Chapter 1

The
Information
System: An
Accountant’s
Perspective
Internal & External
Information Flows
 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.
 Information in Business
• Information is a business
resource:
–needs to be appropriately
managed
–is vital to the survival of
contemporary businesses
 What is Information?

• Information is processed data that is

used to make decisions, resolve
conflicts, and/or reduce uncertainty.
 What is a 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.
Examples of Systems
• Biological
– cell
– human body
• Mechanical
– water heater
– computer
• Others
E = mc2
– solar system
– mathematics
 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.
 Information System Objectives in a
Business Context

• The goal of an information system is to

support
– the stewardship function of
management.
– management decision making.
– the firm’s day-to-day operations.
 Transactions

Financial

Transactions User
Information
Decision
Nonfinancial System
Information Making

Transactions
What is Accounting Information
Systems?
• Accounting is an information system
– which identifies, collects, processes, and
communicates economic information about an
entity to a wide variety of people regardless of
the technology
– captures and records the financial effects of
the firm’s transactions
– distributes transaction information to
operations personnel to coordinate many key
tasks
 AIS vs. MIS?

IS

AIS MIS

GLS/FRS TPS MRS Finance Marketing Production HRS Distribution

 Transforming the Data into
Information
Functions for transforming data into
information according to the general AIS
model:
1. data Collection
2. data Processing
3. data Management
4. information Generation
 Organizational Structure
• The structure of an organization helps to
allocate
– responsibility
– authority
– accountability
• Segmenting by business function is a
very common method of organizing.
 Functional Areas
• Inventory/Materials Management
– purchasing, receiving and stores
• Production
– production planning, quality control, and
maintenance
• Marketing
• Distribution
• Personnel
• Finance
• Accounting
• Computer Services
Organization of Computer Services Function in a
Centralized System
Organizational Structure for a Distributed Processing
System
 Potential Advantages of DDP

• Cost reductions in hardware and data

entry tasks
• Improved cost control responsibility
• Improved user satisfaction since control
is closer to the user level
• Backup of data can be improved through
the use of multiple data storage sites
Potential Disadvantages of DDP

• Loss of control
• Mismanagement of organization-wide
resources
• Hardware and software incompatibility
• Redundant tasks and data
• Consolidating tasks usually segregated
• Difficulty attracting qualified personnel
• Lack of standards
The Evolution of IS Models: The Flat-File Model
The Evolution of IS Models: The Database
Model
 Accountants as Information
System Users
• Accountants must be able to clearly
convey their needs to the systems
professionals who design the system.
• The accountant should
actively participate
in systems development
projects to ensure
appropriate systems design.
 Accountants as System
Designers
• The accounting function is responsible
for the conceptual system, while the
computer function is responsible for the
physical system.
• The conceptual system determines the
nature of the information required, its
sources, its destination, and the
accounting rules that must be applied.
 Accountants as System
Auditors
• External Auditors
– attest to fairness of financial statements
– assurance service: broader in scope than
traditional attestation audit
• IT Auditors
– evaluate IT, often as part of external audit
• Internal Auditors
– in-house IS and IT appraisal services