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CHAPTER 1
Accounting InformationSystems:
An Overview
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INTRODUCTION
Questions to be addressed in this chapterinclude: What is the meaning ofsystem, data, and
information?
What is an accounting information system (AIS)?
Why is the AIS an important topic to study?
What is the role of the AIS in the value chain?
How does the AIS provide information for decisionmaking?
What are the basic strategies and strategic positionsan organization can pursue?
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SYSTEMS, DATA, AND INFORMATION
A system is:
A set of interrelated components
That interact
To achieve a goal
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SYSTEMS, DATA, AND INFORMATION
Every organization has goals. The subsystems should be designed to
maximize achievement of the organizations
goals. Even to the detriment of the subsystem itself.
EXAMPLE: The production department (asubsystem) of a company might have to
forego its goal of staying within its budget inorder to meet the organizations goal ofdelivering product on time.
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SYSTEMS, DATA, AND INFORMATION
The systems concept encourages integration(i.e., minimizing the duplication of recording,storing, reporting, and processing).
Data are facts that are collected, recorded,stored, and processed by an information system.
Organizations collect data about:
Events that occur Resources that are affected by those events
Agents who participate in the events
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SYSTEMS, DATA, AND INFORMATION
Information is different from data.
Information is data that have beenorganized and processed to providemeaning to a user.
Usually, more information and betterinformation translates into betterdecisions.
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SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
Benefits of information may include: Reduction of uncertainty
Improved decisions Improved ability to plan and schedule activities
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SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
Costs may include time and resources spent: Collecting data
Processing data Storing data Distributing information to users
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SYSTEMS, DATA, AND INFORMATION
Characteristics that make informationuseful: Relevance
Reliability Completeness
Timeliness
Understandability Verifiability
Accessibility
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Information is provided to both:
External users
Internal users
SYSTEMS, DATA, AND INFORMATION
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An AIS is a system that collects, records,stores, and processes data to produceinformation for decision makers.
It can: Use advanced technology; or
Be a simple paper-and-pencil system; or Be something in between.
WHAT IS AN AIS?
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The functions of an AIS are to: Collect and store data about events,
resources, and agents.
Transform that data into information thatmanagement can use to make decisionsabout events, resources, and agents.
Provide adequate controls to ensure that the
entitys resources (including data) are: Available when needed
Accurate and reliable
WHAT IS AN AIS?
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WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
AIS
OccupationalCulture Strategy
InformationTechnology
AIS design isaffected byinformationtechnology, the
organizationsstrategy, and theorganizationsculture.
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ROLE OF THE AIS IN THE VALUE CHAIN
Well, Mr. PharmaceuticalSalesman, your proposal looks
good, but your prices are about 5%higher than your competitors.
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ROLE OF THE AIS IN THE VALUE CHAIN
Thats true, but werecomfortable with thatbecause of the value-
added that we bring to this
arrangement.
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ROLE OF THE AIS IN THE VALUE CHAIN
What is that value-added,and how do you convert it into
dollars?
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ROLE OF THE AIS IN THE VALUE CHAIN
Blahblahblahcustomer serviceblahblahblah
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Although adding value is a commonly usedbuzzword, in its genuine sense, it means makingthe value of the finished component greater thanthe sum of its parts.
It may mean: Making it faster Making it more reliable Providing better service or advice
Providing something in limited supply (like O-negativeblood or rare gems) Providing enhanced features Customizing it
ROLE OF THE AIS IN THE VALUE CHAIN
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Value is provided by performing a seriesof activities referred to as the value chain.These include:
Primary activities
Support activities
These activities are sometimes referred to
as line and staff activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
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Value is provided by performing a seriesof activities referred to as the value chain.These include:
Primary activities
Support activities
These activities are sometimes referred to
as line and staff activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
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Primary activities include:
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN
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Value is provided by performing a seriesof activities referred to as the value chain.These include:
Primary activities
Support activities
These activities are sometimes referred to
as line and staff activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN
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Support activities include:
Firm infrastructure
Human resources
Technology
Purchasing
ROLE OF THE AIS IN THE VALUE CHAIN
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Information technology can significantlyimpact the efficiency and effectivenesswith which the preceding activities are
carried out.
An organizations value chain can beconnected with the value chains of its
customers, suppliers, and distributors.
