FAR EASTERN UNIVERSITY

Information System:
- A set of formal procedures by which data are collected, stored, processed into information and distributed
to users.
- Two broad classes of system:
o Accounting Information System (AIS)
o Management Information System (MIS)
- Subsystems under AIS:
o Transaction Processing System
Revenue Cycle
Sales Processing System
Cash Receipts System
Expenditure Cycle
Purchase System
Cash Disbursement System
Payroll Processing System
Fixed Asset System
Conversion Cycle (Manufacturing Firms)
Cost Accounting System
Production Planning and Control System
o General Ledger/ Financial Reporting System (GL/FRS)
o Management Reporting System (MRS)

Basic Functional Area of an Organization

- Materials Management
o The objective of materials management is to plan and control the materials inventory of the
company
o Sub- functions:
Purchasing
Receiving
Storage
- Production
o Production activities occur in the conversion cycle in which raw materials, labor and plant assets
are used to create finished products.
- Marketing
o The marketing function deals with the strategic problems of product promotion, advertising and
market research.
- Distribution
o Distribution is the activity of getting the product to the customer after sale.
- Human resource
o The objective of the human resource function is to effectively manage the human capital of a
company.
o It involves:
Recruiting
Training
Continuing education
Counselling
Evaluating
Labor relations
Compensation and benefits administration
- Finance
o The finance function manages the financial resources of the firm through:
Banking and treasury activities

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 Portfolio management
Credit evaluation
Cash disbursements
Cash receipts
o Financial managers seek lucrative investments in stocks and other assets, and low cost lines of
credit from banks.
- Information Technology (IT)
o Information technology functions are as follows:
Data processing
Systems development and maintenance
Database administration
Network administration
- Accounting
o Accounting manages financial information resource of the firm.
o Accounting captures and records the financial effects of the economic events that constitutes the
firms transaction.
o Accounting distributes transaction information to operations personnel to coordinate many of
their key tasks

Definition of Accounting:
- the art of recording, classifying, and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least of financial character, and interpreting the results thereof
American Institute of Certified Public Accountants (AICPA)
- It is a service activity. Its function is to provide quantitative information, primarily financial in nature,
about economic entities, that is intended to be useful in making economic decisions. Accounting
Standards Council (ASC)
- the skill, system, or job of keeping the financial records of a business or person Merriam Webster
Dictionary

Define Information:
- Facts provided or learned about something or someone
- Knowledge that you get about someone or something: facts or details about a subject.
- A processed data used in decision making.
- Too much information will make it more difficult to make decisions.
- Information should be:
o Relevant
Capacity to make a difference in a decision.
o Reliable
Reasonably free from error and bias.
Faithfully represents what it purports to represent.
o Complete
The inclusion in reported information of everything material that is necessary for
faithful representation of the relevant phenomena.
o Timely
Availability of information on time.
o Understandable
The quality of information that enables users to perceive its significance.
o Verifiable
The ability through consensus among measurers to ensure that information represents
what it purports to represent or that the chosen method of measurement has been used
without error or bias.
o Accessible
Available when needed.
- Information Objectives:
o To support the firms day-to-day operations.
o To support management decision making.
o To support the stewardship function of management.

Define System
- A set of connected things or parts forming a complex whole, in particular.

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 - A group of related parts that move or work together.
- A set of two or more interrelated components interacting to achieve a goal.

Accounting Information System

- Is a structure that a business uses to collect, store, manage, process, retrieve and report its financial data
so that it can be used by accountants, consultants, business analysts, managers, chief financial officers
(CFOs), auditors and regulatory and tax agencies.
- In particular, specially trained accountants work with AIS to ensure the highest level of accuracy in a
company's financial transactions and recordkeeping and to make financial data easily available to those who
legitimately need access to it, all while keeping data intact and secure.
- If Accounting is the language of the business, AIS is the information providing vehicle.
- Components of AIS
o People
o Procedures and Instructions
o Data
o Software
o Information Technology Infrastructure
o Internal Control and Security
- AIS helps:
o Improve Quality and Reduce Costs
o Improve Efficiency
o Improve Sharing Knowledge
o Improve Supply Chain
o Improve Internal Control
o Improve Decision Making
- Transaction
o An event that affects or is of interest to the organization and is processed by its information
system.
o A financial transaction is an economic event that affects the assets, liabilities and equities of the
organization, is reflected in its accounts, and is measured in monetary terms.
o Non- financial transactions are events that do not meet the narrow definition of a financial
transaction.
- The role of Accountants in AIS:
o System Designers
Accountants play a prominent role on systems development teams as domain experts.
As the domain experts, accountants determine the nature of the information required,
its sources, its destination and the accounting rule that need to be applied.
Accountants are responsible for specifying certain operational rules, reporting
requirements and framing internal control objectives that the system must achieve.
Because of the specificity of accounting rules, the implications of material error and the
potential for fraud, the accountants involvement in system design is essential and
pervasive throughout the development process/
o System Auditors
Accountants perform audits of business organizations for various reasons, which
typically involve the accounting information system.
The most common audits are:
External Audits (Attestation)
o An independent attestation performed by an expert who expresses an
opinion in the form of a formal audit report, regarding the
presentation of financial statements.
o This is performed by CPAs in public practice who are independent
from the client organization being audited.
o The audit objective is to assure the fair presentation of financial
statements.
o CPAs conducting external audits are acting on behalf of stakeholders.

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 Internal Audits (Operation)
o Independent appraisal function established within an organization to
examine and evaluate its activities.
o Internal auditors perform a wide range of activities such as:
Conducting financial audits
Performing IT audits
Examining an operations compliance with organizational
policies and legal obligations
Evaluating operational efficiency
Detecting and pursuing fraud within the firm
o Typically conducted by auditors who work for the organization,
o Internal auditors are often certified as Certified Internal Auditor (CIA)
or a Certified Information System Auditor (CISA).

END

Source:

Accounting Information System Ninth Edition by James A. Hall

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