AIS Midterms Reviewer | Lecture notes Information Systems

INTRODUCTION TO AIS

The Information System

oInformation is a business recourse

oInternal Information Flow

Horizontal Flow – used at the operations level to

capture transactional and operations data

Vertical Flow

Downward Flow – Instructions, Data, Quotas

Upward Flow – aggregated transactions and

operations data

oExternal Information Flow

Trading Partners – customers sales and company

purchase information

Stakeholders – entities with direct or indirect

interest in the firms

Information requirement – all user groups have unique

information requirements

System

ois a group of multiple interrelated components or

subsystems that serve a common purpose

oMultiple components – more than one part

oRelatedness – a common purpose relates the multiple

parts of the system

oPurpose – A system must serve at least one purpose,

but may serve several

Subsystem – a system that is viewed in relation to a

larger system which it is part

System Decomposition – process of dividing the system

into smaller subsystem parts

System Interdependency – all vital parts of a subsystem

must be functioning well or the entire system will fail

Information System – set of formal procedures by

which data are collected, processed into information,

and distributed to users

Transaction – an event that affect or is of interest to the

organization and is processed by its information system

as a unit of work

oFinancial Transaction – economic events that affect

the assets and equities of the organization, is

reflected in its accounts, and is measured in monetary

terms

oNon-financial Transaction – events that meet the

residual definition of a financial transaction

Accounting Information System

oprocess financial transactions and nonfinancial

transactions that directly affect the processing of

financial transactions. For example, changes to

customers’ names and addresses are processed by

the AIS to keep the customer file current.

oidentifies, collects, processes, and communicates

economic information about a firm using a wide

variety of technologies

oit captures and records the financial effects of a

firm’s transaction

odistributes transaction information to operations

personnel to coordinate many key tasks

Management Information System – processes

nonfinancial transactions that are not normally

processed by traditional AIs

AIS Subsystems

1. Transaction Processing Systems

supports daily business operations with numerous

reports, documents, and messages for users

throughout the organization

consists of three transaction cycles: (1) the revenue

cycle, (2) the expenditure cycle, and (3) the

conversion cycle

2. General Ledger/Financial Reporting System

produces the traditional financial statements

it is nondiscretionary because the organization has

few or no choices in the information it provides

3. Management Reporting System

provide internal management with special-

purposed financial reports and information needed

for decision making

it is discretionary reporting because the

organization can choose what information to report

and how to present it

Data – are facts which may or may not be processed and

have no direct effect on the user

Information – causes the user to take an action that he

or she otherwise could not, or would not, have taken

Data Sources – are financial transactions that enter the

information system from both internal and external

sources

oInternal Financial Transactions – involve the exchange

or movement of resources within the organization

oExternal Financial Transactions – are economic

exchanges with other business entities and individuals

outside the entities

Transforming Data into Information

1. Data Collection

omost important stage in the system

othe objective is to ensure that event data entering in

the system are valid, complete, and free from

material errors

capture transaction data

record data into forms

validate and edit the data

2. Data Processing

oClassifying, transcribing, sorting, batching, and

merging

Partial preview of the text

Download AIS Midterms Reviewer and more Lecture notes Information Systems in PDF only on Docsity!

INTRODUCTION TO AIS

 The Information System o Information is a business recourse o Internal Information Flow  Horizontal Flow – used at the operations level to capture transactional and operations data  Vertical Flow  Downward Flow – Instructions, Data, Quotas  Upward Flow – aggregated transactions and operations data o External Information Flow  Trading Partners – customers sales and company purchase information  Stakeholders – entities with direct or indirect interest in the firms  Information requirement – all user groups have unique information requirements  System o is a group of multiple interrelated components or subsystems that serve a common purpose o Multiple components – more than one part o Relatedness – a common purpose relates the multiple parts of the system o Purpose – A system must serve at least one purpose, but may serve several  Subsystem – a system that is viewed in relation to a larger system which it is part  System Decomposition – process of dividing the system into smaller subsystem parts  System Interdependency – all vital parts of a subsystem must be functioning well or the entire system will fail  Information System – set of formal procedures by which data are collected, processed into information, and distributed to users  Transaction – an event that affect or is of interest to the organization and is processed by its information system as a unit of work o Financial Transaction – economic events that affect the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms o Non-financial Transaction – events that meet the residual definition of a financial transaction  Accounting Information System o process financial transactions and nonfinancial transactions that directly affect the processing of financial transactions. For example, changes to customers’ names and addresses are processed by the AIS to keep the customer file current. o identifies, collects, processes, and communicates economic information about a firm using a wide variety of technologies o it captures and records the financial effects of a firm’s transaction o distributes transaction information to operations personnel to coordinate many key tasks  Management Information System – processes nonfinancial transactions that are not normally processed by traditional AIs  AIS Subsystems

