Chapt

erone:TheI
nfor
mat
ionSy
stem:AnAccount
ant
’sPer
spect
ive

Thepur poseofthi
schapt
eri
stopl
acet
hesubj
ectofaccount
ingi
nfor
mat
ionsy
stemsi
nper
spect
ive
foraccountant
s.

1.
1. TheInfor
mat i
onEnv ironment
Likeot herbusinessr esources( e.
g.raw mat eri
als,capi t
al,andl abor
),infor
mationi sv i
talforthe
sur v
ivalofabusi nessor ganizat
ion.Thus,infor
mat i
oni sabusi nessresource.Ev erybusinessday ,
vastquant it
iesofi nformationf l
ow todecisionmaker sandot heruserst omeetav ari
etyofinter
nal
needs.I nadditi
on,informat i
onf l
owsoutf rom theor ganizati
ont oexter
nalusers,suchascust omer s,
suppl i
ers,andstakehol derswhohav eaninterestint hefirm.Figure1pr esent
sanov er
viewoft hese
i
nt ernalandexternalinformat i
onf l
ows.

Fi
gur
e1:I
nter
nalandExt
ernalFl
owsofI
nfor
mat
ion

Thepy ramidinFigure1- 1showst hebusi nessor ganizationdi videdhor i

zont all
yintoseverallevel
sof
activit
y .Busi
nessoper ationsformt hebaseoft hepy ramid.Theseact i
v i
tiesconsi stofthepr oduct-
orientedwor koft heor ganizat
ion,suchasmanuf acturi
ng,sal es,anddi str i
buti
on.Abov et hebase
l
ev el,theor gani
zati
oni sdi vi
dedi nt othreemanagementl evel s:oper ationsmanagement ,mi ddle
management ,andtopmanagement .Oper ati
onsmanagementi sdir
ect lyr esponsibleforcontroll
i
ng
day -
to-day operati
ons.Mi ddle management i s account ablef or the shor t-
term planning and
coor dinati
onofact iv
iti
esnecessar yt oaccompl ishor ganizationalobj ectiv es.Topmanagementi s
responsi bl
ef orlonger-
term planningandset ti
ngor ganizationalobj ectives.Ev eryindi
vidualint he
organi zati
on,fr
om businessoper ationst ot opmanagement ,needsi nformat iontoaccompl i
shhisor
hert asks.

1.1.
1.Whati saSystem?
System isasetofinter
relat
edcomponent sthati
nter
acttoachieveagiv engoal.Somesy st
emsare
natural
l
yoccurri
ng,
wher easothersarear
ti
fi
cial
.Natur
alsyst
emsr angefrom theat om t
otheuniv
erse.
Allli
feforms,pl
antandani mal,areexamplesofnaturalsyst
ems.Ar t
if
icialsystemsar emanmade.
Thesesy st
emsincl
udeev eryt
hingfr
om cl
ockst oai
rpl
aneandsocialsyst
emst oinformati
onsyst
ems.

Page1of1
Gener
all
y,sy
stem i
sagr oupoftwoormor ei
nter
rel
atedcomponent
sorsubsy
stemst
hatser
vea
commonpurpose.Asy
stem char
act
eri
zedby
:

- Mul
ti
pleComponent
s:Asy
stem mustcont
ainmor
ethanonepar
torcomponent
.

- Relat
edness:Acommonpur poser
elat
esthemult
ipl
epart
soft hesyst
em.Al thougheachpart
funct
ionsindependent
lyoft heot
hers,al
lpar
tsserveacommonobj ecti
ve.Ifapar t
icul
ar
componentdoesnotcontri
butetot
hecommongoal ,
theni
tisnotpar
toft hesystem.

- System v ersusSubsy stem:Thedi st i

nctionbet weent het er mssy stem andsubsy stem i sa
mat t
erofper spect ive.Forourpur poses, theset ermsar ei nt erchangeabl e.Asy stem i scal leda
subsy stem wheni tisv iewedi nrel
at iont ot hel ar gersy stem ofwhi chi ti
sapar t
.Li kewi se,a
subsy stem i scal ledasy stem wheni tist hef ocusofat tent ion.Ani mal s,plant s,andot herl i
fe
formsar esy stems.Theyar ealsosubsy stemsoft heecosy stem i nwhi cht heyexi st .From a
diff
erentper spect ive,animal sar esyst emscomposedofmanysmal l
ersubsy st ems, suchast he
cir
culat or ysubsy stem andt her espiratorysubsy st em.
- Purpose:Asy stem mustser veatleastonepur pose,buti tmayser vesev eral .Whenasy stem
ceasest oser veapur pose, itshouldber eplaced.
- System Decomposi ti
on:Decomposi ti
oni st hepr ocessofdi vidingt hesy stem i nt osmal l
er
subsy stem par ts.Thi si saconv enientwayofr epr esenting,v iewing,andunder standi ngt he
rel
ationshi psamong subsy stems.Bydecomposi ng a sy stem,wecan pr esentt heov erall
system as a hi erarchyand v i
ew t he r elationshi ps bet ween subor dinate and hi gher -
lev el
subsy stems.Eachsubor dinatesubsy stem per for msoneormor especi fi
cf unctionst ohel p
achiev et heov erallobj ectiveoft hesy stem.
- Subsy st em I nterdependency :Asy st em’ sabi li
tyt oachi ev ei tsgoaldependsont heef fective
functioni ng and har moni ous interact i
on ofi t
s subsy stems.I fa v italsubsy st em f ai l
s or
becomesdef ectiveandcannol ongermeeti tsspeci fi
cobj ect ive,theov erallsy stem wi l
lf ailto
meeti tsobj ecti
ve.

