processed into information, and distributed

to users.

Transaction
- an event that affects or is of interest to the
organization and is processed by its
Two types of Internal Information Flows information system as a unit of work.

Horizontal: supports operations-level tasks Financial transaction

with highly detailed information about the - economic event that affects the assets and
many business transactions affecting the firm equities of the organization, is reflected in
Vertical: its accounts, and is measured in monetary
Downward flows terms.
- The top-level management will give
instructions regarding the quota, the Non-Financial transactions
budget which should be cascaded up - events that do not meet the narrow definition
to the operations personnel. of a financial transaction.
Upward flows
- summarized information related to Accounting is an information system.
operations and other activities; more - It identifies, collects, processes, and
on performance information. communicates economic information about a
firm using a wide variety of technologies.
System Decomposition versus System - It captures and records financial effects of the
Interdependency firm’s transactions.
- It distributes transaction information to
System Decomposition operations personnel to coordinate many
■ the process of dividing the system into tasks.
smaller subsystem parts
■ Overall system as a hierarchy Three Major Subsystems

System Interdependency • Transaction processing system (TPS),

■ distinct parts are not self-contained - supports daily business operations with
■ they are reliant upon the functioning of the numerous reports, documents, and messages
other parts of the system for users throughout the organization;
■ all distinct parts must be functioning or the
system will fail • General ledger/financial reporting system
(GL/FRS),
INFORMATION OBJECTIVES - produces the traditional financial statements,
1. To support the firm’s day-to-day such as the income statement, balance sheet,
operations. statement of cash flows, tax returns, and other
2. To support management decision reports required by law;
making.
3. To support the stewardship function of • Management reporting system (MRS),
management. - provides internal management
with special-purpose financial reports and
AN INFORMATION SYSTEMS information needed for decision
FRAMEWORK making such as budgets, variance reports, and
Information system — is the set of formal responsibility reports.
procedures by which data are collected, stored,
Management Information System
- processes nonfinancial Information
transactions that are not normally is data that has been transformed
processed by traditional AIS into a meaningful context and has
the power to influence or trigger
AIS SUBSYSTEMS actions, decisions, or responses from
Transaction Processing System users.
- central to the overall function of the
information system DATA SOURCE
- converts economic events into financial - they represent the origins of
transactions, records financial transactions in financial data that enter the system
the accounting records (journals and ledgers), for processing and reporting
and distributes essential financial information 1. External Data Sources:
to operations personnel to support their daily refer to financial transactions that involve
operations interactions between the organization and
entities or individuals outside of the firm.
General ledger/financial reporting system 2. Internal Data Sources:
(GL/FRS) Internal data sources, on the other hand,
- one processes Summaries of transaction pertain to financial transactions that occur
activity coming from transaction cycle within the
subsystems organization, involving the exchange or
- the other measures the status of financial movement of resources or financial elements.
resources and the changes in those resources
and communicates this information to external DATA COLLECTION
users. ensuring accurate, complete, and
- non discretionary reporting, because the error-free data.
organization has few or no - It forms the basis for the entire
choices in the information it provides. information processing cycle
Validity
Management Reporting System - Data must be valid,
- reports produced by it include budgets, accurately representing real-
variance reports, cost-volume-profit analyses, world events or transactions.
and reports using current (rather than Completeness
historical) cost data. - Data collection processes
- discretionary reporting, because the should ensure that all relevant
organization can choose what data elements are captured.
information to report and how to present it. Incomplete data can lead to
incomplete or inaccurate
END USER outputs.
- individuals or Error-Free
entities who interact with the system - Data should be free from
to access, utilize, or contribute material errors
financial information Relevance
External End Users - These are individuals or - those that contribute to
entities outside the organization/company meaningful information
who require/use the financial information DATA PROCESSING
generated by the AIS. - where collected data are
Internal End Users - These are individuals or transformed, organized, and
departments within the company who use the analyzed to generate meaningful
financial information generated by the AIS to information.
facilitate various aspects of their work and - the heart of an information system
decision-making processes.
DATABASE MANAGEMENT
Data
- refers to raw facts and figures.
- the physical repository for financial
and nonfinancial data within an
organization
- the organization, storage, retrieval,
and maintenance of data in a
systematic and structured manner.

Accounting Independence
■ Information reliability requires
accounting independence.
Accounting activities must be
separate and independent of the
functional areas maintaining
resources.
■ Accounting supports these
functions with information but does
not actively participate.
■ Decisions makers in these
functions require that such vital
information be supplied by an
independent source to ensure its
integrity.