EDP Accounting_Chapter 1 Lecture.B

8/11/2019 EDP Accounting_Chapter 1 Lecture.B

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Accounting

Information

Systems: AnOverview


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The Users of Accounting Information

A. External Users of Accounting InformationB. Internal Users of Accounting Information

C. Mandatory vs. Discretionary Information


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Internal Users of Accounting Information

Lower Level

Managers

Middle

Managers

Top-Level

Managers

Information OperationalControl

ManagementControl

StrategicPlanning

Source Largely

internal

External

LevelDetailed Aggregate

Time Horizon Historical Future

RequiredAccuracy High Low


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Mandatory vs. Discretionary Information

Mandatory Information

Certain types ofinformation must be

generated regardless

of the cost:

Government reports

Payroll

Basic bookkeeping

Evaluation Criteria

For mandatoryinformation, the primaryconcern is minimization

of cost.

In contrast,discretionary informationshould provide greater

benefits than the cost of

generating it.


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Information Systems

Accounting Information Systems (AIS)

The term information system suggests the use of

computer technology in an organization

Hardware

Software

InformationSystem

Data

Information for

Decision Making


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Electronic Data Processing

(EDP) or Data Processing (DP)

Use of computer

technology to performan organizations

transaction-oriented

data processing. DP

systems serve routine,recurring, general

information needs.


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Accounting Information Systems

(AIS) A computer-based

system designed to

transform accountingdata into information.

Can also includetransactions

processing cycles, theuse of informationtechnology, and the

development of

information systems.


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Transaction Processing Cycles

A. Revenue Cycle

B. Expenditure Cycle

C. Production Cycle

D. Finance Cycle

E. Financial Reporting Cycle

The transaction processingcycles provide a means of

viewing the activities of a

business.


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A. Revenue Cycle

Events related to the

distribution of goodsand services to other

entities and the

collection of related

payments


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Expenditure Cycle


acquisition of goods

and services from

other entities and the

settlement of relatedobligations.


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Production Cycle

Events related to thetransformation of

resources into goods

and services.


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Finance Cycle


acquisition and

management of capitalfunds, including cash.

The treasurer is

responsible for the

finances of the

business.


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Financial Reporting Cycle

Not an operating cycle

This cycle obtains

accounting and operating

data from other cycles andprocesses this data so that

financial reports can be

prepared.

A controller is in charge

of the accounting

function.


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The Internal Control Process

A. Definition of Internal Control

B. The Five Elements of the Internal ControlProcess

C. Segregation of Accounting Functions

D. The Internal Audit Function

Since management is far removed from the scene ofoperations in a large organization, personal

supervision of employees is often replaced with

various control techniques.


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Definition of Internal Control

Internal control is a processdesigned to provide reasonable

assurance regarding theachievement of objectives

relating to:

Reliability of financialreporting

Effectiveness and efficiency ofoperations

Compliance with applicablelaws and regulations

The concept of internal control structure is based on two major

premises: managements responsibility and reasonable assurance.


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Five Elements of the Internal

Control Process Control environmentOverall values and integrity of

organization.

Risk assessmentIdentification and evaluation of risks

(Potential loss x Probability = Exposure).

Control activitiesActivities undertaken to reduce

probability of loss due to significant risks.

Information and communicationCommunicating

information about the control environment and control

activities.

MonitoringKeeping watch over and changing

internal controls so that they function effectively and

efficiently.


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Segregation of Accounting

Functions

Segregate the following

duties:

Authorization

Record keeping

Custody of assets

I kept the

records and

the cash.


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Internal Audit Function

Internal auditing is an

independent appraisal

function charged withmonitoring and

assessing compliance

with organizational

policies and

procedures.

O i ti I t ti With


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Organization Interaction With

Information Systems

A. The Steering Committee

B. End-User Computing

C. Quick-Response Technology


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The Steering Committee

A committee advising the

Chief InformationOfficer that iscomposed of high-level

members of user

functions such asmanufacturing andmarketing. The

committee provides ameans by which

managers from otherareas can influence theinformation services

process.

d i ( )


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End-User Computing (EUC)Functional end users do

their own informationprocessing activities

through an EUCapplication such as adatabase that uses a

query language featureto generate specific

information needed bythe end user to make

decisions.

Inadequate systemdevelopmentMay solvewrong problem or havepoor documentation.

Ineffective use of resources

Underutilized equipmentor inefficient design.

Data integrity and securityproblemsInadvertentalteration of data orfailure to implementsecurity controls.

Potential EUC Problems


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Quick-Response Technology

1. Just-In-Time

2. Web Commerce

3. Electronic Data Interchange

4. Extensible Business Reporting Language

5. Computer Integrated Manufacturing

6. Electronic Payment Systems


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Just-in-Time

Purchase orders forinventory items are

made on a demand-pull basis rather thana fixed interval pushbasis to restock store

inventory levels.Adds flexibility to

meet customer needsand reduces product

rework.


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Web Commerce

Provides worldwide

availability of

products on a singlecomputer.

Specially trained

CPAs offer the Web

Trust seal to sites thatmeet certain security

and privacy criteria.


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Electronic Data Interchange

Electronic data interchange (EDI) is the directcomputer-to-computer exchange of business

documents via a communications network. EDIdiffers from e-mail in that EDI messages are created

and interpreted by computers without humanintervention. Also makes use of universal product

code (UPC) bar code.


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Extensible Business Reporting Language

Extensible Business Reporting Language (XBRL) isa language that facilitates the exchange over theInternet of all kinds of business documents and

financial statements. The SEC permits companiesto file their financial reports electronically using

XBRL format.


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Computer-Integrated

Manufacturing (CIM)

Components of CIMtypically include

computer-aided design

(CAD) workstations, real-time production

monitoring and controlsystems, and order

inventory and controlsystems.

Makes use of scannertechnology and machine-

readable bar codes.


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Electronic Payment Systems

Electronic funds transfer

(EFT) systems are

electronic paymentsystems in which

processing and

communication are

primarily or totallyelectronic.

Documents

EDP Accounting_Chapter 1 Lecture.B