Chera Emiru/AIS/2005/ s1 1

Accounting
Information
Systems
Chera Emiru
Chera Emiru/AIS/2005/
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s1
Accounting Information Systems:
An Overview
Chapter 1
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Learning Objectives
1. Explain what an accounting information
system (AIS) is and describe the basic
functions it performs.
2. Discuss why studying the design and
management of an AIS is important.
3. Explain the role played by the AIS in a
company’s value chain and discuss ways that
the AIS can add value to a business.
4. Describe and contrast the basic strategies and
strategic positions that a business can adopt.
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Introduction: S&S Inc.
 Scott Parry and Susan Gonzalez form
S&S, Inc., to sell consumer electronic
devices.
 Parry and Gonzalez decide to pursue a
“clicks and bricks” strategy.
 They plan to hold the grand opening of
S&S in five weeks.
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Introduction: S&S, Inc.
 What types of important decisions do Scott
and Susan have to make?
– How to organize their accounting records
– How to design a set of procedures to ensure that
they meet all of their government obligations
– How to price their products
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Introduction: S&S, Inc.
Important decisions, continued
– Whether to extend credit, on what terms, and how to
accurately track what customers owe and have paid
– How to hire, train, and supervise their employees
– How to keep track of cash flows
– The appropriate product mix and quantities to carry
– What functionality to provide on their website
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Introduction
 This chapter defines an accounting
information system (AIS).
 It discusses why AIS is an important topic
to study.
 It describes how an AIS adds to an
organization’s value chain.
 It describes and contrasts the basic
strategies that a business can pursue.
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Learning Objective 1
Explain what an accounting

information system (AIS) is and
describe the basic functions it
performs.
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What Is An AIS?
 A system is a set of two or more interrelated
components that interact to achieve a goal.
 Systems are almost always composed of smaller
subsystems, each performing a specific function
supportive of the larger system.
 An accounting information system (AIS)
consists of:
– People
– Procedures
– Data
– Software
– Information technology infrastructure
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What Is An AIS?
 What important functions does the AIS
perform 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 to
safeguard the organization’s assets.
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 Discusswhy studying the

design and management of
an AIS is important.
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Why Study AIS?
 In Statement of Financial Accounting
Concepts No. 2, The FASB...
– defined accounting as an information
system.
– stated that the primary objective of
accounting is to provide information useful
to decision makers.
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Why Study AIS?
 The Accounting Education Change
Commission recommended that the
accounting curriculum should provide
students with a solid understanding of
three essential concepts:
1. The use of information in decision making
2. The nature, design, use and implementation of an
AIS
3. Financial information reporting
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Why Study AIS?
 Tounderstand how the accounting
system works.
– How to collect data about an
organization’s activities and transactions
– How to transform that data into
information that management can use to
run the organization
– How to ensure the availability, reliability,
and accuracy of that information
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Why Study AIS?
 Auditors need to understand the
systems that are used to produce a
company’s financial statements.
 Tax professionals need to understand
enough about the client’s AIS to be
confident that the information used for
tax planning and compliance work is
complete and accurate.
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Why Study AIS?
 One of the fastest growing types of consulting
services entails the design, selection, and
implementation of new Accounting Information
Systems.
 A survey conducted by the Institute of
Management Accountants (IMA) indicates that
work relating to accounting systems was the
single most important activity performed by
corporate accountants.
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Information Technology
and Corporate Strategy
The same survey conducted by
the Institute of Management
Accountants (IMA) also
indicates that the second most
important job activity of
corporate accountants is long-
term strategic planning.
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The CITP Designation
 CITP: certified information technology
professional
 Identifies CPAs who possess a broad range of
technological knowledge and the manner in
which information technology (IT) can be used
to achieve business objectives
 Reflects the AICPA’s recognition of the
importance and interrelationship of IT with
accounting
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Ten Most Important Activities
Performed By Accountants
1. Accounting systems 6. Financial and
and financial reporting economic analyses
2. Long-term strategic 7. Process improvement
planning 8. Computer systems and
3. Managing the operations
accounting and finance 9. Performance
function evaluation
4. Internal Consulting 10. Customer and product
5. Short-term budgeting profitability analyses
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Factors Influencing
Design of the AIS
Organizational
Strategy
Culture
AIS
Information
Technology
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 Explain the role played by the AIS in a