1.
1.2.AnInformati
onSy stemsFramewor k
Theinfor
mationsystem isthesetoff or
malproceduresbywhichdat
aarecol
lect
ed,pr
ocessedi
nto
i
nformati
on,anddi str
ibut
ed to user
s.Figur
e2 showst heinfor
mati
onsyst
em ofahy pot
het
ical
manufact
uri
ngf i
rm decomposedintoit
selementalsubsyst
ems.

Page2of2
Fi
gur
e2:AFr
amewor
kforI
nfor
mat
ionSy
stemsofahy
pot
het
icalmanuf
act
uri
ngf
ir
m

Notice thattwo br oad cl asses ofsy st

ems emer ge from t he decomposi t
ion:the accounting
i
nformat i
onsy st
em ( AIS)andt hemanagementi nformationsy st
em (MI S)
.Thedi st
inct
ionbet ween
AISandMI Scentersont heconceptofat ransacti
on,asi ll
ustr
atedbyFi gure3.Thei nformati
on
system acceptsinput,call
edt ransact
ions,whichareconver t
edt hr
oughv ari
ousprocessesi nt
ooutput
i
nformat i
on thatgoes t o user s.Tr ansacti
ons fal
lintot wo classes:f i
nanci
alt r
ansact i
ons and
nonfinanci
altransactions.Hence,t ransacti
on is an eventt hataffects oris ofinterestt othe
organizati
onandi sprocessedbyi t
sinformati
onsy st
em asauni tofwor k.

Fi
gur
e3:Tr
ansact
ionsPr
ocessedbyt
heI
nfor
mat
ionSy
stem

Theabov edef i
nit
ionoft ransact ionencompassesbot hf inancialandnonf i
nancialevents.Af inancial
tr
ansactionisaneconomi cev entt hataffectstheasset sandequi t
iesoft heorganization,isrefl
ected
i
ni t
saccount s,andi smeasur edi nmonet aryter
ms.Sal esofpr oduct st ocust omer s,purchasesof
i
nventoryfrom vendors,andcashdi sbursement sandr eceiptsareexampl esoffinancialtransacti
ons.
Everybusiness or ganizati
on i sl egallybound t o cor r
ect l
ypr ocess t hese t y
pes oft ransacti
ons.
Nonfinanci
alt r
ansactionsar eev ent sthatdonotmeett henar rowdef ini
tionofaf i
nancialtransacti
on.
Forexampl e,addi
nganewsuppl i
erofr awmat eri
alstot helistofval i
dsuppl i
ersisanev entthatmay
beprocessedbyt heent erpri
se’ sinformat i
onsy stem asat ransaction.Impor tantast hisinformation
obvi
ouslyi s,itisnotaf inancialt ransaction,andt hef i
rm hasnol egalobl igati
ont opr ocessi t
corr
ectly—oratall
.

1.
1.2.
1. TheAccount ingInformationSy st
em (AIS)
AI
Ssubsystemspr ocessfinancialtransact
ionsandnonf i
nanci
altr
ansacti
onsthatdir
ect
lyaffectt
he
pr
ocessi
ngoff i
nancialtr
ansactions.Forexampl e,changestocustomers’namesandaddressesare
pr
ocessedbytheAISt okeept hecust omerfil
ecurrent
.Alt
houghnottechni
call
yfi
nanci
alt
ransacti
ons,

Page3of3
thesechangespr ov i
dev i
tali
nformat i
onf orprocessingf ut uresal estot hecust omer.TheAI Sis
composedoft hreemaj orsubsystems:(1)t hetransact i
onpr ocessingsy stem (TPS),whi
chsuppor t
s
dailybusi nessoper ati
onswi t
hnumer ousr epor
ts, document s, andmessagesf orusersthr
oughoutthe
organization;( 2)t he generall edger/f
inancialr eporting sy stem ( GL/FRS),whi ch produces t
he
tradit
ionalf inancialst atements,suchast heincomest atement ,balancesheet ,stat
ementofcash
fl
ows, t
axr eturns,andot herr
epor t
srequiredbyl aw; and( 3)t hemanagementr eporti
ngsystem (MRS),
whi chpr ovidesi nternalmanagementwi t
hspeci al-
purposef inancialreportsandi nfor
mat i
onneeded
fordecisionmaki ngsuchasbudget s,vari
ancer epor t
s,andr esponsi bil
i
tyreports.

1.1.
2.2. TheManagementI nf
ormationSy stem (MIS)
Managementoftenrequi
resinf
ormati
ont hatgoesbey ondt hecapabil
it
yofAI S.Asorgani
zati
onsgrow
i
nsi zeand complexi
ty,speci
ali
zed functionalareasemer ge,requir
ing additi
onalinf
ormationfor
product
ionpl
anningandcont r
ol,sal
esf orecasti
ng,invent
orywar ehouseplanning,marketresear
ch,
andsoon.TheMI Sprocessesnonfi
nancialtransact
ionsthatarenotnormallyprocessedbyAIS.

1.1.
3.AISSubsy stems
Aspr ev
iousl
yindicat
ed,AI
Shasthr
eemaj orsubsy
stems.Att
hispoi
nt,webri
efl
youtl
i
net her
oleof
eachsubsystem andwedevot
esepar
atechapter
stoanin-
dept
hstudyofeachAI
Ssubsyst
em.

