Chapter 1 - AIS and Firm Value

Accounting Information Systems
and Firm Value

Chapter 1
By Richardson, Chang and Smith
Course Description
This course is focused on providing an
overview of accounting information systems
(AIS) and focuses on the role of accountants as
a business analyst. It provides both a
theoretical and practical understanding of AIS
in a broader industry and corporate setting.
Course Learning Outcome
Evaluate what is meant by Accounting Information Systems (AIS) and how
AIS adds to firm value.
Evaluate how accountants play a key role as business analysts and
understand the basics of data modelling.
Evaluate and deduce how AIS models business processes.
Expound on the Systems Development Life Cycle (SDLC) and evaluate how
to integrate and manage maintaining or building an AIS system project.
Analyze the nature of eXtensible Business Reporting Language (XBRL).
Analyze the need for information and computer security and issues
relating to computer fraud.
Analyze and evaluate investing, monitoring and auditing AIS systems.
Apply the knowledge gained to using AIS software.
Systems that record, process, and reports on
transactions to provide financial and non-
financial information to make decisions and
have appropriate levels of internal controls for
those transactions.
Data versus Information
Data - raw facts that describe the
characteristics of an event, that in isolation,
have little meaning.
Information - data organized in a meaningful
way to be useful to the user.
Attributes of Useful Information
A system must be constructed in order to deliver
useful information.
Relevance useful if the information would
affect a business decision.
Reliability if the users can depend on the
information to be free from bias and errors.
3 Characteristics of Relevance
Predictive Value - helps with forecasting the
future.
Feedback Value - corrects or confirms what
had been predicted in the past.
Timeliness - available when needed or in time
to have an impact on a decision.
3 Characteristics of Reliability
Verifiable - can be confirmed by an
independent party.
Representational faithfulness - reports what
actually happened.
Neutrality - information is not biased.
Information Overload
The difficulty a person faces in understanding
a problem and making a decision as a
consequence of too much information.
Information Value Chain
Definition - Overall transformation from a
business need and business event to the
collection of data and information to an
ultimate decision.
Business
Need
Data Information Knowledge Decision
Business
Event
Types of Information
Discretionary Information - Managerial
accounting information generally produced for
internal information purposes and is not
required by law to be provided to
management.
Mandatory Information - Financial and tax
accounting information produced for external
information purposes such as for investors,
banks, financial analysis, IRS.
Progress Check
Provide two types of discretionary
information and two types of mandatory
information that might come from an
accounting information system.
Specific Accounting Roles in AIS
Designer prepare feasibility study, elicit information
requirements and documentation techniques, data file
design, and document, screen and report designs,
incorporate the accounting standards and practices.
User - input data, calculate costs of products, use
financial spreadsheet, use anti-virus software to protect
system, etc.
Manager manage the master file or Chart of Accounts
(organize), determine who will access and which parts
to be given access (staff), implement the system (direct
and lead), monitor and control the system.
Evaluator - IT auditor, assessor of internal controls, tax
adviser, consultant.
Users
Certified Information Systems Auditor - Perform
IT audits to evaluate the accounting information
systems' internal control design and
effectiveness. (www.isaca.org)
Certified Information Technology Professional -
may help devise a more efficient financial
reporting system, help the accounting function
go paperless, or consult on how an IT function
may transform the business. (www.aicpa.org)
Certified Internal Auditor - Only designation
that is globally accepted for internal auditors
and is the standard to demonstrate their
competency and professionalism in the internal
auditing field. (www.theiia.org)
Progress Check
Would an IT auditor be considered to be a
user, evaluator, or designer of a clients firms
accounting information system?
What would be the appropriate designation
for someone who wants to be an IT auditor?
Is it reasonable to expect entry-level financial
accountant to be proficient in information
technology?
The Value Chain and AIS
Business value - all the items, events, and
interactions that determine the financial
health and/or well-being of the firm.
Value chain - a set of activities that a firm
operating in a specific industry performs in
order to deliver a valuable product or service
for the market.
Michael Porters Value Chain
Primary activities of value chain
Inbound logistics - activities associated
with receiving and storing raw materials.
Operations - activities that transform
inputs into finished goods.
Outbound logistics - activities that
warehouse and distribute finished goods.
Marketing and sales activities - identify the
needs and wants of customers.
Service activities - provide the support of
customers after the products are sold to
them.
Support Activities of Value Chain
1. Firm infrastructure - all the activities
needed to support the firm (accounting,
legal, etc.)
2. Human resource management - recruiting,

