Accounting information system Information system- is the set of formal

procedures by which data are collected,

Chapter 1-Ais : an overview
processed into information, and distributed to
Information is business resource that users.

 needs to be appropriately managed Transaction- is a business event

 is vital to the survival of contemporary Financial transaction- economic events that
businesses affect the assets and equities of the organization
Internal information flows Nonfinancial transaction- all other events
Horizontal- flows of information used primarily processed by the organization’s information
at the operations level to capture transaction and system
operations data Accounting is an information system
Vertical- flows of information - It identifies, collects, processes &
Downward flows- instructions, quotas and communicates economic information
budgets about a firm using a wide variety of
technologies
Upward flows- aggregated transaction and
operations data Accounting information system (AIS)

System- a group of interrelated multiple - Process financial and nonfinancial transaction

components or subsystems that serve a common Management information system (MIS)
purpose
- Process nonfinancial transactions that are not
Elements of a system normally processed by traditional AIS
 Multiple components Transaction processing system (TPS)
 Relatedness
 System vs. subsystem - supports daily business operations
 System- is called a subsystem when it is General ledger/financial reporting system
viewed as a component of a larger (GL/FRS) – produces financial statements and
system reports
 Subsystem- is considered a system
when it is the focus of attention Management reporting system (MRS)
 Purpose -produces special-purpose reports for internal
System decomposition- the process of dividing use
the system into smaller subsystem parts Data – are facts that are collected, recorded,
System interdependency- distinct parts are not stored, and processed. Insufficient for decision
self-contained making

-they are reliant upon the functioning of the Information – is processed data used in
other parts of the system decision-making
Information overload – too much information
however, will make it more, not less, difficult to
Goal congruence- occurs when components make decisions.
acting in their own interest contribute toward
overall goal Data source – are financial transactions that
enter the information system from internal and
Goal conflict- occurs when components act in external source
their own interest without regard for overall goal
Function for transforming data into info Rea model
accrdng to the general AIS model:
 Resources
- Data collection  Events
-capturing transaction data  Agents
-recording data onto forms  interrelationships
-validation and editing the data
- Data processing
-classifying -merging
-transcribing -calculating
-sorting -summarizing
-batching -comparing
- Data management
-storing
-retrieving
-deleting
- Information generation
-compiling
-arranging
-formatting
-presenting
Characteristics of useful information

 Relevance
 Timeliness
 Accuracy
 Completeness
 Summarization
Structure of an organization helps to allocate Chapter 2

 Responsibility Four types of information needed for

 Authority decision-making
 Accountability
 Financial information
Segmenting- by business function is a very  Non-financial information
common method of organizing  External information
 Internal information
Data redundancy problems
Two parties that AIS interacts with
Data storage- excessive storage costs of paper
documents and/or magnetic form  External
 Internal
Data updating- changes or additions must be
performed multiple times Transaction- an agreement between two entities
to exchange goods or service or any other event
Currency of information- potential problem of
that can be measured in economic terms by an
failing to update all affected files
organization.
Task-data dependency- user’s inability to
Source document- document that captures the
obtain additional information as needs change
data from the start of a transaction
Data integration- separate files are difficult to
Five major transaction cycles
integrate across multiple users
  Financial cycle Data processing cycle- this is referred to as the
 Revenue cycle series of operations performed on data
 Expenditure cycle Four steps in the data processing cycle
 Production cycle
 Human resource/payroll cycle  Data input
 Data storage
Revenue cycle- this cycle involves interactions
 Data processing
with your customers. We usually sell
 Information output
goods/services & get cash
What are the data we capture from business
Expenditure cycle- this cycle involves with
activity?
your suppliers. We buy goods/services & pay
cash  Event
Production cycle- raw materials and labor are  Resource
transformed into finished goods in this business  Agents
cycle  People

