Chapter 1
Accounting
Information
Systems and
Firm Value
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Learning Objectives
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LO#1 Define an accounting information system and explain
characteristics of useful information.
LO#2 Distinguish among data, information and an information
system.
LO#3 Distinguish the roles of accountants in providing
information and explain certifications related to accounting
information systems.
LO#4 Describe how business processes affect the firm’s
value chain.
LO#5 Explain how AIS affects firm value.
LO#6 Describe how AIS assists the firm’s internal business
processes.
LO#7 Assess how AIS facilitates the firm’s external
business
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Accountants as Business
Analysts
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LO# 1
Increasingly, the role of an accountant is
to help address business opportunities.
To address such a business opportunity,
the accountants need to decide what
information is needed, then build an
information system to gather the
necessary information and finally analyze
that information to offer helpful advice to
management.
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LO# 1
Accounting Information Systems
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An accounting information system
(AIS) is defined as a system that records,
processes and reports on transactions to
provide financial and non-financial
information to make decisions and have
appropriate levels of internal controls
(security measures to protect sensitive
data) for those transactions.
An AIS is important because it provides
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LO# 1
Why Study AIS?
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It’s fundamental to accounting.
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Accounting is an information providing activity, so
accountants need to understand:
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How the system that provides that information is design,
implemented, and used
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How financial information is reported
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How information is used to make decisions
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What Can an AIS Do?
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LO# 1
Imagine Starbucks’ system, which can
track a variety of things.
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The number of hours worked by employees all
over the world.
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The amount of sales taxes to be paid by one
store.
Wal-Mart has an extensive information
system.
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A Simple Information System
Possible Input: Sales at Starbucks
Possible Storage: Database of all Sales at Starbucks
Possible Processing: Queries of What Sells Best at Night
Possible Output: Reports of What Sells Best at Night
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LO# 1
LO# 1
Attributes of Useful Information
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To be useful information must have these
attributes:
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Relevant – information that is capable of
making a difference in a decision
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Predictive Value
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Feedback Value
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Timely
Reliable – information that is free from bias
and error
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Verifiable
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Data vs. Information
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LO# 2
Data are simply raw facts that describe an
event and have little meaning on their
own.
Information is defined as being data
organized in a meaningful way to be
useful to the user. Data serves as an
input.
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Information Overload
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Computers can process and organize a
large amount of data.
Too much information causes information
overload.
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Decision making is hindered.
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LO# 2
Information Value Chain
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LO# 1
LO# 2
Discretionary versus Mandatory
Information
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Discretionary information is information
that is not required by law.
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Using an ABC system to determine the
overheads costs associated with each pound
of chicken at Tyson Foods.
Managers must decide if the benefits of
discretionary information outweigh the costs
of obtaining it.
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LO# 2
Discretionary versus Mandatory
Information
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Mandatory information is information that
is required by law.
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Examples include: Form 10-K (Annual
Reports that include Financial Statements)
and Tax Returns
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See SEC EDGAR for examples of required annual
reports for public companies.
Since it is required manager usually choose to
minimize the costs of producing this
information.
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Role of Accountants in AISs
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Designer
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Implementer
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Recording Journal Entries
Evaluator
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Database Administrator
User
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System Analyst
Auditor
Manager
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LO# 3
Certifications in AIS
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Certified Information Systems Auditor
(CISA)
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Perform IT Audits
Certified Information Technology
Professional (CITP)
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LO# 3
Work to effectively and efficiently manage
information while ensuring the data’s
reliability, security, accessibility and relevance.
Certified Internal Auditor
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LO# 4
Value Chain
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Where do AIS add value to a
Business? In the Primary
Inbound logistics
are the activities
Activities?
LO# 4
associated with receiving and storing raw
materials and other partially completed
materials, and distributing those materials
to manufacturing when and where they
are needed.
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Operations are the activities that
transform inputs into finished goods and
services (e.g. turning wood into furniture
for a furniture manufacturer; building
a
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LO# 5
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Where do AIS add value to a
Business? In the Support
Firm infrastructure
activities are all of the
Activities?
activities needed to support the firm,
including the CEO, finance, accounting,
and legal.
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Human resource management activities
include recruiting, hiring, training and
compensating employees.
Technology activities include all of the
technologies to support value-creating
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activities. These technologies also
include
LO# 6
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AIS and Internal Business
Processes
AIS usually serve as the as the foundation
for the enterprise (or ERP) system.
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The enterprise system is a centralized
database that collects data from
throughout the company including orders,
customers, sales, inventory, and
employees.
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Information is thus available to everyone
Use of ERP System
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LO# 6
The enterprise system can take an order
from a customer, fill the order, ship it, and
then create an invoice to bill the customer.
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Used to check customers credit.
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Check the inventory levels in the warehouse.
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Determine when it can be shipped.
Everyone throughout the entire process
can view and update the information.
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Figure 1.6 AIS and External
Business Processes
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LO# 7
The Supply Chain
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LO# 7
The supply chain refers to the flow of
materials, information, payments, and
services from suppliers all the way through
the customer.
There are many processes involved which
can be made more efficient using the AIS.
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Supply Chain Management
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Supply Chain Management software can
be used to optimize processes within the
supply chain.
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Determine levels of inventory in stock and to
be ordered.
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Determine timing to transferring inventory.
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LO# 7
Customer Relationship
Management
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This software is used to manage
interactions with customers.
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Track customer purchases.
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Ensure customer satisfaction.
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Product placement
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LO# 7
Customer Relationship
Management
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LO# 7
As an example, Amazon.com keeps a
record of their past purchases and product
searches and then uses that information to
recommend other similar products for the
customer to consider.
Loan officers at a bank learns more about
the financial products currently being used
by its bank’s customers through its AIS,
they will be able to help identify additional
bank products (upselling items such
as
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