Chapter1

AccountingInformationSystemsandtheAccountant

Whyshouldyoustudyaccountinginformationsystems?

Asidefromtheobvious,themostimportantreasonisbecauseofthespecialcareeropportunities
thatwillenableyoutocombineyourstudyofaccountingsubjectswithyourinterestincomputer
systems.

Intodaysjobmarket,accountingemployersexpectnewhirestobecomputerliterate.

Inaddition,alargenumberofspecializedemploymentopportunitiesareavailabletothose
studentswhopossessadeeperunderstandingofcomputersubjectsandcanbringadvanced
computerskillstoaccountingjobs.

Accountinginformationsystemsexistsattheintersectionoftwoimportantdisciplines:(1)accounting
and(2)informationsystems.Thus,thestudyofAISsisoftenviewedasthestudyofcomputerized
accountingsystems.ButbecausewecannotdefineanAISbyitssize;itisbettertodefineitbywhatit
does.
An accounting information system is a collection of data and processing
proceduresthatcreatesneededinformationforitsusers.

Accounting

Accountinginformationsystemsareusedinalmostallareasofaccounting.
Beitpayrollcomputation,maintaininginventory,budgeting,etc.
Inaddition,AISshelpaccountantsmaintaingeneralledgerinformation,createspreadsheetsfor
strategicplanning,anddistributefinancialreports
But the real challenge for accountants is to determine how best to provide the information
requiredtosupportbusinessandgovernmentprocesses.
AISsdontjustsupportaccountingandfinancebusinessprocesses.Theyoftencreateinformation
that is useful to nonaccountants e.g. people working in marketing, production, or human
relations.
Forthisinformation to beeffective, theindividuals workinginthesesubsystemsmusthelpthe
developersofAISidentifywhatinformationtheyneedfortheirplanning,decisionmaking,and
controlfunctions.

Information

Althoughcomputersarewonderfullyefficientandusefultools,theyalsocreateproblems.

Problem1:Theabilitytooutputvastamountsofinformationquickly.It
isuptotheaccountingprofessiontodeterminethenatureandtimingof
theoutputscreatedanddistributedbyAIStoitsendusers.

Problem2:anotherproblemwithcomputerizeddataprocessingisthat
computers do not automatically catch the simple input errors that
humansmake.

Problem3:Computersmakeaudittrailsmoredifficulttofollow.Thisis
because the path that data follow through computerized systems is
electronic,notrecordedonpaper.However,awelldesignedAIScanstill
document its audit trail with listings of transactions and account
balancesbothbeforeandafterthetransactionsupdatetheaccounts.

System

A system can be broadly defined as an integrated set of elements that accomplish a defined
objective.

Insummary,itisconvenienttoconceptualizeanaccountinginformationsystemasasetofcomponents
thatcollectaccountingdata,storeitforfutureuses,andprocessitforendusers.

Again, we stress that many of the end users of the information of an AIS are not accountants, but
includecustomers,investors,suppliers,financialanalysts,andgovernmentagencies

RoleplayedbyAISintheorganization.

Inthisinformationage,fewerworkersactuallymakeproducts.
Moreofthemproduce,analyze,manipulate,anddistributeinformationaboutbusinessactivities.
Theseindividualsareoftencalledknowledgeworkers.
Companies find that their success or failure is often dependent on the uses or misuses of the
informationthatknowledgeworkersmanage.
The information age has important implications for accounting because that is
whataccountantsare:knowledgeworkers.
In fact, accountants have always been in the information business because
their role has been, in part, to communicate accurate and relevant financial
information.

WhatsnewinAccountingInformationSystems?

The last few years have witnessed some of the most startling changes in the uses and
applications of accounting information systems causing us to reassess our understanding and uses of
accountingdata.

LetslookatsomeexamplesofhowdataandinformationprovidedbyAISarebeingused.

SuspiciousActivityReporting(SAR)
Anumberof suspiciousactivity reporting(SAR)lawsnowrequireaccountantstoreport questionable
financial transactions to the U.S. Treasury Department. Examples of such transactions are ones
suggestiveofmoneylaundering,bribes,orwiretransferstoterroristorganizations.
SuspiciousactivityreportingimpactsAISsinseveralways:

Because so much of the information within AISs is financial, these systems are often used to
laundermoneyorconductcriminalactivities.

AddedtothisisthefactthatAISsdocumentfinancialactivitiesinthecourseofdailytransaction
processing, and therefore become important sources of SAR evidence and subsequent legal
action.

Finally,SARcanactasadeterrenttocriminalorterroristactivitiesandthereforeanimportant
controlforAISs

TestimonytotheimportanceofsuspiciousactivityreportingisthegrowthofSARfilingsfrom
about62,000reportsin1996toover1.6millionofthemin2008.

CounteringTerrorism

Although countering terrorism might seem like a governmental matter having little to do with
accounting,justtheoppositeistrue.

One example of the use of accounting information systems for this purpose is using banking
systemstotracetheflowoffundsacrossinternationalborders.

Otherexamplesinclude:

identifyinganddenyingfinancialaidtoterroristgroupsandtheirsympathizers,

tracing arms and chemical orders to their final destinations, thereby identifying the
ultimatepurchasers,

usingsecuritymeasurestocontrolcyberterrorism,and

installing new internal controls to help detect money laundering and illegal fund
transfers.

AccountingandInformationTechnology

Informationtechnologystronglyinfluencesthewaymostaccountantswork.

Instant access to the Internet via mobile communication devices enables managerial
accountantstocompleteimportantworktaskswhiletravelinginthefield.