Human resource/payroll cycle- this cycle Turnaround document- records of company

involves interactions with your employees data sent to an external party and then returned
to the system as input
Financial cycle- this cycle involves interactions
with investors and creditors Audit trail- this exists when there is sufficient
documentation to allow the tracing of a
True- does every transaction cycle, relate to transaction from beginning to end or from the
other cycles end back to the beginning
Source data automation- capture data with
minimal human intervention
Ledger- is a file used to store cumulative
information about resources and agents.
General ledger- is the summary level
information for all accounts. Detail information
is not kept in this account
Subsidiary ledger- contain the detail accounts
associated with the related general ledger
account.
Related general ledger is often called a ‘control’
account
Coding techniques- is a method of
systematically assigning numbers or letters to
data items to help classify and organize them.
chapter 2 Types of codes
manual systems, data is entered into paper  Sequence codes
journals and ledgers.  Block
computer-based systems, the series of  Group
operations performed on data is referred to as Chart of accounts-is a list of all general ledger
the data processing cycle. accounts an organization uses
When routine transactions occur, they are o Deleting data, e.g., removing an old
recorded in special journals. customer that has not purchased
anything in 5 years.
When non-routine transactions occur, they are
recorded in the general journal. Batch processing
▫ Source documents are grouped into
batches, and control totals are
calculated.
▫ Periodically, the batches are entered into
Now let’s move on to discussing some the computer system, edited, sorted, and
computer-based storage concepts, including: stored in a temporary file.

 An entity is something about which Online batch processing

information is stored.
▫ Transactions are entered into a computer
 Attributes are characteristics of interest system as they occur and stored in a
with respect to the entity. temporary file.
 A field is the physical space where an
attribute is stored. ▫ Periodically, the temporary transaction
file is run against the master file to
 A record is the set of attributes stored for a update the master file..
particular instance of an entity.
Online, real-time processing
 A data value is the intersection of the row
and column. ▫ Transactions are entered into a computer
system as they occur.
 A file is a group of related records.
▫ The master file is immediately updated
 A master file is a file that stores with the data from the transaction.
cumulative information about an
organization’s entities. Information output
▪ The final step in the information process
 A transaction file is a file that contains
is information output.
records of individual transactions (events)
that occur during a fiscal period. ▪ This output can be in the form of:
 A database is a set of interrelated, ▫ Documents
centrally-coordinated files. ▫ Reports
▫ Queries
Data processing
▫ Enterprise resource planning (ERP)
 There are four different types of file
systems are designed to integrate all
processing:
aspects of a company’s operations
o Creating data, e.g., a new customer. (including both financial and non-
financial information) with the
o Reading data, retrieving, or viewing traditional functions of an AIS.
existing data
o Updating data to record the occurrence
of an event, the resources affected by
the event, and the agents who Chapter 3 system documents
participated, e.g., recording a sale to a
customer. Documentation- diagrams with written
descriptions are the most popular and clear way
of explaining how a system works.  The normal DFD is called the context
diagram. This is a summary
 For more detail, we can look at the
Tools that will help explain how a system
‘subdivided’ DFD
works
Constructing DFD guidelines:
 Descriptions
 Flowcharts  Number the processes
 Diagrams o be consistent in numbering
o numbering scheme has nothing to
How is documentation used?
do with sequence of execution. It
 Read documentation should be served as a convenient
 Evaluate internal controls way of referring to the processes.
 Prepare documentation More importantly, the numbers
become the basis for a
Data flow diagrams (DFD) - it is better to see hierarchical numbering scheme
pictures than words. It is easier to analyse all the in leveled DFDs.
inputs and outputs.
 Avoid overly complex DFDs
DFD used to :
o DFD should be readily
 Document existing systems understood, easily absorbed, and
 Plan and design new systems pleasing to the eye
DFD consist of four parts: o do not create a DFD with too
many processes (usually 3-8
 Data sources and destinations
processes in a level), flows, stores,
 Data flows
and terminators.
 Transformation processes
 Data stores  Redraw DFDs as many times as
necessary
Data sources and destinations- appear as
square. Represent organizations/ individuals that o redrawn again and again until it is
send or receive data used or produced by the (1) technically correct, (2)
system. acceptable to the user, and (3)
neatly enough. Develop an
Data flow- appear as arrow. Represent the flow
accurate, consistent, esthetically
of data between sources and destinations,
pleasing model.
processes, and data stores
Flowcharts- a tool used to represent part of an
Transformation processes- appear as circles.
information system in a clear, concise, and
Represent the transformation of data
logical manner.
Data stores- appear as two horizontal lines.
Types of flowcharts
Represent a temporary or permanent store of
data.  Document flowchart - depicts flow of
documents & information between areas
DFD sub-system
of responsibility within an organization
 Often a company’s structure is  System flowchart – depicts how data are
complicated, so it may not be possible to captured & input into the system, the
use just one DFD. processing performed on the data, and the
 Or we may want to look at an activity in information output by the AIS
greater detail.  Program flowchart – indicates the
sequence of logical operations performed
 by the computer when executing a Public- Uses information for the trends and
program recent developments, prosperity of the enterprise
Differences Between DFDs and Flowcharts: Internal users

