Accounting Information Systems

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Accounting Information Systems
UAA ACCT 316
Accounting Information Systems
Dr. Fred Barbee
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Information

• What is it?

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Information as a Resource

• In the past, organizations were said to have five
  major resources . . .
• Men

The 5 Ms
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• Oops . . .
  that isnt
  politically correct -

Sorry about that!!!
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Information as a Resource

• Once more, organizations have five major
  resources
• 1. Men (i.e., people)
• 2. Machines
• 3. Money
• 4. Materials
• 5. Management

The 5 Ms
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Information as a Resource

• Information is now regarded as the sixth
  resource.

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Consider this scenario . . .

• It isnt all that far-fetched!

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Quick Give me all your ideas!
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Functions of Management
Planning
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Information . . .

• After the human element . . .
• Quality, and
• Timely business information
• is an executives most important resource.

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Information Anxiety

• Source Information Anxiety Richard S.
  Wurman New York,
  Doubleday, 1989

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• A weekend edition of the NY Times contains more
  information than the average person was likely to
  come across in a lifetime in seventeenth-century
  England.

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• More new information has been produced in the
  last 30 years than in the previous 5,000.

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• About 1,000 books are published internationally
  every day, and the total of all printed knowledge
  doubles every eight years.

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In a single year the average America will . . .

• Read or complete 3,000 notices and forms
• Read 100 newspapers and 36 magazines
• Watch 2,463 hours of television

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In a single year the average America will . . .

• Listen to 730 hours of radio
• Talk on the phone for 61 hours and
• Read 3 books

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Information Overload
Is it real?
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How Much Information?
http//www.sims.berkeley.edu/research/projects/how
-much-info/summary.html
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• The world produces between 1 and 2 exabytes of
  unique information per year, which is roughly 250
  megabytes for every man, woman, and child on
  earth.

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Data Powers of Ten
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Data Powers of Ten
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Yearly Production of Published Information
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Yearly Production of Published Information
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Information Overload
S
Y
E
Is it real?
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Information Overload . . .

• The theory of bounded rationality (Simon, 1955).
• Humans are organisms of limited knowledge and
  computational capacity.
• Thus, simplifications (heuristics) are
  deliberately introduced into the choice mechanism.

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• The Challenge of Information

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http//wip.monroecc.edu/wipdepts/library/lib100/li
m0p3.htm
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Information Storage
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Computation Speed . . .
Instructions per second.
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Transmission Speed . . .
Words per minute
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Human Processing Speed . . .
Words per minute
Bits per glance
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• Dealing With Information Overload.

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Information Processing

• People are consistency seekers
• People are Information Processors and
• People are Cognitive Misers

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People as Consistency Seekers

• Strive for consistency when processing
  information.
• Find support for our
  beliefs.

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People as Information Processors

• Actively seek out information,
• Observe facts, and
• Reason

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People as Cognitive Misers

• Minimize cognitive efforts, and
• Take shortcuts.

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Managers as Cognitive Misers

• Managers must be selective in the kinds of
  information they request.
• The key to limiting
  the flow of data is
  to request only
  relevant information.

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Stop and look at Ackoffs 1st Assumption.
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• Assumption 1
• Management needs more information.

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Stop and look at Ackoffs 2nd Assumption.
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• Assumption 2
• Managers need the information they want

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What kind of information do managers need?
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• To be information literate, a person must be
  able to recognize when information is needed and
  have the ability to locate, evaluate, and use
  effectively the needed information.

Source Presidential Committee on Information
Literacy http//www.ala.org/acrl/nili/ilit1st.html
January 10, 1989
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• To be information literate, a person must be
  able to recognize when information is needed and
  have the ability to locate, evaluate, and use
  effectively the needed information.

Source Presidential Committee on Information
Literacy http//www.ala.org/acrl/nili/ilit1st.html
January 10, 1989
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• To be information literate, a person must be
  able to recognize when information is needed and
  have the ability to locate, evaluate, and use
  effectively the needed information.

Source Presidential Committee on Information
Literacy http//www.ala.org/acrl/nili/ilit1st.html
January 10, 1989
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• To be information literate, a person must be
  able to recognize when information is needed and
  have the ability to locate, evaluate, and use
  effectively the needed information.

Source Presidential Committee on Information
Literacy http//www.ala.org/acrl/nili/ilit1st.html
January 10, 1989
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Stop and look at Ackoffs 3rd Assumption.
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• Assumption 3
• Giving managers the information they need
  improves their decision making.

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Information . . . What is it?
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Questions Raised

• How is information generated and provided to
  various users?
• How do accountants help to provide, evaluate, and
  make effective use of information?

