CHAPTER 1
Accounting Information Systems:
An Overview
INTRODUCTION
Questions to be addressed in this chapter include:
– What is the meaning of system, data, and information?
– What is an accounting information system (AIS)?
– Why is the AIS an important topic to study?
– What is the role of the AIS in the value chain?
– How does the AIS provide information for decision making?
– What are the basic strategies and strategic positions an organization can pursue?
SYSTEMS, DATA, AND INFORMATION
• A system is:
– A set of interrelated components
– That interact
– To achieve a goal
• SYSTEMS, DATA, AND INFORMATION
• Most systems are composed of smaller subsystems . . .
• . . . And vice versa!
• SYSTEMS, DATA, AND INFORMATION
• Every organization has goals.
– The susbsystems should be designed to maximize achievement of the organization’s goals
– Even to the detriment of the subsystem itself
– EXAMPLE: The production department (a subsystem) of a company might have to forego its goal of staying within its budget in order to meet the organization’s goal of delivering product on time.
• SYSTEMS, DATA, AND INFORMATION
• Goal conflict occurs when the activity of a subsystem is not consistent with another subsystem or with the larger system.
• Goal congruence occurs when the subsystem’s goals are in line with the organization’s goals.
• The larger and more complicated a system, the more difficult it is to achieve goal congruence.
• SYSTEMS, DATA, AND INFORMATION
• The systems concept encourages integration (i.e., minimizing the duplication of recording, storing, reporting and processing).
• Data are facts that are collected, recorded, stored, and processed by an information system.
• Organizations collect data about:
– Events that occur
– Resources that are affected by those events
– Agents who participate in the events
• SYSTEMS, DATA, AND INFORMATION
• Information is different from data.
• Information is data that have been organized and processed to provide meaning to a user.
• Usually, more information and better information translates into better decisions.
• SYSTEMS, DATA, AND INFORMATION
• However, when you get more information than you can effectively assimilate, you suffer from information overload.
– Example: Final exams week!
• When you’ve reached the overload point, the quality of decisions declines while the costs of producing the information increases.
• SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
• SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
• SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
• SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:
– Relevance
• SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:
– Relevance
– Reliability
• SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:
– Relevance
– Reliability
– Completeness
• SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:
– Relevance
– Reliability
– Completeness
– Timeliness
• SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:
– Relevance
– Reliability
– Completeness
– Timeliness
– Understandability
• SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:
– Relevance
– Reliability
– Completeness
– Timeliness
– Understandability
– Verifiability
• SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:
– Relevance
– Reliability
– Completeness
– Timeliness
– Understandability
– Verifiability
– Accessibility
• SYSTEMS, DATA, AND INFORMATION
• Information is provided to both:
– External users
– Internal Users
• SYSTEMS, DATA, AND INFORMATION
• Information is provided to both:
– External users
– Internal Users
• SYSTEMS, DATA, AND INFORMATION
• External users primarily use information that is either:
– MANDATORY INFORMATION—Required by a governmental entity, such as Form 10-K’s required by the SEC; or
– ESSENTIAL INFORMATION—Required to conduct business with external parties, such as purchase orders.
• SYSTEMS, DATA, AND INFORMATION
• In providing mandatory or essential information, the focus should be on:
– Minimizing costs
– Meeting regulatory requirements
– Meeting minimum standards of reliability and usefulness
• SYSTEMS, DATA, AND INFORMATION
• Information is provided to both:
– External users
– Internal Users
• SYSTEMS, DATA, AND INFORMATION
• Internal users primarily use discretionary information.
• The primary focus in producing this information is ensuring that benefits exceed costs, i.e., the information has positive value.
• WHAT IS AN AIS?
• An AIS is a system that collects, records, stores, and processes data to produce information for decision makers.
• It can:
– Use advanced technology; or
– Be a simple paper-and-pencil system; or
– Be something in between.
• Technology is simply a tool to create, maintain, or improve a system.
• WHAT IS AN AIS?
• The functions of an AIS are to:
– Collect and store data about events, resources, and agents.
– Transform that data into information that management can use to make decisions about events, resources, and agents.
– Provide adequate controls to ensure that the entity’s resources (including data) are:
• Available when needed
• Accurate and reliable
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• The AIS course complements other systems courses.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• The AIS course complements other systems courses.