 DFDs emphasize the flow of data and  Have direct access to the information
what is happening in a system, whereas a generated by the internal operations of the
flowchart emphasizes the flow of business
documents or records containing data.  Managers of a business entity
 A DFD represents the logical flow of  Responsible for Managing efficiently &
data, whereas a flowchart represents the effectively
physical flow of data.  Employees
 Flowcharts are used primarily to
document existing systems and are User Demand for Reliable Information
concerned with the physical aspects of Today’s information
the input, processing and storage of the  More complex
data.  Demanded by remote users
 DFDs, in contrast, are primarily used in  Demanded in a more timely manner
the design of new systems and do not  Has far reaching consequences
concern themselves with the physical  Information risk
devices used to process, store, and  The risk that the information
transform data. disseminated by a company will be
 DFDs make use of only four symbols. materially false or misleading.
 Users demand an independent third
Flowcharts use many symbols and thus can
party assessment of the information
show more detail.
 Business risk
Week 1 Auditing and assurance services  The risk that an entity will fail to meet
its stated business objectives
Importance of accounting information to users
Auditing
External users - Lack direct access to the
information generated by the internal operations Auditing is a systematic process of objectively
of the business obtaining and evaluating evidence regarding
assertions about economic actions and events to
Investors- Need information to help them ascertain the degree of correspondence between
determine whether they should buy, hold or sell. the assertions and established criteria and
Lenders- Need information that enables them to communicating the results to interested users.
determine whether their loans and interest will Fundamental concepts of financial audit
be paid
The conceptual and procedural details of a
Trade Creditors- Wants to know whether his financial statement audit build on three
present or prospective clients is capable of fundamental concepts:
settling his financial obligations within a short
period of time.  Materiality - refers to the amount by which
a set of financial statements could be
Customers- Concerns with the continuance of
misstated without affecting the judgment of
the enterprise
a reasonable person.
Government and its agencies- Needs  Audit risk - is the risk that the auditor
information for allocation of resources and mistakenly expresses a clean audit opinion
regulation of the activities of the enterprise when the financial statements are materially
misstated
 Audit evidence relating to management’s
financial statement assertions. and have actually
An attestation engagement - a practitioner is occurre
assesses and reports on “subject matter or an
assertion about the subject matter that is the  Existence or occurrence – Assets and
responsibility of another party.” liabilities included in the accounts exist and
recorded transactions are valid and have
 Some financial attestation engagements actually occurred.
(other than audits)
 Financial forecasts and projections  Rights and obligations- Entity has a legal
 Examination of Management’s claim on all assets and revenues reported
Discussion & Analysis and has a legal responsibility for all
 Pro forma financial information liabilities and expenses
 Some non-financial attestation engagements
 Effectiveness of internal control systems  Completeness - All balances and
 Compliance with environmental transactions have been recorded in the
regulations financial statements
 Sustainability reporting engagements
 Valuation or allocation – Assets, liabilities
Assurance services- are independent and recorded transactions have been valued
professional services that improve the quality of in accordance with GAAP
information, or its context, for decision makers.
 Presentation and disclosure – All accounts
Management’s Financial Statement are presented in the appropriate place and all
information required has been disclosed in
 obligations- Entity has the statements and footnotes.

