bafs elective part accounting module – financial accounting · ict applications in accounting...
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BAFS Elective Part Accounting Module –Financial Accounting
Topic A05: ICT Applications in Accounting
Technology Education SectionCurriculum Development Institute
Education Bureau, HKSARGApril 2009
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Lesson 1Advantages and Disadvantages of the AIS - Part 1
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Learning Objective
Identify the advantages and disadvantages of using AIS
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Activity 1: Role Play
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Directions for discussion
EfficiencyCostWork flowControlSkillsCompetence
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Meetings Begin
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Discussion in progress
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Presentation
The Director invites the 5 parties to present their findings on using a computerisedsystem.
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Financial controller
Financial controller illustrates how a computerised system improves efficiency. Also explaining the possible limitations of using such a system.
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Auditor
Auditor explains how the audit process is affected / improved by the new system.
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Shareholder/Owner
Shareholder/Owner explains how the new system brings improvement / drawbacks to the company.
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Customer
Customer explains if the new system has any improvement / drawback on their relationship with the company.
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Employee
Employee explains how the system improves / affects their work.
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Financial ControllerAdvantages
Simplified transaction postingsEasier transaction retrievalsReadily available financial dataShorter time to prepare reportsDifferent aspects of reports availableMore information for budgetingHigher overall operations efficiency
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Financial Controller
DisadvantagesWork flow may be limited / controlled by the program – a change of work flow may require a change of programKnowledge on how to operate the system is requiredPossible system breakdown may affect company operation, or even a disaster
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Auditor
AdvantagesEasier transactions retrievalEasier data extraction – all data is stored in systemDifferent aspects of report availableShorter time for audit process
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Auditor
DisadvantagesSpecial system auditing skills requiredMore difficult data extractions – some data may be hidden in system
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Shareholder / Owner
AdvantagesCurrent financial situation is easily availableData for sales budgeting is availableEasier cost controlWork flow is controlled by system – less chance for manual overrideImproved company imageReduce staff
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Shareholder / Owner
DisadvantagesSystem installation and maintenance costsMust set-up a new IT department / employ IT related staffPossible system failures may affect operations, or even a disaster
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Customer
AdvantagesFast transaction processingMore accurate transaction recordsBetter stock records, better shopping experience
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Customer
DisadvantagesPossible personal information (e.g. credit card number) leakage
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Employee
AdvantagesLess effort to record a transactionLess time to record a transaction
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Employee
DisadvantagesAll steps are controlled by system – unable to manage unexpected eventsMust learn new technology skillsPossibility of unemployment – especially low skilled workers
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Conclusion
Overall advantagesHigher efficiency Better financial and cost controlBetter company image
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Conclusion
Overall disadvantagesCompany work flow controlled by systemPossible system breakdown and data leakagePossibility of unemploymentFinancial cost and hidden cost
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Conclusion
The impact of the disadvantages should be minimised by implementing effective measures.
Advantages of computerised accounting outweigh the disadvantages.
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Preparation for next lesson
You are required to discuss:
Possible solutions to minimise disadvantages of using computerised accounting systems; andThe impacts of different computerisedaccounting systems implementation methods
Lesson 2
Advantages and Disadvantages of AIS - Part 2
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Learning Objectives
Identify possible solutions in minimisingimpact of disadvantagesIdentify impacts on different implementation methods of computerisedaccounting systems
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Recap of last lesson
Impacts of disadvantages of AIS must be minimised!Disadvantages include:
Affect company work flowSystem breakdownData leakageUnemploymentFinancial cost and hidden cost
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Activity 2: Open forum discussion
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Impact on Work Flow
The system controls the work flow of the company
Normal work flowUnexpected events
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Impact on System Breakdown
Company operations stopped if system fails
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Impact on Data Leakage
Hackers may invade the system to steal valuable information
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Impact on Unemployment
Employees may be released due to reduction in processes and lack of technology skills to manage system
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Impact on Financial Cost
Additional cost to install and maintain the system
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Impact on Hidden Cost
Special skills required to manage and operate the system
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Vote for the following statements
Disadvantages of using a computerisedaccounting system can be minimised by suggesting possible solutions.I would support the implementation of a computerised accounting system.
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Summary of Activity 2
Impacts of disadvantages may be reduced by the suggested solutions
Company decides to implement the computerised system
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Meeting: Selection of Implementation Method
Activity 3: Role Play
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Directions for discussion
CostTimeControlUsers’ requirementsStaff competence, etc.
