z

THE INFORMATION ENVIRONMENT

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INTERNAL & EXTERNAL FLOWS OF INFORMATION
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THREE MANAGEMENT TIERS :
OPERATIONS MANAGEMENT
Directly responsible for controlling day-to-day operations.

MIDDLE MANAGEMENT
Accountable for the short-term planning and coordination of
activities necessary to accomplish organizational objectives.

TOP MANAGEMENT
Responsible for longer-term planning and setting
organizational objectives.
 INTERNAL
z INFORMATION FLOWS

Horizontal flows of information- used primarily at the

operations level to capture transaction and operations
data
Vertical flows of information
downward flows instructions, quotas, and budgets
upward flows aggregated transaction and
operations data
 EXTERNAL USERS OF INFORMATION
z

TRADING PARTNERS- customers; suppliers

STAKEHOLDERS- external entities with direct

or indirect interest in the firm
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INFORMATION REQUIREMENTS

Each user group has unique

information requirements.
The higher the level of the
organization, the greater
the need for more
aggregated information
and less need for detail.
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INFORMATION IN BUSINESS

Information is a business resource that:

needs to be appropriately managed
is vital to the survival of contemporary
businesses
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INFORMATION OBJECTIVES:

To support firms day-

to-day operations
To support
management decision
making
To support the
stewardship function
of management
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INFORMATION SYSTEMS
FRAMEWORK
WHAT IS A
z SYSTEM?

A group of interrelated multiple

components or subsystems that
serve a common purpose
System or subsystem?
A system is called a subsystem when
it is viewed as a component of a
larger system.
A subsystem is considered a system
when it is the focus of attention.
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SYSTEM DECOMPOSITION VS SYSTEM
INTERDEPENDENCY

System Decomposition
the process of dividing the system into smaller subsystem
parts
System Interdependency
distinct parts are not self-contained
they are reliant upon the functioning of the other parts
of the system
all distinct parts must be functioning or the system will fail
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What is an Information System?

An information system is the set of formal

procedures by which data are collected,
processed into information, and distributed to
users.
TRANSACTIONS:
z

A transaction is a business event.

Financial transactions
economic events that affect the assets and
equities of the organization
e.g., purchase of an airline ticket
Nonfinancial transactions
all other events processed by the organizations
information system
e.g., an airline reservation no commitment by
the customer
 TRANSACTIONS

Financial

Transactions Information User

Nonfinancial System Decisions
Information
Transactions
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ACCOUNTING INFORMATION SYSTEM

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WHAT IS AN ACCOUNTING INFORMATION SYSTEM?

An accounting information system (AIS) is a

structure that a business uses to collect, store,
manage, process, retrieve and report its financial
data so that it can be used by accountants,
consultants, business analysts, managers, chief
financial officers (CFOs), auditors and regulatory
and tax agencies.
THREE MAJOR
z SUBSYSTEMS OF AIS:
1. TRANSACTION PROCESSING SYSTEM
Supports daily business operations with numerous reports and
messages for users throughout the organization.
it is central to the overall function of the informations system.
The TPS deals with business events that occur frequently.
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2. GENERAL LEDGER/ FINANCIAL REPORTING SYSTEM

Produces the traditional financial statements, such as the
income statement, balance sheet, statement of cash flows and
other reports required by law.

This type of reporting is called NONDISCRETIONARY

REPORTING because the organization has few or no choices
in the information it provides.
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3. MANAGEMENT REPORTING SYSTEM

Provides internal management with special purpose financial
reports and information needed for decision making such as
budgets, etc.
Discretionary reporting is used because the organization can
choose what information to report and how to present it.
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TYPES OF END USERS

EXTERNAL USERS
(creditors, stockholders, potrential investors, etc)

INTERNAL USERS
(management at all levels of the organization, as
well as operations personnel)
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DATA VS INFORMATION

DATA are facts,, which may or may not be

processed and have no direct effect on a user's
actions.

INFORMATION is often simply defined as

processed data. It causes the user to take an
action and has an effect on the user.
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DATA SOURCES are financial transactions that
enter the information system from either internal
or external sources.

EXTERNAL FINANCIAL TRANSACTIONS

-economic changes with other business entities
and individuals outside the firm

INTERNAL FINANCIAL TRANSACTIONS

-exchange or movement of resources within the
organization.
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DATA COLLECTION is the first operational stage
in the information system. The objective is to
ensure that the data entering the system are
valid, complete and free from material errors.

DATA PROCESSING - once collected, data

usually require processing to produce
information.
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DATABASE MANAGEMENT

DATA ATTRIBUTE is the most elemental piece of

potentially useful data in the database. It is a
logical and relevant characteristic of an entity
about which the firm captures data.

RECORD is a complete set of attributes for a

single occurence withinn an entity class.
(primary key - unique identifier attribute)

FILE is a complete set of records of an identical

class.
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Database Management Tasks -involves 3
fundamental tasks

1. Storage task assigns keys to new records and

stores them in their proper location in the
database.
2. Retrieval is the task of locating and extracting
an existing record from the database for
processing.
3. Deletion is the task of permanently removing
obsolete or redundant records from the database.
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INFORMATION GENERATION is the process if
compiling, arranging, formatting, and presenting
information to users.

Characteristics:
1. Relevance
2. Timeliness
3. Accuracy
4. Completeness
5. Summarization
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FEEDBACK is a form of output that us sent

back to the system as a source of data.
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Organizational Structure and AIS
Accounting information system requires an
understanding of the functional segments and
activities that constitute an organizations
structure.
Involves diverse accounting and non-accounting
activities and personnel.