a legal claim on all

assets and revenues Management’s Financial Statement
Assertions (ASB)
reported and  has a Assertions about Events and Transactions
legal responsibility for ⬩ Occurrence – Events giving rise to
all liabilities and transactions are valid and have taken place

expense ⬩ Completeness and Cutoff - All

transactions have been recorded and are
Assertions (PCAOB) recorded in the appropriate period

 Existence or ⬩ Accuracy – Transactions are recorded at

the correct amount
occurrence – Assets
⬩ Classification – Transactions have been
and liabilities included posted to the proper account

in the accounts exist Assertions about Account Balances

and recorded ⬩ Existence – Balances include only

assets and liabilities that exist
transactions are valid ⬩ Rights and obligations – Entity has
legal claim on all assets and revenues
 reported and has a legal responsibility ◇ Unusual financial trends need
for all liabilities and expenses investigation

⬩ Completeness – Balances include all ◇ Documents are always checked for

items that should be included in authenticity or possible alteration
accordance with GAAP
◇ Ask questions, get answers, then
⬩ Accuracy and valuation –Balances are verify the answers.
reported at the proper amount in
⬩ Must be skeptical because a potential
accordance with GAAP
conflict of interest always exists between
the auditor and the client.
◇ Management wants to portray the
company and its operations in the best
possible light.
◇ Auditors want to make sure that this
portrayal is fair and accurate.
A Professional Judgment Process

Assertions about Presentation and ⬩ Clarify the issues and objectives

Disclosures
⬩ Consider the possible alternatives
⬩ Occurrence and rights and
obligations – items presented have ⬩ Gather and evaluate the relevant
occurred and are either owned by or evidence
represent the responsibility of the entity ⬩ Reach an audit conclusion
⬩ Completeness – the proper disclosures
⬩ Carefully document rationale for the
have all been made by the entity
professional judgment reached
⬩ Classification and understandability – The Public Accounting Profession
accounts in the disclosures have been
appropriately grouped and users can ⬩ Assurance services
comprehend the disclosures
• Financial Statement Audit
⬩ Accuracy and valuation – the amounts engagements
in the disclosures have been properly
measured and are valued in accordance • Assurance engagements
with GAAP
• Attestation engagements
Professional Skepticism
• Compilations
⬩ Refers to an auditor’s questioning
mindset towards representations made by • Reviews
management and evidential matter
⬩ Tax services
gathered
◇ Inquiry alone is never enough. The ⬩ Consulting and Advisory services
auditor must obtain sufficient Organization of the Profession
corroborative evidence.
⬩ “Big Four” Accounting Firms
 ◇ Deloitte, EY, KPMG, PwC development and publication of IFRS and for
approving Interpretations of IFRS as
⬩ National developed by the IFRS Interpretations
◇ SGV, R.G Manabat, Punong Committee.
Bayan, Reyes Tacandong

⬩ Sole Proprietor

Types of audits and auditors

⬩ Financial (External Auditors/CPAs)

 Ensure that financial statements are

reliable

⬩ Operational (Internal and Governmental

Auditors/CIAs)
 Improve operational economy
 Improve operational efficiency

⬩ Compliance (Internal and Governmental

Auditors)
 Ensure compliance with company and/or
governmental rules and regulations

⬩ Forensic (Fraud Auditors/CFEs)

 Designed to investigate a crime and will

often involve gathering evidence
designed to convict a fraudster
Week 2 Overview of the International and
Philippine Accounting Profession
Monitoring Board – is a group of capital
market authorities and provides formal link
between the Trustees and public authorities
in order to enhance the public accountability of
the IFRS Foundation.
International Financial Reporting Standards
(IFRS) Foundation – is a not-for-profit
international organization responsible for
developing a single set of high quality, global
accounting standards, known as IFRS
Standards. The IFRS Foundation’s standard-
setting body, the IASB, sets IFRS Standards.
International Accounting Standards Board
(IASB) is the independent standard-setting body
of IFRS Foundation responsible for the