CHAPTER 1

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ROLE AND PURPOSE OF
ACCOUNTING INFORMATION
SYSTEMS
AIS
Accounting Information Systems

Source:
Hurt, Robert. “Accounting Information Systems: Basic Concepts and Current Issues”. McGraw-Hill International.
 OBJECTIVES

1. Define “accounting information systems”.

2. Discuss why AIS is an important area of study for future accountants.

3. Compare and contrast AIS with other areas of study in accounting.

4. Explain the structure of most accounting information systems.

5. Locate and evaluate information sources on AIS.

 DEFINITION OF AIS

“An accounting information system is a set of interrelated activities, documents,

and technologies designated to collect data, process it, and report information to a
diverse group of internal and external decision makers in organizations”

 External decision makers

Government Lenders / Creditors

Suppliers Consumers

Employees Public
 IMPORTANCE OF AIS

 Developing a strong AIS helps achieve some of the components of the FASB
Conceptual Framework of Accounting.

 Studying AIS helps students develop many of the core competencies suggested
by the American Institute of Certified Public Accountants (AICPA).

 Acquiring knowledge about AIS helps students learn more about common
business processes.
FASB CONCEPTUAL FRAMEWORK
Objective of FS

Elements of FS

Qualitative
Characteristics

Assumptions,
Principles, and
Constraints
 FASB CONCEPTUAL FRAMEWORK
Objective of Financial Reporting

 To provide information needed for decision-making.

Elements of Financial Statements

 Assets Resources

 Liabilities Obligations

 Equity Capital / Net worth

 Revenues Inflow of economic benefits

 Expenses Outflow of economic benefits

 FASB CONCEPTUAL FRAMEWORK

Qualitative Characteristics

 Understandability

 Relevance

 Reliability

 Comparability

 Consistency
 FASB CONCEPTUAL FRAMEWORK

Assumptions Economic Entity, Going concern, Periodicity, Monetary unit

Principles Historical cost, Realization, Matching, Full disclosure

Constraints Cost effectiveness, materiality, conservatism

 A well-designed AIS relates to the conceptual framework by:

 Capturing data on the elements of financial statements.

 Transforming data into relevant and reliable information.

 Recognizing and adapting to the cost-benefit constraint.

 AICPA: CORE COMPETENCIES

 BROAD BUSINESS PERSPECTIVE COMPETENCIES

 Strategic / Critical thinking - encompasses the ability to link data, knowledge, and
insight together from various disciplines to provide
information for decision making

 Resource management - individuals entering the accounting profession should

be able to apply management and HRD theories
to issues and organizational problems
 AICPA: CORE COMPETENCIES

 FUNCTIONAL COMPETENCIES

 Risk analysis - understanding of business risks affect how business

strategy is created and implemented

 Research - an individual preparing to enter the accounting

profession needs to have strong research skills to
access, understand, and apply relevant
information
 AICPA: CORE COMPETENCIES
 PERSONAL COMPETENCIES

 Problem solving and decision making - determine the principles and

techniques needed to solve
problem or make judgments

 Communication - accountants are responsible for

financial and non-financial
information so that it is understood
by individuals with diverse
capabilities and interests.
 BUSINESS PROCESSES

 Sales / collection process

 Acquisition processs payment

 Conversion process

 Financing process

 Human resource process

 AIS STRUCTURE

 INPUTS Source documents

 PROCESS Tools

 OUTPUT Reports

 STORAGE Custody and saving information

 INTERNAL CONTROL Maintain and safeguard information

Internal controls

Inputs Processes Outputs Storage

 CRITERIA: EVALUATING INFORMATION

 AUTHORITY Establish the credentials of the sources

 ACCURACY Must not contain material error or misleading information

 OBJECTIVITY Information must be free from bias

 CURRENCY Information must be updated

 COVERAGE Scope or depth of information