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What is information?

• Lets define the term.
• Dont worry about stating it in formal terms.
  Just tell what it means to you.
• Write a one sentence definition.
• Then . . . we will compare.

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What is Information
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Information . . .

• The most generic definition comes from philosophy
  . . .
• . . . Information is knowledge for the purpose of
  taking effective action.

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Information . . .

• Webster says information is . . .
• . . . the communication of news, knowledge,
  etc., a fact or facts told or communicated.

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Information . . .

• The American Library Association
• Information is all ideas, facts, and imaginative
  works of the mind which have been communicated,
  recorded, published and/or distributed formally
  or informally in any format

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Information . . .

• John McChesney, National Public Radio Reporter
• Data becomes information only when its put into
  a context.

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Information . . .

• Gregory Bateson, 1984
• Information is any difference that makes a
  difference.

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Information . . .

• Zeroing in a bit more, information can be defined
  as . . .
• . . .Valuable processed data
• What makes information valuable?

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Information Valuable Processed Data . . .

• Information has value because it is the basis
  for
• Making decisions,
• Taking actions, and
• Fulfilling legal actions

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So . . . We could say

• Information is useful data, organized such that
  correct decisions can be based on it.

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Processing Steps Within Information Systems
Raw Facts, Figures, Symbols, Etc.
Data that have been transformed and
made useful (valuable)
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Information Vs. Data . . .

• Data are facts and figures not currently being
  used in a decision process.
• In contrast . . .
• Information refers to the classified or
  integrated data being used for decision making.

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Information Vs. Data . . .

• Information affects behavior
• Data does not
• Either because of their format or location
  relative to a potential user at a particular time.

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System
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What is a System?

• The word system is well used in our society. We
  have . . .
• Stereo systems
• Computer systems
• School systems
• Transportation systems.

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Lets Define System . . .

• Again, dont worry about stating your definition
  in formal terms.
• Simply tell what system means to you.
• Write a one-sentence definition of system.
• Then we will compare.

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What is a System?
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Webster Defines A System as . . .

• . . . An orderly, interconnected, complex
  arrangement of parts.

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In the Abstract,
A System is

• A set of interacting components that operate
  within a boundary for some purpose.

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Environment
Process (Transfor- mation)
Inputs
Outputs
Feedback Loop
Sensor
Control
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Information System . . .

• Now . . .
• We know what information is.
• We know what a system is.

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Information System . . .

• Lets put them together into an information
  system.
• If we did - what would be the objectives?

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Information System Objectives

• To provide information that supports decision
  making
• internal, and
• external users

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Information System Objectives

• To provide information that supports day-to-day
  operations
• Internal, and
• External Users

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Information System Objectives

• To provide information that pertains to
  stewardship
• External Users

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An AIS . . .

• Collects and stores data about activities and
  transactions.
• Processes data into information that is useful
  for making decisions.
• Provides adequate controls to safeguard the
  organizations assets, including its data.

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(No Transcript)
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Any Questions?
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Accounting Information System
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Environment
Process (Transfor- mation)
Inputs
Outputs
Feedback Loop
Sensor
Control
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On the Input Side
Environment

• A transaction (event) is a happening with
  economic consequences for the firm.
• The event must be
• Reliable in nature
• Measurable in dollars

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On the Output Side

• An AIS provides Information. . .
• Scorekeeping
• Attention-Directing
• Decision Making

Environment
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Overview of AIS
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Overview of Accounting Information System
Financial Managerial Tax
Govt NFP
Manual Computer
Stockholders Creditors Government Owners
Managers Banks IRS
Contributors Taxpayers
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Accounting Processing
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Accounting Processing
Inputs
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Any Questions?
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Accounting Models
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Accounting Models . . .

• A model is a representation of reality. An
  accounting information system employs two types
  of models
• The Financial Accounting model
• Managerial Accounting models

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Financial Accounting Model

• The financial accounting model
• Assets Liabilities Owners Equity
• Its major purpose is to generate scorekeeping
  information for use by external parties.

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Financial Accounting Model

• Outputs from the financial accounting model
  include . . .
• Balance Sheet
• Income statement
• Statement of Cash Flows
• Statement of Retained Earnings

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Accounting Processing
AIS
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Managerial Accounting Models

• Managerial accounting provides financial
  information to the internal users of a firm.
• A wide variety of models are used
• Cost-Volume-Profit models,
• Cost-Variance Analysis models, and
• Cash-Flow Forecasting models

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Accounting Processing
AIS
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Stop and look at Ackoffs 5th Assumption.
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• Assumption 5
• Managers need only to understand how to use an
  information system.

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