Transaction Processing Systems  supports daily business operations with numerous reports, documents, and messages for users throughout the organization  consists of three transaction cycles: (1) the revenue cycle, (2) the expenditure cycle, and (3) the conversion cycle
General Ledger/Financial Reporting System  produces the traditional financial statements  it is nondiscretionary because the organization has few or no choices in the information it provides
Management Reporting System  provide internal management with special- purposed financial reports and information needed for decision making  it is discretionary reporting because the organization can choose what information to report and how to present it  Data – are facts which may or may not be processed and have no direct effect on the user  Information – causes the user to take an action that he or she otherwise could not, or would not, have taken  Data Sources – are financial transactions that enter the information system from both internal and external sources o Internal Financial Transactions – involve the exchange or movement of resources within the organization o External Financial Transactions – are economic exchanges with other business entities and individuals outside the entities  Transforming Data into Information
Data Collection o most important stage in the system o the objective is to ensure that event data entering in the system are valid, complete, and free from material errors  capture transaction data  record data into forms  validate and edit the data
Data Processing o Classifying, transcribing, sorting, batching, and merging

Data Management o the organization’s database is its physical or digital repository for financial and nonfinancial data and represents its content in a logical hierarchy  Data Attribute – a logical and relevant characteristics of an entity about which the firm captures data  Data Record – complete set of attributes for a single occurrence within an entity class  Data Files – complete set of records of an identical class
Information Generation o process of compiling, arranging, formatting, and presenting information to users  Characteristics of Useful Information o Relevance – the contents of a report or document must serve a purpose o Timeliness – information must be no older than the time of the action it supports o Accuracy – information must be free from material errors o Completeness – no piece of information essential to a decision or task should be missing o Summarization – information should be aggregated in accordance with the user’s needs  Information System Objectives o To support the stewardship function of management o To support management decision making o To support the firm’s day-to-day operations  Organizational Structure – reflects the distribution of responsibility, authority, and accountability throughout the organization  Business Segments o business organizations consist of functional units or segments o managers within a segment can focus their attention on narrow areas of responsibility to achieve higher levels of operating efficiency o Common Approaches  Geographic Location  Product Line  Business Function o some firms use more than one method of segmentation o Functional Segmentation  Inventory/Materials Management  Production  Marketing  Distribution  Personnel  Accounting Independence o information reliability rests heavily on the concept of accounting dependence o must be separate and independent of the functional areas that maintain custody of physical resources o accounting supports these functions with information but does not actively participate in the physical activities  Information Technology Function o Centralized Data Processing  all data processing is performed by one or more large computer housed at a central site that serve users throughout the organization o Distributed Data Processing  involves reorganizing the IT function into small Information Processing nits (IPUS) that are distributed to end users and placed under their control  Advantages  cost reductions in hardware and data entry tasks  improved cost control responsibility  improved user satisfaction  backup  Disadvantages  loss of control  mismanagement of organization-wide resources  hardware and software incompatibility  redundant tasks and data  Evolution of Information System Models o The Manual Process Model  oldest and most traditional form of accounting systems  physical events, resources, and personnel that characterize many business processes, includes the physical task of record keeping o The Flat-File Model  also called the legacy system  describes an environment in which individual data files are not related to other files  data redundancy evident to the legacy system contributes to the following problems:  data storage  data updating  currency of information  task data dependency  limit data integration o Database Model  this approach centralized the organization’s data into a common data base that is shared by other users  with the organization’s data in a central location, all users have access to the data they need to achieve their respective objectives o REA Model  Resources are the assets of the organization  Events are phenomena that affect changes in resources  Agents are individuals and departments that participate in an economic events o Enterprise Resource Planning Systems  information system model that enables an organization to automate and integrate its key business processes  ERP breaks down traditional functional barriers by facilitating data sharing, information flows, and the introduction of common business practices among all organizational users

