations

SYSTEMS DATABASE &

DEVELOPMENT & NETWORK DATA PROCESSING
MAINTENANCE ADMINISTRATION

Systems System Centralized Data Distributed Data

Development Maintenance Processing Processing

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SYSTEMS DEVELOPMENT AND MAINTENANCE

• System Development → refers to the

process of creating, designing, and
building a new information system or
software application.
• System Maintenance → involves the
ongoing activities of managing, updating,
and supporting an existing information
system or software application after it
has been developed and implemented.
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DATABASE & NETWORK ADMINISTRATION

DATABASE ADMINISTRATION NETWORK ADMINISTRATION

▪ Ensures that databases ▪ Ensure that the organization's
operate efficiently, securely, network infrastructure operates
and reliably to meet the smoothly, securely, and
needs of users and efficiently to facilitate
applications. communication, collaboration,
and access to resources for
users and applications.

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DATA PROCESSING

CENTRALIZED DATA PROCESSING DISTRIBUTED DATA PROCESSING

▪ Refers to a computing model ▪ Refers to a computing model
where all data processing where data processing tasks
tasks, operations, and are spread out across
resources are concentrated multiple interconnected
and managed in a single computers or systems.
central location or data
center.

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CENTRALIZED DATA PROCESSING

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DISTRIBUTED DATA PROCESSING

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OUTSOURCING THE IT FUNCTION

IT OUTSOURCING
• Refers to the practice of contracting
specific IT functions, tasks, or services to
external third-party providers.
• These providers, often specialized in IT
services, take on responsibilities such as
managing infrastructure, software
development, technical support,
cybersecurity, and more.

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 © Stephen Sonn Centeno, 2024

THE ROLE OF ACCOUNTANT IN

AIS
ROLE OF ACCOUNTANTS IN AIS

AS SYSTEM DESIGNERS
▪ Collaborate with IT professionals
to design systems that capture,
process, and report financial
information accurately and
efficiently.

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ROLE OF ACCOUNTANTS IN AIS

AS SYSTEM AUDITORS
▪ Accountants perform various
types of audits to evaluate the
effectiveness and reliability of
AIS.
▪ Internal Audits
▪ External Audits
▪ Fraud Audits
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DIFFERENT TYPES OF AUDITS

EXTERNAL
AUDIT

FRAUD INTERNAL
AUDIT AUDIT

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DIFFERENT TYPES OF AUDITS
Independent attestation
performed by an expert who
expresses an opinion regarding the
presentation of financial EXTERNAL
statements.
AUDIT

FRAUD INTERNAL
AUDIT AUDIT

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EXTERNAL AUDIT

• Also known as an attest service performed by Certified Public

Accountants (CPAs) who work for professional services firms that
are independent of the client organization being audited.
• Associated with assuring the fair
presentation of financial statements, hence,
often referred to as financial audit.
• External auditors represent the interest of
outsiders: stockholders, creditors,
government agencies, and the general public.
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ATTEST SERVICES VS. ADVISORY SERVICES

ATTESTATION ADVISORY
▪ Require written assertions ▪ Improve client organizations’
and a practitioner’s written operational efficiency and
report. effectiveness.
▪ Require formal ▪ Include actuarial advice,
establishment of business advice, fraud
measurement criteria. investigation services,
▪ Limited to examination, information system design and
review, and application of implementation, and internal
agreed-upon procedures. control assessments for
compliance with SOX.
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DIFFERENT TYPES OF AUDITS

EXTERNAL
AUDIT

Independent appraisal
function established
FRAUD INTERNAL within an organization to
AUDIT AUDIT examine and evaluate its
activities as a service to
the organization.
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INTERNAL AUDIT

• Performs a wide-range of activities

on behalf of the organization.
• Typically conducted by auditors who
work for the organization, but this
task may be outsourced.
• Internal auditors represent the
interests of the organization.

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EXTERNAL AUDIT VS. INTERNAL AUDIT

EXTERNAL INTERNAL
▪ Evaluates fair, complete and ▪ Evaluates the organization’s
accurate representation of business processes and internal
its financial statements. controls, including compliance
▪ Typically conducted by with laws and regulations.
experts who work for public ▪ Typically conducted by auditors
accounting firms that are who work for the organization,
independent of the client but this task may be
organization being audited. outsourced.
▪ External auditors represent ▪ Internal auditors represent the
the interest of outsiders. interests of the organization.
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DIFFERENT TYPES OF AUDITS

EXTERNAL
AUDIT

Investigation of
anomalies and gathering
FRAUD INTERNAL
of evidence of fraud that AUDIT AUDIT
may lead to criminal
conviction.
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FRAUD AUDIT

• Objective is to investigate anomalies

and gather evidence of fraud that
may lead to criminal conviction.
• Organizations victimized by fraud
usually contract with specialized
fraud units of professional services
firms or with companies that
specialize in forensic accounting.

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AUDIT COMMITTEE

• An audit committee is a subcommittee

of a company’s board of directors that
oversees financial reporting, risk
management, and compliance
processes.
• Serves as the independent “check-and-
balance” for the internal audit function
and liaison with external auditors.

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 Thanks!
Any questions?

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© Stephen Sonn Centeno, 2024
Reference:
Accounting Information Systems
10th Edition
James A. Hall
ISBN: 978-981-48-6635-4, © 2019 Cengage Learning Asia Pte Ltd

© Stephen Sonn Centeno, 2024