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vi Preface

financial and managerial accounting and have a basic knowledge of computer hard-
ware and software concepts. The text is designed for a one-semester course in AIS and
may be used at the community college, baccalaureate, or graduate level.
Our hope is that individual instructors will use this book as a foundation for an AIS
course, building around it to meet their individual course objectives. Thus, we expect
that many instructors will supplement this textbook with other books, cases, software,
or readings. The arrangement of the chapters permits flexibility in the instructor’s
subject matter coverage. Certain chapters may be omitted if students have covered
specific topics in prior courses.
Part One introduces students to the subject of AIS. In the first chapter, we lay the
basic foundation for the remainder of the text and set the stage for students to think
about the pervasiveness of technology that is common to organizations, and the impact
technology has on the accounting profession. This chapter also includes a section on
careers in AIS that is designed to introduce students to the career paths that combine
accounting with the study of information systems. Students taking the AIS course may
or may not have had an earlier course in information technology, and Chapter 2 allows
those who did not to learn about the latest technologies, with an emphasis on their
use in accounting. For students who have had earlier courses in computers and/or
information systems, this chapter serves as a review but might also introduce new
technologies that students have not studied in other courses, given the rapid pace of
change in the information technology environment.
Part Two discusses data modelling and databases. Chapter 3 begins our coverage
by discussing database concepts in general, describing how to design database tables
and relationships, and discussing how databases promote efficient storage of the data
needed to support business decisions. This chapter also responds to increasing instruc-
tor interest in teaching the REA approach to data modelling. Chapter 4 describes how
to use Microsoft Access to create databases and extract data from databases. Chapter
5 continues the discussion of how to use Microsoft Access to develop database forms
and reports. Chapters 4 and 5 are more “how to” than the other chapters in the book,
and they allow the instructor to guide students through hands-on experience in using
software to implement the database concepts they have learned.
Part Three begins with Chapter 6 and a discussion of systems documentation, a
matter of critical importance to the success of an AIS and also to an understanding of
an information system. This chapter describes the various tools that accountants can
use to document an AIS for their own and others’ understanding of information flows.
Business processes and software solutions for improving those processes are gaining
in importance in today’s businesses. Chapters 7 and 8 discuss several core business
processes and highlight a number of business process management (BPM) solutions
that are currently available in the marketplace. Instructors who focus on transaction
cycles in their AIS courses may choose to use supplemental pedagogical tools, such as
software and practice sets, to cover this material in more depth.
Part Four is an overview of internal controls and the potential consequences of
missing, weak, or poorly developed controls. Although the subject of internal control
appears repeatedly throughout the book, we examine it in depth in Chapters 9 and 10.
These two chapters introduce students to internal controls that are necessary at each
level of the organization. Chapter 11 focuses on computer crime, ethics, and privacy,
to help students understand the need for internal controls.
The last section of the book examines special topics in AIS. Chapter 12 introduces
auditing in an IT environment. Information technology auditing is an increasingly
important field and represents a great career opportunity for students who understand
 Preface vii

both accounting and IT. Recognizing that some students in AIS courses may have com-
pleted courses in management information systems (MIS) and thus are already familiar
with systems development topics, the emphasis in Chapter 13 is on the accountant’s
role in designing, developing, implementing, and maintaining a system. Although we
have integrated Internet technology throughout this book, its influence on accounting
information systems is so great that we devoted a special chapter to it. Chapter 14
provides a basic overview of Internet concepts; discusses financial reporting on the
Internet, including an expanded section on XBRL; explores the accounting compo-
nents of e-business; and covers the issues of privacy and security. Finally, in Chapter
15, we discuss accounting and enterprise software, and the chapter provides advice
related to AIS selection.

