Professional Documents
Culture Documents
A system is:
A set of interrelated components
That interact
To achieve a goal
SYSTEMS, DATA, AND INFORMATION
Every organization has goals.
The susbsystems 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.
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
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.
SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
Benefits of information
- Cost of producing information
Value of 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.
SYSTEMS, DATA, AND INFORMATION
– Verifiability
SYSTEMS, DATA, AND INFORMATION
– Accessibility
SYSTEMS, DATA, AND INFORMATION
Information is provided to both:
External users
Internal Users
SYSTEMS, DATA, AND INFORMATION
Information is provided to both:
– External users
Internal Users
SYSTEMS, DATA, AND INFORMATION
External users primarily use information
that is either:
MANDATORY INFORMATION—Required by
a governmental entity, such as Form 10-K’s
required by the SEC; or
ESSENTIAL INFORMATION—Required to
conduct business with external parties, such
as purchase orders.
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
SYSTEMS, DATA, AND INFORMATION
Information is provided to both:
External users
– Internal Users
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.
WHAT IS AN AIS?
An AIS is a system that collects, records,
stores, and processes data to produce
information for decision makers.
It can:
Use advanced technology; or
Be a simple paper-and-pencil system; or
Be something in between.
Technology is simply a tool to create,
maintain, or improve a system.
WHAT IS AN AIS?
The functions of an AIS are to:
Collect and store data about events,
resources, and agents.
Transform that data into information that
management can use to make decisions
about events, resources, and agents.
Provide adequate controls to ensure that the
entity’s resources (including data) are:
Available when needed
Accurate and reliable
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• Accounting is an information-providing
activity, so accountants need to
understand:
– How the system that provides that
information is designed, implemented
and used.
– How financial information is reported
– How information is used to make
decisions
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
• It’s fundamental to accounting.
• Other accounting courses focus on how
the information is provided and used.
• An AIS course places greater emphasis
on:
– How the data is collected and
transformed
– How the availability, reliability, and
accuracy of the data is ensured
• AIS courses are not number-crunching
courses
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
It’s fundamental to accounting.
• The skills are critical to career
success.
• Auditors need to evaluate the accuracy
and reliability of information produced by
the AIS.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
It’s fundamental to accounting.
• The skills are critical to career
success.
• Tax accountants must understand the
client’s AIS adequately to be confident that
it is providing complete and accurate
information for tax planning and
compliance work.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
It’s fundamental to accounting.
• The skills are critical to career
success.
• In private industry and not-for-profits,
systems work is considered the most
important activity performed by
accountants.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
It’s fundamental to accounting.
• The skills are critical to career
success.
• In management consulting, the design,
selection, and implementation of
accounting systems is a rapid growth area.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
It’s fundamental to accounting.
The skills are critical to career
success.
• The AIS course complements other
• Other systems
systems courses.
courses focus on design and
implementation of information systems,
databases, expert systems, and
telecommunications.
• AIS courses focus on accountability and
control.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
It’s fundamental to accounting.
The skills are critical to career
success.
The AIS course complements other
systems courses.
• AIS topics are tested on the new CPA
exam.
• Makes up about 25% of the Business
Environment & Concepts section of the CPA
exam.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
It’s fundamental to accounting.
The skills are critical to career
success.
The AIS course complements other
systems courses.
AIS topics are tested on the new CPA
exam.
• AIS topics impact corporate strategy
and culture.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
Occupational
Culture Strategy
AIS design is
affected by AIS
information
technology, the
organization’s
strategy, and the
organization’s Information
culture. Technology
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
Occupational
Culture Strategy
Information technology
affects the company’s AIS
choice of business
strategy. To perform
cost-benefit analyses on
IT changes, you need to
understand business Information
strategy. Technology
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
Occupational
Culture Strategy
The objective of most organizations is to
provide value to their customers.
What does it mean to deliver value?
Let’s peek in on a conversation at Joe’s
pharmacy . . .
ROLE OF THE AIS IN THE VALUE CHAIN
Blah—blah—blah–
customer service–
blah—blah--blah
ROLE OF THE AIS IN THE VALUE CHAIN
While “adding value” is a commonly used
buzzword, in its genuine sense, it means
making the value of the finished component
greater than the 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-
negative blood or rare gems)
Providing enhanced features
Customizing it
ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series
of 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
Value is provided by performing a series
of 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
Primary activities include:
– Inbound logistics
Receiving, storing, and distributing the
materials that are inputs to the
organization’s product or service.
Primary activities include:
Inbound logistics
– Operations
Transforming those inputs into products or
services.
Primary activities include:
Inbound logistics
Operations
– Outbound logistics
Distributing products or services to customers.
Primary activities include:
Inbound logistics Helping customers to
Operations buy the organization’s
products or services.
Outbound logistics
– Marketing and sales A pharmacy rep may
visit with drug stores,
doctors, etc. to inform
them about their
products and take
orders.
ROLE OF THE AIS IN THE VALUE CHAIN
Primary activities include:
Post-sale support provided to
customers such as repair and
Inbound logistics
maintenance function.
Operations
A pharmaceutical firm will
Outbound logistics
typically not be repairing it’s
Marketing and sales
product (though the product may
– Service be periodically reformulated).
The pharmaceutical company is
more likely to be providing
advisory services to pharmacists,
etc.
ROLE OF THE AIS IN THE VALUE CHAIN
Value is provided by performing a series
of 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
Support activities include:
– Firm infrastructure
Accountants, lawyers, and administration.
Includes the company’s accounting
information system.
ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
Firm infrastructure
– Human resources
Involves recruiting and hiring new
employees, training employees, paying
employees, and handling employee
benefits.
