Accounting Information Systems
20.1 The approach to long-range AIS planning described in this chapter is important for large
organizations with extensive investments in computer facilities. Should small organizations
with far fewer information systems employees attempt to implement planning programs?
Why or why not? Be prepared to defend your position to the class.
Yes, companies with few IS employees should attempt to implement planning programs. This is
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20.2 You are a consultant advising a firm on the design and implementation of a new system.
Management has decided to let several employees go after the system is implemented. Some
have many years of company service.
• Tell employees what is going to happen to them as soon as possible.
• Institute a hiring freeze so staff can be reduced by attrition.
How would you advise management to communicate this decision to the affected employees?
To the entire staff?
• The communication should be direct, so that the employees are the first to find out and are not
subject to the whims of rumors and uncertainty.
Accounting Information Systems
20.3 While reviewing a list of benefits from a computer vendor’s proposal, you note an item that
reads, “Improvements in management decision making—$50,000 per year.” How would you
interpret this item? What influence should it have on the economic feasibility and the
computer acquisition decision?
The item cannot be properly interpreted without further information from the computer vendor,
such as what decisions, made by which managers, are they referring to? How will the decisions be
improved by the system? Unless you get very specific answers that support the calculations, the
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20.4 For each of the following, discuss which data-gathering method(s) are most appropriate and
why:
a. Examining the adequacy of internal controls in the purchase requisition procedure –
Observation of procedures, interviews with employees, and documentation reviews (of
b. Identifying the controller’s information needs – An in-depth interview with the controller
is one way to determine her information needs. However, managers often don’t know what
information they need; they say they need the information they are now getting and little else.
needs.
c. Determining how cash disbursement procedures are actually performed – If the cash
procedures are documented, a review of that documentation will help understand how it is
d. Surveying employees about the move to a total quality management program – By using
a questionnaire, the opinions of many different employees can be gathered. Questionnaires
e. Investigating an increase in uncollectible accounts – Interviews with employees and
examination of documents will provide good initial sources of information to investigate the
Accounting Information Systems
20.5 The following problem situations occurred in a manufacturing firm. What questions should
you ask to understand the problem?
Customer complaints about product quality have increased.
• What is it, specifically, that customers are complaining about?
Accounting sees an increase in the number and dollar value of bad debt write-offs
• Has the company recently changed its credit policy? If so, why?
• Are certain customer groups more delinquent than others are?
Operating margins have declined each of the past four years due to higher-than-expected
production costs from idle time, overtime, and reworking products
• Does the production scheduling system perform satisfactorily? If not, why not?
• Are there delays in receiving materials? If so, why? What are the current policies for
handling the receipt of raw materials?
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20.6 Give some examples of systems analysis decisions that involve a trade-off between each of the
following pairs of objectives:
There are many examples of the tradeoffs between information system objectives. One example is
provided here for each pair of objectives.
a. economy and usefulness – the decision of how much information to give a credit manager to
help in deciding whether to extend credit versus the cost of providing that information.
b. economy and reliability – the decision of whether to implement a new internal control
procedure.
Accounting Information Systems
20.7 For years, Jerry Jingle’s dairy production facilities led the state in sales volume but recent
declines worry him. Customers are satisfied with his products but are troubled by the dairy’s
late deliveries and incomplete orders. Production employees (not the cows) are concerned
about bottlenecks in milk pasteurization and homogenization due to poor job scheduling, mix-
ups in customers’ orders, and improperly labeled products. How should Jerry address the
problems? What data-gathering techniques would be helpful at this early stage?
Jerry could install an information system that coordinates job scheduling, tracks customer orders,
and controls product labeling. The system can also help reduce bottlenecks in the milk
pasteurization and homogenization process by controlling production schedules.
• The person conducting the investigation should interview the employees who process, bottle,
and deliver the milk. These employees will be able to identify what is wrong with the current
process and make suggestions for improvement.