Special Features

This edition of our book uses a large number of special features to enhance the cov-
erage of chapter material as well as to help students understand chapter concepts.
Thus, each chapter begins with an outline and a list of learning objectives that empha-
size the important subject matter of the chapter. This edition of the book also includes
many new real-world Case-in-Points drawn from Canadian and international examples,
which are woven into the text material and illustrate a particular concept or procedure.
Each chapter also includes a more detailed real-world case as an end-of-chapter AlS at
Work feature.
Each chapter ends with a summary and a list of key terms. To help students under-
stand the material in each chapter, this edition also includes multiple-choice questions
with answers for self-review, and three types of end-of-chapter exercises: discussion
questions, problems, and cases. This wide variety of review material enables students
to examine many different aspects of each chapter’s subject matter and also enables
instructors to vary the exercises they use each semester. The end-of-chapter materials
also include references and other resources that allow interested students to explore
the chapter material in greater depth. In addition, instructors may wish to assign one
or a number of articles listed in each chapter reference section to supplement chapter
discussions. These articles are also an important resource for encouraging students to
begin reading professional journals. We include articles from Strategic Finance, Jour-
nal of Accountancy, and Internal Auditor Magazine, the journals of three important
accounting professional organizations.
There are two major supplements to this textbook. One is an instructor’s manual
containing suggested answers to the end-of-chapter discussion questions, problems,
and cases. There is also a test bank of true-false, multiple-choice, and matching-type
questions. The test bank includes short-answer problems and fill-in-the-blank questions
so that instructors have a wide variety of choices.

What’s New in the Canadian Edition

This edition of our book includes a number of changes from prior editions. These
include

• A focus on AIS concepts in a Canadian context, including discussions based on

Canadian accounting rules, regulations, and practices. References to U.S. practices
viii Preface

and laws are discussed in terms of how they may affect a Canadian company that
operates or files in the United States, or that is listed on a U.S. stock exchange.
• Many new Case-in-Points that identify Canadian examples of topics discussed in the
textbook. These examples illustrate the topic to give students a better grasp of the
material.
• A new discussion on Canadian privacy laws, focusing on PIPEDA and its effect on
provincial laws.
• New Test Yourself multiple-choice questions at the end of each chapter to help
students assess their understanding of the chapter material.
• Expanded coverage of topics that are increasingly important to accounting systems,
including cloud computing, social media, biometric identification tools, data mining
and business intelligence, sustainability accounting, COBIT version 5, enterprise
controls, and internal auditing of IT.
• An expanded section in Chapter 1 on career paths for accountants, with mention of
options for Canadian students.
• An updated glossary of AIS terms at the end of the book.
• New AIS at Work features at the end of many chapters to help students better under-
stand the impact of systems in a wide variety of contexts.
• A number of new end-of-chapter problems and cases so that instructors have more
choices of comprehensive assignments for students.
ACKNOWLEDGEMENTS

We wish to thank the many people who helped us during the writing, editing, and
production of our textbook. Our families and friends are first on our list of acknowl-
edgements. We are grateful to them for their patience and understanding as we were
writing this book. Next, we thank those instructors who read earlier drafts of this
edition of our textbook and provided suggestions to improve the final version. They
are:

Ramona Bortnowschi, Concordia University College

Barbara Dayton, Dawson College
Kevin deWolde, University of the Fraser Valley
Barbara Eddy, Sheridan Institute of Technology
Gordon Hunter, University of Lethbridge
Brad King, MacEwan University
Brian Menegozzo, Northern Alberta Institute of Technology
David Moreland, Fanshawe College
Alexey Nikitkov, Brock University
Tariq Nizami, McGill University
Bill Waterman, Mount Allison University
Sheldon Weatherstone, University of Ottawa
Jerry Zdril, Grant MacEwan University

Thank you to our supplement contributors: Ramona Bortnowschi, Brian Menegozzo,

and Alexey Nikitkov; to Wiley Canada’s Zoe Craig, Andrea Gryzbowski, and Karen
Staudinger; Laserwords’ Bruce Hobart; and to all the editors who worked on this text.
Finally, we thank all of our many students who have given us feedback when we’ve
used the book. We do listen!

Scott Paquette

ix
CONTENTS

PART ONE AN INTRODUCTION TO ACCOUNTING INFORMATION SYSTEMS/ 1

CHAPTER 1 Accounting Information Systems and the Accountant/ 3

Introduction/ 4
What Are Accounting Information Systems?/ 4
What’s New in Accounting Information Systems?/ 10
Accounting and IT/ 15
Careers in Accounting Information Systems/ 22

CHAPTER 2 Information Technology and Accounting Information Systems/ 35

Introduction/ 36
The Importance of Information Technology to Accountants/ 36
Input, Processing, and Output Devices/ 38
Secondary Storage Devices/ 47
Data Communications and Networks/ 52
Computer Software/ 58

