Role of Business Information Systems

Reports produced by a business information system should be timely, accurate, useful, understandable, concise, and economical to prepare. They should be relevant to the user, which often means that those higher in the organization need summarized information, while those in lower positions need more detailed information.

The timing of reports may be periodic (i.e., every week, month, etc.), on demand (only when requested), or event-triggered (caused to be produced when something happens).

They could be detailed (showing everything), summarized (showing only subtotals and grand totals), or exception-oriented (showing, for example, only the customers who are past due in their AR balances).

And, in format, they could be tabular (rows and columns), graphic, or narrative. Another choice is to make them in hard copy (paper) or “soft copy” (on the monitor).

The accounting information system (AIS) is a subsystem of the management information system (MIS). MISs include production, finance, marketing, distribution, and personnel functions. MISs provide information and support the daily decision-making needs of management.

Traditionally, AISs include the transaction processing systems, or transaction cycles. These include budgeting and responsibility reporting systems. The main transaction processing systems are:

x Revenue – Taking the customer’s order, shipping the goods or providing the services, billing, and collecting the cash

x Expenditure – Requesting goods/services, purchasing, receiving, and paying

x Conversion – Converting resources purchased into goods/services available for sale, usually including assessing requirements, scheduling and initiating production, issuing materials, and then producing

x General ledger – Receiving transactions produced by the above three transaction cycles, recording necessary adjustments, and producing financial and managerial reports

Each of these systems is subject to risks. There are, for example … x Strategic risks – doing the wrong things

x Operating risks – doing the right things, but the wrong way

x Financial risks – having financial resources lost, wasted, or stolen, or incurring unnecessary liabilities, through such as lack of physical control over assets, extension of credit to a customer who has no ability to pay, and payment by unauthorized employees to unapproved vendors

x Information risks – receiving or producing incomplete or inaccurate information, unreliable hardware or software, and unauthorized access

By way of definition, hardware is the physical equipment used in the computer system. Software, however, is the computer program that gives instructions to the central processing unit (CPU). Often, software is broadly used to include programming languages and system documentation.

Popular forms of documentation which depict graphical representations of systems include:

x Data flow diagram – showing the sources and destinations of data and the flow of that data into and out of processes performed on the data, as well as data stores (files). Unlike flowcharts, which depict how the data physically flow and the types of media used, data flow diagrams depict merely what data are flowing logically.

x Document flowchart – showing the flow of documents and information between departments or participants in the system. There is usually a column for each participant.

x System flowchart – showing the relationship among inputs, processing, and outputs in a system.

x Program flowchart – showing the sequence of operations that a computer performs in executing a program.

In designing systems, there are several principles:

The compatibility principle – systems must be compatible with their environments, through the interface / boundary with other systems, receiving inputs and producing outputs for other systems.

The flexibility principle – systems must be able to adapt to changes and new demands.

The control principle – systems must have sufficient controls (see next session on controls). They must have a

“requisite variety” of controls to protect against the variety of problems that could lead to entropy (disorder).

Accountants are involved with systems as designers, as auditors, and/or as users.

Accountants should be involved in the coding of data such as the chart of accounts, or inventory ID’s. Codes may be:

x Sequential (to highlight missing items, e.g., for coding check numbers or invoice numbers)

x Block (reserving blocks of numbers, e.g., reserving the 100 to 199 block of numbers for coding current assets, 200 to 299 for fixed assets, etc.)

x Group (dividing the entire code into subsections, or subgroups; thus, for inventory, the first 2 digits of the inventory code might indicate the vendor, the next 3 might indicate the color, the next 2 might reveal the location in the warehouse, etc.)

x Mnemonic (a memory-jogger, usually an abbreviation, such as, for states, NY for New York, CA for California, etc.)

In selecting a coding scheme, you must consider the organization’s information requirements, the organization’s complexity, and you must allow space in the code for organizational growth.

While the Financial Reporting System communicates information primarily with external parties, the Management Reporting System provides internal information to management. Management must deal immediately with business problems, as well as plan and control operations. So management would need budgets, variance reports, cost-volume-profit analyses, and non-GAAP formats. Directing management’s attention to problems on a timely basis is important to internal control, for monitoring purposes.

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DECISION SUPPORT SYSTEMS (DSSs)

DSSs assist management in unstructured or semi-structured decisions, as opposed to structured (repetitive, routine, perhaps programmable) ones.

They may suggest choices for long-range, strategic planning decisions, but active managerial insights and judgments are required. They enable the end user to initiate and operate the system for ad hoc, quick responses.

DSSs contain –

o Relevant, specialized databases (e.g., historical data about the company)

o Model bases (e.g., regression analysis, net present value) for analysis, with high-level (“natural”) languages (e.g., English)

o Supportive, interactive user interfaces (e.g., GUI – graphical user interface) o Variety of outputs (e.g., reports, graphs)

ARTIFICIAL INTELLIGENCE SYSTEMS

Expert systems are the most widely used form of artificial intelligence (AI). They can suggest expert decision choices to the inexperienced, containing a knowledge base, a database,and an inference engine for if-then conditions. Generalized shells are available, into which the company must input its particular knowledge and data.

Expert systems are software programs that use facts, knowledge, and reasoning techniques to solve complex problems. They assure consistency with the decisions of the company authorities and are available 24 hours per day, 7 days per week.

CPA firms have developed expert systems to help their employees properly value a loan portfolio, for example, or to do tax planning, or to guide audit decision-making.

Less widely-used forms of AI include –

ƒ Fuzzy logic (e.g., search engines, that look for words that are spelled similar to, but not exactly like, other words)

ƒ Neural networks (finding patterns among attributes, such as weather patterns that result in severe storms)

ENTERPRISE RESOURCE PLANNING SYSTEMS (ERPs)

ERP systems run a company’s applications. By way of definition, stand-alone application software would be a program that performs the data processing tasks the company requires, such as purchasing, payroll, or accounts receivable. ERP is integrated application software, combining many of these subsystems.

ERPs are ultra-high end, expensive accounting software systems, intended to integrate all aspects of an organization’s activities into one system. They are multi-module systems designed to create a seamless flow of information throughout the organization. SAP, Oracle, and PeopleSoft sell popular ERP systems.

OLTP – Online Transaction Processing applications – support the daily processing of mission-critical transactions in a company’s ERP. Its shared, enterprise-wide operations database is volatile, with a large number of relatively simple transactions per day in finance, sales, distribution, expenditure, production planning, and logistics.

OLAP – Online Analytical Processing applications – include decision support tools for management. Its database is the data warehouse, drawn regularly from the OLTP database, and designed for complex, read-only queries and data mining – drill-down, roll-up (consolidate), and slicing & dicing data to view it in various dimensions (e.g., sales by day, by week, by product, by customer).

Because ERPs may not contain every application a given company needs, the company may still need its old legacy systems, or bolt-on industry-specific applications from other vendors.