CHAPTER 1: The Information System: An Accountant’s Perspective

accounting information specialized subset of information systems that processes financial transactions
systems (AIS)

information flows flow of information into and out of an organization

trading partners category of external user, including customer sales and billing information,
purchase information for suppliers, and inventory receipts information

stakeholders entities either inside or outside an organization that have a direct or indirect
interest in the firm.

information system set of formal procedures by which data are collected, processed into information,
and distributed to users

management information system that processes nonfinancial transactions not normally processed by
system (MIS) traditional accounting information systems

transaction it is an event that affects or is of interest to the organization and is processed by its
information system as a unit of work

financial transaction economic event that affects the assets and equities of the organization, is measured
in financial terms, and is reflected

nonfinancial transactions events that do not meet the narrow definition of a financial transaction. for
example, adding a new supplier of raw materials to the list of valid suppliers is an
event that may be processed by the enterprise’s information system as a transaction

transaction processing activity composed of three major subsystems—the revenue cycle, the
system (TPS) expenditure cycle, and the conversion cycle

general ledger/financial system that produces traditional financial statements, such as income statements,
reporting system (GL/FRS) balance sheets, statements of cash flows, tax returns, and other reports required by
law

management reporting system that provides the internal financial information needed to manage a
system (MRS) business

nondiscretionary reporting a type of reporting in which the organization has few or no choices in the
information it provides. much of this information consists of traditional
financial statements, tax returns, and other legal documents.

discretionary reporting a type of reporting in which the organization can choose what information to report
and how to present it

general model for AIS model that describes all information systems, regardless of their technological
architecture. the elements of the general model are end users, data sources, data
collection, data processing, database management, information generation,
and feedback
end users user for whom the system is built

external users they include creditors, stockholders, potential investors, regulatory agencies, tax
authorities, suppliers, and customers

internal users they include management at all levels of the organization as well as operations
personnel

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

information it is defined simply as processed data, which cause the user to take an action that
he or she otherwise could not, or would not, have taken, and determined by the
effect it has on the user, not by its physical form

data sources financial transactions that enter the information system from both internal and
external sources

data collection first operational stage in the information system

data processing group that manages the computer resources used to perform the day-to-day
processing of transactions

database physical repository for financial data

database management special software system that is programmed to know which data elements each
user is authorized to access

information generation process of compiling, arranging, formatting, and presenting information to users

feedback form of output that is sent back to the system as a source of data. feedback may be
internal or external and is used to initiate or alter a process

segments a functional unit of a business organization

reliability property of information that makes it useful to users

independence separation of the record-keeping function of accounting from the functional areas
that have custody of physical resources

centralized data processing model under which all data processing is performed by one or more large
computers, housed at a central site, that serve users throughout the organization

distributed data processing reorganizing the IT function into small information processing units (IPUs) that are
(DDP) distributed to end users and placed under their control

commercial software
pre-coded software that a user purchases from a software vendor. commercial
software is available for both general accounting use and for industry specific
applications, such as medical billing. commercial software packages are sometimes
called turnkey systems because they can often be implemented by the user with
little or no modification
turnkey systems completely finished and tested systems that are ready for implementation

custom software software built to individual specifications. larger organizations with unique
information need often develop custom software through a formal process called
the systems development life cycle. creating custom software requires the
organization to have an in-house team of qualified and experienced IT
professionals

systems development life software development process

cycle

enterprise resource planning system assembled of prefabricated software components

(ERP)

network a collection of interconnected computers and communications devices that allows

users to communicate, access data and applications, and share information and
resources

network administration responsible for the effective functioning of the software and hardware that
constitute the organization’s network. this involves configuring, implementing,
and maintaining network equipment

IT outsourcing contracting with a third-party vendor to take over the costs, risks, and
responsibilities associated with maintaining an effective corporate IT function,
including management of IT assets and staff and delivery of IT services such as
data entry, data center operations, applications development, applications
maintenance, and network management

cloud computing location-independent computing variant of IT outsourcing whereby shared data

centers deliver hosted IT services over the Internet. these services fall into three
categories: software as a service (SaaS), infrastructure as a service (IaaS), and
platform as a service (PaaS)

software as a service (SaaS) a software distribution model in which service providers host applications for
client organizations over a private network or the Internet

infrastructure as a service the provision of computing power and disk space to client firms who access it from
(IaaS) desktop PCs. the client firm can configure the infrastructure for storage, networks,
and other computing needs, including running operating systems and data
processing applications

platform as a service (PaaS) it enables client firms to develop and deploy onto the cloud infrastructure
consumer-generated applications using facilities provided by the PaaS vendor

conceptual system production of several alternative designs for a new system

physical system medium and method for capturing and presenting the information

data storage efficient information system that captures and stores data only once and makes this
single source available to all users who need it
auditor expert who expresses an opinion about the fairness of a company’s financial
statements

attest function independent auditor’s responsibility to opine as to the fair presentation of a client
firm’s financial statement

substantive tests tests that determine whether database contents fairly reflect the organization’s
transactions

tests of controls tests that establish whether internal controls are functioning properly

IT auditing review of the computer-based components of an organization. the audit is often

performed as part of a broader financial audit

internal auditing appraisal function housed within the organization