PART TWO DATABASES/ 75

CHAPTER 3 Data Modelling/ 77

Introduction/ 78
An Overview of Databases/ 78
Steps in Developing a Database Using the Resources, Events, and Agents Model/ 85
Normalization/ 93

CHAPTER 4 Organizing and Manipulating the Data in Databases/ 107

Introduction/ 108
Creating Database Tables in Microsoft Access/ 108
Entering Data in Database Tables/ 115
Extracting Data from Databases: Data Manipulation Languages/ 120
Recent Database Advances and Data Warehouses/ 128

CHAPTER 5 Database Forms and Reports/ 143

Introduction/ 144
Forms/ 144
Reports/ 152

PART THREE DOCUMENTING BUSINESS PROCESSES/ 169

CHAPTER 6 Documenting Accounting Information Systems/ 171

Introduction/ 172
Why Documentation Is Important/ 172
Primary Documentation Methods/ 175
Other Documentation Tools/ 190
End-User Computing and Documentation/ 195

xi
xii Contents

CHAPTER 7 Accounting Information Systems and Business Processes: Part I/ 211

Introduction/ 212
Business Process Fundamentals/ 212
Collecting and Reporting Accounting Information/ 215
The Sales Process/ 219
The Purchasing Process/ 225
Current Trends in Business Processes/ 232

CHAPTER 8 Accounting Information Systems and Business Processes: Part II/ 245
Introduction/ 246
The Resource Management Process/ 246
The Production Process/ 252
The Financing Process/ 258
Business Processes in Special Industries/ 261
Business Process Re-engineering/ 266

PART FOUR INTERNAL CONTROL SYSTEMS AND COMPUTER CRIME, ETHICS, AND PRIVACY/ 275

CHAPTER 9 Introduction to Internal Control Systems/ 277

Introduction/ 278
1992 COSO Report/ 280
Updates on Risk Assessment/ 283
Examples of Control Activities/ 286
Update on Monitoring/ 294
2011 COBIT, Version 5/ 295
Types of Controls/ 297
Evaluating Controls/ 298

CHAPTER 10 Computer Controls for Organizations and Accounting Information Systems/ 311
Introduction/ 312
Enterprise-Level Controls/ 312
General Controls for Information Technology/ 316
Application Controls for Transaction Processing/ 329

CHAPTER 11 Computer Crime, Fraud, Ethics, and Privacy/ 347

Introduction/ 348
Computer Crime, Abuse, and Fraud/ 348
Three Examples of Computer Crimes/ 355
Preventing Computer Crime and Fraud/ 361
Ethical Issues, Privacy, and Identity Theft/ 369

PART FIVE SPECIAL TOPICS IN ACCOUNTING INFORMATION SYSTEMS/ 383

CHAPTER 12 Information Technology Auditing/ 385

Introduction/ 386
The Audit Function/ 386
The Information Technology Auditor’s Toolkit/ 393
Auditing Computerized Accounting Information Systems/ 396
Information Technology Auditing Today/ 403
 Contents xiii

CHAPTER 13 Developing and Implementing Effective Accounting Information Systems/ 417

Introduction/ 418
The Systems Development Life Cycle/ 418
Systems Planning/ 420
Systems Analysis/ 422
Detailed Systems Design/ 428
Implementation, Follow-Up, and Maintenance/ 437

CHAPTER 14 Accounting on the Internet/ 455

Introduction/ 456
The Internet and World Wide Web/ 456
XBRL—Financial Reporting on the Internet/ 460
Electronic Business/ 464
Privacy and Security on the Internet/ 470

CHAPTER 15 Accounting and Enterprise Software/ 489

Introduction/ 490
Integrated Accounting Software/ 490
Enterprise-Wide Information Systems/ 494
Selecting a Software Package/ 504

Glossary/ 517

Index/ 531
 PART ONE
AN INTRODUCTION TO ACCOUNTING
INFORMATION SYSTEMS

CHAPTER 1
Accounting Information Systems and the Accountant
CHAPTER 2
Information Technology and Accounting Information Systems

Part One of this book introduces the subject of accounting information systems. It
defines accounting’s principal goal of communicating relevant information to individu-
als and organizations, and describes the strong influence of information technology on
this communication process. Chapter 1 defines accounting information systems, and
then discusses some current events that impact accountants and the profession. This
chapter also examines the impact of information technology on financial accounting,
managerial accounting, auditing, and taxation. Finally, Chapter 1 describes a number
of career opportunities for accounting majors who also are proficient in accounting
information systems (AISs).

