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
Gains from IT for Accountants
1. Faster processing of transactions and other data
2. Greater accuracy in computations of and comparisons
with data
3. Lower cost of processing each transaction
4. More timely preparation of reports and other outputs
5. More concise storage of data, with greater accessibility
when needed
6. Wider range of choices for entering data and providing
outputs
7. Higher productivity for employees and managers, who
learn to use computers effectively in their routine and
decision-making responsibilities
Task Matching to Computers

1. Collecting and processing large volumes of routine

transactions
2. Storing large quantities of data and information
3. Monitoring and controlling continuous processes
4. Answering specific inquiries based on stored data
5. Preparing complex analyses and extensive reports
 Limitations of AIS
1. Large portion of personnel time and effort spent on systems
maintenance
• Little time & effort for value-added services
• Little flexibility to changing business conditions
2. Financial and Operational data not integrated
• Difficult to generate data with both financial and non-financial
components
3. The transaction processing systems focus on chart of accounts
classification
4. Inefficiencies of the manual system remodeled in automated
form
5. System not geared to generate timely decision-support
information
• Computer programmers required to write new programs for ad hoc queries
INPUT, PROCESSING, AND OUTPUT
DEVICES

Most accounting transactions are processed in a three-phase

operation called the input-processing-output cycle. For
convenience, we shall look at technologies that assist AISs in
each of these areas in this order.
Input Devices
The starting point of the input-processing-output cycle—
especially when processing accounting data—is input.
Thus, even where the amount of data is small, most AISs
require input methods and procedures that ensure complete,
accurate, authentic, timely, and cost-effective ways of
gathering and inputting accounting data.

Source Documents and Data Transcription. The starting point

for collecting accounting data in most AISs is a source document.
Manual examples include purchase invoices, sales invoices, cash
disbursement vouchers, and travel reimbursement forms.
Computerized examples include airline reservation screens, bank
deposit screens, and web-based customer-order forms.
1. POS Devices. Because most of the information required by retailers
can be captured at the point at which a sale is made, retail businesses
now commonly use automated point-of-sale (POS) devices to gather
and record pertinent data electronically at that time.

2. Magnetic Ink Character Recognition. The banking industry

pioneered the development of magnetically-encoded paper,
commonly called magnetic ink character recognition (MICR). One
advantage of MICR coding is that it is both machine readable and
human readable.
•Ex: a check you write anywhere in the United States or Canada is
machine-readable by any bank.
3. Optical Character Recognition. Optical character recognition (OCR)
uses optical, rather than magnetic, readers to interpret the data found
on source documents.
Optical character recognition or optical character reader (OCR) is the
electronic or mechanical conversion of images of typed, handwritten
or printed text into machine-encoded text.

4. Microcomputer Input Devices. Many specialized devices now help

users input data to their microcomputers. Keyboards are perhaps the
most common input device.
Processing Devices
Central Processing Units
Once data have been captured (and perhaps transcribed into machine-
readable formats), they usually must be processed to be valuable to
decision-makers. These processing tasks are performed by the central
processing unit (CPU) of a computer system.

The processing power of CPUs starts with the most limited

microcomputers (aka ‘‘personal computers’’ or ‘‘PCs’’) and increases in
such capabilities as speed, multi-user support, and peripheral
equipment with minicomputers, mainframe computers, and
supercomputers.
• Primary Memory. the two main components of a CPU are its
primary memory and its microprocessor. The purpose of primary
memory is to store data and program instructions temporarily for
immediate processing and execution.

• Microprocessors. Computers cannot manipulate data or execute

instructions directly in primary memory. Rather, these tasks are
performed by the CPU’s microprocessor. Microprocessor chips
performs arithmetic tasks (such as addition and multiplication), as
well as logic tasks (such as comparisons). In contrast, the control
unit of the processor supervises the actual data processing
Output Devices
Accounting data are meaningless if they cannot be output in forms
that are useful and convenient to end users.
Printed, hard-copy output is one possibility, but video or soft-copy
output on monitor screens, audio output, and file output to
secondary storage devices such as hard disks are other possibilities
that we explore here.

Outputs are especially important to AISs because the information in

these outputs is usually the basis of managerial decision making,
and therefore the goal of the entire system.
Printers. The hope for a paperless office has yet to be realized and
most AISs still produce many types of printed outputs—for example,
transaction summaries, financial statements, spreadsheet-based
budget reports, and graphs.