 System Flowcharts  graphical representation of the physical relationships among key elements of a system  clearly depict the separation of function in a system  are used to represent the relationship between the key elements – input sources, programs, and output products – of computer systems  depicts the media being used (paper, cloud, etc.)  Program Flowcharts  accountants sometimes use program flowcharts to verify the correctness of program logic  Alternative Data Processing Approaches o Modern System Characteristics:  client-server based and process transactions in real time  use relational database tables  have high degree of process integration and data sharing  some are mainframe based and use batch processing o Legacy System Characteristics:  mainframe-based applications  batch oriented  data storage systems promote a single-user environment that discourages information integration o Modern Systems vs. Legacy Systems  some firms employ legacy systems for certain aspects of their data processing  accountants need to understand legacy systems  Database Backup Procedures o destructive updates leaves no backup o to preserve adequate records, backup procedures must be implemented  Computer-Based Accounting Systems o Batch / Batch Processing Systems  Batch – is a group of similar transactions that are accumulated over time and then processed together  a time lag exist between the event and the processing o Real-time Systems  process the entire transaction as it occurs  have no time lag between the economic event and the processing  Why Many AIS Use Batch Processing? o AIS processing is characterized by high-volume, independent transactions, such are recording cash receipts checks received in the mail o the processing of such high-volume checks can be done during an off-peak computer time  Uses of Coding in AIS o concisely represent large amounts of complex information that would otherwise be unmanageable o provide a means of accountability completeness of the transactions processed over the time o identify unique transactions and accounts within file o support the audit function by providing an effective audit trail  Numeric and Alphabetic Coding Schemes o Sequential Codes  represent items in sequential order  used to prenumber source documents  track each transaction processed  identify any out-of-sequence documents  1,2,3,4,5, o Block Codes  represent whole classes by assigning each class a specific range within the coding scheme  used of chart accounts – the basis of the general ledger  allows for the easy insertion of new codes within a block  assets 100, liabilities 200, equity 300 o Group Codes  represent complex items or events involving two or more pieces of related data  Store No. 04 Dept. No. 09 Item No. 476214 Salesperson 99 o Alphabetic Codes  used for many of the same purposes as numeric codes  may be assigned sequentially or may be used in block and group coding techniques  AAA, AAB, AAC o Mnemonic Codes  alphabetic characters in the form of acronyms and other combinations that convey meaning  Acctg101, Mgt ETHICS, FRAUD, AND INTERNAL CONTROL  Business Ethics o Ethics pertain to the principles of conduct that individuals use in making choices and guiding their behavior in situations that involve the concepts of right and wrong o Four Areas:  Equity  Rights  Honesty  Exercise of Corporate Power  Computer Ethics o Analysis of the nature and social impact of computer technology and the corresponding formulation and justification of policies for the ethical use of such technology o Main Computer Ethics Issues  Privacy  Security  Ownership of Property  Equity in Access  Environmental Issues  Artificial Intelligence  Unemployment and Displacement  Misuse of Computers

 Fraud o denotes a false representation of a material fact made by one party to another party with the intent to deceive and induce the other party to justifiably rely on the fact to his or her detriment o a fraudulent act must meet the five conditions:  false representation  material fact  intent to deceive  justifiable reliance  injury or loss  Employee Fraud o fraud by nonmanagement employees o is generally designed to directly convert cash or other assets to employee’s personal benefit  Management Fraud o the fraud is perpetrated at levels of management above the one to which internal control structures generally relate o the fraud frequently involves using financial statements to create an illusion that an entity is healthier and more prosperous that, in fact, it is o if the fraud involves misappropriation of assets, it frequently is shrouded in a maze of complex business transactions, often involving related third parties  Fraud Triangle/Diamond o Motivation  financial pressure  monetary gain  achievement  manipulation o Opportunity  environmental factors  victim characteristics o Rationalization  belief that violating rules is acceptable  lack of respect for others o Capability  knowledge about corporate governance  ability to manipulate others  technical knowledge to steal victim identities or exploit software weaknesses  The Underlying Problems o Lack of Auditor Independence o Lack of Director Independence o Questionable Executive Compensation Schemes o Inappropriate Accounting Practices  Sarbanes-Oxley Act of 2002 o Its principal reforms pertain to  the creation of an accounting oversight board  auditor independence  corporate governance and responsibility  disclosure requirements  penalties for fraud and other violations  Fraud Schemes o Fraudulent Statements  associated with management fraud  misstating the financial statements to make the copy appear better than it is  may be tied to focus on short-term financial measures for success  may also be related to management bonus packages being tied to financial statements o Corruption  involves an executive, manager, or employee of the organization in collusion with an outsider  bribery  illegal gratuities  conflicts of interest  economic extortion o Asset Misappropriation  most common type of fraud and often occurs as employee fraud  skimming  cash larceny  billing schemes  check tampering  payroll fraud  expense reimbursements  thefts of cash  non-cash misappropriations  Internal Control Concepts and Techniques o the internal control system comprises policies, practices, and procedures employed by the organization to achieve four broad objectives:  to safeguard assets of the firm  to ensure the accuracy and reliability of accounting records and information  to promote efficiency in the firm’s operations  to measure compliance with management’s prescribed policies and procedures  Modifying Assumptions of the Internal Control Objectives o management responsibility o reasonable assurance o methods of data processing  Limitations of Internal Controls o the possibility of error o circumvention o management override o changing conditions  Exposures of Weak Internal Controls (RISK) o destruction of an asset o theft of an asset o corruption of information o disruption of the information system  The Preventive-Detective-Corrective Internal Control Model o Preventive Controls  are passive techniques designed to reduce the frequency of occurrence of undesirable events o Detective Controls  it form the second line of defense  these are devices, techniques, and procedures designed to identify and expose undesirable events that elude preventive controls

AIS Midterms Reviewer, Lecture notes of Information Systems

Related documents

Partial preview of the text

Download AIS Midterms Reviewer and more Lecture notes Information Systems in PDF only on Docsity!

INTRODUCTION TO AIS