Chapter 2 provides an overview of information technology that is relevant to accounting

professionals. It begins by identifying six reasons that make information technology
very important to accountants, and then discusses the current Canadian Institute of
Chartered Accountants’ survey of the top 10 information systems technologies. The
focus of this chapter is on modern technology and its impact on AISs. Therefore, it
discusses computer input devices, central processing units, secondary storage devices,
and output devices in detail. Because communication links are so important to AISs,
this chapter also examines various communication and network arrangements, includ-
ing networking and wireless technology. The chapter concludes with descriptions of
various types of computer software.

1
 Chapter 1

Accounting Information Systems

and the Accountant

INTRODUCTION CASE ANALYSES

WHAT ARE ACCOUNTING INFORMATION SYSTEMS? The Annual Report
Accounting Information Systems—A Definition Performance Management Company

Accounting Information Systems and Their Role The CA Firm

in Organizations READINGS AND OTHER RESOURCES
WHAT’S NEW IN ACCOUNTING INFORMATION ANSWERS TO TEST YOURSELF
SYSTEMS?
Cloud Computing—Impact for Accountants
Sustainability Reporting After reading this chapter, you will:
Suspicious Activity Reporting 1. Be able to explain differences between such
Forensic Accounting, Governmental Accountants, terms as “systems,” “information systems,” “in-
and Terrorism formation technology,” and “accounting infor-
Corporate Scandals and Accounting
mation systems.”
2. Indicate how information technology (IT)
ACCOUNTING AND IT influences accounting systems.
Financial Accounting 3. Be familiar with suspicious activity reporting.
Managerial Accounting 4. Understand how financial reporting is chang-
Auditing ing with advances in IT, such as XBRL.
Taxation 5. Explain how IT allows management accoun-
CAREERS IN ACCOUNTING INFORMATION SYSTEMS tants to use business intelligence to create
dashboards and scorecards.
Traditional Accounting Career Opportunities
6. Show why auditors provide a variety of assur-
Systems Consulting ance services.
Certified Fraud Examiner 7. Be more aware of what is new in the area of
Information Technology Auditing and Security accounting information systems.
AIS AT WORK—CONSULTING WORK FOR CAS 8. Be familiar with career opportunities that com-
bine accounting and IT knowledge and skills.
SUMMARY
KEY TERMS YOU SHOULD KNOW
TEST YOURSELF
DISCUSSION QUESTIONS
PROBLEMS

3
4 PART ONE / An Introduction to Accounting Information Systems

Cloud computing . . . . It’s about reallocating the IT budget from maintenance—such

as keeping servers running, performing upgrades, and making backups—to actually
improving business processes and delivering innovation to the finance organization.

Gill, R. 2011. Why cloud computing matters to finance.

Strategic Finance 92(7): 43–47.

INTRODUCTION
The study of accounting information systems (AISs) is the study of the application of
information technology (IT) to accounting systems. This chapter describes the ways
that IT affects financial accounting, managerial accounting, auditing, and taxation. We
begin by answering the question, “what are accounting information systems?” and then
look at some new developments in the field. Following this, we will examine some
traditional roles of AISs in organizations.
Why should you study AISs? There are many reasons, which we will review briefly
in this chapter, but one of the most important is the unique career opportunities that
will enable you to combine your study of accounting subjects with your interest in
computer systems. In today’s job market, accounting employers expect new hires to be
computer literate. In addition, a large number of specialized and highly compensated
employment opportunities are only available to those students who possess an inte-
grated understanding of the influence accounting and IT have on complicated business
decisions. The last part of this chapter describes a number of these career opportunities
for those with an interest in AISs.

WHAT ARE ACCOUNTING INFORMATION SYSTEMS?