Functional Segmentation
Derive from the flow of resources through the
firm.
Relationship between resources and the
functional segments that manage them.
Material
z Management

Objectives
oPlan
oControl

Purchasing
oResponsible for ordering inventory.

Receiving
oAccepting the inventory preciously ordered by purchasing.
oCounting and checking physical condition of these items.

Stores
oPhysical custody of the inventory received and releases these
resources into the production process as needed.
Production
z

Occur in the conversion-cycle which is raw

materials, labor and plant assets used to
create product in the company.
The primary manufacturing activities.
Product support activities.
Supports activities ensure that primary
manufacturing activities operate efficiently and
effectively.
Typeszof activity in production
oProduction
Involves scheduling the flow of materials, labor and machinery to
efficiently meet production needs.
Requires information about the status of sales orders, raw materials
inventory etc.

oQuality control
Monitors manufacturing process at various points to ensure that the
finished products meet the firms quality standard.
Failure to do so may result in excessive waste materials.

oMaintenance
Keeps the firms machinery and other manufacturing facilities in
running in order.
Relies on its plant and equipment and cannot tolerate breakdowns
during peak production periods.
Marketing
z
Function is to deal with the strategic problems of production
promotion, advertising, and market research.
Performs daily activities as sales order entry.

Distribution
Is the activity of getting the product to the costumer after the sale.
Incorrect shipments, damaged merchandise, or excessive lags
between taking and filling of orders can result in customer
dissatisfaction. In order words, loss of sales.
Personnel
z
The objectives of the personnel function are to effectively manage
the resources.
Includes recruiting, training, continuing education, counselling, labor
relation and compensation administration.

Finance
Its function is to manage the financial resources of the firm through
banking and treasury activities, portfolio management, credit
evaluation, cash disbursement, and cash receipt.

The accounting function

Accounting captures and records the financial effect of the
economic events that constitute the firms transaction.
Accounting distributes transaction information to operation
personnel to coordinate many of their key tasks.
The value
z
of information
It leads the users to a desired action.

Accounting Independence
Accounting activities must be separate and independent of
functional areas that manage and maintain custody of physical
resources.

Information technology
Functions
1.Data processing.
2.System development and maintenance.
3.Database administration.
4.Network administration.
Data zprocessing
Computer hardware.
Application programs.
Corporate data.
Support user information through transaction processing and
information reporting.

Centralized data processing

Under the centralized data processing model, all data processing is
performed by one or larger computer housed in a common data
center that serves user throughout the organization.

Distributed data processing

Segment possesses the IT personnel, facilities, hardware, software,
and data they need to support their operations.
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MANAGEMENT INFORMATION SYSTEM

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WHAT IS MANAGEMENT INFORMATION SYSTEM?

A management information system (MIS) is a

computerized database of financial information
organized and programmed in such a way that it
produces regular reports on operations for every
level of management in a company. It is usually
also possible to obtain special reports from the
system easily.
 Accounting Information Systems (AIS) process
financial transactions; e.g., sale of goods
nonfinancial transactions that directly affect the
processing of financial transactions; e.g., addition of
newly approved vendors
Management Information Systems (MIS) process
nonfinancial transactions that are not normally processed
by traditional AIS; e.g., tracking customer complaints
System Development
Process by which organizations acquire information
system.
Two ways of acquisition of information system:
Commercial Software
Commercial Software packages are called Turkey Systems.
Large organizations with unique information needs often develop
custom software through a formal process called the Systems
development life cycle.
Custom System
Organization must absorb all the development cost which
commercial vendors are able to spread across the entire user
population.
This is often the only option when the information need are unique
and has no commercial package adequately meets them.
System Maintenance
responsible for making changes to existing
system to accommodate changes in user
needs.

Database Administration
responsible for the security and integrity
of database.
Network Administration
Responsible for the effective functioning of the
software and hardware that constitute to the
organizations network.
Responsible for monitoring network activity to ensure
that the network is being used in accordance with
company policies and that it is secure from attack
by hackers from outside the organization as well as
unauthorized individuals within the organization.
 IT Outsourcing
Organizations sells its IT resources to a third party
outsourcing vendor. The outsourcing organization then
leases back IT services from the vendor for a contract
period of typically between five and ten years.

Cloud Computing location-independent computing.

Three categories of services:
1. Software as a Service (SaaS)
2. Infrastructure as a Service (IaaS)
3. Platform as a Service (PaaS)
Accountants as System Designers
Plays domain experts on system development teams.
Responsible for many aspects of the conceptual
system while the IT professional are responsible for the
physical system.
They determine the nature of the information required,
its sources, its destination, and the accounting rules
that need to be applied.
Accountants as System Auditors
Three types of Audits:
External Audits
Independent attestation performed by an expert who expresses an
opinion in the form of a formal audit report regarding the presentation
of financial statements.
Attest Function is performed by CPAs who work for public accounting
firms that are independent of the client organization being audited.
Concept of Auditor independence auditor is free from factors that
might influence the auditors report regarding the financial position of
the client firm.
Advisory Services professional services offered by public accounting
firms to improve their client organizations operational efficiency and
effectiveness.
Internal Audits
Independent appraisal function established
within an organization to examine and evaluate
its activities.

Fraud Audits
Investigates anomalies and gather and gather
evidence of fraud that may lead to criminal
conviction.
Serves as an independent check and balance
for the internal audit function and liaison with
external auditors.
Part of the role of committee members is to look
for ways to identify risk.
For an accountant to conduct an audit:
He must understand the principles of system design.

For an accountant to design a system:

He must have a thorough understanding of audit issues and concerns.
The designer must understand audit objective regarding evidence
gathering to create a system that facilitates the subsequent extraction of
audit evidence.