1.1.
3.1. Tr ansact ionPr ocessingSy stem
Thet r
ansact ionpr ocessingsy stem (TPS)i scentraltot heov erallf
unctionoft hei nformationsy stem
byconv erti
ngeconomi cev entsint ofinanci
alt r
ansact ions;recordingf inancialtransactionsi nt he
accounti
ng r ecords (journals and l edgers);and di stri
but
ing essent ialf i
nanciali nformation t o
operati
onsper sonneltosuppor ttheirdailyoperat
ions.Thet ransactionpr ocessingsy stem dealswi th
businessev ent sthatoccurf requent l
y.Inagi venday ,af ir
m maypr ocesst housandsoft ransactions.
To dealef ficientlywi th such v olume,si mil
art ypes oft ransact i
ons ar e grouped t ogetheri nto
tr
ansactioncy cl
es.TheTPSconsi stsoft hr
eet r
ansact ioncy cles:therev enuecy cle,theexpendi ture
cycl
e,andt heconv ersi
oncy cle.Eachcy clecapt uresandpr ocessesdi f
ferentt ypesoff i
nanci al
tr
ansactions.

1.1.3.2. Gener alLedger /Fi nanci alRepor ti

ngSy stems
Thegener alledgersy st
em ( GLS)andt hefinancialrepor ti
ngsy stem ( FRS)aretwocl osel
yr el
ated
subsy st ems.Howev er,becauseoft hei roperati
onali nterdependency ,theyaregener al
lyv i
ewedasa
si
ngl ei nt egratedsy stem—t heGL/ FRS.Thebul koft hei nputt otheGLpor ti
onoft hesy stem comes
fr
om t het r
ansactioncy cles.Summar iesoft r
ansact i
oncy cleactivityareprocessedbyt heGLSt o
updat et hegener alledgercont r olaccount s.Ot her,l
essf requentev ents,suchasst ockt r
ansactions,
mer ger s,andl awsui tsett
lement s,forwhi cht heremaybenof or
malpr ocessi
ngcy cleinplace,also
entert heGLSt hr
oughal ter natesour ces.Thef i
nanci alreporti
ngsy stem measuresandr eportsthe
statusoff inanci
alr esour cesandt hechangesi nt hoser esources.TheFRS communi catest hi
s
i
nf ormat ionpr i
mar il
yt oext ernaluser s.Thi stypeofr eportingiscallednondi scr
eti
onar ybecauset he
organizat ionhasf ewornochoi cesi nt heinformationi tprov i
des.Muchoft hi
sinfor
mat ionconsistsof

Page4of4
f
inanci
alst
atement
s,t
axr
etur
ns,
andot
herl
egal
document
s.

1.1.
3.3. ManagementRepor ti
ngSy stem
Themanagementr epor t
ing system ( MRS)pr ovi
dest hei nt
ernalf i
nancialinf
ormat i
on needed t o
manageabusi ness.Manager smustdeali mmediatel
ywi thmanyday -to-
daybusinesspr oblems,as
wellaspl anandcont roltheiroperations.Managersrequiredi f
ferentinf
or mati
onforthev ari
ouski nds
ofdeci sionst heymustmake.Ty picalreport
sproducedbyt heMRSi ncl
udebudget s,variancer eports,
cost-
v olume- profi
tanalyses,andr epor tsusi
ngcurrent(ratherthanhi stori
cal
)costdat a.Thi stypeof
reporti
ngi scalleddiscreti
onaryr eportingbecausetheor ganizationcanchoosewhati nformat i
ont o
reportandhowt opresenti t
.

1.1.
4.AGeneralModelforAI
S
Fi
gure4presentst
hegeneralmodelforviewingAISappli
cations.Thi
sisageneralmodelbecauseit
descri
besalli
nfor
mationsystems,regar
dlessoft hei
rtechnologi
caldesign.Theel
ementsoft he
generalmodelare(a)enduser s,(
b)dat asources,(c)datacol l
ect
ion,(d)dat
aprocessing,(e)
databasemanagement,(
f)i
nformati
ongenerati
on,and(g)feedback.

(a)EndUser s
End user sf al
lintot wo generalgr oups:ext ernaland i nt
ernal.Ext ernalusersinclude credit
ors,
stockholders,potentialinvest
or s,regulator
yagenci es,taxaut hori
ties,suppl
iers,and cust omers.
Externalusersreceivei nf
ormat i
onint hef or
m off i
nancialstatement s,taxret
urns,andot herreport
s
thatthefir
m hasal egalobl i
gationtopr oduce.Internalusersincludemanagementatev erylev
elofthe
organizati
on,aswel lasoper at
ionsper sonnel.System designers, i
ncludingaccountants,mustbalance
thedesi r
esofi nternaluser sagainstl egalandeconomi cconcer nssuchasadequat econtroland
securit
y,properaccount abi
li
ty,andthecostofpr ovidingalt
ernativeformsofi nf
ormat i
on.

Dat av ersusI nformat i

on:Befor
edi scussingthedat asourcespor t
ionofFi gure4,wemustmakean
i
mpor tantdistinctionbet weenthet ermsdat aandi nf
ormation.Dataaref acts,whi chmayormaynot
bepr ocessed( edited,summar i
zed,orr efi
ned)andhav enodi recteffectont heuser.Bycont r
ast,
i
nf ormat ioncausest heusertotakeanact ionthatheorsheot herwisecoul dnot ,orwouldnot
,hav e
taken.I nf or
mat ioni sof tendefined simplyaspr ocessed dat
a.Thi sisani nadequatedefi
nit
ion.
I
nf ormat i
oni sdet ermi nedbytheeffectithasont heuser,notbyitsphysi
cal form.Thus,inf
ormati
oni s
notj ustasetofpr ocessedf act
sar rangedinaf ormalreport.I
nformati
onal lowsuser stotakeacti
on
tor esolveconf li
cts, r
educeuncertainty,
andmakedeci si
ons.