What do the following have in common: (1) a shoebox filled with a lawyer’s expense
receipts, (2) the monthly payroll spreadsheet in the computer of an auto-repair shop,
(3) the packaged accounting software used by a small chain of dry cleaning stores,
and (4) the enterprise resource planning (ERP) system of a large manufacturer? The
answer is that they are all examples of AISs. How can each of such a wide range of
accounting applications qualify as an AIS? The answer is that this is the essence of what
AISs are—collections of raw and stored data (that together typically serve as inputs),
processing methods (procedures), and information (outputs) that serve useful account-
ing purposes. Do such systems have to be computerized? The first example—the
shoebox—suggests that they do not. Can they be complicated? The last example—an
ERP system—illustrates one that is.

Accounting Information Systems—A Definition

Accounting information systems (AISs) stand at the crossroads of two disciplines:

accounting and information systems. Thus, the study of AISs is often viewed as the
study of computerized accounting systems. But because we cannot define an AIS by
 CHAPTER 1 / Accounting Information Systems and the Accountant 5

its size, it is better to define it by what it does. This latter approach leads us to the
following definition that we will use as a model in this book:

Definition: An accounting information system is the collection of data, proce-

dures, software, infrastructure, users, and internal controls that creates needed
financial information for its users.

Let us examine in greater detail what this definition really means. For our discus-
sion, we’ll examine each of the words in the term “accounting information systems”
separately.

Accounting. You probably have a pretty good understanding of accounting subjects

because you have already taken one or more courses in the area. Thus, you know
that the accounting field includes financial accounting, managerial accounting, and
taxation. AISs are used in all these areas—for example, to perform tasks in such areas as
payroll, accounts receivable, accounts payable, inventory, and budgeting. In addition,
AISs help accountants to maintain general ledger information, create spreadsheets for
strategic planning, and distribute financial reports. Indeed, it is difficult to think of an
accounting task that is not integrated, in some way, with an AIS.
The challenge for accountants is to determine how best to provide the information
required to support business and government processes. For example, in making a
decision to buy office equipment, an office manager may require information about
the sources of such equipment, the costs of alternate choices, and the purchasing
terms for each choice. Where can the manager obtain this information? That is the job
of the AIS.
AISs do not just support accounting and finance business processes. They often
create information that is useful to nonaccountants—for example, individuals work-
ing in marketing, production, or human relations. Figure 1-1 provides some examples.
For this information to be effective, the individuals working in these subsystems must
help the developers of an AIS identify what information they need for their plan-
ning, decision making, and control functions. These examples illustrate why an AIS
course is useful not only for accounting majors, but also for many nonaccounting
majors.

Application Examples of AIS Information

Supply chain Demand trends, inventory levels and warehouse management, supplier relation-
management ship management.
Finance Cash and asset management, multicompany and multicurrency management,
credit card transaction summaries.
Marketing Sales management, sales forecasts and summaries, customer relationship man-
agement.
Human resources Workforce planning tools and employee management, benefits management,
payroll summaries and management.
Production Inventory summaries, product cost analysis, materials requirement planning.

FIGURE 1-1 Examples of useful information an AIS can generate for various business func-
tions.
6 PART ONE / An Introduction to Accounting Information Systems

Information (versus Data). Although the terms data and information are often used
interchangeably, it is useful to distinguish between them. Data (the plural of datum)
are raw facts about events that have little organization or meaning—for example, a set
of raw scores on a class examination. To be useful or meaningful, most data must be
processed into useful information—for example, by sorting, manipulating, aggregat-
ing, or classifying them. In our example of test scores, computing the class average from
the raw scores converts the data into information. Therefore, information is sometimes
considered data that has been put into context.
Do raw data have to be processed in order to be meaningful? The answer is “not
at all.” Imagine, for example, that you take a test in a class. Which is more important
to you—the average score for the class as a whole (a processed value) or your score (a
raw data value)? Similarly, suppose you own shares of stock in a particular company.
Which of these values would be least important to you: (1) the average price of a stock
that was traded during a given day (a processed value), (2) the price you paid for the
shares of stock (an unprocessed value), or (3) the last pricetrade of the day (another
unprocessed value)?
Raw data are also important because they mark the starting point of an audit
trail—that is, the path that data follow as they flow through an AIS. In a payroll
system, for example, an input clerk enters the data for a new employee and the AIS
keeps track of the wages due that person each pay period. An auditor can verify the
existence of employees and whether each employee received the correct amount of
money.

