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Chapter 1. ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW. The Changing World. “IT is changing everything” Accounting Educators must invent the third wave accounting paradigm and produce graduates who can function effectively in the third wave organizations they will be joining.

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Chapter 1


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The Changing World

  • “IT is changing everything”

  • Accounting Educators must invent the third wave accounting paradigm and produce graduates who can function effectively in the third wave organizations they will be joining

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Current Business Environment

  • A very competitive, changing environment in which companies thatadd the most value and respond quicklysucceed.

  • Information is becoming one of anorganization’s most important resources.

  • Advances in information technology have beenbeen much more rapid than in any other industry.

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The Nature and Purpose of an Organization: Creating Value

  • Michael Porter, Competitive Advantage: Everything an organization does should contribute to value for its customers. Creating value, incurs costs for the organization






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Key Elements of the Value Chain

  • Value chain: a sequence of activities that creates a good or service, in which each step of the sequence adds something the customer values to the product. A value chain includes:

    • Input activities: product design, process design, purchasing, receiving, hiring, training

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Key Elements of the Value Chain

  • Processing activities: making, moving, storing, inspecting

  • Output activities: selling, shipping, service

  • Administrative activities: personnel, finance, legal, accounting, research

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Creating Value

  • Organizations create value by developing and providing the goods and services customers desire.

  • Goods and services are provided through a series of business processes.

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Creating Value

  • A business process is a series of activities that accomplishes a business objective.

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Adding Value

  • How can accountants further add value??

    • Provide useful information for decision makers who are responsible for planning, executing, or evaluating activities of an organization

    • Help embed information processes into business processes

    • Help management define business rules or policies that shape the nature of its business processes

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Solving Business Problems

  • When you begin to think about solving business problems, you begin to:

    • Consider strategy, business processes, organization structures, measurements, and IT. They are all important.

    • Make sure each proposed solution is aligned with an organization’s business processes.

    • Encourage continuous organization learning and real-time adaptation to a complex and ever changing world.

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Framework for Information Systems

Information System (IS)

Accounting Information System (AIS)

Management Information System (MIS)

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

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Information Systems

  • A "computer-based" information system is a collection of computer hardware and software designed to transform data into useful information.

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Management information systems (MISs)

  • use computer technology to provide decision-oriented information to managers.

  • MIS provides a wide variety of information beyond that which is associated with DP in organizations.

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Portfolio ManagementCapital Budgeting

New Product developmentMarket Analysis

Production PlanningJob Scheduling

Job Skill TrackingEmployee Benefits


  • Financial Management Systems

  • Marketing Systems

  • Production Systems

  • Human Resource Systems

  • Decision Support Systems

    (DSS) and Expert Systems (ES)

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Decision Support Systems (DSSs)

  • process data into a decision-making format for the end user

  • DSSs serve ad hoc, specific, nonroutine information requests by management, including what-if analyses.

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Expert Systems (ESs)

  • knowledge-based information systems that use knowledge about a specific application area to act as an expert consultant to end users.

  • An ES differs from a DSS in that a DSS assists a user in making a decision, whereas an ES makes the decision.

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accounting information system

  • collection of resources designed to transform financial and other data into information

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Accounting Information Systems (AISs)

  • include transaction processing cycles, the use of information technology, and the development of financial information systems

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Transaction Processing Cycles

  • AIS deals with a variety of activities that may be grouped according to four common cycles of business activity called transaction processing cycles.

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Revenue cycle

  • Events related to the distribution of goods and services to other entities and the collection of related payments

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Expenditure cycle

  • Events related to the acquisition of goods and services and the settlement of related obligations

    [the expenditure cycle can be expanded into the Purchase cycle and the Payroll cycle]

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Production cycle

  • Events related to the transformation of resources into goods and services

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Finance cycle

  • Events related to the acquisition and management of capital funds, including cash

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Financial Reporting cycle

  • not an operating cycle

  • obtains data from the other cycles and processes these data in such a manner that financial reports may be prepared

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Information and Decisions

  • users of accounting information fall into two broad groups:

    • external

    • internal

  • the distinction between external and internal groups is getting blurry.

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mandatory and discretionary information

  • mandatory information: primary consideration is minimizing costs while meeting minimum standards of reliability and usefulness

  • discretionary information: primary consideration is that the benefits obtained exceed the costs

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Information and Decisions

  • Higher level managers require less information detail than lower level managers.