Page5of5
 Fi
gur
e4:Gener
alModelf
orAccount
ingI
nfor
mat
ionSy
stem

(b)Dat aSources
Datasour cesar ef i
nancialt
ransacti
onst hatent erthei nformat ionsy st
em f r
om bot hi nter
naland
externalsources.Ext ernalfi
nancialtransactionsar ethemostcommonsour ceofdat af ormost
organizati
ons.Thesear eeconomicexchangeswi t
hot herbusi nessent it
iesandindiv i
dualsoutsidethe
fi
rm.Exampl esi ncludethesaleofgoodsandser vices,t
hepur chaseofi nventory,thereceiptofcash,
andt hedisbursementofcash( incl
udingpay r
oll
).Internalfi
nanci altransacti
onsi nvolvetheexchange
ormov ementofr esourceswi t
hintheor ganizati
on.Exampl esi ncludethemov ementofr awmat er
ial
s
i
ntowor k-
in-
process( WIP),t
heappl i
cationofl aborandov erheadt oWI P,thet r
ansferofWI Pinto
fi
nishedgoodsi nv entor
y ,
andthedepreci at
ionofpl antandequi pment .

(c)DataCol l
ecti
on
Dat acoll
ecti
onist hefir
stoper at
ionalstageint heinformat i
onsystem.Theobjecti
veistoensur
ethe
eventofdat aent eri
ngi nt othesy st
em i svalid,compl ete,andf r
eefrom materi
alerr
ors.I
nmany
respects,t
hisisthemosti mport
antst ageint hesy stem.I ftr
ansacti
onerror
sundetectedandpass
throughdat acoll
ection,thesy st
em maypr ocesst heer rorsandgener at
eerroneousandunrel
iabl
e
output.This,i
nturn,couldleadtoincorrectact
ionsandpoordeci sionsbytheusers.

Twor ul
esgov er
nt hedesignofdat acol
lect
ionprocedures:rel
evanceandeffici
ency.Thei nf
ormation
system shoul
dcapt ureonl
yrelevantdata.Afundamentaltaskoft hesyst
em designeri
st odetermine
whatisandwhati snotr el
ev ant
.Heorshedoessobyanal yzingtheuser
’sneeds.Onl ydat athat
ul
timatelycontr
ibutetoinformation(asdefinedprevi
ously)arer el
evant
.Thedat acollecti
onst age
shouldbedesignedt ofi
lt
erir
relev
antfactsfr
om thesystem.

Eff
ici
entdat acollecti
onproceduresar edesi gnedtocollectdat aonl yonce.Thesedat acant henbe
madeav ail
ablet omul t
ipl
eusers.Capt ur
ingt hesamedat amor et hanoncel eadstodatar edundancy
andinconsistency.Inf
ormati
onsy stemshav eli
mitedcol
lection,processing,anddatastoragecapacity
.
Dataredundancyov erl
oadsfaci
li
tiesandr educestheov eralleff
iciencyofthesy stem.I
nconsistency
amongr edundantdat aelementscanr esultininappr
opri
ateact ionsandbaddeci si
ons.

(d)Dat
aProcessi
ng
Oncecoll
ect
ed,datausual
l
yrequi
repr
ocessi
ngt
opr
oducei
nfor
mat
ion.Tasksi
nthedat
apr
ocessi
ng
Page6of6
stager
angefrom si
mpl
etocompl
ex.Exampl
esinclude:st
ati
sti
caltechni
quesf
orsal
esf
orecast
ing,
andposti
ngandsummari
zi
ngpr
ocedur
esusedforaccounti
ngappli
cati
ons.

(e)Dat
abaseManagement
Theorgani
zati
on’
sdatabaseisitsphysi
calreposi
toryforf
inanci
alandnonfinanci
aldata.Dat
abase
canbeaf i
li
ngcabi
netoracomput erdisk.Regardl
essoft hedatabase’
sphy si
calform,wecan
repr
esenti
tscont
ent
sinal ogi
calhi
erar
chy.Thelevel
sinthedatahier
archyare—att
ri
bute,r
ecor
d,and
fi
le.

Fi
gur
e5:TheDat
aHi
erar
chy

DataAt tri
but
e:Thedat aat t
ributeist hemostel ement alpieceofpot enti
all
yusefuldataint he
database.Anat tr
ibut
ei sal ogicalandr elevantcharacterist
icofanent it
yaboutwhi cht hefi
rm
capturesdata.Theat t
ributesshowni nFi gure5ar elogicalbecausetheyal lrel
atesensi
blytoa
commonent i
ty—accountsreceivable(AR).Eachat t
ri
buteisal sorel
evantbecauseitcont
ri
butestothe
i
nformationcontentoft heent i
reset .Aspr oofoft hi
s,theabsenceofanysi nglerel
evantatt
ri
bute
dimini
shesordestroystheinformat i
oncontentoft heset.

Recor d:Ar ecordi sacompl et

esetofat t
r i
butesf orasi ngl
eoccur r
encewi thi
nanent i
tyclass.For
exampl e,apar ti
cularcustomer ’
sname,addr ess,andaccountbal ancei soneoccur rence(orr ecord)
withi
nt heARcl ass.Tof indapar t
icul
arrecordwi thi
nt hedatabase,wemustbeabl etoident i
fyit
uniquely .Therefore,ever
yr ecor
di nthedat
abasemustbeuni queinatl eastoneattr
ibute.Thisunique
i
dent i
fierat tr
ibutei sthepr i
mar ykey.Becausenonat uralat
tri
bute(suchascust omername)can
guarant eeuni queness,wet ypi
call
yassignar t
ifi
cialkeyst orecords.Thekeyf ortheARr ecordsi n
Figure5i sthecust omeraccountnumber .

Fi
les:Afil
eisacompl etesetofrecordsofanident icalclass.Forexample,allt
heARr ecordsoft
he
organi
zati
onconst
itut
etheARf i
le.Si
mi l
arl
y,f
il
esar econst ructedforot
herclassesofr
ecordssuchas
i
nv ent
ory
,account
spay abl
e,andpay r
oll
.Theor ganization’sdatabasei
stheent ir
ecol
lecti
onofsuch
fi
l
es.