• Customers should also be interviewed to find out their needs, since meeting customer’s needs is
the ultimate goal of the company.
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20.8 A manufacturing firm needed a specialized software program to identify and monitor cost
overruns. After an extensive analysis, the company purchased prepackaged software and
assigned three programmers to modify it to meet its individual circumstances and processes.
After six months of work, during final testing, the company told them to stop all work until
20.9 Ajax Manufacturing installed a new bar code based inventory tracking system in its
warehouse. To close the books each month on a timely basis, the six people who work in the
warehouse must scan each item in a 36-hour period while still performing their normal duties.
During certain months, when inventory expands to meet seasonal demands, the scan takes as
many as 30 hours to complete. In addition, the scanners do not accurately record some
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SUGGESTED ANSWERS TO THE PROBLEMS
20.1 How do you get a grizzled veteran police officer who is used to filling out paper forms to use
a computer to process his arrests and casework—especially when he has little or no
experience using a computer? That was the problem facing the Chicago Police Department
when it decided to implement a relational database system. The system is capable of churning
through massive amounts of data to give officers the information they need to fight crime
more effectively.
Initially, the department rolled out the case component of the CLEAR (Citizen Law
Enforcement Analysis and Reporting) system that provided criminal history and arrest
records. The officers hated it, complaining that the system was not user-friendly, that
approval from supervisors was complex and involved multiple screens, and that they did not
feel properly trained on the system. After listening to the officers’ complaints for a year, the
department clearly had to do something. (Adapted from Todd Datz, “No Small Change,” CIO
(February 15, 2004): 66–72)
a. Identify as many system analysis and design problems as you can.
• Apparently, the detectives were not asked what they wanted and/or needed in the new
system. If they were asked for input, it was not adequately communicated to system
designers or it was ignored.
b. What could the department have done differently to prevent the officers’ complaints?
• If the department had involved the police officers early in the planning, analysis, and
design process, they could have:
o Helped systems analysts identify what they wanted in the new system, helped design
the new system, and given constructive feedback on the new system.
The Chicago Police Department recognized the problems with new systems and took steps to
improve system performance and user acceptance. They:
• Increased the competence of their information systems group. They were a good team,
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c. What principles of system analysis and design were violated in this case?
• Limited or no user input
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20.2 Mary Smith is the bookkeeper for Dave’s Distributing Company, a distributor of soft drinks
and juices. Because the company is rather small, Mary performs all daily accounting tasks
herself. Dave, the owner of the company, supervises the warehouse/delivery and front office
staff, but he also spends much of his time jogging and skiing.
For several years, profits were good, and sales grew faster than industry averages. Although
the accounting system was working well, bottlers were pressuring Dave to computerize. With
a little guidance from a CPA friend and with no mention to Mary, Dave bought a new
computer system and some accounting software. Only one day was required to set up the
hardware, install the software, and convert the files. The morning the vendor installed the
computer system, Mary’s job performance changed dramatically. Although the software
company provided two full days of training, Mary resisted learning the new system. As a
result, Dave decided she should run both the manual and computer systems for a month to
verify the new system’s accuracy.
Months later, Dave was very frustrated because he was still keeping the computer system up
to date and training Mary. He commented, “I’m sure Mary knows how to use the system, but
she doesn’t seem to want to. I can do all the accounting work on the computer in two or three
hours a day, but she can’t even do it in her normal eight–hour workday. What should I do?”
This is an actual case with the facts presented as accurately as possible. The objective is to
familiarize students with the behavioral issues surrounding a systems change. It is less important to
determine the “right answer” (there may not be one) that it is to discuss the issues.
a. What do you believe is the real cause of Mary’s resistance to computers?
Employee reaction to the installation of a new information system is often diverse and
unpredictable. In many cases, employees must make significant behavioral adjustments to
ensure the future success of the new system. These adjustments go well beyond mere surface
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b. What events may have contributed to the new system’s failure?