hiring, training, paying employees
3. Technology - all of the technology

necessary to support value-creating activities
4. Procurement - activities involve purchasing

inputs such as raw materials, supplies, and
equipment
How AIS Affects Firm Value
Helps firm infrastructure by giving
management valuable information.
Helps provide internal controls structure.
Helps produce external and internal
reports efficiently.
Supports the human resource function
by assisting employees.
Assists procurement by improving the
effectiveness and efficiency of the supply
chain.
Enterprise System or Enterprise
Resource Planning (ERP) System
A centralized database that collects data from
throughout the firm. Includes data from orders,
customers, sales, inventory, and employees.
Serves as the backbone of the firms internal business
processes and serves as a connection with the external
business processes with external partners.
Integrated Data
Supply Chain
Supply chain refers to the flow of materials, information,
payments, and services, from raw material suppliers, through
factories and warehouses, all the way to the final customers
of the firm's products.
Supply Chain management system - software that addresses
specific segments of the supply chain, especially in
manufacturing scheduling, inventory control and
transportation.
Strategic Roles for Technology
Automate (lowest) - replace human
labor.
Informate-up - provide information to
senior management.
Informate-down - provide
information to employees across firm.
Transform (highest) - fundamentally
redefine business processes and
relationships.
Business Information Value Chain
Multiple Choice
1. Which of the following is NOT one of the five
major business processes or transaction cycles?
A. Expenditure
B. Production
C. Human Resource and Payroll
D. Revenue
E. Financing
F. All of the above are major cycles
2. Which of the following is NOT a characteristic
of useful information?
A. Relevant
B. Verifiable
C. Timely
D. Accessible
E. Cost-effective
3. Accounting Information Systems (AIS) is most
likely applicable to which area of accounting?
A. Tax accounting
B. Public accounting
C. Management consulting
D. All of the above are applicable to AIS
E. None of the above
4. Which of the following is NOT a "primary
activity" that directly provides value to the
customer?
A. Inbound logistics
B. Operations
C. Human resources
D. Outbound logistics
E. Marketing and sales
5. Which of the following best describes the
sequence of the supply chain?
A. Retailer, distributor, manufacturer, raw materials
supplier, and consumer
B. Manufacturer, distributor, raw materials supplier,
retailer, and consumer
C. Raw materials supplier, manufacturer, distributor,
retailer, and consumer
D. Raw materials supplier, manufacturer, retailer,
distributor, and consumer
6. Which of the following is NOT one of the
support activities in the value chain of an
organization?
A. Service
B. Purchasing
C. Firm Infrastructure
D. Technology
E. Human resources
7. AIS adds value to an organization by:
A. Improving efficiency
B. Sharing knowledge
C. Improving the internal control structure
D. Answers nos. 1 and 2 only
E. Answers nos. 1, 2 and 3
8. Which of the following does not influence the
design of an Accounting Information System
(AIS)?
A. Organizational culture
B. Information technology
C. Business strategy
D. Legal environment
9. What is data?
A. All of the facts that are collected, stored, and
processed by an information system
B. All of the debit and credit information about
each transaction
C. The output which results from the input of
information
D. The same thing as information
10. Reliability refers to the characteristic of
information whereby
A. Uncertainty is reduced.
B. Information is free from error or bias.
C. Timely
D. Verifiable
11. In order for an accounting information system
to meet the needs of systems users, one must take
into account the types of decisions that are made.
Decisions vary from repetitive and routine to
nonrecurring and non-routine. How would you
classify a decision where no framework or model
exists for the decision?
A. Structured
B. Semi-structured
C. Unstructured
12. Information can improve decision making in
what way?
A. It identifies situations requiring management
action.
B. It provides a basis for choosing among
alternative actions.
C. Provides valuable feedback that can be used
to improve future decisions
D. All of the above.

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Accounting Information Systems

and Firm Value

2. Human resource management - recruiting,

3. Technology - all of the technology

4. Procurement - activities involve purchasing

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