DatabaseManagementTasks:Dat abasemanagementi nv
olvesthreefundament altasks:stor
age,
ret
rieval
,anddelet
ion.Thestoragetaskassi gnskeystonewr ecor
dsandst oresthem int hei
rproper
l
ocat i
oninthedatabase.Retri
evalisthet askoflocati
ngandext r
actinganexisti
ngr ecordfrom the
databaseforprocessi
ng.Aft
erpr ocessingiscomplete,t
hestoragetaskrestorestheupdat edrecord

Page7of7
t
oitspl
aceinthedat
abase.Del
eti
oni
sthet
askofper
manent
lyr
emov
ingobsol
eteorr
edundant
r
ecor
dsfr
om t
hedat
abase.

(f)InformationGenerati
on
Informationgenerati
onisthepr ocessofcompi li
ng,
arr anging,for
mat t
ing,andpresenti
nginformat i
on
touser s.Inf
ormati
oncanbeanoper ati
onaldocumentsuchasasal esor der,astruct
uredreport,ora
messageonacomput erscreen.Regar dlessofphysicalf orm,usefulinf
ormat i
onhast hef ol
lowing
characterist
ics:
rel
evance,t
imeli
ness, accuracy
,complet eness,andsummar i
zati
on.

Relev
ance:Thecont
entsofar eportordocumentmustserv
eapur pose.Thiscouldbet osupporta
manager’
sdecisi
onoracl er
k’stask.Wehav eest
abl
i
shedthatonl
ydat ar el
evanttoauser’sact
ion
haveinf
ormati
oncontent
.Therefore,t
heinf
ormati
onsyst
em shoul
dpr esentonlyrel
evantdatai
ni t
s
repor
ts.

Timeli
ness:Theageofi nf
ormati
onisacrit
icalf
actori
ndetermini
ngit
susef ul
ness.I
nformati
onmust
benool derthantheti
meperiodoftheacti
onitsuppor
ts.Forexampl
e,ifamanagermakesdeci si
ons
dail
ytopur chasei
nvent
oryfr
om asuppl
ierbasedonaninventor
ystat
usr eport
,thent
heinfor
mati
onin
thereportshouldbenomorethanadayold.

Accur acy:Informat i
onmustbef reefrom materialerr
ors.However,materi
ali
tyi
sadi f
ficultconceptt o
quant i
fy.Ithasnoabsol utev al
ue;itisaproblem- specif
icconcept
.Thismeanst hat,insomecases,
i
nfor mat i
onmustbeper fectl
yaccur at
e.Inot heri nst
ances,thelevelofaccuracymaybel ower.
Mat eri
aler r
orex i
stswhent heamountofi naccuracyini nf
ormati
oncausest heusert omakepoor
decisionsort of ailt
omakenecessar ydecisions.Wesomet i
mesmustsacr i
fi
ceabsoluteaccur acyt o
obtaint i
melyi nformat i
on.
Often, perf
ecti nformationisnotav ai
labl
ewi t
hint heuser’
sdecisi
ontimeframe.Therefore,inprov i
ding
i
nfor mat i
on,sy stem designersseekabal ancebet weeninformati
onthatisasaccurateaspossi ble,yet
ti
mel yenought obeusef ul
.

Completeness:Nopi
eceofinf
ormati
onessenti
alt
oadecisi
onortaskshoul
dbemi ssi
ng.Forexampl
e,
arepor
tshouldprovi
deal
lnecessar
ycal
culat
ionsandpr
esenti
tsmessageclear
lyandunambiguousl
y.

Summar i
zati
on:Inf
ormat
ionshouldbeaggregat
edinaccor
dancewi t
ht heuser
’sneeds.Lower-
level
managerstendtoneedinfor
mati
ont hati
shighl
ydetai
l
ed.Asinfor
mat i
onflowsupwardthroughthe
organi
zat
iontotopmanagement,i
tbecomesmoresummar i
zed.

General
l
y,thev al
ueofi nf
ormati
ont oauseri
sdeter
minedbyi
tsrel
iabil
i
t y
.Because,t
hepurposeof
i
nformati
onist oleadtheusertoadesir
edacti
on.Fort
hist
ohappen,informat
ionmustpossessthe
abovementionedfivecharact
eri
sti
cs.

(g)Feedback
Feedbackisaf or
m ofoutputt
hati
ssentbackt othesystem asasourceofdata.Feedbackmaybe
i
nt er
nalorext
ernalandisusedtoini
ti
ateoral
teraprocess.Forexample,aninv
entor
ystatusrepor
t
signalst
heinvent
orycontr
olcl
erkt
hatit
emsofi nv
entor
yhav efal
l
ento,orbelow,mini
mum all
owable

Page8of8
l
evel
s.Int
ernalfeedbackf
rom t
hisi
nfor
mat
ionwi
l
lini
ti
atet
hei
nvent
oryor
der
ingpr
ocesst
orepl
eni
sh
t
heinvent
ories.