company’s value chain and discuss ways
that the AIS can add value to a business.
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The Value Chain
 The ultimate goal of any business is to
provide value to its customers.
 A business will be profitable if the
value it creates is greater than the cost
of producing its products or services.
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The Value Chain
 An organization’s value chain consists
of nine interrelated activities that
collectively describe everything it does.
 The five primary activities consist of
the activities performed in order to
create, market, and deliver products
and services to customers and also to
provide post-sales services and support.
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The Value Chain
Primary Activities
Inbound Outbound
Operations
Logistics Logistics
Marketing
Service
and Sales
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The Value Chain
 The four support activities in the value
chain make it possible for the primary
activities to be performed efficiently
and effectively.
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The Value Chain
Support Activities
Infrastructure Technology
Human
Purchasing
Resources
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The Value System
 The value chain concept can be
extended by recognizing that
organizations must interact with
suppliers, distributors, and customers.
 An organization’s value chain and the
value chains of its suppliers,
distributors, and customers collectively
form a value system.
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The Supply Chain
Raw Materials
Supplier
Manufacturer
Distributor
Retailer
Consumer
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How An AIS Can Add Value
To An Organization
 An AIS adds value...
– by providing accurate and timely
information so that five primary value
chain activities can be performed more
effectively and efficiently.
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How An AIS Can Add Value
To An Organization
– An AIS adds value by:
– improving the quality and reducing the costs of
products or services.
– improving efficiency.
– Improving decision making capabilities.
– increasing the sharing of knowledge.
A well-designed AIS can also help an
organization profit by improving the
efficiency and effectiveness of its supply
chain.
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Information and
Decision Making
 What is information?
 The term data refers to any and all of
the facts that are collected, stored, and
processed by an information system.
 Information is data that has been
organized and processed so that it is
meaningful.
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Data Needs For Activities
Generic Example Agent
Resource Event
Agent
Sales Transaction Customer
Inventory Sale
Sales
Payment to Supplier
Cashier
Cash Payment
Supplier
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Information and Decision
Making
Characteristics of Useful Information
Relevant Timely
Reliable Understandable
Complete Verifiable
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Information and
Decision Making
 What is decision making? Decision
making involves the following steps:
1. Identify the problem.
2. Select a method for solving the problem.
3. Collect data needed to execute the decision
model.
4. Interpret the outputs of the model.
5. Evaluate the merits of each alternative.
6. Choose and execute the preferred solution.
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Information and
Decision Making
Decisions can be categorized as follows:
– in terms of the degree of structure that
exists
– by the scope of the decision
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Decision Structure
 Structured decisions are repetitive, routine,
and understood well enough that they can
be delegated to lower-level employees in
the organization.
 An example is:
– Extending credit to customers.
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Decision Structure
 Semistructured decisions are characterized
by incomplete rules for making the decision
and the need for subjective assessments and
judgments to supplement formal data
analysis.
 An example is:
– Setting a marketing budget for a new product.
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Decision Structure
 Unstructured decisions are
nonrecurring and nonroutine.
 An example is:
– Choosing the cover for a magazine.
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Decision Scope
 Decisions vary in terms of the scope of their effect.
 Operational control is concerned with the effective
and efficient performance of specific tasks.
 Management control is concerned with the
effective and efficient use of resources for
accomplishing organizational objectives.
 Strategic planning is concerned with establishing
organizational objectives and policies for
accomplishing those objectives.
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 Describe and contrast the basic strategies

and strategic positions that a business can
adopt.
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 New developments in IT affect the
design of an AIS.
 What basic requirements are needed to
evaluate the costs and benefits of new
IT developments?
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 Develop a basic understanding of…
– corporate strategies.
– how IT developments can be used to
implement existing organizational
strategies.
– how IT developments can be used to create
an opportunity to modify existing strategies.
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 Because an AIS functions within an
organization, it should be designed to
reflect the values of that organizational
culture.
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Strategy and
Strategic Positions
Two Basic Strategies
To be a lower-cost producer than competitors
To differentiate products and services

from competitors
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Strategy and
Strategic Positions
Three Basic Strategic Positions
Variety-based strategic position
Need-based strategic position
Access-based strategic position

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Strategy and
Strategic Positions
 What role does the AIS play in helping
organizations adopt and maintain a strategic
position?
– Data collection about each activity
– Transforming data into information that can
be used by management to coordinate those
activities
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What is the Value
of Information?
 The value of information is the benefit
produced by the information minus the cost
of producing it.
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The Role of the AIS
 The Internet makes strategy more
important than ever
 Enterprise resource planning (ERP)
systems integrate all aspects of a
company’s operations with its traditional
AIS.
 The key feature of ERP systems is the
integration of financial data and other
nonfinancial operating data.
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End of Chapter 1
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Accounting

Explain what an accounting

 Discusswhy studying the

 Explain the role played by the AIS in a

 Describe and contrast the basic strategies

To be a lower-cost producer than competitors

To differentiate products and services

Variety-based strategic position

Need-based strategic position

Access-based strategic position

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