romney_ch01.ppt

(1)

C

HAPTER 1

Accounting Information

Systems:

(2)

SYSTEMS, DATA, AND INFORMATION

• Most systems are composed of smaller

subsystems . . .

(3)

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?

(4)

SYSTEMS, DATA, AND INFORMATION

• A system is:

– A set of interrelated components

– That interact

(5)

SYSTEMS, DATA, AND INFORMATION

• Every organization has goals.

– The subsystems 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

(6)

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

(7)

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

(8)

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

(9)

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

(10)

SYSTEMS, DATA, AND INFORMATION

Benefits of information

- Cost of producing information

Value of information

Benefits of information may include:

• Reduction of uncertainty

• Improved decisions

(11)

SYSTEMS, DATA, AND INFORMATION

Benefits of information

- Cost of producing information

Value of information

Costs may include time and resources spent:

• Collecting data

• Processing data

• Storing data

(12)

SYSTEMS, DATA, AND INFORMATION

Benefits of information

- Cost of producing information

Value of information

(13)

SYSTEMS, DATA, AND INFORMATION

• Characteristics that make information

useful:

–

Relevance

(14)

SYSTEMS, DATA, AND INFORMATION

• Characteristics that make information

useful:

–

Relevance

–

Reliability

(15)

SYSTEMS, DATA, AND INFORMATION

• Characteristics that make information

useful:

–

Relevance

–

Reliability

–

_Completeness

(16)

SYSTEMS, DATA, AND INFORMATION

• Characteristics that make information

useful:

–

Relevance

–

Reliability

–

_Completeness

–

Timeliness

(17)

SYSTEMS, DATA, AND INFORMATION

• Characteristics that make information

useful:

–

Relevance

–

Reliability

–

_Completeness

–

Timeliness

–

Understandability

(18)

SYSTEMS, DATA, AND INFORMATION

• Characteristics that make information

useful:

–

Relevance

–

Reliability

–

_Completeness

–

Timeliness

–

Understandability

–

Verifiability

(19)

SYSTEMS, DATA, AND INFORMATION

• Characteristics that make information

useful:

–

Relevance

–

Reliability

–

Completeness

–

Timeliness

–

Understandability

–

Verifiability

–

Accessibility

(20)

• Information is provided to both:

– External users

– Internal users

(21)

• Information is provided to both:

– External users

– Internal users

(22)

• External users primarily use information

that is either:

– MANDATORY INFORMATION—required by a

governmental entity, such as Form 10-K

required by the SEC; or

– ESSENTIAL INFORMATION—required to

conduct business with external parties, such

as purchase orders.

(23)

• In providing mandatory or essential

information, the focus should be on:

– Minimizing costs.

– Meeting regulatory requirements.

– Meeting minimum standards of reliability and

usefulness.

(24)

• Information is provided to both:

– External users

– Internal users

(25)

• 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.

(26)

• 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.

(27)

• 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

(28)

• It’s fundamental to accounting.

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

• Accounting is an information-providing

activity, so accountants need to

understand:

–

How the system that provides that

information is designed, implemented,

and used.

–

How financial information is reported.

(29)

• It’s fundamental to accounting.

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

• Other accounting courses focus on how

the information is provided and used.

• An AIS course places greater emphasis

on:

–

How the data is collected and

transformed.

–

How the availability, reliability, and

accuracy of the data is ensured.

(30)

• It’s fundamental to accounting.

• _{The skills are critical to career success.}

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

(31)

• It’s fundamental to accounting.

• _{The skills are critical to career success.}

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

• Tax accountants

must understand the

client’s AIS adequately to be confident that

it is providing complete and accurate

(32)

• It’s fundamental to accounting.

• _{The skills are critical to career success.}

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

• In

private industry

and

not-for-profit

,

systems work is considered the most

important activity performed by

(33)

• It’s fundamental to accounting.

• _{The skills are critical to career success.}

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

• In

management consulting, the design,

selection, and implementation of

(34)

• It’s fundamental to accounting.

• _{The skills are critical to career success.}

• The AIS course complements other

systems courses.

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

• Other systems courses focus on design and

implementation of information systems,

databases, expert systems, and

telecommunications.

(35)

• 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?

• Makes up about 25% of the Business

(36)

• 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.

(37)

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

AIS

Occupational

Culture

Strategy

Information

Technology

AIS design is

affected by

information

(38)

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

AIS

Occupational

Culture

Strategy

Information

Information technology

affects the company’s

choice of business

strategy. To perform

(39)

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

AIS

Occupational

Culture

Strategy

Information

Technology

Although culture

affects the design of

the AIS, it’s also true

that the AIS affects

culture by altering

the dispersion and

availability of

(40)

• 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 . . .

(41)

ROLE OF THE AIS IN THE VALUE CHAIN

(42)

ROLE OF THE AIS IN THE VALUE CHAIN

That’s true, but we’re

comfortable with that

because of the

value-added that we bring to

(43)

ROLE OF THE AIS IN THE VALUE CHAIN

What is that “value-added,”

and how do you convert it

(44)

ROLE OF THE AIS IN THE VALUE CHAIN

Blah—blah—blah–

customer service–

(45)

• Although “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

(46)

• 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.

(47)

• 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.

(48)

• Primary activities include:

– Inbound logistics

ROLE OF THE AIS IN THE VALUE CHAIN

Receiving, storing, and distributing the

materials that are inputs to the

organization’s product or service.