Case-in-Point 1.1 A former payroll manager at the Brooklyn Museum pleaded guilty to embezzling
$620,000 by writing paycheques to “ghost employees.” Dwight Newton, 40, admitted committing wire
fraud by adding workers who did not exist to the payroll and then wiring their wages directly into a joint
bank account that he shared with his wife. Under a plea agreement, Newton must repay the museum
the stolen funds. He was ordered to forfeit $77,000 immediately, sell his Barbados timeshare, and liqui-
date his pension with the museum.1

Despite the potential usefulness of some unprocessed data, most end users need
financial totals, summary statistics, or exception values—that is, processed data or
information—for decision-making purposes. Figure 1-2 illustrates a model for this—a
three-stage process in which (1) raw and/or stored data serve as the primary inputs,
(2) processing tasks process the data, and (3) meaningful information is the primary
output. Modern AISs, of course, harness information technology to perform the neces-
sary tasks in each step of the process. For example, a catalogue retailer might use their
e-commerce site to gather customer purchase data, use central file servers to process
and store the purchase transactions, and finally employ other Web pages and printed
outputs to confirm and distribute information about the order to the appropriate parties.

Inputs Processes Outputs

Data/Information from Sort, Organize, Information for

Internal/External Calculate Internal/External
Sources Decision Makers

FIGURE 1-2 An information system’s components. Data or information is input, processed,

and output as information for planning, decision making, and control purposes.

1 http://www.payroll-fraud.com/rc009.html
 CHAPTER 1 / Accounting Information Systems and the Accountant 7

Although computers are wonderfully efficient and useful tools, they also create
problems. One is related to their ability to output vast amounts of information without
being selective or considering the needs of the users. Too much information, and espe-
cially too much trivial and irrelevant information, can overwhelm its users, possibly
causing relevant information to be lost or overlooked. This situation is known as infor-
mation overload. It is up to the accounting profession to determine the nature and
timing of the outputs created and distributed by an AIS to its end users. In many cases,
IT auditors can create value for the organization by removing unnecessary or unim-
portant information and helping with the design of reports that originate from an AIS.
Another problem with computerized data processing is that computers do not
automatically catch the simple input errors that humans make. For example, if you
were performing payroll processing, you would probably know that a value of −40
hours for the number of hours worked was probably a mistake; the value should be
40 hours. A computer can be programmed to look for (and reject) bad input, but it is
difficult to anticipate all possible problems.
Yet a third problem created by computers is that they make audit trails more diffi-
cult to follow. This is because the path that data follow through computerized systems
is electronic, not recorded on paper. However, a well-designed AIS can still document
its audit trail with listings of transactions and account balances both before and after
the transactions update the accounts. A major focus of this book is on developing
effective internal control systems for companies, for which audit trails are important
elements. Chapters 9, 10, and 12 discuss these topics in detail.
In addition to collecting and distributing large amounts of data and information,
modern AISs must also organize and store data for future uses. In a payroll application,
for example, the system must maintain running totals for the earnings, tax withhold-
ings, and retirement contributions of each employee in order to prepare end-of-year
tax forms. These data organization and storage tasks are major challenges, and one of
the reasons why this book contains three chapters on the subject (see Chapters 3, 4,
and 5).
Besides deciding what data to store, businesses must also determine the best way
to integrate the stored data for end users. An older approach to managing data was to
maintain independently the data for each of its traditional organization functions—for
example, finance, marketing, human resources, and production. A problem with this
approach is that, even if all the applications are maintained internally by the same IT
department, there will be separate data-gathering and reporting responsibilities within
each subsystem, and each application may store its data independently of the oth-
ers. This often leads to a duplication of data-collecting and processing efforts, as well
as conflicting data values when specific information (e.g., a customer’s address) is
changed in one application but not in another. Multiple databases also create the chal-
lenge of integrating the information produced into the reporting needed by managers
for their decision-making activities.
Organizations today recognize the need to integrate the data associated with their
functions into large, seamless databases. This integration allows internal managers
and possibly external parties to obtain the information needed for planning, decision
making, and control, whether or not that information is for marketing, accounting, or
some other functional area in the organization. To accomplish this task, many compa-
nies are now using large (and expensive) enterprise resource planning (ERP) system
software packages to integrate their many information sources, systems, and applica-
tions into one business software that is accessible by all business functions. An example
of such a software product is SAP ERP, which combines accounting, manufacturing,
and human resource subsystems into an enterprise-wide information system—that is, a
8 PART ONE / An Introduction to Accounting Information Systems

