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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.
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.
Ch. 1: Accounting Information Systems: An Overview
1-2
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:
students are motivated to do a good job, as they will be presenting to their peers.
The value of this activity is not in arriving at a “right answer” as there are many right answers and
student answers will vary. Instead, it is in thinking through the issues presented in Table 1-2
(business processes, key decisions, and information needs) and Figure 1-1 (interactions with
external parties). Student answers should contain many of the things in Table 1-2 and Figure 1-1 as
well as others not shown, as a retail operation differs from an application development enterprise.
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; non-manufacturing companies do not.
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
Ch. 1: Accounting Information Systems: An Overview
1-4
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
new IT initiative and compare those benefits to the associated costs, this is often easier said than
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
storing merchandise that is going to be sold to S&S customers.
Accounting Information Systems
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1.8 Information technology 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?
Generally, the courts have held that organizations have the right to monitor employees’ email.
b. To what extent should management monitor which Web sites employees visit?
Students are likely to argue whether or not this should be done. One potential benefit that could
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?
Arguments pro and con can be generated about the effects of such monitoring on performance
d. Should companies use software to electronically “shred” all traces of e-mail?
Arguments can be raised on both sides of this issue. Try to get students to go beyond the legal
e. Under what circumstances and to whom is it appropriate for a company to distribute
information it collects about the people who visit its Web site?
Direct students to the guidelines followed by organizations that certify how various web sites
use the information they collect. Students are likely to make the argument that personal
Ch. 1: Accounting Information Systems: An Overview
1-6
SUGGESTED ANSWERS TO THE PROBLEMS
1.1 Information technology 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
2020.
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 conciseness because there is no immediate feedback from the readers as to what messages
they are receiving.
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
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.
Accounting Information Systems
Other than the financial statements and accompanying footnotes, an annual report provides
information concerning
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:
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 are to report annually to stockholders and report on the stewardship of
management to both current and potential stockholders. The annual report gives
Ch. 1: Accounting Information Systems: An Overview
1-8
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
company's pension plan and the employee stock incentive plan. This gives employees a
base from which to compare their benefits program to those of other companies. Annual
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
for analysis done by financial analysts. Notes, which are an integral part of the statements,
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.
Management may omit information entirely from the annual report or disguise it because
competitors have access to annual reports. The objective of reporting should be to reveal as
much as possible without giving away proprietary information or a competitive edge.
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1.3 The use of IT at USAA
a. Why should USAA collect data on which auto parts are fixed most frequently?
What could it do with this data?
Companies should gather and store data if the benefits received from the data are greater than
the cost of collecting it. The data regarding the auto parts that get fixed most frequently is
b. Even though USAA offered to waive the deductible, the repair shops still managed
to convince 95% of the owners to replace rather than repair their damaged
windshields. How could USAA use its AIS to persuade more shop owners to
repair rather than replace their windows?
USAA began capturing data on the repair records of the various shops that worked for them.
c. How does the image-processing system at USAA add value to the organization?
The system adds value by streamlining business processes and making them more effective and
efficient. Before the image-processing system was installed, policy service representatives had
d. How do the remote deposit capture and mobile banking system at USAA add
value to the organization?
USSA’s customers are widely scattered and USAA does not have local offices everywhere
e. Do an Internet search and find out what other advancements USAA has
introduced. Write a brief paragraph on each new application or other
newsworthy item you find (maximum limit of three applications or items).
Ch. 1: Accounting Information Systems: An Overview
1-10
Students should be able to find numerous applications or newsworthy items. Here is a
1.4 Match the description in the right column with the information characteristic in the left column.
F 1. Relevant
a. The report was carefully designed so that the data contained on the report
became information to the reader
D 3. Complete
c. The data on a report was checked by two clerks working independently
G, B 4. Timely
d. An accounts receivable aging report that included all customer accounts
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1.5 The Howard Leasing Company
Student solutions will vary based on their background and education. The following is one possible
solution.
a. What is an accounts receivable aging report?
An accounts receivable aging report lists customer account balances by length of time
outstanding.
b. Why is an accounts receivable aging report needed for an audit?
c. What is an accounts receivable aging report used for in normal company operations?
An accounts receivable aging report is used in normal company operations to provide
information for:
− Evaluating current credit policies
d. What data will you need to prepare the report?
To prepare an accounts receivable aging report, credit sales and cash collections data is needed
for each customer granted credit.
e. Where will you collect the data you need to prepare the report?
f. How will you collect the necessary data for the report?
If the data is in machine-readable form, it can be collected by preparing and running programs
Ch. 1: Accounting Information Systems: An Overview
g. What will the report look like (i.e., how will you organize the data collected to create the
information your supervisor needs for the audit)? Prepare an accounts receivable aging
report in Excel or another spreadsheet package.
