Accounting Information Systems:

Essential Concepts and Applications

Fourth Edition by Wilkinson, Cerullo, Raval,
and Wong-On-Wing

Chapter 3: AIS
Enhancements Through
Information Technology and
Networks
Importance of IT and Computer
Networks to Accountants

To use, evaluate, and develop a modern

AIS, accountants must be familiar with IT
Computers enable accountants to perform
their duties more quickly, accurately, and
consistently than by manual methods
Software such as electronic spreadsheets
aid accountants in analyzing financial
statements and in developing budgets
IT Components of Interest
to Accountants
Devices for data entry
Data Processing
Data Communication
Information Generation
Data Bases
Data Modeling concepts
Evaluation of internal controls in AIS
Variety of software packages
Computer Networks
Networks & Accountants

Because they transmit data and information,

networks are an integral part of AIS
Networks are vulnerable to high level risk thus
requiring special controls and security measures.
Need to prevent loss of accounting records &
information
Need to ensure accuracy of data
Networks may be used to consolidate data into
financial information
Gains from IT for Accountants

 Faster processing of transactions and other data

 Greater accuracy in computations of and
comparisons with data
 Lower cost of processing each transaction
 More timely preparation of reports and other
outputs
 More concise storage of data, with greater
accessibility when needed
 Wider range of choices for entering data and
providing outputs
 Higher productivity for employees and managers,
who learn to use computers effectively in their
routine and decision-making responsibilities
 Task Matching to Computers

Manual Computerized
 Exceptional/infrequent  Collecting and processing large
transactions volumes of routine
transactions
 Setting objectives and policy-  Storing large quantities of data
making judgments and information
 New problems  Monitoring and controlling
continuous processes
 Supervising employees  Answering specific inquiries
 Social communications based on stored data
 Making complex strategic  Preparing complex analyses
decisions and extensive reports
 Helping gather data and
understanding the
relationships between all types
of decisions
Figure 3-1
Limitations of Infoage’s
Legacy AIS
 Large portion of personnel time and effort spent
on systems maintenance
Little time & effort for value-added services
Little flexibility to changing business conditions
 Financial and Operational data not integrated
Difficult to generate data with both financial and non-financial
components
 The transaction processing systems focus on
chart of accounts classification
Ignore the multidimensional aspects of transactions
Files related to applications are not integrated
 Inefficiencies of the manual system remodeled in
automated form
Business processes and accounting procedures not analyzed and
improved upon prior to conversion to automated form
 System not geared to generate timely decision-
support information
Computer programmers required to write new programs for ad hoc
queries
Types of Network
Architectures

Wide-Area Networks
Formed among computers and inter-
connected devices that are geographically
distant from one another
Local-Area Networks
A type of distributed network created when
two or more linked computers are grouped
within a limited geographical area
Centralized WANs - I
 Concentrates all application processing at one
geographical location
 Consists essentially of one (or a cluster of) central
mainframe computer(s) and one or more physically
remote terminals
 Typically all hardware, software, and data processing
personnel are located at corporate headquarters
 Advantages include:
 the concentrated computing power of a large processor
low operating costs per transaction leading to economies of
scale
can facilitate the use of a database approach
facilitate better security provisions
allow for greater standardization and professional planning and
control of information-related activities
Centralized WANs - II
 Best suited for
Firms with centralized organizational structures
Firms with homogeneous operations
Firms with low processing activity at remote sites
 Examples include
Savings and loan institutions
Banks with many ATMs and branches
Merchandizing chains
Motels
Airlines
 Drawbacks include
Inflexibility
Expensive and complicated software needed
Vulnerable to disasters as a result of complete dependence on
central computer
Not user-friendly
Distributed WANs - I

This links fully functional computers in different

geographical locations.
Each remote site processes its own applications.
However, users may not have easy access to
centralized data or be able to transmit data and
information rapidly.
Computers may be interconnected by data
communications hardware and software to other
remote sites and to a central computer facility to
form an “enterprise-wide” network.
Distributed WANs - II

 Distributed databases are useful when:

Large volumes of data need to be processed at remote locations
Managers and employees need very fast access to data on a
frequent basis
 Databases may be distributed by replication or partition.
Replication: Copies of files from the main data base are stored
at remote locations
Partition: Segments of files are allocated to various locations
within the network
This avoids data redundancy, but increases the complexity of
transmitting data throughout the network
Likely to become the dominant approach as technology improves
At present most data bases are a hybrid of the two approaches
Benefits of Distributed
WANs
 Can be responsive to diverse needs of users
 Enable network facilities to be used efficiently
since processing jobs can be routed to unused
computer systems in the network
 Are robust against individual computer failures
 Flexible and adaptable to change
 Best suited for firms with:
Decentralized organizational structures
Diverse operations or user groups
Clustered functions at various locations
Multiple products
Manufacturing operations
A variety of services
Drawbacks of Distributed
WANs
Difficulty in maintaining adequate control and
security
Each distributed processing location needs its own
set of controls and security measures
Given the smallness of each location,
organizational independence is not easily
achieved
Managers may sacrifice control and security for
greater productivity
Difficulty and cost of coordinating the relatively
independent and sometimes incompatible
computer systems
Added costs for multiple computers, other system
components, and communication services
LANs

