Chapter 1 - Accounting information systems and firm value. After reading this chapter, you should be able to: Define an accounting information system and explain characteristics of useful information, distinguish among data, information and an information system, Distinguish the roles of accountants in providing information and explain certifications related to accounting information systems,...
Chapter Accounting Information Systems and Firm Value Copyright © 2014 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education Learning Objectives • • • • • • • LO#1 Define an accounting information system and explain characteristics of useful information LO#2 Distinguish among data, information and an information system LO#3 Distinguish the roles of accountants in providing information and explain certifications related to accounting information systems LO#4 Describe how business processes affect the firm’s value chain LO#5 Explain how AIS affects firm value LO#6 Describe how AIS assists the firm’s internal business processes LO#7 Assess how AIS facilitates the firm’s external business 1-2 Accountants as Business Analysts • • LO# Increasingly, the role of an accountant is to help address business opportunities To address such a business opportunity, the accountants need to decide what information is needed, then build an information system to gather the necessary information and finally analyze that information to offer helpful advice to management 1-3 LO# Accounting Information Systems • • An accounting information system (AIS) is defined as a system that records, processes and reports on transactions to provide financial and non-financial information to make decisions and have appropriate levels of internal controls (security measures to protect sensitive data) for those transactions An AIS is important because it provides 1-4 LO# Why Study AIS? • It’s fundamental to accounting – Accounting is an information providing activity, so accountants need to understand: • How the system that provides that information is design, implemented, and used • How financial information is reported • How information is used to make decisions 1-5 What Can an AIS Do? • • LO# Imagine Starbucks’ system, which can track a variety of things – The number of hours worked by employees all over the world – The amount of sales taxes to be paid by one store Wal-Mart has an extensive information system 1-6 A Simple Information System Possible Input: Sales at Starbucks Possible Storage: Database of all Sales at Starbucks Possible Processing: Queries of What Sells Best at Night Possible Output: Reports of What Sells Best at Night 1-7 LO# LO# Attributes of Useful Information • To be useful information must have these attributes: – – Relevant – information that is capable of making a difference in a decision • Predictive Value • Feedback Value • Timely Reliable – information that is free from bias and error • Verifiable 1-8 Data vs Information • • LO# Data are simply raw facts that describe an event and have little meaning on their own Information is defined as being data organized in a meaningful way to be useful to the user Data serves as an input 1-9 Information Overload • • Computers can process and organize a large amount of data Too much information causes information overload – Decision making is hindered 1-10 LO# Role of Accountants in AISs • Designer – • Implementer – • Recording Journal Entries Evaluator – • Database Administrator User – • System Analyst Auditor Manager 1-14 LO# Certifications in AIS • Certified Information Systems Auditor (CISA) – • Perform IT Audits Certified Information Technology Professional (CITP) – • LO# Work to effectively and efficiently manage information while ensuring the data’s reliability, security, accessibility and relevance Certified Internal Auditor 1-15 LO# Value Chain 1-16 • Where AIS add value to a Business? In the Primary Inbound logistics are the activities Activities? LO# associated with receiving and storing raw materials and other partially completed materials, and distributing those materials to manufacturing when and where they are needed • Operations are the activities that transform inputs into finished goods and services (e.g turning wood into furniture for a furniture manufacturer; building a 1-17 LO# • Where AIS add value to a Business? In the Support Firm infrastructure activities are all of the Activities? activities needed to support the firm, including the CEO, finance, accounting, and legal • • Human resource management activities include recruiting, hiring, training and compensating employees Technology activities include all of the technologies to support value-creating 1-18 activities These technologies also include LO# • AIS and Internal Business Processes AIS usually serve as the as the foundation for the enterprise (or ERP) system • • The enterprise system is a centralized database that collects data from throughout the company including orders, customers, sales, inventory, and employees 1-19 Information is thus available to everyone Use of ERP System • • LO# The enterprise system can take an order from a customer, fill the order, ship it, and then create an invoice to bill the customer – Used to check customers credit – Check the inventory levels in the warehouse – Determine when it can be shipped Everyone throughout the entire process can view and update the information 1-20 Figure 1.6 AIS and External Business Processes 1-21 LO# The Supply Chain • • LO# The supply chain refers to the flow of materials, information, payments, and services from suppliers all the way through the customer There are many processes involved which can be made more efficient using the AIS 1-22 Supply Chain Management • Supply Chain Management software can be used to optimize processes within the supply chain – Determine levels of inventory in stock and to be ordered – Determine timing to transferring inventory 1-23 LO# Customer Relationship Management • This software is used to manage interactions with customers – Track customer purchases – Ensure customer satisfaction – Product placement 1-24 LO# Customer Relationship Management • • LO# As an example, Amazon.com keeps a record of their past purchases and product searches and then uses that information to recommend other similar products for the customer to consider Loan officers at a bank learns more about the financial products currently being used by its bank’s customers through its AIS, they will be able to help identify additional bank products (upselling items such as 1-25 LO# The Effect of AIS on the Income Statement 1-26 LO# AIS, Firm Profitability, and Stock Prices • • As show on the previous slide, AIS can be used to improve company profits In addition, studies show that investments in IT can positively affect a company’s stock price 1-27 Summary • • LO# An accounting information system (AIS) is defined as being an information system that records, processes and reports on transactions to provide financial information for decision making and control Firms invest in accounting information systems to create value The value chain illustrates how during each primary activity, the product should gain 1-28 some ... an input 1- 9 Information Overload • • Computers can process and organize a large amount of data Too much information causes information overload – Decision making is hindered 1- 10 LO# Information. .. discretionary information outweigh the costs of obtaining it 1- 12 LO# Discretionary versus Mandatory Information • Mandatory information is information that is required by law – Examples include: Form 10 -K... what information is needed, then build an information system to gather the necessary information and finally analyze that information to offer helpful advice to management 1- 3 LO# Accounting Information