ROLE OF THE AIS IN THE VALUE CHAIN
Support activities include:
Firm infrastructure
Human resources
– Technology
Activities to improve the products or services
(e.g., R&D, website development).
Support activities include:
Buying the resources (e.g.,
materials, inventory, fixed
Firm infrastructure
assets) needed to carry out the
Human resources entity’s primary activities.
Technology
In the pharmaceutical company,
– Purchasing the purchasing folks are trying
to get the best combination of
cost and quality in buying
chemicals, supplies, and other
assets the company needs to
run its operations.
ROLE OF THE AIS IN THE VALUE CHAIN
Information technology can significantly
impact the efficiency and effectiveness
with which the preceding activities are
carried out.
An organization’s value chain can be
connected with the value chains of its
customers, suppliers, and distributors.
ROLE OF THE AIS IN THE VALUE CHAIN
There is variation in the degree of
structure used to make decisions:
Structured decisions
– Semistructured decisions
• Incomplete rules
• Require subjective assessments
• EXAMPLE: Deciding whether to sell auto
insurance to a customer with a tainted
driving history.
ROLE OF THE AIS IN THE VALUE CHAIN
There is variation in the degree of
structure used to make decisions:
Structured decisions
Semistructured decisions
– Structured decisions
• Non-recurring and non-routine
• Require a great deal of subjective
assessment
• EXAMPLE: Deciding whether to begin
selling a new type of insurance policy
ROLE OF THE AIS IN THE VALUE CHAIN
There is also variation in the scope of a
decision’s effect:
Occupational control decisions
– Management control decisions
• Relate to utilizing resources to accomplish
organizational objectives
• EXAMPLE: Budgeting
ROLE OF THE AIS IN THE VALUE CHAIN
There is also variation in the scope of a
decision’s effect:
Occupational control decisions
Management control decisions
– Strategic planning decisions
• The “what do we want to be when we grow
up” types of questions
• Involves establishing
– Organizational objectives
– Policies to achieve those objectives
• EXAMPLE: Deciding whether to diversify the
company into other product lines
ROLE OF THE AIS IN THE VALUE CHAIN
In general, the higher a manager is in the
organization, the more likely he/she is to
be engaging in:
Less structured decisions
Broader scope (i.e., strategic planning)
decisions
THE AIS AND CORPORATE STRATEGY
Corporations have:
Unlimited opportunities to invest in technology
Limited resources to invest in technology
Consequently, they must identify the
improvements likely to yield the highest
return.
This decision requires an understanding of
the entity’s overall business strategy.
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are
two basic business strategies companies
can follow:
Product-differentiation strategy
Low-cost strategy
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are
two basic business strategies companies
can follow:
– Product-differentiation strategy
Low-cost strategy
THE AIS AND CORPORATE STRATEGY
A product differentiation strategy involves
setting your product apart from those of
your competitors, i.e., building a “better”
mousetrap by offering one that’s faster,
has enhanced features, etc.
THE AIS AND CORPORATE STRATEGY
Michael Porter suggests that there are
two basic business strategies companies
can follow:
Product-differentiation strategy
– Low-cost strategy
THE AIS AND CORPORATE STRATEGY
A low-cost strategy involves offering a
cheaper mousetrap than your
competitors. The low cost is made
possible by operating more efficiently.
THE AIS AND CORPORATE STRATEGY
Sometimes a company can do both, but
they normally have to choose.
THE AIS AND CORPORATE STRATEGY
Porter also argues that companies must
choose a strategic position among three
choices:
Variety-based strategic position
– Needs-based strategic position
• 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
insurance and financial services tailored to the
specific needs of farmers.
THE AIS AND CORPORATE STRATEGY
Porter
• Servealso argues
a subset that companies
of customers who differ must
from
choose
othersainstrategic position
terms of factors suchamong three
as geographic
location or size..
choices:
• EXAMPLE: Satellite Internet services are
Variety-based strategic position
intended primarily for customers in rural areas
Needs-based
who cannot getstrategic position
DSL or cable services.
– Access-based strategic position
THE AIS AND CORPORATE STRATEGY
Porter also argues that companies must
choose a strategic position among three
choices:
Variety-based strategic position
Needs-based strategic position
Access-based strategic position
• These strategic positions are not
mutually exclusive and can overlap.
THE AIS AND CORPORATE STRATEGY
Choosing a strategic position is important
because it helps a company focus its efforts as
opposed to trying to be everything to everybody.
EXAMPLE: A radio station that tries to play all types
of music will probably fail.
It’s critical to design the organization’s activities
so they reinforce one another in achieving the
selected strategic position. The result is
synergy, which is difficult for competitors to
imitate.
THE AIS AND CORPORATE STRATEGY
The growth of the Internet has profoundly
affected the way value chain activities are
performed:
Inbound and outbound logistics can be streamlined
for products that can be digitized, like books and
music.
The Internet allows companies to cut costs, which
impacts strategy and strategic position.
Because the Internet is available to everyone,
intense price 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
The AIS should help a company adopt
and maintain its strategic position.
Requires that data be collected about each
activity.
Requires the collection and integration of
both financial and nonfinancial data.
THE AIS AND CORPORATE STRATEGY
The authors believe:
Accounting and information systems should
be closely integrated.
The AIS should be the primary information
system to provide users with information they
need to perform their jobs.
SUMMARY
What we’ve learned so far:
The meaning of system, data, and
information
What an AIS is
Why it’s an important topic to stody
What its role is in the value chain
How it provides information for decision making
What are the basic strategies and strategic
positions an organization can pursue
How these interact with the AIS