1.1.5.Inf ormati
onSy stem Obj ecti
v es
Eachor ganizat
ionmustt ai
lori tsinf ormat i
onsy stem t ot heneedsofi t
suser s.Therefor e,specifi
c
i
nf ormat i
on system obj ectives maydi f
ferf rom f irm tof i
rm.Thr ee f undament alobject iv
esar e,
howev er, commont oal lsystems:
1.Tosuppor tt hest ewar dshipf unctionofmanagement :Stewar dshi preferst omanagement ’
s
responsibili
tytopr oper l
ymanaget her esour cesoft hef ir
m.Thei nformat i
onsy stem pr ovides
infor mat
ionaboutr esour ceut ili
zati
ont oext ernaluser sviatraditi
onalf inancialstatement sand
ot hermandat edrepor ts.Internal l
y,managementr eceivesstewar dshi pinformat i
onf rom vari
ous
responsibili
tyreports.
2.Tosuppor tmanagementdeci sionmaki ng: Thei nformat i
onsy stem suppl iesmanager swit
ht he
infor mat
iontheyneedt ocar ryoutt heirdeci sion-maki ngresponsi bili
ti
es.
3.Tosuppor tthef irm’sday -t
o- dayoper ations:Thei nformationsy stem prov i
desi nformat i
ont o
oper ati
onsper sonnel toassi stt hem int heef fici
entandef f
ectivedi schargeoft heirdai l
ytasks.

1.1.6.Acqui siti
onofI nf or mat i
onSy stems
Or gani zat i
onsobt ai
ni nfor mat i
onsy stemsusual lyint woway s:(1)t heydev el
opcust omi zedsy stems
from scr atch t hrough i n-house sy stems dev elopment act i
v iti
es and ( 2) t hey pur chase
prepr ogr ammedcommer cialsy stemsf rom sof twar ev endor s.Largeror ganizationswi thuni queand
frequent lychangi ngneedsengagei ni n-housedev elopment .Thef ormalpr ocessbywhi cht hisi s
accompl i
shedi scal l
edt hesy stem dev elopmentl i
fecy cle.Smal l
ercompani esandl argerf i
rmst hat
hav est andar di
zedi nformat ionneedsar ethepr imarymar ketforcommer cialsoftwar e.Ther ear ethr ee
basi ct ypesofcommer ci alsof twar e:t urnkeysy stems,backbonesy stems,andv endor -
suppor ted
sy stems.Tur nkey sy stems ar e compl etelyf ini
shed and t ested sy stems t hatar er eady f or
i
mpl ement ation.Ty pically,t heyar egener al
-purposesy st emsorsy stemscust omi zedt oaspeci fic
i
ndust ry .Inei t
hercase,t heendusermusthav est andar dbusi nesspr acticesthatper mi ttheuseof
cannedorof f-
the-shelfsy st ems.Thebet tert ur
nkeysy stems,howev er,hav ebui l
t-insof t
wareopt ions
thatal low t heusert ocust omi zei nput ,out put,andpr ocessingt hr oughmenuchoi ces.Howev er,
conf igur ingt hesy stemst omeetuserneedscanbeadi ffi
culttask.Backbonesy stemsconsi stofa
basicsy stem st ructureonwhi cht obui ld.Thepr imar ypr ocessingl ogicispr eprogr ammed,andt he
vendort hendesi gnst heuseri nterfacest osui tthecl i
ent ’
suni queneeds.Abackbonesy stem i sa
compr omi sebet weenacust om sy stem andat urnkeysy st em.Thi sappr oachcanpr oducesat isfactor y
resul ts, butcust omizingt hesy st em i scost ly.Vendor -
suppor tedsy st emsar ecust om ( orcust omi zed)
sy st
emst hatcl i
entor gani zati
onspur chasecommer ciallyrathert handev el
opi n-house.Undert his
appr oach, thesof twarev endordesi gns, i
mpl ement s, andmai ntai
nst hesy stem foritscl ient.

1.
2. TheEvoluti
onofI nf
ormationSyst
em Model s
Overthepast50y ears,anumberofdi ffer entapproachesormodel
shav erepr
esentedaccount
ing
i
nfor
mationsystems.Eachnew modelev olvedbecauseoft heshor
tcomingsandlimit
ati
onsofits
pr
edecessor
.An i nterest
ing f
eatur
ei nt his evol
uti
on isthatthe newesttechni
que does not

Page9of9
i
mmedi at
elyrepl
aceol dermodels.Thus,atanypoi ntintime,var
iousgenerationsofsystemsexi
st
acr
ossdiffer
entorganizati
onsandmayev encoexi stwit
hinasingleenterpr
ise.Themostcommon
modelsaremanualpr ocesses,f
lat-
fi
lesystems,thedatabaseapproach,theREA( resour
ces,ev
ent
s,
andagents)model,
andERP( ent
erpri
seresourceplanni
ng)syst
ems.

1.2.1.TheManualPr ocessModel
Themanualpr ocessmodeli stheol destandmostt radit
ionalform ofaccount i
ngsy st
ems.Manual
syst emsconst i
tutethephysicalev ents,resour
ces,andper sonnelthatcharacteri
zemanybusi ness
processes.Thi sincl
udessucht asksasor der-t
aking,war ehousingmat eri
als,manufact
uri
nggoodsf or
sale,shi ppinggoodst ocust omer s,andpl aci
ngor derswi t
hv endors.Thi smodelalsoincludest he
phy sicalt askofr ecor
dkeepi ngt hati smanually.Manualpr oceduresf aci
l
itat
et ounderstandt he
i
nter nalcont rolacti
vit
ies,i
ncludingsegr egati
onoff unctions,superv i
sion,i
ndependentverifi
cati
on,
audi ttrai
ls,andaccesscontrols.

1.
2.2.TheFl at-
Fil
eModel
Thef l
at-f
il
eapproachismostoftenassoci
atedwithso-cal
ledl
egacysyst
ems(out
datedsyst
ems).
Thesear elargemainfr
amesy st
emst hatwereimplementedinthelat
e1960sthr
oughthe1980s.
Organizat
ionstodayst
il
luset
hesesyst
emsext ensi
vel
y.

