Information, Information

Systems, & The Accountant

TOPIC 1
Hall, Romney (Chapter 1)
A. Information
What is information?
What are the characteristics of information?
How is information important in business organization?
How does information travel in and out of a business
organization?
What is information?
Data vs. Information

Data are facts stored in the system

A fact could be a number, date, name, and
so on.
For example:
2/22/14
ABC Company, 123,
99, 3, 20, 60
1-4
Data vs. Information
The previous slide just showed facts, if we put those facts within a
context of a sales invoice, for example, it is meaningful and
considered information.

Invoice Date : 2/22/14 Invoice #: 123

Customer: ABC company
Item # Qty Price
99 3 $20
Total Invoice Amount $60

1-5
 What are the
characteristics of
information?
 Relevant
reduces uncertainty, improves decision making, or
confirms or corrects prior expectations
 Reliable
information free from bias; accurately represents events
or activities
 Complete
does not omit important aspects of events or activities
 Timely
information needs to be provided in time to make the
decision
 Understandable
information must be presented in a meaningful manner
 Verifiable
two independent people can produce the same
conclusion
Accessible
available when needed
How is information
important in
business
organization?
 yellow paper

What are the

What are the key What are the key
information that you
activities that a decisions that are
need so that you can
business organization needed to be made in
make the necessary
do? doing the key activity?
decisions?

Sell To whom shall I sell? Target market, location,

competitors

At what price shall I sell? Market price analysis,

cost accounting
Information Objectives
The goal of an information is to support:
1. The firms day to day operations.
2. Management decision making.
3. The stewardship function of management.

16
A. Information
What is information?
What are the characteristics of information?
How is information important in business organization?
How does information travel in and out of a business
organization?
 How does
information travel in
and out of a
business
organization?
The Information Environment
Operations management directly responsible for
controlling day-to-day operations.
Middle management accountable for short-term
planning and coordinating activities to accomplish
organizational objectives.
Top management responsible for longer-term planning
and setting organizational objectives.
Two groups of external users: trading partners and
stakeholders.
20
B. Information System
What is a system? What then is information system?
How does an information system work?
What are the two types of information system?
What is an accounting system made of?
What is a system?
A system is a group of two or
more interrelated components
or subsystems that serve a
common purpose
 What is an
information system?
The information system is the
set of formal procedures by
which data are collected,
processed into information,
and distributed to users.
Information Internal
System controls and
security
People

measures

IT infrastructure Procedures

Software Data
 How does an
information system
work?
 Information
Data Information
system
 What are the two
types of information
system?
 Management
Accounting
information
information
system (MIS)
system (AIS)
processes
processes financial
nonfinancial
and some
transactions not
nonfinancial
processed by the
transactions.
AIS.
31
 What is an
accounting system
made of?
Accounting information system (AIS)
Three subsections:
The transaction processing system (TPS) which
supports daily business operations.
The general ledger/financial reporting system
(GL/FRS) which produces reports.
The management reporting system (MRS)
which provides information for decision making.

33
AIS Subsystems
The transaction processing system (TPS) :
Converts economic events into financial transactions.
Records financial transactions in the accounting records.
Distributes essential financial information to support operations.
The general ledger/financial reporting system (GL/FRS)
takes information from the TPS and other input and:
Updates general ledger control accounts.
Handles nondiscretionary reporting requirements.
The management reporting system (MRS) provides the
internal information needed to manage a business and handles
discretionary reporting.
34
C. The Accountant
How are business organizations usually segmented/divided?
What is the accountants role in AIS?
How can AIS add value to an organization?
 How are business
organizations
usually
segmented/divided?
Functional Segmentation
Materials Management
purchasing, receiving and stores
Production
production planning, quality control, and maintenance
Marketing
Distribution
Personnel
Finance
38
39
Functional Segmentation

40
Information Technology
Many organization employ a combination of centralized and
distributed processing.
Centralized Data Processing:
All data processing performed by large computer(s) in a common data
center that serves users throughout the organization.
Lends itself to intra-organization communication and data sharing.
Distributed Data Processing (DDP):
Users process transactions locally with each user segment possessing IT
needs to support their operations.
Users function independently and tend not to share data and
information.
41
The Accounting Function
Accounting manages the financial resource of the firm:
Captures and records transactions.
Distributes transaction information to operations personnel.
Value of information is determined by its reliability.
Relevance, accuracy, completeness, summarization and timeliness.
Unreliable information has no value.
Information reliability requires accounting independence.
Accounting activities must be separate and independent of the
functional areas maintaining custody of resources.
Accounting supports these functions with information but does not
participate in the physical activities.
42
 What is the
accountants role in
AIS?
The Role of Accountants in AIS
Accountants play a prominent role on system
development teams as domain experts,
responsible for many aspects of the conceptual
system including specifying rules, reporting
requirements and internal control objectives.
IT professionals determine the most economical
and effective technologies for the physical system,
including data storage.

44
The Role of Accountants in AIS
Accountants perform audits which typically
involve the AIS.
External audit is an independent attestation and
opinion (audit report) regarding financial statement
presentation.
Requires auditors (independent CPAs) to test internal
controls and perform substantive tests of data.
Critical element is auditor independence, which means the
auditor is free from factors that might influence the audit
report.
45
How can AIS add
value to an
organization?
How Does an AIS Add Value?

A well thought out AIS can add value

through effective and efficient decisions.
Having effective decisions means quality
decisions
Having efficient decisions means reducing
costs of decision making

1-47
Assignment
In a yellow paper, record your current/previous weeks
Activities and
Financial transactions

Sunday Monday Tuesday Wednesday Thursday Friday Saturday

Food 250 300 xx xx xx xx xx

Fare xx xx xx xx xx xx xx
Books
TOTAL