system that focuses on the integrated business processes of the organization as a whole.
We discuss these systems in more depth in Chapter 15.
SAP, SAS Institute, IBM, and Oracle have recognized the need for integrated infor-
mation and therefore developed business intelligence software to meet this need. This
software incorporates data from across the organization and removes the “data silos”
that can occur when only a functional area has access to and can use its own data. The
latest innovation is predictive analytics, which these software developers are adding
into their main software suites. Predictive analytics includes a variety of methodologies
that managers might use to analyze current and past data to help predict future events.
In March 2010, IBM opened a predictive analytics lab in China, which is the latest in
an estimated $12-billion commitment to build out IBM’s analytics portfolio.2

Case-in-Point 1.2 Accountants and other managers are using predictive analytics, a technique that
takes advantage of data stored in data warehouses (which are large, centralized databases used to
understand the data and find new insights), to create systems that allow them to use their data to
improve performance. FedEx uses these tools to determine how customers will react to proposed price
changes or changes in service. The police force in Richmond, Virginia, uses predictive analysis tools
and a database of police calls and crime incident data to predict where and when crimes are most
likely. Their system even includes information about weather and local events.3

Systems. Within the accounting profession, the term “systems” usually refers to com-
puter systems, although this is not always the case. A system, or a set of people, tools,
and objects, can be entirely people-based or can be partly automated (when comput-
ers are used). A system can also be a process, or a means of completing a task in an
organization. As you probably know, IT advances are changing the way we do just
about everything. Just a few years ago, the authors never imagined that people could
someday purchase a book from a “virtual bookstore” on the Internet using a wireless
laptop or e-reader, while sipping on a latte in a Starbucks. The explosion in electronic
connectivity and commerce is just one of the many ways that IT influences how people
now access information or how firms conduct business. Today, IT is a vital part of what
accountants must know to be employable.
Returning to our definition, you probably noticed that we did not use the term
“computer,” although we did use the term “processing procedures.” You already know
the reason for this—not all AISs are computerized, or even need to be. Therefore,
the term “system” does not always refer to computers or technology. But most of the
systems in businesses today are automated, and thus the term “processing procedures”
can refer to the functions of a modern AIS without necessarily referring to computers.
For example, every organization must have a process to handle the reimbursement of
funds to an employee. A cheque requisition is created, approved by a manager, and
then the request is processed so the cheque will be delivered. This can be a manual
or computerized process.
In summary, it is convenient to conceptualize an AIS as a set of components that
collect accounting data, store it for future uses, and process it for end users. This
abstract model of data inputs, storage, processing, and outputs applies to almost all
the traditional accounting cycles with which you are familiar—for example, the payroll,
revenue, and expenditure cycles—and is, thus, a useful way of conceptualizing an AIS.

2 http://itmanagement.earthweb.com/features/article.php/3872536/Business-Intelligence-Software-and-
Predictive-Analytics.html
3 Whiting, R. 2006. Predict the future—or try, anyway. Information Week (May): 38–43.
 CHAPTER 1 / Accounting Information Systems and the Accountant 9

Again, we stress that the end users of the information of an AIS are not only accoun-
tants, but include customers, investors, suppliers, financial analysts, and government
agencies.

Accounting Information Systems and Their Role in Organizations

Information technology (IT) refers to the hardware, software, and related system com-
ponents that organizations use to create computerized information systems. IT has
been a major force in our current society and now influences our lives in many per-
sonal ways—for example, when we use digital cameras to take pictures, access the
Internet to make a purchase or learn about something, or email friends and family. It
is perhaps less clear that computer technology has also had profound influences on
commerce. In this information age, for example, fewer workers actually make physical
products while more of them produce, analyze, manipulate, and distribute information
about business activities through the use of their knowledge. These individuals, often
called knowledge workers, do not produce physical goods, but use information and
knowledge as both the inputs and outputs of their work. Examples include lawyers,
consultants, teachers, and accountants! Companies find that their success or failure
often depends upon the uses or misuses of the information that knowledge workers
manage.

