Chapter 1

Accounting Information Systems

and the Accountant

Introduction
Accounting Information Systems (AIS)
New Features in AIS
Accounting and IT

Chapter
1-1
 Chapter 1
Accounting Information Systems
and the Accountant

Careers in Accounting Information

Systems
AIS at work - Planning for disaster
Summary

Chapter
1-2
 Introduction

Application of information technology (IT)

to accounting systems
 financial accounting,
 managerial accounting,
 auditing,
 taxation, and

Study of accounting information systems

for understanding
 business processes,
 computerized software, and
 information flows that are all part of AIS.
Chapter
1-3
 Introduction

Increase in career opportunities with

 minimum level of computer proficiency
 accounting skills combined with computer knowledge
 advanced computer skills in accounting jobs
 awareness of new developments in the field.

Chapter
1-4
 Accounting Information Systems

Question

Which of the following is not a good reason to study accounting

information systems?
a. You will be on the cutting edge of business practice.
b. You get to draw pictures.
c. You can get a great job.
d. You like to spend hours and hours chatting on the
Internet.
Chapter
1-5
 The Information Age

Information in this age is

 produced very quickly,
 analyzed efficiently, and
 distributed effectively.

Knowledge workers
 constitute the labor force in this age.

The Internet
 is a major contributor in the information age.

Chapter
1-6
 Information Systems(IS)

A System
 consists of interacting parts or components,
 is set up to achieve one or more goals.

An Information System
 is a set of interrelated subsystems,
 works to collect, process, store, transform, and
distribute information,
 helps to plan, make decisions, and control processes.

A Firm/Company
 depends on information systems to stay competitive.
Chapter
1-7
 The Accounting Field

The Accounting Field includes

 financial accounting,
 managerial accounting, and
 taxation

The Accounting System of old is the

 Management Information System (MIS)
which provided
 financial information and
 nonfinancial information

Chapter
1-8
 AIS: At the Intersection of
Accounting and IS

Accounting Information Systems

financial Accounting collect, process,
accounting, store, transform,
managerial
Information and distribute
accounting, and Systems
taxation

Chapter
1-9
 Accounting Information Systems

An Accounting Information System (AIS)

 Collection of data and processing procedures
 Creates needed information for users.

The AIS today should be

 an enterprise-wide information system,
 focused on business processes.

Chapter
1-10
 Accounting Information Systems

AIS don’t just support accounting and

finance business processes. They often
create information that is useful to non-
Accountants.

Chapter
1-11
 An Accounting Information
System

Inputs: Collection of Data/Information from

Internal/External sources

Data
Repository/
Processes: Sorting, Organizing,
Files,
Calculating
Databases,
etc.
Outputs: Distribution of Information for Internal/
External Decision Makers
Chapter
1-12
 An Accounting Information
System

Question

Which of the following is NOT true about accounting information

systems (AISs)?
a. All AISs are computerized.
b. AISs may report both financial and nonfinancial information.
c. AISs, in addition to collecting and distributing large amounts
of data and information, also organize and store data for future uses.
d. A student who has an interest in both accounting and IT will
find many job opportunities that combine these knowledge and
skills areas.
Chapter
1-13
 Data versus Information

Data
raw facts about events that have no
organization or meaning

Information
data that have been processed and
made meaningful to users

Chapter
1-14
 MIS versus AIS

A Management Information System provides

to internal users (management)
 financial information and
 nonfinancial information.

Chapter
1-15
 MIS versus AIS

The Accounting Information System

provides to both external and internal users
 financial information
Now, the two systems overlap
to provide the same information
focusing on business processes.

Chapter
1-16
 MIS versus AIS

Financial To internal
MIS
Nonfinancial users

MIS
systems to provide the same information
overlap to focus on business processes
AIS

AIS To internal
Financial
& external users
Chapter
1-17
 MIS versus AIS

Question

With respect to computerized AISs, computers:

a. Turn data into information in all cases.
b. Make audit trails easier to follow.
c. Cannot catch mistakes as well as humans.
d. Do not generally process information more
quickly than humans.
Chapter
1-18
 Accounting in the
Information Age

Financial Accounting
Managerial Accounting
Auditing
Taxation

Chapter
1-19
 New Features in AIS

AIS has several new applications today:

In countering terrorism AIS is using banking systems to
trace the flow of funds and materials across
international borders.
In preventing accounting scandals AIS is helping
firms to to comply with the Sarbanes-Oxley Act of
2002.
AIS has benefited from the use of
WI-FI Technology
Chapter
1-20
 Recent Accounting Scandals

The following is a list of recent accounting scandals that were

reported:
Enron 2001 Global Crossing 2002
Imclone 2001 Parmalat 2003
Arthur Andersen 2001 NYSE 2003
Merrill Lynch 2002 WorldCom 2003
Tyco 2002 HealthSouth 2003
Adelphia 2002
Chapter
1-21
 The Sarbanes-Oxley Act of 2002

Sarbanes-Oxley Act of 2002

is a strong deterrent to unethical behavior;
forbids corporations from making personal loans to
executives;
requires CEOs of companies to personally vouch for the
accuracy and completeness of its financial statements;
requires public companies to hire independent, new auditors
to review internal controls;
requires management to implement and assess internal
controls;
has created a lot of work for accountants and information
systems auditors.
Chapter
1-22
 The Sarbanes-Oxley Act of 2002

Question

Which of the following is not true of The Sarbanes-Oxley Act of 2002?

a. Was enacted as a response to the corporate frauds that left
investors uncertain about financial markets.
b. Has lead to a decrease in the amount of work done by auditors
and accountants.
c. Forbids corporations from making personal loans to executives.
d. Requires the Chief Executive Officer of a public company to
take responsibility for the reliability of its financial statements.

