Accounting Information Systems

9th Edition
Marshall B. Romney Paul John Steinbart

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Accounting Information Systems: An Overview

Chapter 1

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Learning Objectives
1.

2. 3.

4.

Explain what an accounting information system (AIS) is and describe the basic functions it performs. Discuss why studying the design and management of an AIS is important. Explain the role played by the AIS in a companys value chain and discuss ways that the AIS can add value to a business. Describe and contrast the basic strategies and strategic positions that a business can adopt.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Introduction: S&S Inc.

Scott Parry and Susan Gonzalez form S&S, Inc., to sell consumer electronic devices. Parry and Gonzalez decide to pursue a clicks and bricks strategy. They plan to hold the grand opening of S&S in five weeks.

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Introduction: S&S, Inc.

What types of important decisions do Scott and Susan have to make?

How to organize their accounting records How to design a set of procedures to ensure that they meet all of their government obligations How to price their products

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Introduction: S&S, Inc.

Important decisions, continued

Whether to extend credit, on what terms, and how to accurately track what customers owe and have paid How to hire, train, and supervise their employees How to keep track of cash flows The appropriate product mix and quantities to carry What functionality to provide on their website

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Introduction
This chapter defines an accounting information system (AIS). It discusses why AIS is an important topic to study. It describes how an AIS adds to an organizations value chain. It describes and contrasts the basic strategies that a business can pursue.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Learning Objective 1
Explain what an accounting information system (AIS) is and describe the basic functions it performs.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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What Is An AIS?

A system is a set of two or more interrelated components that interact to achieve a goal. Systems are almost always composed of smaller subsystems, each performing a specific function supportive of the larger system. An accounting information system (AIS) consists of:

People Procedures Data Software Information technology infrastructure

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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What Is An AIS?

What important functions does the AIS perform in an organization? It collects and stores data about activities and transactions. It processes data into information that is useful for making decisions. It provides adequate controls to safeguard the organizations assets.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Learning Objective 2
Discuss

why studying the design and management of an AIS is important.

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Why Study AIS?

In Statement of Financial Accounting Concepts No. 2, The FASB... defined accounting as an information system. stated that the primary objective of accounting is to provide information useful to decision makers.

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Why Study AIS?

The Accounting Education Change Commission recommended that the accounting curriculum should provide students with a solid understanding of three essential concepts:
1. The use of information in decision making 2. The nature, design, use and implementation of

an AIS 3. Financial information reporting

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Why Study AIS?

To understand how the accounting system works.

How to collect data about an organizations activities and transactions How to transform that data into information that management can use to run the organization How to ensure the availability, reliability, and accuracy of that information

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Why Study AIS?

Auditors need to understand the systems that are used to produce a companys financial statements. Tax professionals need to understand enough about the clients AIS to be confident that the information used for tax planning and compliance work is complete and accurate.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Why Study AIS?

One of the fastest growing types of consulting services entails the design, selection, and implementation of new Accounting Information Systems. A survey conducted by the Institute of Management Accountants (IMA) indicates that work relating to accounting systems was the single most important activity performed by corporate accountants.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Information Technology and Corporate Strategy

The same survey conducted by the Institute of Management Accountants (IMA) also indicates that the second most important job activity of corporate accountants is longterm strategic planning.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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The CITP Designation

CITP: certified information technology professional Identifies CPAs who possess a broad range of technological knowledge and the manner in which information technology (IT) can be used to achieve business objectives Reflects the AICPAs recognition of the importance and interrelationship of IT with accounting
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Ten Most Important Activities Performed By Accountants

1. Accounting systems and financial reporting 2. Long-term strategic planning 3. Managing the accounting and finance function 4. Internal Consulting 5. Short-term budgeting 6. Financial and economic analyses 7. Process improvement 8. Computer systems and operations 9. Performance evaluation 10. Customer and product profitability analyses

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Factors Influencing Design of the AIS

Organizational Culture Strategy

AIS

Information Technology
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Learning Objective 3

Explain the role played by the AIS in a companys value chain and discuss ways that the AIS can add value to a business.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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The Value Chain

The ultimate goal of any business is to provide value to its customers. A business will be profitable if the value it creates is greater than the cost of producing its products or services.