(49)

• Primary activities include:

– Inbound logistics

– Operations

ROLE OF THE AIS IN THE VALUE CHAIN

Transforming those inputs into products or

services.

For the pharmaceutical company, this step

involves combining the raw chemicals and

(50)

• Primary activities include:

– Inbound logistics

– Operations

– Outbound logistics

ROLE OF THE AIS IN THE VALUE CHAIN

Distributing products or services to customers.

(51)

• Primary activities include:

– Inbound logistics

– Operations

– Outbound logistics

– Marketing and sales

ROLE OF THE AIS IN THE VALUE CHAIN

Helping customers to

buy the organization’s

products or services.

A pharmacy rep may

visit with drug stores,

doctors, etc. to inform

them about their

(52)

• Primary activities include:

– Inbound logistics

– Operations

– Outbound logistics

– Marketing and sales

– Service

ROLE OF THE AIS IN THE VALUE CHAIN

Post-sale support provided to

customers such as repair and

maintenance function.

A pharmaceutical firm will

typically not be repairing it’s

product (though the product may

be periodically reformulated).

The pharmaceutical company is

more likely to be providing

(53)

• 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.

(54)

• Support activities include:

– Firm infrastructure

ROLE OF THE AIS IN THE VALUE CHAIN

Accountants, lawyers, and administration.

Includes the company’s accounting

(55)

• Support activities include:

– Firm infrastructure

–

Human resources

ROLE OF THE AIS IN THE VALUE CHAIN

Involves recruiting and hiring new

employees, training employees, paying

employees, and handling employee

(56)

• Support activities include:

– Firm infrastructure

– Human resources

– Technology

ROLE OF THE AIS IN THE VALUE CHAIN

Activities to improve the products or services

(e.g., R&D, Web site development).

For the pharmaceutical company, these activities

would include research and development to

(57)

• Support activities include:

– Firm infrastructure

– Human resources

– Technology

– Purchasing

ROLE OF THE AIS IN THE VALUE CHAIN

Buying the resources (e.g.,

materials, inventory, fixed

assets) needed to carry out the

entity’s primary activities.

In the pharmaceutical company,

the purchasing folks are trying

to get the best combination of

cost and quality in buying

(58)

• 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

• Good AIS value chain:

• UPS spends over $1 billion a year on

information systems resulting in greater

customer control over delivery, higher

driver productivity, and lower costs.

• Bad AIS value chain:

(59)

Pharmaceuticals, Inc.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

ROLE OF THE AIS IN THE VALUE CHAIN

Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer Pharmacy

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

(60)

Pharmaceuticals, Inc.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

ROLE OF THE AIS IN THE VALUE CHAIN

Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer Pharmacy

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

And the outbound logistics of

(61)

Pharmaceuticals, Inc.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

ROLE OF THE AIS IN THE VALUE CHAIN

Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer Pharmacy

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

(62)

Pharmaceuticals, Inc.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

ROLE OF THE AIS IN THE VALUE CHAIN

Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer Pharmacy

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

The linking of these separate value chains

creates a larger system known as a

supply

chain.

Information

technology can

(63)

• There is variation in the degree of

structure used to make decisions:

–

Structured decisions

ROLE OF THE AIS IN THE VALUE CHAIN

• Repetitive and routine.

• Can be delegated to lower-level employees.

(64)

• There is variation in the degree of

structure used to make decisions:

– Structured decisions

– Semistructured decisions

ROLE OF THE AIS IN THE VALUE CHAIN

• Incomplete rules.

• Require subjective assessments.

(65)

• 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

• Non-recurring and non-routine.

• Require a great deal of subjective

assessment.

(66)

• There is also variation in the scope of a

decision’s effect:

– Occupational control decisions

ROLE OF THE AIS IN THE VALUE CHAIN

• Relate to performance of specific tasks

• Often of a day-to-day nature.

(67)

• 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

• Relate to utilizing resources to accomplish

organizational objectives.

(68)

• 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

• The “what do we want to be when we grow

up” types of questions.

• Involves establishing:

–

Organizational objectives

(69)

• 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

(70)

• 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.

(71)

• Michael Porter suggests that there are two

basic business strategies companies can

follow:

– Product-differentiation strategy

– Low-cost strategy

(72)

• Michael Porter suggests that there are two

basic business strategies companies can

follow:

–

_{Product-differentiation strategy}

– Low-cost strategy

(73)

• 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.

(74)

• Michael Porter suggests that there are two

basic business strategies companies can

follow:

– Product-differentiation strategy

–

Low-cost strategy

(75)

• A low-cost strategy involves offering a

cheaper mousetrap than your competitors.

The low cost is made possible by

operating more efficiently.

(76)

• Sometimes a company can do both, but

they normally have to choose.

(77)

• Porter also argues that companies must

choose a strategic position among three

choices:

– Variety-based strategic position

THE AIS AND CORPORATE STRATEGY

• Offer a subset of the industry’s

products or services.

(78)

• 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

• Serve most or all of the needs of a particular

group of customers in a target market.

(79)

• 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

• Serve a subset of customers who differ from

others in terms of factors such as geographic

location or size.

• _{EXAMPLE: Satellite Internet services are}

(80)

• 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.

(81)

• 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.

(82)

• 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

(83)

• 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

• Predictive data analysis (data

warehousing/mining) adds to competitive

advantage by forecasting future events based on

historical trends.

• EXAMPLE: You can view forecasts of airfares

(84)

• 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.

(85)

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 study.

– 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.