Thefl
at-f
il
emodeldescr ibesanenv ir
onmenti nwhi chindiv
idualdatafi
lesarenotrel
atedtoot herfi
les.
Endusersinthi
senv i
ronmentownt heirdatafi
lesratherthansharethem withotherusers.Thus, st
and
-al
oneapplicat
ionsrathert hanintegrat
edsy stemsper f
orm datapr ocessi
ng.Whenmul t
ipleuser s
needthesamedat afordi ff
erentpurposes,theymustobt ainseparatedatasetsst r
ucturedt otheir
speci
fi
cneeds.Thedat ar edundancyinthismodelcont ri
butestot hr
eesignifi
cantprobl
emsi ntheflat
-fi
l
eenvi
ronment :dat
astor age,dat
aupdat ing,andcurrencyofinformat i
on.

DataStorage:Anef fi
cienti
nformati
onsystem captur
esandst oresdataonl
yonceandmakest hi
s
si
nglesourceav ai
labl
et oalluser
swhoneedi t
.Inthefl
at-f
il
eenv i
ronment
,thi
sisnotpossi
ble.To
meetthepr i
vatedataneedsofuser s,or
ganizat
ionsmustincurthecostsofbothmul
ti
plecol
lecti
on
andmulti
plestorageprocedures.

DataUpdat i
ng:Organi
zati
onshaveagreatdealofdatastoredinfi
l
esthatrequi
reper
iodi
cupdati
ngto
ref
lectchanges.Forexample,achangetoacust omer’snameoraddr essmustber ef
lect
edinthe
appropr
iatemasterfil
es.Whenuserskeepsepar atefi
les,al
lchangesmustbemadesepar at
elyf
or
eachuser.Thisaddssigni
fi
cant
lyt
othetaskandt hecostofdatamanagement .

Curr encyofI nfor

mat i
on:I
ncontr
asttotheprobl
em ofperf
ormingmul t
ipl
eupdatesisthepr
oblem of
fail
ingt oupdat eallt
heuserf
il
esaffect
edbyachangei nstat
us.Ifupdateinf
ormati
onisnotproper
ly
dissemi nated,thechangewil
lnotber efl
ect
edinsomeuser s’data,r
esult
ingindecisi
onsbasedon
outdat edinformati
on.

Theflat-
fi
leapproachisasingl
e-v
iewmodel.Fi
l
esarestruct
ured,formatted,andarrangedt
osuitthe
speci
ficneedsoft heownerorpri
maryuseroft
hedata.Suchstructuri
ng,howev er
,mayexcludedata
att
ri
butest hatareusefult
ootheruser
s,thusprev
enti
ngsuccessf ulint
egrati
onofdat aacrossthe
Page10of10
or
gani
zat
ion.

1.2.
3.TheDat abaseModel
Anor ganizati
oncanov ercomet hepr oblemsassoci at
edwi thfl
atfil
esbyi mplement i
ngt hedat abase
modelt odat amanagement .Witht heor ganization’
sdat ainacentrall
ocat i
on,al
lusershav eaccesst o
thedatatheyneedt oachi evetheirrespect i
veobj ectiv
es.Accesstot hedat aresourceiscont r
olledby
a database managementsy stem ( DBMS) .The DBMS i s a specialsof t
ware sy stem t hati s
progr
ammedt oknow whi chdat ael ement seachuseri sauthori
zedt oaccess.Theuser ’
spr ogram
sendsr equestsf ordat at otheDBMS,whi chv al
idatesandaut horizesaccesst ot hedat abasei n
accordancewi ththeuser ’
slevelofaut horit
y.Iftheuserr equest
sdat athatheorshei snotaut horized
toaccess, therequestisdenied.Cl early,theorganization’
sproceduresf orassi
gninguseraut horityare
animpor t
antcont roli
ssuef orauditorst oconsi der.

Themostsignif
icantdif
ferencebet weenthedatabasemodelandt heflat-
fi
lemodelisthepooli
ngof
dat
aintoacommondat abaset hatallor
gani
zationaluser
sshare.Withaccesst otheful
ldomainof
ent
it
ydata,changesi nuseri nfor
mat i
onneedscanbesat i
sfi
edwithoutobt ai
ningaddi
ti
onalpr
ivate
dat
asets.Usersar econst r
ainedonlybyt heli
mi tat
ionsofthedataav ai
labletotheenti
tyandt he
l
egi
timacyoftheirneedtoaccessi t
.

Fl
at-
fi
leandearlydatabasesy stemsar ecalledt r
adit
ionalsy st
ems.Wi t
hinthi
scontext
,thet erm
tr
adi
ti
onalmeanst hattheor ganizat
ion’
sinf
or mati
onsy stemsappl icat
ions(i
tsprogr
ams)f uncti
on
i
ndependent
lyofeachot herr
atherthanasani ntegr
atedwhol e.Earl
ydatabasemanagementsy stems
weredesi
gnedtoint
erfacedir
ectlywithexi
sti
ngf l
at-
fi
leprograms.

Trueintegrati
on,howev er,wouldnotbepossi bleuntilt
hear ri
valoftherelati
onaldat abasemodel .
Thisflexi
bledat abaseappr oachper mitst hedesignofi nt
egratedsyst
emsappl icati
onscapableof
supporti
ngt heinfor mat i
onneedsofmul tipl
eusersfrom acommonsetofi ntegrateddat abasetables.
Weshoul dnot e,howev er,thatther elationaldatabasemodelmer elypermitsint egr
ationtooccur ;
i
ntegrati
on isnotguar anteed.Poorsy stemsdesi gn can occurunderanymodel .Inf act
,most
organi
zationstodayt hatempl oyar elati
onaldat abaserunappl i
cati
onsthataret raditi
onalindesign
anddonotmakef ulluseofr el
ati
onalt echnology.Thet wor emaini
ngmodel st obedi scussed( REA
andERP)empl oyr elationaldatabasetechnol ogymor eeffecti
vely
.

