Accounting Information Systems (AIS)
A Primary Objective of an AIS
• Is to control the organisation so the organisation can achieve its objectives
• Management expects accountants to;
I. Take a proactive approach to eliminating system threats;
II. Detect, correct, and recover from threat when they occur.
Chapter 1 Accounting Information Systems: An Overview
System is a set of two or more interrelated components that interact to achieve a goal. Most
systems are composed of smaller subsystems that support the larger system.
Each subsystem is designed in such a way it achieves one or more of the organisational goals.
Changes in subsystem can a ect other subsystems. Goal con ict is when a subsystem’s goals
are inconsistent with the goals of another subsystem or with the system as a whole. Goal
congruence occurs when a subsystem achieves its goals while contributing to the organisations’
overall goal. The larger the company the more complicated the system the more di cult it is to
achieve goal congruence.
Characteristics of Useful Information
Relevance Reduces uncertainty, improves decision-making, or con rm or
corrects prior expectations.
Reliability Free from error or bias; accurately represents organization events or
activities.
Completeness Does not omit (exclude) important aspects of the events or activities
it measures.
Timeliness Provided in time for decision makers to make decisions.
Understandability Presented in a useful and intelligible format.
Veri ability Two independent, knowledgeable people produce the same
information.
Accessibility Available to users when they need it and in format they can use.
Data are facts that are collected, recorded, stored, and processed by an information system (it
can be everything).
Information is data that have been organised and processed to have meaning and improve the
decision-making process. You have to understand something for it to be information and this is to
provide meaning!
When human beings experience information overload is when the amount of information
exceeds the amount the human mind can absorb and process, resulting in a decline in decision
making quality and an increase in the cost of providing information. So, nowadays, we use
Information Technology (IT) to help decision makers lter more e ectively and condense
information.
Bene ts of Information
Costs of producing Information -/-
Value of Information
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, Accounting Information Systems (AIS)
Bene ts of Information - Reduced uncertainty, improved decisions and improved ability to plan
and schedule activities.
Costs of producing Information - The time and resources spent to produce and distribute the
information.
An organisation needs information in order to make e ective decisions. In addition, all
organisations have certain business processes they are continuously engaged in (e.g. acquire
inventory, pay taxes, sell merchandise and collect payments etc.). Business Process is a set of
related, coordinated, and structured activities and tasks, performed by a machine, a person, a
computer, and that help accomplish a speci c goal within an organisation.
A transaction is an agreement between two entities to exchange goods or services or any other
event that can be measures in economic terms by an organisation. The process that begins with
capturing transaction data and ends with informational output such as the nancial statements, is
called transaction processing.
Many business activities are pairs of events involved in a give-get exchange. Most organisations
engage in a small number of give-get exchanges, but each type of exchange happen many times.
Such as giving up cash to get inventory from a supplier and giving employees a pay check in
exchange for their labor.
These exchanges can be grouped into ve major business processes or transaction cycles:
• The revenue cycle, where goods and services are sold for cash or a future promise to receive
cash. (Chapter 12)
• The expenditure cycle, where companies purchase inventory for resale or raw materials to
use in producing products in exchange for cash or a future promise to pay cash. (Chapter 13)
• The production (or conversion) cycle, where raw materials are transformed into nished
goods. (Chapter 14)
• The human resources/payroll cycle, where employees are hired, trained, compensated,
evaluated, promoted, and terminated. (Chapter 15)
• The nancing cycle, where companies sell shares in the company to investors and borrow
money, and where investors are paid dividends and interest is paid on loans.
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All the above-mentioned cycles are interfaced with the general ledger and reporting system,
which is used to generate information for both management and external parties. (Chapter 16)
Accounting Information Systems is a system that collects, records, stores, and processes data
to produce information for decision makers.
There are six components of an AIS:
I. The people who use the system.
II. The procedures and instructions used to collect, process, and store data.
III.The data about the organisation and its business activities.
IV. The software used to process data
V. The information technology infrastructure, including computers, peripheral devices, and
network communications devices uses in the AIS.
VI. The internal controls and security measures that safeguard AIS data.
These six components enable an AIS to ful ll three important business functions:
I. Collect and store data about organisational activities, resources and personnel.
Organisations have a number of business processes, such as making a sale or purchasing raw
materials, which are repeated frequently.
II. Transform data into information so management can plan, execute, control, and evaluate
activities, resources, and personnel.
III. Provide adequate controls to safeguard the organisation’s assets and data.
A well-designed AIS can add value to an organisation by:
I. Improving the quality and reducing the costs of products and services.
II. Improving e ciency.
III. Sharing knowledge.
IV. Improving the e ciency and e ectiveness of its supply chain.
V. Improving the internal control structure.
VI. Improve decision making.
When you use predictive analysis you use the data of warehouses and complex algorithms to
forecast future events, based on historical trends and calculated probabilities.
To provide value to their customers, most organisations
perform a number of di erent activities. Those activities
can be conceptualised as forming a value chain
consisting of
ve primary activities that directly provide value to
customers:
I. Inbound logistics consists of receiving, storing, and
distributing the materials an organisation uses to
create the services and products it sells. (e.g. steel,
rubber, glass, handles)
II. Operations activities transform inputs into nal
products or services. (processing materials)
III. Outbound Logistics activities distribute nished
products or services to customers. (shipping the
nished material)
IV. Marketing and sales activities help customers buy
the organisation’s products or services.
V. Service activities provide post-sale support to
customers.
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