A LAN may be connected to other LANs

and/or WANs via hardware devices known
as gateways or bridges
At the heart of a LAN is the workstation
Microcomputer-based workstation
Traditional workstation
Super workstation
Peer-to-Peer LANs
In smaller LANs, every workstation
functions as both a client and a server
This allows all users to share data and files on
all workstations
Called peer-to-peer network since no
workstations are dedicated to perform only
server functions
Compared to a server network, peer-to-peer
networks are less costly, easier to install, and
compare well against server networks of
similar size
Number expected to significantly increase in
the near future
Server Networks
 May interconnect hundreds of workstations
 More difficult to manage and interpret than peer-to-peer
networks
 Provide greater security than peer-to-peer networks
 At least one workstation is dedicated to performing
specific server tasks
 Examples include:
Servers
Database servers
Print servers
Communications servers
Transaction processing servers
 Large server networks often contain multiple servers
The Network Operating
System
 In peer-to-peer networks, the Network Operating
Software (NOS) is installed in each user workstation
 In a server network, most of the NOS is installed in the
file server and a portion also resides in each workstation
 To run centralized LAN applications, the NOS installed in
the file server interacts with the NOS and the local
operating system installed in the workstation. The client
workstation NOS initiates a request to the file server
NOS to load files and programs into the client
workstation’s RAM
 In a peer-to-peer network, a client NOS initiates a
request to another client NOS, which also functions as a
server, to load the requested files and/or programs into
RAM
More Networks

Examples of pre-developed network

configurations resident in Network Interface
Cards include: Ethernet, Token Ring, and ARC-
net
The International Standards Organization has
issued the Open Systems Interconnection (OSI)
model
Open Systems Architecture
Seamless exchange of data, files, and software
between LANs and WANs built with multiple vendors’
hardware, software, and networking components
Client/Server Networks

This model splits data processing between

a user workstation (client) and one or
more servers
Majority of servers are dedicated database
servers, thereby enabling client to share
data and files, conduct database searches,
and update the database
One of the fastest growing segments of
IT
Cooperative Client/
Server Computing

Most commonly implemented mode of

client/server architecture
Facilitates the optimal sharing of
computer resources since the client(s) and
server(s) jointly process the data
Clients typically employ Graphical User
Interfaces (GUIs)
Data-processing locale is transparent to
the user
Network Topologies

The STAR and RING topologies apply to

both distributed WANs and LANs
The BUS topology applies only to LANs
All three found in client/server networks
All three may be combined to form hybrid
configurations
 The STAR Configuration

Figure 3-3a
 The RING Configuration

Figure 3-3b
 The BUS Configuration

Figure 3-3c
Enterprise-wide Processing
and Data Systems

 Enterprise-wide on-line transaction processing systems

collect and process mission-critical accounting and
operational applications
 Enterprise Resource Planning Systems (ERP) such as
SAP R/3 overcome the limitations of legacy applications
 Firms typically develop two types of On-line Analytical
Processing (OLAP) systems that supplement ERP or
legacy systems
A firm can model the relevant aspects of business events
contained within the business processes allowing for the use of
relational database-related query language commands
Firms can create a data mart or data warehouse to generate
predefined reports for executives and other managers
Data Marts and Data
Warehouses

 Both Data Marts and Data Warehouses organize and

store copies of “informational” or decision support data
 A Data Mart stores copies of decision support data in a
data base for a portion of a company
 A Data Warehouse stores copies of decision support
data in an integrated data base for an entire enterprise
 As opposed to applications-oriented data in legacy
systems, data in a data mart or warehouse are stored by
subject areas (e.g., customers)
 Data may be stored in both summarized or “raw” form
 Both have “drill down” and “data mining” features
Specialized Inter-organizational
Systems/Networks

Internet Commerce and Electronic Commerce

Point-of-Sale Systems/Networks
Electronic Funds Transfer (EFT) Systems
Electronic Data Interchange (EDI) Systems
Value Added Networks (VANs)
The Internet (TCP/IP)
The World Wide Web (WWW)
Hypertext information retrieval system
Intranets
Extranets