Chapter 1 – Accounting Information Systems and Firm Value
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Multiple Choice Questions
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1. c
2. d
3. a
4. c
5. d
6. b
7. d
8. a
9. d
10. b
11. b
12. c
13. a
14. c
15. a
Discussion Questions
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1. Brainstorm a list of discretionary information that might be an output of an accounting
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information system and be needed by Starbucks. Prioritize which items might be most
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important and provide support.
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Answers will vary. Here are some potential answers:
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The cost of a cup of coffee, by type: Breakfast blend, Cafe estima, caffe Verona, espresso roast,
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Ethiopia sidamo, french roast, Gold coast blend, Guatemala Antigua, house blend, Italian roast,
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Kenya coffee, komodo dragon blend, organic Serena blend, organic shade grown Mexico,
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sumatra, decaf caffe Verona, decaf espresso roast, decaf house blend, and decaf Sumatra!
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Monthly Sales per square foot of retail space.
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Employee cost for each operating hour.
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Advertising expenditures per dollar of sales. l l l l l
The cost of condiments per dollar sales of coffee. Condiments might include sweeteners, liquid
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creamers, cream canisters, sugar packets, sugar canisters, stir sticks!
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The cost of electricity per operating hour each month of the year.
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2. Explain the information value chain. How do business events turn into data then into information
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and then into knowledge? Give an example starting with the business event of thepurchase of a
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DVD at Best Buy all the way to useful information for the CEO and other decision makers.
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The information value chain represents the overall transformation from a business need and
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business event (like each individual sale of U.S. flag) to an ultimate decision. The information value
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chain might be represented considering the purchase of a DVD at Best Buy in the followingway:
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The DVD will be recorded as sales revenue and then after deducting its costs will add to or subtract
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from corporate income. The cash from the DVD sale will also add to the operating cashflows.
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The specific DVD will be recorded in the information as a sale to monitor which DVDs are selling
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within Best Buy. This will help Best Buy and its suppliers know which DVDs are selling and whichtype
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of DVDs should be reordered. The type of DVD will also help the marketing department better
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understand its customers and their respective demographic profile to better market to them.
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In addition, knowing the location of the DVD sale will also help decision makers know where its
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sales are occurring.
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The CEO can look at the profitability of DVDs overall, the specific types of DVDs that are sellingand
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the location of those sales all due to the information value chain.
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3. Give three examples of types of discretionary information at your college or university and
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explain how the benefits of receiving that information outweigh the costs.
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Universities are often interested in their freshmen retention (the percentage of sophomores l l l l l l l l l l l
that return after their freshman year). They also quite interested in their four- or five-year
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graduation rates.
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Universities are also interested in their production of research grants. This is often used to l l l l l l l l l l l l l l
monitor the success of their research and their ability to get interested sponsors (such as the
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National Institute of Health or the National Science Foundation).
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Information for each of these three examples can be gained by the information system at the l l l l l l l l l l l l l l l
university. However, a university generic information system does not usually offer this
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information as a standard report or standard output of the system. Therefore, work must be done
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to capture (and potentially digitize) this information, ensure its validity and then report it in an
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appropriate useful format. The cost of getting useful information will depend on the university and
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its technology. However, since these represent three keys metrics of a university
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and will likely be used as a key input to manage the university, the benefits will potentiallyoutweigh
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those costs.
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4. After a NBA basketball game a box score is produced detailing the number of points scored, assists
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made and rebounds retrieved (among other statistics). Using the characteristics of useful
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information discussed at the beginning of the chapter, please explain how this box score meets (or
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does not meet) the characteristics of useful information.
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A box score of a NBA basketball game (or other sports) produces overall team statistics by half and
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quarter and details player performance including minutes played, shots taken, shots made,free
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throw shots taken and made, assists, rebounds, steals, blocks and fouls.
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To be relevant, the information must potentially impact a decision that a decision maker must
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make. Relevant information is usually characterized by having predictive value, feedback value and
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receiving it on a timely basis. This information provides feedback value to explain how players
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performed in the game. The box score provides predictive value to the extent that prior
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performance (as reflected in the box score) is predictive of future performance. Since box scores
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are available immediately following the game, it is also received on a timely enough basisto make
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decisions for a subsequent game.
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To be reliable, the information must be verifiable, be representationally faithful and be neutral.
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There are often some allegations that the statistics included in a box score is affected by the biasof
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the scorekeeper. While the actual points scored by the team is verified by the officials, more minute
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details are not verified and may be subject to bias, thus limiting their reliability.
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The information is potentially relevant to the coach in helping to figure out which players are
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most efficient and productive. Which players play well against different teams and which
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players are good at particular aspects of offense and defense, among others.
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5. Some would argue that the role of accounting is simply as an information provider. Will a
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computer ultimately completely take over the job of the accountant? As part of your
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explanation, explain how the role of accountants in information systems continues to evolve.
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Accountants have a role as a business analyst. That is, they gather information to solve business l l l l l l l l l l l l l l l
problems or address business opportunities. They determine what information is relevant in solving
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business problems, then create or extract that information and finally analyze the information to
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solve the problem. An AIS provides a systematic means for accountants to get needed information
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and solve a problem.
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While a computer is very good at reliably collecting, processing and producing information, the
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role of the accountant when serving as a business analyst will continue to be able to assess the
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problems the business is facing and work to provide information that will address it.
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6. How do you become a Certified Information Technology Professional (CITP)? What do they doon
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a daily basis?
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A CPA can earn a CITP designation with a combination of business experience, lifelong learning
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and an optional exam.
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The CITP designation identifies accountants (CPAs) with a broad range of technology knowledge
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and experience. On a daily basis, CITPs may help devise a more efficient financial reporting system,
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help figure out how an information system can provide needed decision-relevant information,
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help the accounting function go paperless or consult on how an IT function may transform the
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business.
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7. Explain the value chain for an appliance manufacturer, particularly the primary activities. Which
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activities are most crucial for value creation (or in other words, which activities would you want to
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make sure are the most effective)? Rank the five value-chain enhancing activities in importance for
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an appliance manufacturer.
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The value chain goes all the way from product design, through sourcing to manufacturing to
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shipping the final product to the warranty and repair business. Many would consider the product
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design, which ensures that the appliance has the desired functionality at the right priced points, to
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be a critical activity for value creation. Sourcing the product components to low cost, yet high
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quality component providers is also key to creating value. Final assembly (oroperations) of the
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product components is also key to ensuring high product quality at reasonable prices. Marketing
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the final product through appropriate distribution channels and supporting the final product
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through the warranty and repair process also are crucial parts of the value chain.
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My opinion of the ranking of the five primary activities would be that product design would be the
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most important, then sourcing (inbound logistics), then marketing, then warranty and repairand
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finally final assembly (or operations).
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8. Which value chain supporting activities would most be most important to support a health
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insurance provider’s primary activities? How about the most important primary activities for auniversity?l l l l l l l l l l l l l
Of course, all of the supporting activities are important. Human Resources perhaps can be viewed
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as most important to make sure the right nurses and right doctors with the appropriateskills are
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available at the right time to service the sick and injured. Technology is increasingly becoming an
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important part of hospitals, especially with the digital medical records are becoming increasingly
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available and useful. Certainly, other arguments can be made for other supporting activities.
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The primary activities of a university would be to attract students, educate them and then helping
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them find a good job once they have graduated. Educating students is probably themost important
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primary activities in the university as that is its primary mission.
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