Case-in-Point 1.3 According to a 2010 report from Infotrends, mobile knowledge workers make up
more than 60% of the total workforce in Brazil, Germany, India, and Japan. This number is even higher
in the United States—over 70% of the total workforce. Current projections suggest that these numbers
are expected to grow through 2014.4

The information age has important implications for accounting because accoun-
tants actually are knowledge workers. In fact, accountants have always been in the
“information business” because their role has been, in part, to understand financial
information that occurs within the business environment, and communicate any accu-
rate and relevant financial information that describes how the organization is per-
forming. The information age also includes the increasing importance and growth of
e-business, conducting business over the Internet or dedicated proprietary networks,
and e-commerce (a subset of e-business), which refers mostly to buying and selling
on the Internet or other electronic networks.
In many ways, the process of accounting is itself an information system—that is,
a communicative process that collects, stores, processes, and distributes information
to those who need it. For instance, corporate accountants develop financial statements
for external parties and create other reports (such as accounts receivable aging analy-
ses) for internal managers. But users of accounting information sometimes criticize
AISs for capturing and reporting only financial transactions. They claim that financial
statements often ignore some of the most important activities that influence business
entities. For example, the financial reports of a professional basketball team would not
include information about hiring a new star because this would not result in journal
entries in the franchise’s double-entry accounting system.
Today, however, AISs are concerned with nonfinancial as well as financial data
and information. Thus, our definition of an AIS as an enterprise-wide system views
accounting as an organization’s primary producer and distributor of many different

4 http://www.infotrends.com/public/Content/Press/2011/01.20.2011a.html
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forearm and one of the blackjacks blurred down toward it. My arm
went numb. There was no pain. It just went suddenly dead.
The second blackjack numbed my other arm. They were very good
at it, all right. They knew where to strike. I was a boxer without any
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A blackjack came down. I bobbed out of the way. The other guy was
behind me, raising his own blackjack. The first one hit him
accidentally, crushing his shoulder. He screamed. I butted my head
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and he lay there.
The second guy was better now. He came at me with the blackjack. I
backed off toward the rubdown table. My arms were beginning to
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on the rubdown table getting set to meet the blow. He lunged at me
and I brought up my foot, smashing it against his chest. He
staggered back. Sally stood to one side, her face white, her hand at
her throat.
I followed the guy with the blackjack. He swung at me. He looked
scared now. I ducked inside the blow and brought up my tingling
right fist in a short, chopping blow. It threw his head back. He turned
with a little whimper and got the hell out of there. His friend was still
unconscious.
"Well, Mrs. Xlptl," I said, "shall we go?"
"I—I guess so. You were so strong! Even stronger than the real
Martell. You were wonderful, really you were." She was small but
very pretty. She had a funny look in her eyes. "That's what I like
about Earthmen," she said. "They're so strong. They're so virile...."
She took my hand. We concentrated on getting out of there.
When I saw Mrs. Xlptl again, she wasn't little Sally. She was a
shoulderless almost-human, penguin-like creature from somewhere.
"So strong, so virile ..." she said again. That look was in her new
eyes.
It was a living room. I wished to hell Xlptl would come. I didn't like
that look. I knew what she wanted. I wasn't buying now. I'd had
enough for one day with almost scrubbing beautiful backs and
watching strippers perform and almost getting clobbered and then
having Mrs. Xlptl look at me that way, her eyes saying she wanted
one final fling on Earth, in the person of a private eye named Brody.
And she wasn't going to give up easily. She moved toward me, then
stopped and looked down at herself. "It wouldn't be much fun with
this—me—" She made a hopeless gesture.
I wanted to be polite. "But it was fun while it lasted."
"Yes. Maybe there's some way we could do it again—just once more
before I go back—"
Her offer was tempting. I had to admit that. But things were different
now. What was over was over and she had to understand. "No—no,"
I said. "You'll be happy back where you belong."
Her eyes flashed anger. "I belong here! With you! We can do it
again!"
"Xlptl!" I called. "Hey, Xl—"
He came in. He went over to his wife. She sighed, looking
disappointed.
"You're going back now?" I asked Xlptl as he paid me.
"Yes. And I have a souvenir."
I went outside. In the hall were two valises and something else. Xlptl
had the right idea. He'd be able to keep his wife happy at home
henceforth.
The something else was a set of barbells.
THE END
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