ROLE OF THE AIS IN THE VALUE CHAIN
Good AIS value chain:
UPS spends over $1 billion a year on
information systems resulting in greatercustomer control over delivery, higher driverproductivity, and lower costs.
Bad AIS value chain: Limited Brands tangled integration of over 60
incompatible information systems resulted in 400trailers trying to jam into a 150 trailer lot.
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There is variation in the degree ofstructure used to make decisions:
Structured decisions
ROLE OF THE AIS IN THE VALUE CHAIN
Repetitive and routine.
Can be delegated to lower-level employees.
EXAMPLE: Deciding whether to write an autoinsurance policy for a customer with a clean
driving history.
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There is variation in the degree ofstructure used to make decisions:
Structured decisions
Semistructured decisions
ROLE OF THE AIS IN THE VALUE CHAIN
Incomplete rules.
Require subjective assessments.
EXAMPLE: Deciding whether to sell autoinsurance to a customer with a tainted drivinghistory.
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There is variation in the degree ofstructure used to make decisions:
Structured decisions
Semistructured decisions
Structured decisions
ROLE OF THE AIS IN THE VALUE CHAIN
Non-recurring and non-routine.
Require a great deal of subjective assessment. EXAMPLE: Deciding whether to begin selling a
new type of insurance policy.
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There is also variation in the scope of adecisions effect:
Occupational control decisions
ROLE OF THE AIS IN THE VALUE CHAIN
Relate to performance of specific tasks
Often of a day-to-day nature.
EXAMPLE: Deciding whether to orderinventory.
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There is also variation in the scope of adecisions effect:
Occupational control decisions
Management control decisions
ROLE OF THE AIS IN THE VALUE CHAIN
Relate to utilizing resources to accomplishorganizational objectives.
EXAMPLE: Budgeting.
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There is also variation in the scope of adecisions effect:
Occupational control decisions
Management control decisions
Strategic planning decisions
ROLE OF THE AIS IN THE VALUE CHAIN
The what do we want to be when we grow uptypes of questions.
Involves establishing:
Organizational objectives
Policies to achieve those objectives
EXAMPLE: Deciding whether to diversify thecompany into other product lines.
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In general, the higher a manager is in theorganization, the more likely he/she is tobe engaging in:
Less structured decisions
Broader scope (i.e., strategic planning)decisions
ROLE OF THE AIS IN THE VALUE CHAIN
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Michael Porter suggests that there are twobasic business strategies companies canfollow:
Product-differentiation strategy
Low-cost strategy
THE AIS AND CORPORATE STRATEGY
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Porter also argues that companies mustchoose a strategic position among threechoices:
Variety-based strategic position
THE AIS AND CORPORATE STRATEGY
Offer a subset of the industrysproducts or services.
EXAMPLE: An insurance companythat only offers life insurance asopposed to life, health, property-casualty, etc.
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Porter also argues that companies mustchoose a strategic position among threechoices:
Variety-based strategic position
Needs-based strategic position
THE AIS AND CORPORATE STRATEGY
Serve most or all of the needs of a particular group of
customers in a target market. EXAMPLE: The original Farm Bureau-based
insurance companies provided a portfolio of insuranceand financial services tailored to the specific needs of
farmers.
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Porter also argues that companies mustchoose a strategic position among threechoices:
Variety-based strategic position
Needs-based strategic position
Access-based strategic position
THE AIS AND CORPORATE STRATEGY
Serve a subset of customers who differ from others interms of factors such as geographic location or size.
EXAMPLE: Satellite Internet services are intended
primarily for customers in rural areas who cannot getDSL or cable services.
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Porter also argues that companies mustchoose a strategic position among threechoices:
Variety-based strategic position
Needs-based strategic position
Access-based strategic position
These strategic positions are notmutually exclusive and can overlap.
THE AIS AND CORPORATE STRATEGY
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The growth of the Internet has profoundlyaffected the way value chain activities areperformed: Inbound and outbound logistics can be streamlined for
products that can be digitized, like books and music. The Internet allows companies to cut costs, whichimpacts strategy and strategic position.
Because the Internet is available to everyone, intenseprice competition can result. The outcome may be that
many companies shift from low-cost to product-differentiation strategies. The Internet may impede access-based strategic
positions.
THE AIS AND CORPORATE STRATEGY