Chapter
1-23
 Accounting and IT

Chapter
1-24
 Financial Accounting

The objective of financial accounting is

 to provide relevant information to individuals and
groups outside an organization’s boundaries.

The users include

 investors,
 tax agencies, and
 creditors.

The objectives are achieved through

 preparation of financial statements.
Chapter
1-25
 Financial Accounting

Inputs
 transactions are measured in monetary units.

A good audit trail

 information users can follow the flow of data through the system
 managers can follow source document data from input through
processing to the output (& vice versa)

The accounting cycle

 parallels the audit trail
 begins with a transaction
 ends with producing financial statements and closing temporary
accounts.
Chapter
1-26
 A Financial Accounting
Audit Trail

Chapter
1-27
 Financial AIS - Criticisms
& Solutions

Criticism Solutions
Did not provide nonfinancial Recommended disclosure of non-
data financial performance measures.
Financial statements are Reporting of disaggregated
periodic. Too much information tracks sales and many of
aggregation of information its expenses continually
Data is not interactive - data Extensible business reporting
used in one application are language (XBRL) is emerging as the
not easily transferable to language
another of choice for interactive data

Chapter
1-28
 Managerial Accounting

Objective:
 to provide relevant information to internal
parties (or users).

Components:
 Cost Accounting
 Budgeting

Chapter
1-29
 Managerial Accounting -
Features

Managerial Accounting
focuses on accounting information
 for internal parties, such as management,
 not for for external investors and creditors.

is mostly forward-looking.
is not regulated by generally accepted
accounting principles, nor is mandatory to
prepare.
Chapter
1-30
 Managerial Accounting -
Features

includes both nonmonetary and financial data.

is influenced by many business and nonbusiness
disciplines, such as economics, behavioral
science, quantitative methods
is flexible and frequently involves nonroutine
reporting.

Chapter
1-31
 Cost Accounting

Cost accounting assists managers in the organization’s

measuring and controlling the costs associated with:

acquisitions
processing
distribution
selling activities.

Chapter
1-32
 Cost Accounting

Activity-based costing systems assign

overhead to products based on cost drivers.
Corporate performance measurement
Identifies unfavorable performance
Traces to the department or individual
responsible for the inefficiencies.
Allows management to take
immediate corrective action.
Chapter
1-33
 Cost Accounting

The Balance Scorecard approach uses

performance measurements in:

 financial performance
 customer knowledge
 internal business processes
 learning and growth
Chapter
1-34
 Budgeting

Definition
 a financial projection for the future
and valuable managerial planning aid
Useful
 for managerial control and to compare
actual results to budgeted results.

Influence
 on all the subsystems within an organization.

Chapter
1-35
 Auditing

Traditional role
 to evaluate the accuracy and completeness of a
corporation’s financial statements
Present role
 in the assurance business; the business of
providing third-party testimony that a client
complies with a given statute, law, or similar
requirement
Chapter
1-36
 Auditing

CPA Trust Services

 include online privacy evaluations, security
audits, testing the integrity of information
processing systems
 assessing availability of IT services, and systems
confidentiality testing.

Chapter
1-37
 Assurance Services identified by the
AICPA Special Committee

Risk Assessment
Business Performance Measurement
Information Systems Reliability
Electronic Commerce
Health Care Performance
Measurement
Eldercare Plus
Chapter
1-38
 Taxation

Taxation software
are examples of AISs
enable users to create and store copies of trial tax
returns
help examine consequences of alternate tax
strategies
print specific portions of a return
transmit completed copies of a tax return
to the appropriate government agency
Chapter
1-39
 Taxation

Professionals can use taxation software

to access electronic tax libraries on CDs or
online
to research challenging tax questions
to get more up-to-date tax information
access databases of federal and state tax
laws, tax court rulings, court decisions,
and technical advice.
Chapter
1-40
 Careers in Accounting
Information Systems
Systems consultants
provide help with information systems in
 Designing information systems,
 selecting hardware and software, or
 reengineering business processes.

Value-added resellers (VARs)

sell a certain software program and
provide consulting services to companies.
Chapter
1-41
 Careers in Accounting
Information Systems

Information systems auditors

analyze risks associated with computerized information
systems
can show organizations ways that their computer
systems could be penetrated
can be licensed as Certified Information Systems
Auditors (CISA)
can obtain the certification from the Information
Systems Audit and Control Association (ISACA)
Chapter
1-42
 Planning for Disaster

Planning assures that operations

continue after disaster
IT particularly vulnerable to man-made
attacks, such as viruses and worms
Under auditing standard No. 60, absence
of disaster plan needs to be reported.
Plan needs to be tested regularly.
Chapter
1-43