Chapter 1

Accounting Information Systems

An Introduction
Dr. Hisham Madi

Chapter
1-1

What is a System?
A group of interrelated multiple components or
subsystems that serve a common purpose
System or subsystem?

A system is called a subsystem when it is viewed as a

component of a larger system.

A subsystem is considered a system when it is the

focus of attention
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Introduction
PURPOSE.A system must serve at least one purpose
a system provides a measure of time, electrical power, or
information, serving a purpose is its fundamental
justification

Chapter
1-3

An Example of an Artificial System

An automobile is an example of an artificial

system
the automobile system serves only one purpose:
providing conveyance

Chapter
1-4

An Example of an Artificial System

Chapter
1-5

An Example of an Artificial System

SYSTEMDECOMPOSITION. Decomposition is
the process of dividing the system into smaller
subsystem parts
This is a convenient way of representing, viewing,
and understanding the relationships among
subsystems.
Each subordinate subsystem performs one or more
specific functions to help achieve the overall
objective of the higher-level system
Chapter
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An Example of an Artificial System

SUBSYSTEM INTERDEPENDENCY.A systems

ability to achieve its goal depends on the effective
functioning and harmonious interaction of its
subsystems
If a vital subsystem fails or becomes defective and
can no longer meet its specific objective, the
overall system will fail to meet its objective
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Introduction
What is an Information System?
An information system is the set of formal
procedures by which data are collected, processed
into information, and distributed to users

Chapter
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Introduction
Transactions
A transaction is a business event.

Financial transactions economic events that affect the

assets and equities of the organization (sales, and purchase).

Nonfinancial transactions all other events processed by

the organizations. adding new supplier of raw materials.

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Introduction
Financial
Transactions
Nonfinancial

Information
System

Information

User
Decision
Making

Transactions

Chapter
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Introduction
What is Accounting Information Systems?
Applying information technology (IT) to accounting systems

Financial accounting
Managerial accounting
Auditing
Taxation

It identifies, collects, processes, and communicates economic

information about a firm using a wide variety of technologies
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Introduction
Accounting information systems exists at the intersection of two
important disciplines: (1) accounting and (2) information systems
An Accounting Information System (AIS)
Data and processing procedures
Creates needed information for users

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Accounting Versus Management

Information System
Accounting Information Systems (AIS) process

financial transactions; e.g., sale of goods and nonfinancial

transactions that directly affect the processing of financial
transactions; e.g., addition of newly approved vendors.

Management Information Systems (MIS) process

nonfinancial transactions that are not normally processed by traditional

AIS; e.g., tracking customer complaints, production planning, control,
sales forecasting.

Chapter
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AIS Subsystems

AIS subsystems process financial transactions and

nonfinancial transactions that directly affect the processing
of financial transactions.
The AIS is composed of three major subsystems:
The transaction processing system (TPS), converting
economic events into financial transactions, recording
financial transactions in the accounting records (journals
and ledgers), and distributing essential financial
information to operations personnel to support their daily
operations
Chapter
1-14

AIS Subsystems
the general ledger/financial reporting system (GL/FRS),
which produces the traditional financial statements, such
as the income statement, balance sheet, statement of cash
flows, tax returns, and other reports required by law
The management reporting system (MRS), which provides
internal management with special-purpose financial reports
and information needed for decision making such as
budgets, variance reports, and responsibility reports
Chapter
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Accounting Versus Management

Information System

AIS versus MIS?

Chapter
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The General AIS Model

Chapter
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Data Sources
Data sources are financial transactions that enter the
information system from internal and external sources.
External financial transactions are the most common
source of data for most organizations.

E.g., sale of goods and services, purchase of inventory, receipt

of cash, and disbursement of cash (including payroll).

Internal financial transactions involve the exchange or

movement of resources within the organization.

E.g., movement of raw materials into work-in-process (WIP),

application of labor and overhead to WIP, transfer of WIP into
finished goods inventory, and depreciation of equipment.
Chapter
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Information Versus Data

Data

Raw facts
No organization or meaning
Have not processed (edited, summarized, or redefined)
Have no direct effect on the users.

Information

Processed data
Meaningful to users
Cause the user to take an action.

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Transforming the Data

into Information
Functions for transforming data into information according to
the general AIS model:
1. Data Collection
2. Data Processing
3. Data Management
4. Information Generation

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Transforming the Data

into Information
Data Collection
Capturing transaction data
Recording data onto forms
Validating and editing the data

Data Processing

Merging
Calculating
Summarizing
Comparing

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Transforming the Data

into Information

Chapter
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Characteristics of Useful
Information
Relevance: serves a purpose
Timeliness: no older than the time period of the action it
supports
Accuracy: free from material errors
Completeness: all information essential to a decision or task is
present
Summarization: aggregated in accordance with the users
needs
Chapter
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The Importance of IT to
Accountants
Accountants often help clients make software and hardware
purchases
Auditors must evaluate computerized systems
Often asked to evaluate the efficiency and effectiveness of
existing system
Understanding is vital to passing most certification exams

Chapter
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The Role of the Accountant

Accountants are primarily involved in three ways: as
system users, designers, and auditors
ACCOUNTANTS AS USERS
As end users, accountants must provide a clear picture of
their needs to the professionals who design their systems.
The accountant should actively participate
in systems development projects to ensure
appropriate systems design.
Chapter
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The Role of the Accountant

ACCOUNTANTS AS SYSTEM DESIGNERS
The accounting function is responsible for the
conceptual system, while the computer function is
responsible for the physical system
The conceptual system determines the nature of the
information required, its sources, its destination, and
the accounting rules that must be applied
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The Role of the Accountant

ACCOUNTANTS AS SYSTEM AUDITORS
Auditing is a form of independent attestation performed by an
expertthe auditorwho expresses an opinion about the fairness
of a companys financial statements External Auditing attest to

fairness of financial statements

IT Auditors

evaluate IT, often as part of external audit, The IT auditor attests

to the effectiveness of a clients IT controls to establish their
degree of compliance with prescribed standards
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The Role of the Accountant

Internal Auditing
Internal auditors perform a wide range of activities on
behalf of the organization, including conducting financial
statement audits, examining an operations compliance
with organizational policies, reviewing the organizations
compliance with legal obligations, evaluating operational
efficiency, detecting and pursuing fraud within the firm,
and conducting IT audits.
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The Role of the Accountant

External auditors represent third-party outsiders, whereas
internal auditors represent the interests of management

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