Accounting Information

Systems (AIS):
An Introduction

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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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The Information Environment

 We begin the study of AIS with the

recognition that information is a
business resource.
 Every business day, vast quantities of
information flow to decision makers
and other users to meet a variety of
internal needs.

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 Internal and External Flows of Information
Stakeholde
Top rs
Management

Middle
Management

Supplier
Customer s
s
Operational Management

Operations Personnel

Day-to-Day Operations Information

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Accounting Information

 While most of the information is

expressed in traditional monetary terms,
some is expressed as ratios,
percentages, or units. Traditionally,
accountants have limited their concern to
monetary amounts. This was
understandable for the era of manual
accounting systems because the cost of
capturing and processing data was far
more expensive than is the case today.
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Accounting Information

 But a contemporary view of accounting must

expand to include any data that are either
directly or indirectly reflected in the financial
statements whether in this or in the future
accounting periods. Thus, hours worked, units
processed or even planned, employee vacation
days earned, and customer telephone numbers
are all data that are captured, processed,
stored, and reported by the accounting system
and that represent information used for decision
making by managers.
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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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Learning Objective 2

 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?
 To understand 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
3. Managing the and operations
accounting and 9. Performance
finance 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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 Learning Objective 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.

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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.
 Data are facts, which may or may not be
processed (edited, summarized, or refined)
and have no direct effect on the user.

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The Information System (IS)

 An information system (IS) or

management information system
(MIS) is a manmade system that
consists of an integrated set of
computer-based and manual
components established to collect,
store, and manage data and to
provide output information to users.

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Transforming Data into Information

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Transforming Data into Information

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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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Management Decision
Making (Summary)
1. Intelligence: Searching the
environment for conditions calling for
a decision.
2. Design: Inventing, developing, and
analyzing possible courses of action.
3. Choice: Selecting a course of action.

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Steps in Decision Making

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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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Management Problem Structure
and Information Requirements

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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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 Learning Objective 4

 Describe and contrast the basic

strategies and strategic positions that a
business can adopt.

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 Information Technology
and Corporate Strategy
 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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Information Technology
and Corporate Strategy
 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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 Information Technology
and Corporate Strategy
 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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Information Qualities

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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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Sources

 Accounting Information Systems

9th Edition by Marshall B. Romney and
Paul John Steinbart

 Accounting Information Systems 9th

Edition by Gelinas, Dull, and Wheeler

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End of Chapter 1

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