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Operations Management

Budget Information and Instructions

Performance Information


Operations Personnel

Day-to-Day Operations Information

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Internal Control Process

  • The term internal control process suggests actions taken within an organization to regulate and direct the activities of the organization and tosafeguard company assets

  • policies and procedures established to provide reasonable assurance that specific organizational objectives will be achieved

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Elements of Internal Control Process

  • control environment

  • risk assessment

  • control activities

  • information and communication

  • monitoring

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Adequate records

  • Internal control also calls for the maintenance of adequate records in an effort to control assets and analyze the assignment of responsibility.

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Segregation of Accounting Functions

  • Segregate record keeping, custody, and authorization.

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Internal Audit Function

  • Internal audit is charged with monitoring and assessing compliance with organizational policies and procedures.

  • must be segregated from the accounting function and have neither responsibility nor authority for any operating activity

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Behavioral Considerations in Systems Development

  • The user cooperation needed to operate the system successfully should be ensured during the design of a system, not afterward.

  • A philosophy of user-oriented design fosters a set of attitudes and an approach to systems development that consciously considers the organizational context.

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React to change

  • Ways to react to calls for change:resist change - be pulled

    • respond to events as they occur - follow

    • be at the forefront of change - lead

  • if change is not understood and adapted, our ability to provide valued services will lessen

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Continuing education and lifelong learning



Attunement with broad business issues


Communication skills

Strategic and critical thinking skills

Focus on clients and markets

Ability to interpret converging inform.

Technological adeptness

AICPA: Values and Skills

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Top 5 Service and Delivery Issues

  • Future success relies on public perceptions of PAs' roles and abilities.

  • PAs must be market driven, and not depend on regulations to keep them in business.

  • The market demands less auditing and accounting, and more value-added consulting services.

  • Specialization is critical for the future survival of the PA profession.

  • The marketplace demands that PAs be conversant with global business practices and strategies.

  • Assurance: reliability of information and systems.

  • Technology: systems analysis, information management, and system security.

  • Management consulting: advice to organizations on management and performance improvements.

  • Financial planning: advice in broad financial planning areas.

  • International: services for cross-border tax planning, multinational mergers and joint ventures, etc.

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Accounting Information Systems

  • Fixed Asset System (FAS)

  • General Ledger/ Financial Reporting System (GL/FRS)

  • Transaction Processing System (TPS)

    • Expenditure Cycle

    • Conversion Cycle

    • Revenue Cycle

  • Management Reporting System (MRS)

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The Information Systems Function

  • Every organization that uses computers to process transactional data has an information systems function.

  • The information systems function is responsible for data processing (DP).

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Organizational Location

  • The head of the information systems function is typically called the Chief Information Officer and is advised by an advisory group called a steering committee.

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Functional Specializations

  • The most prevalent information systems departmental structure is the assignment of responsibilities and duties by area of technical specialization, that is, function.

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Information System functions

  • analysis

  • programming

  • operations

  • technical support

  • user support function

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Information SystemsFunction



























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project organization

  • analysts and programmers are assigned to specific application projects and work together to complete a project under the direction of a project leader

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End-User Computing (EUC)

  • End-user is one who requires computing and IS resources

  • A common EUC application is information retrieval and management from a database using the query language feature of a DBMS

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Risks of EUC

  • The proliferation of PCs and a client-server computing environment has lead to an increase in EUC

  • Inadequate systems development, data integrity, and data security issues are paramount

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Quick Response Technology

  • Just-in-Time (JIT)

  • Electronic Data Interchange (EDI)

  • Computer-Integrated Manufacturing (CIM)

  • Electronic Funds Transfer (EFT)

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Wholesale EFT

  • FedWire

  • Clearing House Interbank Payment System (CHIPS)

  • Clearing House Automated Payment System (CHAPS)

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  • an electronic payment and communications system

  • Banks holding reserve accounts with the U. S. Federal Reserve Bank use FedWire to transfer funds among themselves.

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  • an automated clearing house system used for the clearing of Eurodollar payments between U. S. and non-U. S. financial institutions

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Retail EFT systems

  • telephone wire transfers and payment systems

  • preauthorized payment systems

  • point-of-sale (POS) applications

  • automated teller machines (ATMs)

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Electronic Data Interchange (EDI)

  • EDI refers to computer-to-computer exchange of business documents and transactions

  • EDI is transforming the way businesses process transactions and is significantly impacting the business models in various industries

  • Success of Dell Computer