• The company did not involve Mary in the systems change. They did not ask for her
ideas, thoughts, or input. Evidently, she was not informed of the change until the
computer was moved into her office and the furniture rearranged to make room for it. It
would be easy for her to get the feeling she was not a very valued employee of the
company.
c. In retrospect, how should Dave have handled the accounting system computerization?
• Mary should have been informed of the change that was going to take place, the purpose
of the change, and why it was important to the company. Discussing these things with
Mary beforehand could have helped the company create an attitude of trust and
cooperation and could have set an example for what they expected of Mary.
system more readily.
d. At what point in the decision-making process should Mary have been informed?
Should she have had some say in whether the computer was purchased? If so, what
should have been the nature of her input? If Mary had not agreed with Dave’s decision
to acquire the computer, what should Dave have done?
• Mary should have at least been informed as soon as the decision was made to purchase
the system. Preferably, Mary should have been informed at the very start when the
company began thinking about the computer system. This would have allowed Mary to
give valuable input and to be involved throughout the entire process.
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e. A hard decision must be made regarding Mary. Significant efforts have been made to
train her, but they have been unsuccessful. What would you recommend at this point?
Should she be fired? Threatened with the loss of her job? Moved somewhere else in the
business? Given additional training?
There are advantages and disadvantages to each of the following four options. Students
1. Firing can have the following advantages:
• The company can hire a more qualified individual who can perform the job more
efficiently.
• The company can rid itself of an uncooperative employee and replace her with
someone with a more positive attitude.
2. Transferring employees can have the following advantages:
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• The company is less likely to communicate that it does not care for its employees.
3. Persuasion can have the following advantages:
• A valuable employee may be retained and her time freed up to perform tasks that are
more important.
Mary was eventually fired and another bookkeeper hired. With the new system, there was
not enough work to keep the new employee busy full time. Consequently, the employee took
over additional tasks that Dave had originally been performing. This freed him up for more
creative tasks and to have more personal time.
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20.3 Wright Company’s information system was developed in stages over the past five years. During the
design process, department heads specified the information and reports they needed. By the time
development began, new department heads were in place, and they requested additional reports.
Reports were discontinued only when requested by a department head. Few reports were discontinued,
and a large number are generated each period.
Management, concerned about the number of reports produced, asked internal auditing to evaluate
system effectiveness. They determined that more information was generated than could be used
effectively and noted the following reactions:
a. Explain whether each reaction is a functional or dysfunctional behavioral response.
1. Avoiding or delaying activity on reports during peak activity periods is dysfunctional if
they contain information that could improve company performance. If the reports
2. Having so many reports that no action or the wrong action is taken means that the
3. It is dysfunctional when a department head does not refer to report data until a fellow
4. The department head’s actions are both functional and dysfunctional. Developing
b. Recommend procedures to eliminate dysfunctional behavior and prevent its recurrence.
The dysfunctional behavior at Wright Company was a direct result of management’s failure to
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20.4 The controller of Tim’s Travel (TT) is deciding between upgrading the company’s existing
computer system or replacing it with a new one. Upgrading the four-year-old system will cost
$97,500 and extend its useful life for another seven years. The book value is $19,500, although
it would sell for $24,000. Upgrading will eliminate one employee at a salary of $19,400; the
new computer will eliminate two employees. Additional annual operating costs are estimated
at $15,950 per year. Upgrading is expected to increase profits 3.5% above last year’s level of
$553,000.
Tim’s present tax rate is 35%, and the cost of financing (minimum desired rate of return) is
11%. After seven years, the salvage value, net of tax, would be $12,000 for the new computer
and $7,500 for the present system. For tax purposes, computers are depreciated over five full
years (six calendar years; a half year the first and last years), and the depreciation
percentages are as follows:
Accounting Information Systems
Note: For illustrative purposes, all calculations other than NPV and IRR have been rounded to zero
decimal places. All costs and savings amounts are show net of tax effects.
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