Auditorscancommunicatewitheachotherfromremotejobsiteswhentheyareauditing
thesameclient;

Staffaccountantscansendtextmessagetooneanotherfromalternatelocations,and

Tax experts can download information on tax rulings that are even more current than
theirlatestCDs.

GeneralFieldofAccounting

FinancialAccounting

Themajorobjectiveoffinancialaccountinginformationsystemsistoproviderelevant
informationtoindividualsandgroupsoutsideanorganizationsboundariese.g.,investors,tax
agencies,andcreditors.

Accountantsachievetheseinformationalobjectivesbypreparingsuchfinancialstatementsas
incomestatements,balancesheets,andcashflowstatements.

Ofcourse,manymanagerswithinacompanycanalsousefinancialreportsforplanning,
decisionmaking,andcontrolactivities.

Nonfinancialdata

Thebasicinputsto,andoutputsfrom,traditionalfinancialaccountingsystemsareusually
expressedinmonetaryunits.

ThiscanbeaproblemiftheAISignorenonmonetaryinformationthatisalsoimportanttousers.

RealTimeReporting

AnotherimpactofITonfinancialaccountingconcernsthetimingofinputs,processing,and
outputs.

Financialstatementsareperiodicandmostlargecompaniestraditionallyissuethemquarterly,
withacomprehensivereportproducedannually.

WithadvancesinITthatallowtransactionstobecapturedimmediately,accountantsandeven
theAISitselfcanproducefinancialstatementsalmostinrealtime.

Ofcourse,someoftheadjustmentsthataccountantsmustmaketotherecordsarenotdone
minutebyminute,butabusinesscancertainlytracksalesandmanyofitsexpenses
continuously.

Thisisespeciallyusefultoretailingexecutives.

InteractiveDataandXBRL

Aproblemthataccountants,investors,auditors,andotherfinancialmanagershaveoftenfaced
isthatdatausedinoneapplicationarenoteasilytransferabletoanother.

Thismeansthataccountantsmayspendhourspreparingspreadsheetsandreportsthatrequire
themtoenterthesamedataindifferentformatsoverandover.

Interactivedataaredatathatcanbereusedandcarriedseamlesslyamongavarietyof
applicationsorreports.

Considerforexampleadataitemsuchastotalassets.

Thisnumbermightneedtobeformattedandevencalculatedseveraldifferentwaysforreports,
suchasfilingswiththeSecuritiesandExchangeCommission(SEC),banks,performancereports,
andsoon.

Withinteractivedata,thedataarecapturedonceandappliedeverywhereneeded.

Interactivedatarequirealanguageforstandardizationthattagsthedataatitsmostbasic
level.

Extensiblebusinessreportinglanguage(XBRL)isemergingasthelanguageofchoiceforthis
purpose.

Manycompanies,softwareprograms,andindustriesarebeginningtoincorporateXBRLfor
creating,transforming,andcommunicatingfinancialinformation.

ManagerialAccounting

Theprincipalobjectiveofmanagerialaccountingistoproviderelevantinformationto
organizationalmanagers.

Thenextlistsummarizessomeofthemostimportantfeaturesofthisaccountingarea.

Managerialaccounting

focusesonprovidingaccountinginformationforinternalparties,suchasmanagement,
ratherthanforexternalinvestorsandcreditors.

informationismostlyforwardlooking.

informationisnotregulatedbygenerallyacceptedaccountingprinciples,norisit
mandatorytoprepareit.

reportsincludebothnonmonetaryandfinancialdata.

isinfluencedbymanybusinessandnonbusinessdisciplines,suchaseconomics,
behavioralscience,andquantitativemethods.

informationisflexibleandfrequentlyinvolvesnonroutinereporting.

ComponentsofManagerialAccounting
CostAccounting
Budgeting
CostAccounting

Thecostaccountingpartofmanagerialaccounting

assistsmanagementinmeasuringandcontrollingthecostsassociatedwithan
organizationsvariousactivities(acquisition,processing,distribution,andselling
activities)

thesetasksfocusonthevalueaddedbyanorganizationtoitsgoodsorservices.

AISinCostAccounting

ActivityBasedCosting(ABC)

CorporatePerformanceMeasurement(CPM)

ActivityBasedCosting

Identifyingactivitiesandassigningcostsdirectlyrelatedtotheactivity.

Easierassignmentofoverheadcosts.

CorporatePerformanceMeasurement

UseinResponsibilityAccountingSystem.

Traceunfavorableperformancetoresponsibledepartmentorindividuals

Immediatecorrectiveactionbymanagers

ExamplesoftoolsusedinCPM

BalanceScoreCard

ElectronicDashboards

Budgeting

Definition

Financialprojectionforthefuture

Shortrangeandlongrange

Usefulness

Managerialcontrol

Compareactualandbudgetedresults

Auditing

Traditionalrole

Evaluatetheaccuracyandcompletenessofacorporationsfinancialstatements

Presentrole

Evaluateclientscompliancewithlaws

ITevaluationsandaudits(security,privacy)

Managementconsulting

Taxation

TaxationSoftware

ExampleofAIS

Createandevaluatetaxstrategies

Transmitcompletedforms

ProfessionalUsage

Researchchallengingquestions

Accessmoreuptodateinformation

Databaseaccess

CAREERSINACCOUNTINGINFORMATIONSYSTEMS

TraditionalAccounting

Understandingofaccountingandinformationsystems

CertifiedInformationTechnologyProfessional

SystemsConsulting

Designingsystemsandreengineeringprocesses

Softwareandhardwareselection

Valueaddedresellers(VARs)

ITAuditingandSecurity

RiskanalysiswithInformationSystems

Aidfinancialauditorsinevaluationofcontrols

CertifiedInformationSystemsAuditors(CISAs)

Penetrationtesting