978-0134474021 Chapter 1 Solutions Manual Part 1

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CHAPTER 1

ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

1.1 The value of information is the difference between the benefits realized from using that

information and the costs of producing it. Would you, or any organization, ever produce

information if its expected costs exceeded its benefits? If so, provide some examples. If not,

why not?

Most organizations produce information only if its value exceeds its cost. However, there are two

situations where information may be produced even if its cost exceeds its value.

a. It is often difficult to estimate accurately the value of information and the cost of producing

b. Production of the information may be mandated by either a government agency or a private

1.2 Can the characteristics of useful information listed in Table 1-1 be met simultaneously?

Or does achieving one mean sacrificing another?

Several of the criteria in Table 1.1 can be met simultaneously. For example, more timely

information is also likely to be more relevant. Verifiable information is likely to be more reliable.

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Ch. 1: Accounting Information Systems: An Overview

1.3 You and a few of your classmates decided to become entrepreneurs. You came up with a great

idea for a new mobile phone application that you think will make lots of money. Your business

plan won second place in a local competition, and you are using the $10,000 prize to support

yourselves as you start your company.

a. Identify the key decisions you need to make to be successful entrepreneurs, the

information you need to make them, and the business processes you will need

to engage in.

b. Your company will need to exchange information with various external parties. Identify

the external parties, and specify the information received from and sent to each of them.

The author turns this question into an in-class group activity. Students are divided up in groups, told

to close their books, and given 15 minutes to:

a. Think through the business processes, key decisions, and information needs issues in their

group.

b. Identify the external users of information and specify the information received from and sent

to each of them.

One group is selected to present their answers to the class. The other groups are told to challenge

The author concludes the exercise by having the students turn to Table 1-2 and Figure 1-1 while

While this active learning activity takes more time than a lecture does, it drives the point home

much better than a lecture would. It also keeps the students more engaged in the material.

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Accounting Information Systems

1.4 How do an organization’s business processes and lines of business affect the design of its AIS?

Give several examples of how differences among organizations are reflected in their AIS.

An organization’s AIS must reflect its business processes and its line of business. For example:

Manufacturing companies will need a set of procedures and documents for the production cycle;

Government agencies need procedures to track separately all inflows and outflows from various

Passenger service companies (e.g., airlines, bus, and trains) generally receive payments in

1.5 Figure 1-4 shows that organizational culture and the design of an AIS influence one another.

What does this imply about the degree to which an innovative system developed by one

company can be transferred to another company?

Since people are one of the basic components of any system, it will always be difficult to transfer

successfully a specific information systems design intact to another organization. Considering in

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Ch. 1: Accounting Information Systems: An Overview

1.6 Figure 1-4 shows that developments in IT affect both an organization’s strategy and the

design of its AIS. How can a company determine whether it is spending too much, too little,

or just enough on IT?

There is no easy answer to this question. Although a company can try to identify the benefits of a

1.7 Apply the value chain concept to S&S. Explain how it would perform the various primary

and support activities.

The value chain classifies business activities into two categories: primary and support.

The five primary activities at S&S:

a. Inbound logistics includes all processes involved in ordering, receiving, and temporarily

b. S&S does not manufacture any goods, thus its operations activities consists of displaying

c. Outbound logistics includes delivering the products to the customer.

d. Sales & marketing includes ringing up and processing all sales transactions and advertising

The four support activities at S&S:

a. Firm infrastructure includes the accounting, finance, legal, and general administration

b. Human resource management includes recruiting, hiring, training, evaluating,

c. Technology includes all investments in computer technology and various input/output

d. Purchasing includes all processes involved in identifying and selecting vendors to supply

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Accounting Information Systems

1.8 IT enables organizations to easily collect large amounts of information about employees.

Discuss the following issues:

These questions involve traditional economic cost/benefit issues and less well-defined ethical

issues.

a. To what extent should management monitor employees’ e-mail?

b. To what extent should management monitor which websites employees visit?

c. To what extent should management monitor employee performance by, for example, using

software to track keystrokes per hour or some other unit of time? If such information is

collected, how should it be used?

d. Should companies use software to electronically “shred” all traces of e-mail?

e. Under what circumstances and to whom is it appropriate for a company to distribute

information it collects about the people who visit its website?

Direct students to the guidelines followed by organizations that certify how various websites

The instructor should also refer the students to Generally Accepted Privacy Principles (GAPP),

as one of its criteria concerns sharing information with 3rd parties. The instructor and the

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Ch. 1: Accounting Information Systems: An Overview

SUGGESTED ANSWERS TO THE PROBLEMS

1.1 IT is continually changing the nature of accounting and the role of accountants. Write a

two-page report describing what you think the nature of the accounting function and the

accounting information system in a large company will be like in the year 2030.

1.2 Adapted from the CMA Examination

a. Identify and discuss the basic factors of communication that must be considered in

the presentation of the annual report.

The annual report is a one-way communication device. This requires an emphasis on clarity and

b. Discuss the communication problems a corporation faces in preparing the annual

report that result from the diversity of the users being addressed.

The different users of annual reports have differing information needs, backgrounds, and

abilities. For some users, the annual report may serve as an introduction to the company and/or

the only significant information about the company. By using the report to communicate to all

users, the problems the corporation faces include the following.

In an attempt to reach several audiences, a company may include information for each

Care must be taken in the presentation of information. Words and phrases familiar to one

c. Select two types of information found in an annual report, other than the financial

statements and accompanying footnotes, and describe how they are helpful to the

users of annual reports.

Other than the financial statements and accompanying footnotes, an annual report provides

information concerning

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Accounting Information Systems

Management’s discussion and analysis of results.

d. Discuss at least two advantages and two disadvantages of stating well-defined

corporate strategies in the annual report.

Stating well-defined corporate strategies in a company’s annual report accomplishes the

following:

Advantages:

Disadvantages:

e. Evaluate the effectiveness of annual reports in fulfilling the information needs of

the following current and potential users: shareholders, creditors, employees,

customers, and financial analysts.

Annual reports fulfill users’ information needs as discussed below.

1. Shareholders. Annual reports meet the statutory requirement that publicly held corporations

2. Creditors. The annual report of public companies provides financial information as well as

3. Employees. The annual report gives the employees information such as a description of the

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Ch. 1: Accounting Information Systems: An Overview

4. Customers. The annual report provides customers with trend information and management

5. Financial analysts. The set of audited comparative financial statements provides the basis

f. Annual reports are public and accessible to anyone, including competitors. Discuss

how this affects decisions about what information should be provided in annual

reports.

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