Accounting information systems 11e romney steinbart chapter 01

C

HAPTER 1

Accounting Information
Systems:
An Overview

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INTRODUCTION
• Questions to be addressed in this chapter
include:
– What is the meaning of system, 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 decision
making?
– What are the basic strategies and strategic positions
an 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
• Most systems are composed of smaller subsystems .
..
• . . . and vice versa!

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SYSTEMS, DATA, AND INFORMATION
• Every organization has goals.

– The subsystems should be designed to
maximize achievement of the organization’s
goals.
– Even to the detriment of the subsystem itself.
– EXAMPLE: The production department (a
subsystem) of a company might have to
forego its goal of staying within its budget in
order to meet the organization’s goal of
delivering product on time.

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SYSTEMS, DATA, AND INFORMATION
• Goal conflict occurs when the activity of a
subsystem is not consistent with another subsystem
or with the larger system.
• Goal congruence occurs when the subsystem’s
goals are in line with the organization’s goals.
• The larger and more complicated a system, the more
difficult it is to achieve goal congruence.

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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 been organized and
processed to provide meaning to a user.
• Usually, more information and better information
translates into better decisions.

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SYSTEMS, DATA, AND INFORMATION
• However, when you get more information than you
can effectively assimilate, you suffer from
information overload.

– Example: Final exams week!

• When you’ve reached the overload point, the quality
of decisions declines while the costs of producing
the information increases.

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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
Benefits of information
- Cost of producing information
Value of information

Costs and benefits of information are often
difficult to quantify, but you need to try when
you’re making decisions about whether to

provide information.

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SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:

– Relevance
It reduces uncertainty by helping you predict
what will happen or confirm what already has
happened.

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SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:

– Relevance
– Reliability
It’s dependable, i.e., free from error or bias
and faithfully portrays events and activities.

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SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:

– Relevance
– Reliability
– Completeness
It doesn’t leave out anything that’s important.

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SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:

– Relevance
– Reliability
– Completeness
– Timeliness
You get it in time to make your decision.

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SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:

– Relevance
– Reliability
– Completeness
– Timeliness
– Understandability
It’s presented in a manner you can
comprehend and use.

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SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:

– Relevance
– Reliability
– Completeness
– Timeliness
A consensus notion—the nature of the
– Understandability
information is such that different people
– Verifiability
would tend to produce the same result.

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SYSTEMS, DATA, AND INFORMATION
• Characteristics that make information useful:

– Relevance
– Reliability
– Completeness
– Timeliness
– Understandability
– Verifiability
You can get to it when you need it and in a
format you can use.
– Accessibility

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SYSTEMS, DATA, AND INFORMATION
• Information is provided to both:

– External users
– Internal users

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SYSTEMS, DATA, AND INFORMATION
• Information is provided to both:

– External users
– Internal users

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SYSTEMS, DATA, AND INFORMATION
• External users primarily use information that is
either:

– MANDATORY INFORMATION—required by a
governmental entity, such as Form 10-K

required by the SEC; or
– ESSENTIAL INFORMATION—required to
conduct business with external parties, such
as purchase orders.

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SYSTEMS, DATA, AND INFORMATION
• In providing mandatory or essential information, the
focus should be on:

– Minimizing costs.
– Meeting regulatory requirements.
– Meeting minimum standards of reliability and
usefulness.

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SYSTEMS, DATA, AND INFORMATION
• Information is provided to both:

– External users
– Internal users

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SYSTEMS, DATA, AND INFORMATION
• Internal users primarily use discretionary
information.
• The primary focus in producing this information is
ensuring that benefits exceed costs, i.e., the
information has positive value.

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