• AIS topics are tested on the new CPA exam.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• The skills are critical to career success.
• The AIS course complements other systems courses.
• AIS topics are tested on the new CPA exam.
• AIS topics impact corporate strategy and culture.
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• WHY STUDY ACCOUNTING INFORMATION SYSTEMS?
• ROLE OF THE AIS IN THE VALUE CHAIN
• The objective of most organizations is to provide value to their customers.
• What does it mean to deliver value?
• Let’s peek in on a conversation at Joe’s pharmacy . . .
• ROLE OF THE AIS IN THE VALUE CHAIN
• ROLE OF THE AIS IN THE VALUE CHAIN
• ROLE OF THE AIS IN THE VALUE CHAIN
• ROLE OF THE AIS IN THE VALUE CHAIN
• ROLE OF THE AIS IN THE VALUE CHAIN
• While “adding value” is a commonly used buzzword, in its genuine sense, it means making the value of the finished component greater than the sum of its parts.
• It may mean:
– Making it faster
– Making it more reliable
– Providing better service or advice
– Providing something in limited supply (like O-negative blood or rare gems)
– Providing enhanced features
– Customizing it
• ROLE OF THE AIS IN THE VALUE CHAIN
• Value is provided by performing a series of activities referred to as the value chain. These include:
– Primary activities
– Support activities
• These activities are sometimes referred to as “line” and “staff” activities respectively.
• ROLE OF THE AIS IN THE VALUE CHAIN
• Value is provided by performing a series of activities referred to as the value chain. These include:
– Primary activities
– Support activities
• These activities are sometimes referred to as “line” and “staff” activities respectively.
• ROLE OF THE AIS IN THE VALUE CHAIN
• Primary activities include:
– Inbound logistics
• ROLE OF THE AIS IN THE VALUE CHAIN
• Primary activities include:
– Inbound logistics
– Operations
• ROLE OF THE AIS IN THE VALUE CHAIN
• Primary activities include:
– Inbound logistics
– Operations
– Outbound logistics
• ROLE OF THE AIS IN THE VALUE CHAIN
• Primary activities include:
– Inbound logistics
– Operations
– Outbound logistics
– Marketing and sales
• ROLE OF THE AIS IN THE VALUE CHAIN
• Primary activities include:
– Inbound logistics
– Operations
– Outbound logistics
– Marketing and sales
– Service
• ROLE OF THE AIS IN THE VALUE CHAIN
• Value is provided by performing a series of activities referred to as the value chain. These include:
– Primary activities
– Support activities
• These activities are sometimes referred to as “line” and “staff” activities respectively.
• ROLE OF THE AIS IN THE VALUE CHAIN
• Support activities include:
– Firm infrastructure
• ROLE OF THE AIS IN THE VALUE CHAIN
• Support activities include:
– Firm infrastructure
– Human resources
• ROLE OF THE AIS IN THE VALUE CHAIN
• Support activities include:
– Firm infrastructure
– Human resources
– Technology
• ROLE OF THE AIS IN THE VALUE CHAIN
• Support activities include:
– Firm infrastructure
– Human resources
– Technology
– Purchasing
• ROLE OF THE AIS IN THE VALUE CHAIN
• Information technology can significantly impact the efficiency and effectiveness with which the preceding activities are carried out.
• An organization’s value chain can be connected with the value chains of its customers, suppliers, and distributors.