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The Value Chain

An organizations value chain consists of nine interrelated activities that collectively describe everything it does. The five primary activities consist of the activities performed in order to create, market, and deliver products and services to customers and also to provide post-sales services and support.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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The Value Chain

Primary Activities
Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Service
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2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

The Value Chain

The four support activities in the value chain make it possible for the primary activities to be performed efficiently and effectively.

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The Value Chain

Support Activities

Infrastructure

Technology

Human Resources

Purchasing
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The Value System

The value chain concept can be extended by recognizing that organizations must interact with suppliers, distributors, and customers. An organizations value chain and the value chains of its suppliers, distributors, and customers collectively form a value system.

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The Supply Chain

Raw Materials Supplier
Manufacturer

Distributor

Retailer

Consumer

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How An AIS Can Add Value To An Organization

An AIS adds value...

by providing accurate and timely information so that five primary value chain activities can be performed more effectively and efficiently.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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How An AIS Can Add Value To An Organization

An AIS adds value by: improving the quality and reducing the costs of products or services. improving efficiency. Improving decision making capabilities. increasing the sharing of knowledge.

A well-designed AIS can also help an organization profit by improving the efficiency and effectiveness of its supply chain.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Information and Decision Making

What is information? The term data refers to any and all of the facts that are collected, stored, and processed by an information system. Information is data that has been organized and processed so that it is meaningful.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Data Needs For Activities

Generic Example

Agent
Event Agent

Resource
Sales Transaction Inventory

Customer
Sales

Sale

Payment to Supplier Cash Payment

Cashier
Supplier

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Information and Decision Making

Characteristics of Useful Information
Relevant Reliable Complete Timely Understandable Verifiable
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Information and Decision Making

What is decision making? Decision making involves the following steps:

Identify the problem. Select a method for solving the problem. Collect data needed to execute the decision model. Interpret the outputs of the model. Evaluate the merits of each alternative.

1. 2. 3.

4. 5.

6.

Choose and execute the preferred solution.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Information and Decision Making

Decisions can be categorized as follows: in terms of the degree of structure that exists by the scope of the decision

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Decision Structure
Structured decisions are repetitive, routine, and understood well enough that they can be delegated to lowerlevel employees in the organization. An example is:

Extending credit to customers.

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Decision Structure
Semistructured decisions are characterized by incomplete rules for making the decision and the need for subjective assessments and judgments to supplement formal data analysis. An example is:

Setting a marketing budget for a new product.

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Decision Structure
Unstructured decisions are nonrecurring and nonroutine. An example is:

Choosing the cover for a magazine.

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Decision Scope

Decisions vary in terms of the scope of their effect. Operational control is concerned with the effective and efficient performance of specific tasks. Management control is concerned with the effective and efficient use of resources for accomplishing organizational objectives. Strategic planning is concerned with establishing organizational objectives and policies for accomplishing those objectives.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Learning Objective 4

Describe and contrast the basic strategies and strategic positions that a business can adopt.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Information Technology and Corporate Strategy

New developments in IT affect the design of an AIS. What basic requirements are needed to evaluate the costs and benefits of new IT developments?

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Information Technology and Corporate Strategy

Develop a basic understanding of corporate strategies. how IT developments can be used to implement existing organizational strategies. how IT developments can be used to create an opportunity to modify existing strategies.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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Information Technology and Corporate Strategy

Because an AIS functions within an organization, it should be designed to reflect the values of that organizational culture.

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Strategy and Strategic Positions

Two Basic Strategies
To be a lower-cost producer than competitors

To differentiate products and services from competitors

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Strategy and Strategic Positions

Three Basic Strategic Positions
Variety-based strategic position Need-based strategic position Access-based strategic position
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Strategy and Strategic Positions

What role does the AIS play in helping organizations adopt and maintain a strategic position? Data collection about each activity Transforming data into information that can be used by management to coordinate those activities

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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What is the Value of Information?

The value of information is the benefit produced by the information minus the cost of producing it.

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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The Role of the AIS

The Internet makes strategy more important than ever Enterprise resource planning (ERP) systems integrate all aspects of a companys operations with its traditional AIS. The key feature of ERP systems is the integration of financial data and other nonfinancial operating data.
2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

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End of Chapter 1

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