The Information System: An Accountant's Perspective: CMEA2216 Accounting Information Systems

The Information System:
An Accountant’s Perspective
CMEA2216
ACCOUNTING INFORMATION
SYSTEMS
LECTURE 1
Internal & External Information Flows
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Horizontal flows of information used primarily at the operations

r
Ve
level to capture transaction and operations data

Information Requirements
 Each user group has unique information requirements.
 The higher the level of the organization, the greater the

need for more aggregated information and less need for
detail.
Information in Business
Information is a business resource that:
needs to be appropriately managed
is vital to the survival of contemporary
businesses
What is a System?
• A group of interrelated multiple components

or subsystems that serve a common purpose
of system or subsystem?
– A system is called a subsystem when it is viewed

as a component of a larger system.
– A subsystem is considered a system when it is the

focus of attention.
System Decomposition versus System Interdependency
• System Decomposition
– the process of dividing the system into smaller subsystem
parts
• System Interdependency
– distinct parts are not self-contained
– they are reliant upon the functioning of the other parts of

the system
– all distinct parts must be functioning or the system will

fail
What is an Information System?
An information system is the set of formal procedures

by which data are collected, processed into
information, and distributed to users.
Transactions
A transaction is a business event.
Financial transactions
 economic events that affect the assets and equities of the
organization
 e.g., purchase of an airline ticket
Nonfinancial transactions
 all other events processed by the organization’s information
system
 e.g., an airline reservation — no commitment by the customer
7
Transactions
Financial
Transactions Information User

Nonfinancial System Decisions
Information
Transactions
8
What is an Accounting Information System?
Accounting is an information system.
 It identifies, collects, processes, and communicates

economic information about a firm using a wide variety
of technologies.
 It captures and records the financial effects of the firm’s

transactions.
 It distributes transaction information to operations

personnel to coordinate many key tasks.
9
AIS versus MIS
Accounting Information Systems (AIS)

process
 financial transactions; e.g., sale of goods
 nonfinancial transactions that directly affect the processing
of financial transactions; e.g., addition of newly approved
vendors
Management Information Systems (MIS)

process
 nonfinancial transactions that are not normally processed by
traditional AIS; e.g., tracking customer complaints
10
General Model for AIS
Figure 1-5
11
Data Sources
 Data sources are financial transactions that enter the information

system from internal and external sources.
 External financial transactions are the most common source of

data for most organizations.
 E.g., sale of goods and services, purchase of inventory, receipt of

cash, and disbursement of cash (including payroll)
 Internal financial transactions involve the exchange or movement

of resources within the organization.
 E.g., movement of raw materials into work-in-process (WIP),

application of labor and overhead to WIP, transfer of WIP into
finished goods inventory, and depreciation of equipment
12
Transforming the Data into Information
Functions for transforming data into information

according to the general AIS model:
1. Data Collection
2. Data Processing
3. Data Management
4. Information Generation
13
Data Collection Data Processing

 Capturing transaction • Merging
data • Calculating
• Summarizing
 Recording data onto
• Comparing
forms
• Classifying
 Validating and editing • Transcribing
the data • Sorting
• Batching
14
Data Management Information Generation

Storing • Compiling
Retrieving • Arranging
Deleting • Formatting
• Presenting
15
Characteristics of Useful Information
Regardless of physical form or technology, useful

information has the following characteristics:
 Relevance: serves a purpose
 Timeliness: no older than the time period of the action it supports
 Accuracy: free from material errors
 Completeness: all information essential to a decision or task is

present
 Summarization: aggregated in accordance with the user’s needs
16
Information System Objectives in a
Business Context
The goal of an information system is to

support
 the stewardship function of management
 management decision making
 the firm’s day-to-day operations
17
Organizational Structure
The structure of an organization helps to allocate


 responsibility
 authority
 Accountability
Segmenting by business function is a very

common method of organizing.
18
Functional Areas
 Inventory/Materials Management
 purchasing, receiving and stores
 Production
 production planning, quality control, and maintenance
 Marketing
 Distribution
 Personnel
 Finance
 Accounting
 Computer Services
19
Data Redundancy Problems
 Data Storage
 excessive storage costs of paper documents and/or magnetic form
 Data Updating
 changes or additions must be performed multiple times
 Currency of Information
 potential problem of failing to update all affected files
 Task-Data Dependency
 user’s inability to obtain additional information as needs change
 Data Integration
 separate files are difficult to integrate across multiple users
20
The Evolution of IS Models: The Database Model
Figure 1-13
21
REA Model
The REA model is an accounting framework for

modeling an organization’s
 economic resources; e.g., assets

 economic events; i.e., affect changes in resources
 economic agents; i.e., individuals and departments that
participate in an economic event
 Interrelationships among resources, events and agents
Entity-relationship diagrams (ERD) are often

used to model these relationships.
22
Accountants as Information System Users
Accountants must be able to clearly convey their

needs to the systems professionals who design the
system.
The accountant should actively participate in

systems development projects to ensure
appropriate systems design.
23
Accountants as System Designers
The accounting function is responsible for the

conceptual system, while the computer function is
responsible for the physical system.
The conceptual system determines the nature of

the information required, its sources, its destination,
and the accounting rules that must be applied.
24
Accountants as System Auditors
External Auditors
 attestto fairness of financial statements
 assurance service: broader in scope than traditional
attestation audit
IT Auditors
 evaluate IT, often as part of external audit
Internal Auditors
 in-house IS and IT appraisal services
25

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The Information System:

Horizontal flows of information used primarily at the operations

level to capture transaction and operations data

 Each user group has unique information requirements.

 The higher the level of the organization, the greater the

• A group of interrelated multiple components

– A system is called a subsystem when it is viewed

– A subsystem is considered a system when it is the

– they are reliant upon the functioning of the other parts of

– all distinct parts must be functioning or the system will

An information system is the set of formal procedures

A transaction is a business event.

Transactions Information User

Accounting is an information system.

 It identifies, collects, processes, and communicates

 It captures and records the financial effects of the firm’s

 It distributes transaction information to operations

Accounting Information Systems (AIS)

Management Information Systems (MIS)

 Data sources are financial transactions that enter the information

 External financial transactions are the most common source of

 E.g., sale of goods and services, purchase of inventory, receipt of

 Internal financial transactions involve the exchange or movement

 E.g., movement of raw materials into work-in-process (WIP),

Functions for transforming data into information

Data Collection Data Processing

Data Management Information Generation

Regardless of physical form or technology, useful

 Relevance: serves a purpose

 Timeliness: no older than the time period of the action it supports

 Accuracy: free from material errors

 Completeness: all information essential to a decision or task is

 Summarization: aggregated in accordance with the user’s needs

The goal of an information system is to

 the stewardship function of management

 management decision making

 the firm’s day-to-day operations

The structure of an organization helps to allocate

Segmenting by business function is a very

The REA model is an accounting framework for

 economic resources; e.g., assets

Entity-relationship diagrams (ERD) are often

Accountants must be able to clearly convey their

The accountant should actively participate in

The accounting function is responsible for the

The conceptual system determines the nature of

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