• ROLE OF THE AIS IN THE VALUE CHAIN
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
• ROLE OF THE AIS IN THE VALUE CHAIN
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
• ROLE OF THE AIS IN THE VALUE CHAIN
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
• ROLE OF THE AIS IN THE VALUE CHAIN
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
• ROLE OF THE AIS IN THE VALUE CHAIN
• There is variation in the degree of structure used to make decisions:
– Structured decisions
• ROLE OF THE AIS IN THE VALUE CHAIN
• There is variation in the degree of structure used to make decisions:
– Structured decisions
– Semistructured decisions
• ROLE OF THE AIS IN THE VALUE CHAIN
• There is variation in the degree of structure used to make decisions:
– Structured decisions
– Semistructured decisions
– Structured decisions
• ROLE OF THE AIS IN THE VALUE CHAIN
• There is also variation in the scope of a decision’s effect:
– Occupational control decisions
• ROLE OF THE AIS IN THE VALUE CHAIN
• There is also variation in the scope of a decision’s effect:
– Occupational control decisions
– Management control decisions
• ROLE OF THE AIS IN THE VALUE CHAIN
• There is also variation in the scope of a decision’s effect:
– Occupational control decisions
– Management control decisions
– Strategic planning decisions
• ROLE OF THE AIS IN THE VALUE CHAIN
• In general, the higher a manager is in the organization, the more likely he/she is to be engaging in:
– Less structured decisions
– Broader scope (i.e., strategic planning) decisions
• THE AIS AND CORPORATE STRATEGY
• Corporations have:
– Unlimited opportunities to invest in technology
– Limited resources to invest in technology
• Consequently, they must identify the improvements likely to yield the highest return.
• This decision requires an understanding of the entity’s overall business strategy.
• THE AIS AND CORPORATE STRATEGY
• Michael Porter suggests that there are two basic business strategies companies can follow:
– Product-differentiation strategy
– Low-cost strategy
• THE AIS AND CORPORATE STRATEGY
• Michael Porter suggests that there are two basic business strategies companies can follow:
– Product-differentiation strategy
– Low-cost strategy
• THE AIS AND CORPORATE STRATEGY
• A product differentiation strategy involves setting your product apart from those of your competitors, i.e., building a “better” mousetrap by offering one that’s faster, has enhanced features, etc.
• THE AIS AND CORPORATE STRATEGY
• Michael Porter suggests that there are two basic business strategies companies can follow:
– Product-differentiation strategy
– Low-cost strategy
• THE AIS AND CORPORATE STRATEGY
• A low-cost strategy involves offering a cheaper mousetrap than your competitors. The low cost is made possible by operating more efficiently.
• THE AIS AND CORPORATE STRATEGY
• Sometimes a company can do both, but they normally have to choose.
• THE AIS AND CORPORATE STRATEGY
• Porter also argues that companies must choose a strategic position among three choices:
– Variety-based strategic position
• THE AIS AND CORPORATE STRATEGY
• Porter also argues that companies must choose a strategic position among three choices:
– Variety-based strategic position
– Needs-based strategic position
• THE AIS AND CORPORATE STRATEGY
• Porter also argues that companies must choose a strategic position among three choices:
– Variety-based strategic position
– Needs-based strategic position
– Access-based strategic position
• THE AIS AND CORPORATE STRATEGY
• Porter also argues that companies must choose a strategic position among three choices:
– Variety-based strategic position
– Needs-based strategic position
– Access-based strategic position
• These strategic positions are not mutually exclusive and can overlap.
• THE AIS AND CORPORATE STRATEGY
• Choosing a strategic position is important because it helps a company focus its efforts as opposed to trying to be everything to everybody.
– EXAMPLE: A radio station that tries to play all types of music will probably fail.
• It’s critical to design the organization’s activities so they reinforce one another in achieving the selected strategic position. The result is synergy, which is difficult for competitors to imitate.
• THE AIS AND CORPORATE STRATEGY
• The growth of the Internet has profoundly affected the way value chain activities are performed:
– Inbound and outbound logistics can be streamlined for products that can be digitized, like books and music.
– The Internet allows companies to cut costs, which impacts strategy and strategic position.
– Because the Internet is available to everyone, intense price competition can result. The outcome may be that many companies shift from low-cost to product-differentiation strategies.
– The Internet may impede access-based strategic positions.
• THE AIS AND CORPORATE STRATEGY
• The AIS should help a company adopt and maintain its strategic position.
– Requires that data be collected about each activity.
– Requires the collection and integration of both financial and nonfinancial data.
• THE AIS AND CORPORATE STRATEGY
• The authors believe:
– Accounting and information systems should be closely integrated.
– The AIS should be the primary information system to provide users with information they need to perform their jobs.
• SUMMARY
• What we’ve learned so far:
– The meaning of system, data, and information
– What an AIS is
• Why it’s an important topic to stody
• What its role is in the value chain
• How it provides information for decision making
– What are the basic strategies and strategic positions an organization can pursue
• How these interact with the AIS
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