1.2.
4.TheREAModel
REAi sanaccount ingframeworkf ormodelinganor ganizat
ion’scri
ti
calr esources,
ev ents,andagents
(REA)andt herelationshipsbet
weent hem.Oncespeci fi
ed,bot haccount i
ngandnonaccount i
ngdata
aboutthesephenomenacanbei denti
fi
ed,captured,andst oredinar elati
onaldatabase.Fr om thi
s
reposi
tory,userviewscanbeconst r
uctedt hatmeett heneedsofal luser sintheor ganizati
on.The
avail
abil
i
tyofmul tipleviewsall
owsf l
exi
bleuseoft r
ansactiondataandper mitst
hedev elopmentof
accounti
ngi nf
ormat ionsy st
emsthatpromot e,r
atherthaninhibi
t,i
ntegration.

TheREAmodelwaspr oposedin1982asat heoreti

calmodelforaccounti
ng.Advancesindatabase
technol
ogyhavefocused renewed att
ent
ion on REA as a practi
calalt
ernat
ivet othe cl
assical
accounti
ngf
ramework.Thefoll
owingsummarizesthekeyel
ement softheREAmodel s.
Page11of11
Resources
Economi cresourcesaretheassetsoftheor gani
zat
ion.Theyar edef
inedasobject
st hatareboth
scarceandundert hecontroloftheent
erpri
se.Thisdef i
nit
iondepartsfrom t
het r
aditi
onalmodel
becauseitdoesnoti ncl
udeAR.Anaccountr eceiv
abl
ei sanar t
ifactr
ecordusedsimplytostor
eand
tr
ansmi tdata.Becauseitisnotanessenti
alelementoft hesy stem,itneednotbeincludedinthe
database.Instead,ARvaluesarederi
vedfrom thediff
erencebet weensalestocustomersandt he
cashreceivedinpaymentofsales.

Events
Economicev entsarephenomenat hataff
ectchangesinr esour
ces.Theycanr esul
tfrom acti
vi
ti
es
such as producti
on,exchange,consumption,and di
stri
buti
on.Economic ev
ent s ar
et he cr
iti
cal
i
nformati
onel ementsoftheaccountingsystem andshoul
dbecapt ur
edinahi ghlydetai
l
edf or
mt o
provi
dearichdatabase.

Agents
Economicagentsareindi
vi
dual
sanddepartment sthatpart
icipat
ei naneconomicev ent.Theyar e
part
iesbothinsi
deand outsi
detheorganizati
onwi thdiscreti
onarypowerto useordi sposeof
economicresour
ces.Exampl
esofagent
si ncludesalescler
ks,pr oduct
ionwor
kers,shippi
ngcl er
ks,
customer
s,andvendor
s.

TheREAmodelr equiresthataccount i
ngphenomenabechar acterizedinamannerconsi stentwiththe
developmentofmul t
ipleuserviews.Busi nessdatamustnotbepr eformattedorart
if
ici
all
yconst rai
ned
andshoul dr ef
lectallrel
evantaspect soft heunderlyi
ngeconomi cevents.Assuch,REApr ocedures
anddat abasesar estruct
uredar oundev entsrat
herthanaccountingar t
if
act ssuchasjournal
s,ledgers,
chartsofaccount s,and doubl e-entr
yaccount ing.Undert heREA model ,busi
nessor ganizati
ons
preparefinanci
al st
atement sdi
rect l
yfrom theeventdatabase.

REA isaconceptualmodel,notaphy
sicalsyst
em.Manyofi tstenet
s,however,ar
efoundwi t
hin
advanced dat
abase sy
stems.The mostnotable appl
i
cat
ion ofREA phil
osophyis seen i
nt he
prol
if
erat
ionofERPsystems.

1.2.
5.Ent er
priseResour cePlanningSy stems
Enterpr
iser esourcepl anning( ERP)i sani nformati
onsystem modelthatenablesanor gani
zationt o
automat eandi ntegrat
ei tskeybusi nesspr ocesses.ERPbreaksdowntradi
ti
onalfuncti
onalbarri
ersby
faci
li
tati
ng dat ashar ing,i nf
ormat ionflows,and t heint
roducti
onofcommonbusi nesspr actices
amongal lorganizati
onaluser s.Thei mpl ementati
onofanERPsy st
em canbeamassi veundertaking
thatcanspansev er
aly ears.Becauseoft hecomplexit
yandsizeofERPs,feworganizat
ionsarewi ll
ing
orablet ocommi tthenecessar yfinancialandphy si
calr
esourcesandincurtheri
skofdev el
opingan
ERPsy stem in-house.

ERPpackagesar esoldtocli
entor gani
zat
ionsi nmodul esthatsupportstandardpr
ocesses.Some
commonERPmodul esincl
ude:AssetManagement ,Financi
alAccounti
ng, HumanResources,
Industr
y
-Specif
ic Sol
uti
ons,PlantMai ntenance,Pr oduct
ion Planning,Quality Management,Sales and
Distr
ibuti
on,I
nventor
yManagement .Oneoft heproblemswi t
hst andar
dizedmodulesisthatt
heymay
Page12of12
notalway
smeett heor gani
zati
on’sexactneeds.Or gani
zati
onsthathopetosuccessf
ull
yimplement
anERPwi llneedtomodi fytheirbusi
nesspr ocessestosuittheERP,modi f
ytheERPt osuitthei
r
busi
ness,or,
morelikel
y,modifyboth.Often,
additi
onalsoft
wareappli
cati
onsneedtobeconnectedto
theERPtohandleuniquebusinessfunct
ions,part
icul
arl
yindust
ry-
speci
fi
ctasks.

Page13of13