The accounts receivable aging report should look something like the following, whether it is
prepared on paper or in Excel :
h. How will you distribute the report? How many copies will you make? Who should receive
the copies? What security features will you implement?
The accounts receivable aging report should be restricted to employees with operational or
Accounting Information Systems
1-13
1.6 The use of IT at Tesco
a. What kind of information do you think Tesco gathers?
• The Clubcard application filled out in the store captures data such as customer names,
b. How do you think Tesco has motivated over 12 million customers to sign up for its
Clubcard program?
• It offers merchandise discounts to customers who sign up and gives card users a point for
c. What can Tesco accomplish with the Clubcard data it collects? Think in term of strategy
and competitive advantage.
• Customized Coupons and promotions. Tesco analyzes customer purchases and customizes
its marketing based on the results. Quarterly, Tesco mails active Clubcard customers three
Ch. 1: Accounting Information Systems: An Overview
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d. What are some of the disadvantages to the Clubcard program?
Some critics believe that loyalty card programs
• Are too expensive to maintain and that companies can buy data to achieve similar results
e. Do an Internet search to find out how Tesco is doing in comparison to Wal Mart
and other grocers and retailers. Write a few paragraphs explaining your findings.
Students should easily be able to find information that updates the competition between these
two powerhouse retail companies.
Accounting Information Systems
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1.7 Have you ever imagined having one electronic device that does everything you would ever
need? Mobile phone makers in Japan have gone beyond the imagining phase. Cell phones in
Japan are becoming more versatile than ever. Newer models of cell phones contain a myriad
of applications and can do many of the things that a personal computer (PC) can do. PCs are
also able to function as phones. A small but growing number of professionals are trading in
their laptops for handheld computers. Cell phone manufacturers in the United States and
elsewhere are quickly catching up to their Japanese counterparts.
As technology is moving so quickly, there are no right answers to this question. There are
thousands of new cell phone applications are created each year. The author does not usually collect
Some things to consider mentioning are:
a. What commercial activities can be done with a cell phone? With a cell phone/PC
combination device? What do you do when you’re on your cell phone? What do you
expect to be doing in five years?
Newer models of cell phones contain a myriad of applications, including video cameras, digital
music players, television remote features, and digital recording. For example:
1. The E-wallet function virtually turns a cell phone into a credit card or debit card. Such a
cell phone can buy items from a vending machine or convenience store, pay for train tickets
3. SONY has a hard disk recorder that can be programmed via mobile phone to record TV
shows.
5. The Japanese also use cell phones as video cameras and music players.
Ch. 1: Accounting Information Systems: An Overview
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b. How can businesses utilize this technology to attract more customers, sell more products,
advertise their products, facilitate the sale of products, and conduct and manage their
businesses more efficiently and effectively?
In order to make products and services available to the consumers using cell phones, an
infrastructure must be in place. Such things as bar coded products and vending machines that
c. What are some problems or drawbacks you can see with using these devices in business?
The problems and drawbacks of these new devices include a relatively high sales price, short
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1.8 Classify each of the following items as belonging in the revenue, expenditure, human
resources/payroll, production, or financing cycle.
a. Purchase raw materials – Expenditure cycle
b. Pay off mortgage on factory – Financing cycle
c. Hire a new assistant controller – Human resources/payroll cycle
i. Decide how many units to make next month – Production cycle
j. Complete picking ticket for customer order – Revenue cycle
k. Record factory employee timecards - Human resources/payroll cycle
l. Sell concert tickets – Revenue cycle
m. Draw on line-of-credit – Financing cycle
n. Send new employees to a business ethics course - Human resources/payroll cycle
o. Pay utility bills – Expenditure cycle
p. Pay property taxes on office building – Expenditure cycle
Ch. 1: Accounting Information Systems: An Overview
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SUGGESTED ANSWERS TO THE CASES
1-1 The Web site for this book contains an adaption of Russell L. Ackoff’s classic article
“Management Misinformation Systems” from Management Science. In the article, Ackoff
identified five common assumptions about information systems and then explained why he
disagreed with them.
Read the five assumptions, contentions, and Ackoff’s explanations. For each of the five
assumptions, decide whether you agree or disagree with Ackoff’s contentions. Prepare a
report in which you defend your stand and explain your defense.
The exact nature of the answers will vary. Grading should be based on how well students defend
the positions they take. If you plan on discussing the case in class, be sure to cover these key
points:
Assumption 1: If the problem is too much information, the solution involves filtering information.
You may want to compare and contrast the effectiveness of different Internet search engines to
illustrate this point. The value of data mining in using data warehouses is also relevant here.
Assumption 4: Ackoff presents a nice example of how sometimes too much communication hurts.
Other topics that could be discussed to clarify this issue might include asking students to identify
situations in inter-personal relationships when it might not be appropriate to follow the general
adage about telling the truth. Also, discuss the interaction of performance measurement and
communications.
