Introduction
When we have completed this session, we shall have been able to:
Define Accounting information systems (AIS), Discuss why AIS is an important area of study for future accountants Compare and contrast AIS with other Areas of study in accounting Explain the structure of Accounting information systems Explain qualities of information and sources of Accounting information systems. Explain the structure and content of the remainder of the course.
Definition
An Accounting information systems is (AIS):
A set of interrelated activities, documents and technologies designed to; collect data, process it, and report Information to diverse groups of internal, connected and external decision makers of an organisation. A well designed accounting information systems can significantly enhance decision making in an organisation by responding to many elements of the Financial Accounting Standards Board (FASB) Conceptual Framework.
Objective of Financial reporting: to provide information for decision making. Elements of financial statement (F/S):
Assets, Liabilities, Equity Revenue, Expense Gain, Losses Comprehensive income.
Qualities/Characteristics of F/S:
There are two basic categories: Primary Xtics:
Relevance and reliability
Secondary Xtics:
Sampson Anomah 2009
Basic Assumptions
Economic Entity Assumption
The economic entity can be identified with a particular unit of accountability. The business is separate and distinct from its owners. Entitys assets and other financial elements are not commingled with those of the owners. The economic entity assumption is an accounting concept, and not a legal construct.
Basic Assumptions
Going Concern Assumption
The business is assumed to continue indefinitely unless terminated by owners. The basis of recording financial elements is historical accounting. Liquidation accounting (based on liquidation values) is not followed unless so indicated.
Basic Assumptions
Monetary Unit
Money is the common unit of measure of economic transactions. Use of a monetary unit is relevant, simple to understand and universally available. Price level changes are ignored in accounting, leading to the assumption that the dollar remains relatively stable.
Basic Assumptions
Periodicity (Time Period) Assumption
Economic activity of an entity may be artificially divided into time periods for reporting purposes. Shorter time periods are subject to revisions but may be more timely.
During production: In long-term construction revenue is recognized periodically based on % of job completed. End of production: Where active markets exist for the product and there are no significant future costs.. Receipt of cash: Used when there is uncertainty of collection. In installment sales contracts payment is required in periodic installments.
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within the body of the financial statements, as notes to those statements, or as supplementary information.
Constraints: Materiality
Materiality refers to an items importance to a firms overall financial operations.
An item must make a difference to be material and be disclosed. It is a matter of the relative significance of the element. Both quantitative and qualitative factors are to be considered in determining relative significance.
Constraints: Conservatism
Conservatism suggests that the preparer, when in doubt, choose a conservative solution. This solution will be least likely to overstate assets and income. Conservatism does not suggest that net assets or net income be deliberately understated.
Balance decreases
Credit entries in an asset account Credit entries in an expense account Debit entries in a liability account Debit entries in Equity account Debit entries in a revenue account
USES OF AIS:
Planning: The plans of management are expressed formally as budgets and the term budgeting is often applied to management planning. Controlling: Reports that help focus a managers attention on problems or opportunities that might otherwise go un-notice. A performance report is a detailed feedback system that helps management to compare actual data for a specific period with the budgeted data. Organising and Directing: Managers have constant need for accounting information in the routine conduct of day-to-day operations. E.g. HR - Hiring, promotion and firing decision, PROCUREMENT - volumes of inventory, MARKETING - Pricing strategies etc, (REF. HANDOUT - Information requirement in different sectors) Decision Making: Accounting is generally responsible for gathering available cost and benefit data and for communicating it in a usable form to the appropriate manager.
Sampson Anomah 2009
Stakeholders/Users of AIS
Stakeholders - Definition:
Any individual or group who can affect or are affected by the achievement or the non-achievement of a firms objectives. In AIS terms, Stakeholders are groups/individuals that have interests in the well-being of the company and/or are affected by the goals, operations, and activities of the organisation and therefore are keen in the financial performance of the organisation.
In AIS terms, Stakeholders can be classified three categories: Internal, Connected and External
Sampson Anomah 2009
financiers).
- What AIS would they claim or be interested in?
3.
groups).
- What AIS would they claim or be interested in?
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Trends in AIS
AISs combine the study and practice of accounting with the design, implementation, and monitoring of information systems. Such systems use modern information technology resources together with traditional accounting controls and methods to provide users the financial information necessary to manage their organizations.
In an electronic financial accounting system, the steps in the accounting cycle are dependent upon the system itself. E.g, some systems allow direct journal posting to the various ledgers and others do not.
These systems, commonly including accounting software, make it easier to compile financial data for use in:
taxes, payroll, other bookkeeping requirements and the preparation of General purpose financial reports:
trial balance,
statement of Comprehensive income, balance sheets, cash Sampson Anomah 2009 flow statements as well as other financial data analysis)
Information: Definition
Information is a data that have been processed, interpreted and understood by the recipient of the message. This means that data is the raw stage of information. Data goes through some analysis, summarisation or processing in some other fashion to produce a message or report which is conventionally deemed to be management information. Data only becomes information understood by the recipient.
Sampson Anomah 2009
if
it
is
Knowledge
Knowledge is an enabled ability and experience resulting from the continuous application of information. It is therefore an advanced level of information. Some people describe information as knowledge. However, knowledge has a bigger dimension than information. Knowledge can therefore be described a pattern of information that has been experienced over time. This definition is just rudimentary as many researchers have clearly stated that there is no one definition of Knowledge; yet Knowledge may be described as a collection of information. A combination of knowledge forms ones wisdom or truth.
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Qualities of Information
Effective information must have the following qualities:
Relevance: This is the overriding quality of information. Information must be relevant to the problem being considered. Irrelevant information makes the understanding too difficult and causes frustration to the user. Relevance is, in fact, affected by many of the factors below such as completeness, timeliness and detail.
To be relevant:
The information must be timely. The information should have predictive value: (be helpful in making predictions about ultimate outcomes of past, present and future events). The information should have feedback value (helps users to confirm prior expectations.) Sampson Anomah
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Qualities of Information
Accuracy: Although there is no such thing as absolute accuracy, information must possess sufficient accuracy necessary to help the decision making required.
Reliability/Confidence in source : Information is reliable, when it can be relied on to represent the true, underlying situation. To be reliable, information must be:
Verifiable
Market Analysis: Demand, supply elasticity and pricing decisions Project evaluation: Investment appraisals and the application of time value of money for decision making.
Management Information Systems (MIS) compared with Accounting Information Systems (AIS)
Storage:
Units of Computer memory Binary/Decimal/Hexadecimal
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Software Bespoke software or an off-the-shelf accounting package Customised versions of standard packages Outsourcing strategies Development AIS Systems and systems thinking The 7-stage description Rich picture Defining a System: CATWOE Sampson Anomah
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Assignment 1
Submission date 21/01/2010 You will be having a presentation exercise in the week of submission of exercise. Click here to view the assignment A maximum of 2000 words.