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Discussion in progress
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Meeting Begins
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Final Director Decision
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Buy an AIS Commercial version
AdvantagesCost is cheaper when comparing with developing in-houseAvailable within a short periodUpdates are inexpensiveThe purchased AIS are more likely to be bug-free after various testing
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Buy an AIS
DisadvantagesPurchased AIS may not fit exact requirementsDeveloper may close down or cease to update the AISEvaluation of the purchased AIS is time-consuming and costlyReduced competitive advantages
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Develop an in-house AIS
AdvantagesTailored to exact user needsSystem development process can be managed and controlledUsers may have greater loyalty Competitive advantages are built by a unique AIS
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Develop an in-house AIS
Disadvantagescostlylabor intensivetakes longerNew programs contain bugs
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Outsourcing
Advantagesless costlyImproved company cash flow when avoiding substantial capital investment in computer hardware and softwareDevelopment time is not requiredAccess to more advanced technology
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Outsourcing
DisadvantagesLoss of controlReduced competitive advantagesInflexible 5-year contractIneffective if communication fails between outsourcer and client
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Preparation for next lesson
You are required to review the following accounting ratios:
Gross profit ratioNet profit ratioCurrent ratioQuick ratioSales to capital employed
Make investment decisions with AIS reports and analysis
Lesson 3
How AIS assists in management decision-making?
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Learning Objectives
Describe ICT applications in accountingExplain how AIS assists management decision-making
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ICT Applications in Accounting ~ Financial Reporting ~
Generate financial reportsDebtors / Creditors’ aging reportTrial balanceProfit and loss account / income statementBalance sheetCash flow statement
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ICT Applications in Accounting ~ Costing Analysis ~
Perform financial result analysis in actual, fixed budget and flexible budgetConduct financial statement analysisConduct profit volume analysisPerform discounted cash flow analysis for financial management
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Examples of accounting systems and software
MYOBDacEasyMicrosoft Excel
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Examples of ICT Applications in Accounting
Charts and graphs in Excel
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Examples of ICT Applications in Accounting
Financial Functions in Excel: “PMT” function is used to calculate the periodic cash flow of annuity“PV” function is used to calculate the monthly contribution for a given return and expected sum“NPV” function is used to calculate the net present value of a stream of cash flows based on certain discount rate
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How AIS assists the management decision-making?
Step I: Identify areas requiring management actions
Step II: Provide a basis for choosing among alternative
actions
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Activity 4 - Case Study
Identify areas requiring management actions
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Accounting Ratios
Gross profit ratio: Gross profit / SalesNet profit ratio: Net profit / Sales Current ratio: Current assets / Current liabilitiesQuick ratio: (Current assets – Inventory) / Current liabilitiesSales to capital employed: Sales / Capital employed
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Profitability
Both the Gross Profit Ratio and Net Profit Ratio dropped.It may be caused by low selling prices, high costs, high administrative expenses etc.It indicates the company has poor cost controls or marketing policies.
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Liquidity
Both the Current Ratio and Quick Ratio dropped.
Poor ratios indicate company has liquidity problems and is unable to meet its current commitments.
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Efficiency
A sales drop to capital used indicates an inefficiency in using capital to generate sales.
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Activity 5 –Decision-making Game
Mr. Risky Ms Prudent
•Choosing among alternative actions
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Decision 1
Which is the best proposal?
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Analysis of Loan Proposals
Scenario Summary
Bank A Bank B Bank C Bank D
Changing Cells:
Loan $100,000 $100,000 $100,000 $100,000
Interest rate 7% 8% 9% 10%
Years 7 8 9 10
Result Cells:
Monthly payment $1,509 $1,414 $1,354 $1,322
Total Interest $126,779 $135,712 $146,263 $158,581
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Decision 2
Which is the best investment plan?
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Analysis of Investment PlansPlan A Plan B Plan C Plan D
Interest Rate 8% 8% 8% 8%
Year 1 Initial Cost ($300,000) ($400,000) ($500,000) ($600,000)
Year 2 Returns $95,000 $120,000 $150,000 $175,000
Year 3 Returns $95,000 $120,000 $150,000 $175,000
Year 4 Returns $95,000 $120,000 $150,000 $175,000
Year 5 Returns $95,000 $120,000 $150,000 $175,000
Year 6 Returns $95,000 $120,000 $150,000 $175,000
Net Present Value $79,307 $79,125 $98,907 $98,724
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Activity 5: Decision Game
By comparing the answer of Mr. Risky and Ms Prudent, whose management decisions are better? And why?
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The End