Chapter

1-1
 Chapter 1
Accounting Information Systems
and the Accountant

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

Chapter
1-2
 Chapter 1
Accounting Information Systems
and the Accountant

 Careers in Accounting
Information Systems
 AIS at work - Planning for
disaster
 Summary

Chapter
1-3
 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,
Chapter
1-4 computerized software, and

 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
1-5
 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
Chapter
1-7 competitive.
 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
 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
1-13
 MIS versus AIS

A Management Information System provides

to internal users (management)
 financial information and
 nonfinancial information.
 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.
 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
 Accounting in the
Information Age

 Financial Accounting
 Managerial Accounting
 Auditing
 Taxation

Chapter
1-17
 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
1-18
 Recent Accounting Scandals

The following is a list of recent accounting scandals that were

reported:
 Enron 2001  Global Crossing
 Imclone 2001 2002
 Arthur Andersen  Parmalat 2003
2001  NYSE 2003
 Merrill Lynch 2002  WorldCom 2003
 Tyco 2002  HealthSouth 2003
 Adelphia 2002
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
 Accounting and IT

Chapter
1-21
 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
Chapter
 creditors.
1-22
 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
Chapter ends with producing financial statements and
1-23
closing temporary accounts.
 A Financial Accounting
Audit Trail

Chapter
1-24
 Financial AIS - Criticisms
& Solutions

Criticism Solutions
 Did not provide Recommended disclosure of non-
nonfinancial data financial performance measures.
 Financial statements Reporting of disaggregated
are periodic. Too information tracks sales and many of
much aggregation of its expenses continually
information Extensible business reporting
 Data is not language (XBRL) is emerging as the
interactive - data language
used in one of choice for interactive data
application are not
easily transferable to
another
Chapter
1-25
 Managerial Accounting

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

Components:
 Cost Accounting
 Budgeting
 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
Chapter

is mandatory to prepare.
1-27
 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
1-28
 Cost Accounting

Cost accounting assists managers in the organization’s

measuring and controlling the costs associated with:

acquisitions
processing
distribution
selling activities.
 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.
 Cost Accounting

The Balance Scorecard approach

uses performance measurements in:

 financial performance
 customer knowledge
 internal business processes
 learning and growth

Chapter
1-31
Budgeting

 Definition
 a financial projection for the
future
and valuable managerial
planning aid
 Useful
 for managerial control and to
compare
actual results to budgeted
Chapter
results.
1-32
 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
Chapter
1-33 requirement
 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
1-34
 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
1-35
 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
 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.
 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
1-38
 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
ChapterAssociation (ISACA)
1-39
 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
1-40
 Quiz No. 1

1. Differentiate MIS VS. AIS

2. What is the connection of

Accounting to IS?

3. Discuss one Financial AIS

Criticism and its solution.

Chapter
1-41