Video Output. Because hard-copy outputs clutter offices with paper

and take time to print, many AISs use fast, soft-copy video screen
displays instead. Computer monitors are perhaps the most common
type of video output, but the airport display screens showing arrivals
and departures, stadium scoreboards, highway billboards, and the
signage of many private stores are also forms of computerized video
outputs.

Multimedia. Multimedia combines video, text, graphics, animation,

and sound to produce multidimensional output.
SECONDARY STORAGE DEVICES

Primary memory is volatile memory, meaning memory that loses its

contents when electrical power is lost.
In contrast, AISs must store data on permanent media that maintain
their accuracy and integrity, yet permit these systems to access and
modify information quickly and easily.
This is the purpose of secondary storage (also called mass storage or
auxiliary storage).
Magnetic (Hard) Disks
CD-ROMs and DVDs
Flash Memory
DATA COMMUNICATIONS AND
NETWORKS
Data communications refers to transmitting data to and from
different locations. Many accounting applications use data
communications in normal business operations.
For example, banking systems enable individual offices to
transmit deposit and withdrawal information to centralized
computer locations, airline reservation systems enable travel
agents to book flights from remote locations

Accountants must understand data communication concepts

because so many AISs use them and also because so many
clients acquire AISs that depend upon them.
What is a Network?

A network consists of two or more computers that are linked in

order to share resources (such as printers and CDs), exchange
files, or allow electronic communications. The computers on a
network may be linked through cables, telephone lines, radio
waves, satellites, or infrared light beams.
Two very common types of networks include:
Local Area Network (LAN)
Wide Area Network (WAN)
Networks & Accountants

1. Because they transmit data and information,

networks are an integral part of AIS
2. 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
3. Networks may be used to consolidate data into
financial information
Types of Network Architectures

• Wide-Area Networks
Formed among computers and inter-connected devices that
are geographically distant from one another
Wide area networks (WANs) are computer networks spanning
regional, national, or even global areas.
For example, a WAN enables a national manufacturing
company to connect several manufacturing, distribution,
and regional centers to national headquarters, and
therefore to each other, for communications purposes.
WANs typically use a multitude of communications channels
for this purpose, including leased phone lines, microwave
transmitters, and perhaps even satellite transmissions.

AISs use WANs to gather financial data from remote sites,

distribute accounting information to and from headquarters,
and support email communications among users.
WANs are therefore typically complex, multifaceted systems
that serve many users for many purposes.
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
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
• 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
• Difficulty and cost of coordinating the relatively independent and
sometimes incompatible computer systems
• Added costs for multiple computers, other system
components, and communication services
• Local-Area Networks

One important use of data communications is in local area

networks (LANs). LAN consists of microcomputers, printers,
terminals, and similar devices that are connected together for
communications purposes.
A type of distributed network created when two or more
linked computers are grouped within a limited geographical
area
• A local area network (LAN) is a computer network that interconnects
computers within a limited area such as a residence, school,
laboratory, university campus or office building. 
• 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
• the term "workstation" is sometimes used to mean "any individual
personal computer location hooked up to a mainframe computer.“
• They're simply personal computers attached to a local area network
(LAN) that in turn shares the resources of one or more large
computers.
• 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
Some advantages of LANs are:
1.Facilitating communications: The number one reason why
businesses install LANs today is to support email and/or provide
access to the Internet.
2.Sharing computer equipment: For example, a LAN can provide
users access to the same printers or Internet servers.
3.Sharing computer files: LANs enable several users to input or
output data to or from the same accounting files.
4.Saving software costs: It is often cheaper to buy a single software
package for a local area network than to buy individual packages
for each of several workstations.
5.Enabling unlike computer equipment to communicate with one
another: Not all computers use the same operating system or
application software. LANs enable different computers using
different software to communicate with one another
References
Accounting Information Systems: Essential Concepts and
Applications, Fourth Edition by Wilkinson, Cerullo, Raval, and
Wong-On-Wing, wiley Publication, 1999
Core concepts of Accounting information systems , Eleventh
edition, Nancy A. Bagranoff, Mark G. Simkin, Carolyn Strand
Norman, JOHN WILEY & SONS, INC, 2010