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1. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart1of 43
C
HAPTER 1
Accounting Information
Systems:
An Overview

2. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart2of 43
INTRODUCTION
•Questions to be addressed in this chapter
include:
–What is the meaning of system, data, and
information?
–What is an accounting information system (AIS)?
–Why is the AIS an important topic to study?
–What is the role of the AIS in the value chain?
–How does the AIS provide information for decision
making?
–What are the basic strategies and strategic positions
an organization can pursue?

3. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart3of 43
SYSTEMS, DATA, AND INFORMATION
•A system is:
–A set of interrelated components
–That interact
–To achieve a goal

4. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart4of 43
SYSTEMS, DATA, AND INFORMATION
•Most systems are composed of smaller
subsystems . . .
•. . . And vice versa!

5. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart5of 43
SYSTEMS, DATA, AND INFORMATION
•Every organization has goals.
–The susbsystems should be designed to
maximize achievement of the organization’s
goals
–Even to the detriment of the subsystem itself
–EXAMPLE: The production department (a
subsystem) of a company might have to
forego its goal of staying within its budget in
order to meet the organization’s goal of
delivering product on time.

6. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart6of 43
SYSTEMS, DATA, AND INFORMATION
•Goal conflictoccurs when the activity of a
subsystem is not consistent with another
subsystem or with the larger system.
•Goal congruenceoccurs when the
subsystem’s goals are in line with the
organization’s goals.
•The larger and more complicated a
system, the more difficult it is to achieve
goal congruence.

7. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart7of 43
SYSTEMS, DATA, AND INFORMATION
•The systems conceptencourages integration
(i.e., minimizing the duplication of recording,
storing, reporting and processing).
•Dataare facts that are collected, recorded,
stored, and processed by an information system.
•Organizations collect data about:
–Eventsthat occur
–Resourcesthat are affected by those events
–Agentswho participate in the events

8. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart8of 43
SYSTEMS, DATA, AND INFORMATION
•Informationis different from data.
•Information is data that have been
organized and processed to provide
meaning to a user.
•Usually, more information and better
information translates into better
decisions.

9. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart9of 43
SYSTEMS, DATA, AND INFORMATION
•However, when you get more information
than you can effectively assimilate, you
suffer frominformation overload.
–Example: Final exams week!
•When you’ve reached the overload point,
the quality of decisions declines while the
costs of producing the information
increases.

10. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart10of 43
SYSTEMS, DATA, AND INFORMATION
Benefits of information
-Cost of producing information
Value of information
Benefits of information may include:
•Reduction of uncertainty
•Improved decisions
•Improved ability to plan and schedule activities

11. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart11of 43
SYSTEMS, DATA, AND INFORMATION
Benefits of information
-Cost of producing information
Value of information
Costs may include time and resources spent:
•Collecting data
•Processing data
•Storing data
•Distributing information to users

12. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart12of 43
SYSTEMS, DATA, AND INFORMATION
Benefits of information
-Cost of producing information
Value of information
Costs and benefits of information are often
difficult to quantify, but you need to try when
you’re making decisions about whether to
provide information.

13. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart13of 43
SYSTEMS, DATA, AND INFORMATION
•Characteristics that make information
useful:
–Relevance
It reduces uncertainty by helping you predict
what will happen or confirm what already has
happened.

14. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart14of 43
SYSTEMS, DATA, AND INFORMATION
•Characteristics that make information
useful:
–Relevance
–Reliability
It’s dependable, i.e., free from error or bias
and faithfully portrays events and activities.

15. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart15of 43
SYSTEMS, DATA, AND INFORMATION
•Characteristics that make information
useful:
–Relevance
–Reliability
–Completeness
It doesn’t leave out anything that’s important.

16. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart16of 43
SYSTEMS, DATA, AND INFORMATION
•Characteristics that make information
useful:
–Relevance
–Reliability
–Completeness
–Timeliness
You get it in time to make your decision.

17. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart17of 43
SYSTEMS, DATA, AND INFORMATION
•Characteristics that make information
useful:
–Relevance
–Reliability
–Completeness
–Timeliness
–Understandability
It’s presented in a manner you can
comprehend and use.

18. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart18of 43
SYSTEMS, DATA, AND INFORMATION
•Characteristics that make information
useful:
–Relevance
–Reliability
–Completeness
–Timeliness
–Understandability
–Verifiability
A consensus notion—the nature of the
information is such that different people
would tend to produce the same result.

19. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart19of 43
SYSTEMS, DATA, AND INFORMATION
•Characteristics that make information
useful:
–Relevance
–Reliability
–Completeness
–Timeliness
–Understandability
–Verifiability
–Accessibility
You can get to it when you need it and in a
format you can use.

20. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart20of 43
•Information is provided to both:
–External users
–Internal Users
SYSTEMS, DATA, AND INFORMATION

21. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart21of 43
•Information is provided to both:
–External users
–Internal Users
SYSTEMS, DATA, AND INFORMATION

22. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart22of 43
•External users primarily use information
that is either:
–MANDATORY INFORMATION —Required by
a governmental entity, such as Form 10-K’s
required by the SEC; or
–ESSENTIAL INFORMATION —Required to
conduct business with external parties, such
as purchase orders.
SYSTEMS, DATA, AND INFORMATION

23. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart23of 43
•In providing mandatory or essential
information, the focus should be on:
–Minimizing costs
–Meeting regulatory requirements
–Meeting minimum standards of reliability and
usefulness
SYSTEMS, DATA, AND INFORMATION

24. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart24of 43
•Information is provided to both:
–External users
–Internal Users
SYSTEMS, DATA, AND INFORMATION

25. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart25of 43
•Internal users primarily use discretionary
information.
•The primary focus in producing this
information is ensuring that benefits
exceed costs, i.e., the information has
positive value.
SYSTEMS, DATA, AND INFORMATION

26. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart26of 43
•An AIS is a system that collects, records,
stores, and processes data to produce
information for decision makers.
•It can:
–Use advanced technology; or
–Be a simple paper-and-pencil system; or
–Be something in between.
•Technology is simply a tool to create,
maintain, or improve a system.
WHAT IS AN AIS?

27. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart27of 43
•The functions of an AIS are to:
–Collect and store data about events,
resources, and agents.
–Transform that data into information that
management can use to make decisions
about events, resources, and agents.
–Provide adequate controls to ensure that the
entity’s resources (including data) are:
•Available when needed
•Accurate and reliable
WHAT IS AN AIS?

28. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart28of 43
•It’s fundamental to accounting.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
•Accounting is an information-providing
activity, so accountants need to
understand:
–How the system that provides that
information is designed, implemented
and used.
–How financial information is reported
–How information is used to make
decisions

29. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart29of 43
•It’s fundamental to accounting.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
•Other accounting courses focus on how
the information is provided and used.
•An AIS course places greater emphasis
on:
–How the data is collected and
transformed
–How the availability, reliability, and
accuracy of the data is ensured
•AIS courses are not number-crunching
courses

30. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart30of 43
•It’s fundamental to accounting.
•The skills are critical to career success.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
•Auditorsneed to evaluate the accuracy
and reliability of information produced by
the AIS.

31. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart31of 43
•It’s fundamental to accounting.
•The skills are critical to career success.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
•Tax accountantsmust understand the
client’s AIS adequately to be confident that
it is providing complete and accurate
information for tax planning and
compliance work.

32. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart32of 43
•It’s fundamental to accounting.
•The skills are critical to career success.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
•In private industryand not-for-profits,
systems work is considered the most
important activity performed by
accountants.

33. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart33of 43
•It’s fundamental to accounting.
•The skills are critical to career success.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
•In management consulting, the design,
selection, and implementation of
accounting systems is a rapid growth area.

34. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart34of 43
•It’s fundamental to accounting.
•The skills are critical to career success.
•The AIS course complements other
systems courses.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
•Other systems courses focus on design and
implementation of information systems,
databases, expert systems, and
telecommunications.
•AIS courses focus on accountability and
control.

35. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart35of 43
•It’s fundamental to accounting.
•The skills are critical to career success.
•The AIS course complements other
systems courses.
•AIS topics are tested on the new CPA
exam.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
•Makes up about 25% of the Business
Environment & Concepts section of the CPA
exam.

36. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart36of 43
•It’s fundamental to accounting.
•The skills are critical to career success.
•The AIS course complements other
systems courses.
•AIS topics are tested on the new CPA
exam.
•AIS topics impact corporate strategy
and culture.
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?

37. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart37of 43
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
AIS
Occupational
Culture
Strategy
Information
Technology
AIS design is
affected by
information
technology, the
organization’s
strategy, and the
organization’s
culture.

38. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart38of 43
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
AIS
Occupational
Culture
Strategy
Information
Technology
Information technology
affects the company’s
choice of business
strategy. To perform
cost-benefit analyses on
IT changes, you need to
understand business
strategy.

39. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart39of 43
WHY STUDY ACCOUNTING
INFORMATION SYSTEMS?
AIS
Occupational
Culture
Strategy
Information
Technology
While culture affects
the design of the AIS,
it’s also true that the
AIS affects culture by
altering the
dispersion and
availability of
information.

40. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart40of 43
•The objective of most organizations is to
provide value to their customers.
•What does it mean to deliver value?
•Let’s peek in on a conversation at Joe’s
pharmacy . . .
ROLE OF THE AIS IN THE VALUE CHAIN

41. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart41of 43
ROLE OF THE AIS IN THE VALUE CHAIN
Well, Mr. Pharmaceutical
Salesman, your proposal looks
good, but your prices are about
5% higher than your competitors.

42. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart42of 43
ROLE OF THE AIS IN THE VALUE CHAIN
That’s true, but we’re
comfortable with that
because of the value-
added that we bring to
this arrangement.

43. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart43of 43
ROLE OF THE AIS IN THE VALUE CHAIN
What is that “value-added,”
and how do you convert it
into dollars?

44. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart44of 43
ROLE OF THE AIS IN THE VALUE CHAIN
Blah—blah—blah–
customer service–
blah—blah--blah

45. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart45of 43
•While “adding value” is a commonly used
buzzword, in its genuine sense, it means making
the value of the finished component greater than
the sum of its parts.
•It may mean:
–Making it faster
–Making it more reliable
–Providing better service or advice
–Providing something in limited supply (like O-negative
blood or rare gems)
–Providing enhanced features
–Customizing it
ROLE OF THE AIS IN THE VALUE CHAIN

46. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart46of 43
•Value is provided by performing a series of
activities referred to as the value chain.
These include:
–Primary activities
–Support activities
•These activities are sometimes referred to
as “line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN

47. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart47of 43
•Value is provided by performing a series of
activities referred to as the value chain.
These include:
–Primary activities
–Support activities
•These activities are sometimes referred to
as “line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN

48. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart48of 43
•Primary activities include:
–Inbound logistics
ROLE OF THE AIS IN THE VALUE CHAIN
Receiving, storing, and distributing the
materials that are inputs to the
organization’s product or service.
For a pharmaceutical company, this activity
might involve handling incoming chemicals
and elements that will be used to make their
drugs.

49. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart49of 43
•Primary activities include:
–Inbound logistics
–Operations
ROLE OF THE AIS IN THE VALUE CHAIN
Transforming those inputs into products or
services.
For the pharmaceutical company, this step
involves combining the raw chemicals and
elements with the work of people and equipment to
produce the finished drug product that will be sold
to customers.

50. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart50of 43
•Primary activities include:
–Inbound logistics
–Operations
–Outbound logistics
ROLE OF THE AIS IN THE VALUE CHAIN
Distributing products or services to customers.
For the pharmaceutical company, this step involves
packaging and shipping the goods to drug stores,
doctors, and hospitals.

51. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart51of 43
•Primary activities include:
–Inbound logistics
–Operations
–Outbound logistics
–Marketing and sales
ROLE OF THE AIS IN THE VALUE CHAIN
Helping customers to
buy the organization’s
products or services.
A pharmacy rep may
visit with drug stores,
doctors, etc. to inform
them about their
products and take
orders.

52. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart52of 43
•Primary activities include:
–Inbound logistics
–Operations
–Outbound logistics
–Marketing and sales
–Service
ROLE OF THE AIS IN THE VALUE CHAIN
Post-sale support provided to
customers such as repair and
maintenance function.
A pharmaceutical firm will
typically not be repairing it’s
product (though the product may
be periodically reformulated).
The pharmaceutical company is
more likely to be providing
advisory services to pharmacists,
etc.

53. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart53of 43
•Value is provided by performing a series of
activities referred to as the value chain.
These include:
–Primary activities
–Support activities
•These activities are sometimes referred to
as “line” and “staff” activities respectively.
ROLE OF THE AIS IN THE VALUE CHAIN

54. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart54of 43
•Support activities include:
–Firm infrastructure
ROLE OF THE AIS IN THE VALUE CHAIN
Accountants, lawyers, and administration.
Includes the company’s accounting
information system.

55. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart55of 43
•Support activities include:
–Firm infrastructure
–Human resources
ROLE OF THE AIS IN THE VALUE CHAIN
Involves recruiting and hiring new
employees, training employees, paying
employees, and handling employee
benefits.

56. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart56of 43
•Support activities include:
–Firm infrastructure
–Human resources
–Technology
ROLE OF THE AIS IN THE VALUE CHAIN
Activities to improve the products or services
(e.g., R&D, website development).
For the pharmaceutical company, these activities
would include research and development to
create new drugs and modify existing ones.

57. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart57of 43
•Support activities include:
–Firm infrastructure
–Human resources
–Technology
–Purchasing
ROLE OF THE AIS IN THE VALUE CHAIN
Buying the resources (e.g.,
materials, inventory, fixed
assets) needed to carry out the
entity’s primary activities.
In the pharmaceutical company,
the purchasing folks are trying
to get the best combination of
cost and quality in buying
chemicals, supplies, and other
assets the company needs to
run its operations.

58. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart58of 43
•Information technology can significantly
impact the efficiency and effectiveness
with which the preceding activities are
carried out.
•An organization’s value chain can be
connected with the value chains of its
customers, suppliers, and distributors.
ROLE OF THE AIS IN THE VALUE CHAIN

59. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart59of 43
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
For example, the inbound logistics of
Pharmaceuticals, Inc., links to the outbound
logistics of its suppliers.

60. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart60of 43
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
And the outbound logistics of
Pharmaceuticals, Inc., links to the inbound
logistics of its customers.

61. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart61of 43
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
The linking of these separate value chains
creates a larger system known as a supply
chain.

62. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart62of 43
Pharmaceuticals, Inc.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
ROLE OF THE AIS IN THE VALUE CHAIN
Smith Supply Co.
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Customer Pharmacy
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
The linking of these separate value chains
creates a larger system known as a supply
chain.
Information
technology can
facilitate synergistic
linkages that improve
the performance of
each company’s value
chain.

63. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart63of 43
•There is variation in the degree of
structure used to make decisions:
–Structured decisions
ROLE OF THE AIS IN THE VALUE CHAIN
•Repetitive and routine
•Can be delegated to lower-level employees
•EXAMPLE: Deciding whether to write an
auto insurance policy for a customer with a
clean driving history.

64. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart64of 43
•There is variation in the degree of
structure used to make decisions:
–Structured decisions
–Semistructured decisions
ROLE OF THE AIS IN THE VALUE CHAIN
•Incomplete rules
•Require subjective assessments
•EXAMPLE: Deciding whether to sell auto
insurance to a customer with a tainted
driving history.

65. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart65of 43
•There is variation in the degree of
structure used to make decisions:
–Structured decisions
–Semistructured decisions
–Structured decisions
ROLE OF THE AIS IN THE VALUE CHAIN
•Non-recurring and non-routine
•Require a great deal of subjective
assessment
•EXAMPLE: Deciding whether to begin
selling a new type of insurance policy

66. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart66of 43
•There is also variation in the scope of a
decision’s effect:
–Occupational control decisions
ROLE OF THE AIS IN THE VALUE CHAIN
•Relate to performance of specific tasks
•Often of a day-to-day nature
•EXAMPLE: Deciding whether to order
inventory

67. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart67of 43
•There is also variation in the scope of a
decision’s effect:
–Occupational control decisions
–Management control decisions
ROLE OF THE AIS IN THE VALUE CHAIN
•Relate to utilizing resources to accomplish
organizational objectives
•EXAMPLE: Budgeting

68. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart68of 43
•There is also variation in the scope of a
decision’s effect:
–Occupational control decisions
–Management control decisions
–Strategic planning decisions
ROLE OF THE AIS IN THE VALUE CHAIN
•The “what do we want to be when we grow
up” types of questions
•Involves establishing
–Organizational objectives
–Policies to achieve those objectives
•EXAMPLE: Deciding whether to diversify the
company into other product lines

69. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart69of 43
•In general, the higher a manager is in the
organization, the more likely he/she is to
be engaging in:
–Less structured decisions
–Broader scope (i.e., strategic planning)
decisions
ROLE OF THE AIS IN THE VALUE CHAIN

70. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart70of 43
•Corporations have:
–Unlimited opportunities to invest in technology
–Limited resources to invest in technology
•Consequently, they must identify the
improvements likely to yield the highest
return.
•This decision requires an understanding of
the entity’s overall business strategy.
THE AIS AND CORPORATE STRATEGY

71. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart71of 43
•Michael Porter suggests that there are two
basic business strategies companies can
follow:
–Product-differentiation strategy
–Low-cost strategy
THE AIS AND CORPORATE STRATEGY

72. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart72of 43
•Michael Porter suggests that there are two
basic business strategies companies can
follow:
–Product-differentiation strategy
–Low-cost strategy
THE AIS AND CORPORATE STRATEGY

73. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart73of 43
•A product differentiation strategy involves
setting your product apart from those of
your competitors, i.e., building a “better”
mousetrap by offering one that’s faster,
has enhanced features, etc.
THE AIS AND CORPORATE STRATEGY

74. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart74of 43
•Michael Porter suggests that there are two
basic business strategies companies can
follow:
–Product-differentiation strategy
–Low-cost strategy
THE AIS AND CORPORATE STRATEGY

75. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart75of 43
•A low-cost strategy involves offering a
cheaper mousetrap than your competitors.
The low cost is made possible by
operating more efficiently.
THE AIS AND CORPORATE STRATEGY

76. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart76of 43
•Sometimes a company can do both, but
they normally have to choose.
THE AIS AND CORPORATE STRATEGY

77. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart77of 43
•Porter also argues that companies must
choose a strategic position among three
choices:
–Variety-based strategic position
THE AIS AND CORPORATE STRATEGY
•Offer a subset of the industry’s
products or services.
•EXAMPLE: An insurance company
that only offers life insurance as
opposed to life, health, property-
casualty, etc.

78. © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart78of 43
•Porter also argues that companies must
choose a strategic position among three
choices:
–Variety-based strategic position
–Needs-based strategic position
THE AIS AND CORPORATE STRATEGY
•Serve most or all of the needs of a particular
group of customers in a target market.
•EXAMPLE: The original Farm Bureau-based
insurance companies provided a portfolio of
insurance and financial services tailored to the
specific needs of farmers.

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•Porter also argues that companies must
choose a strategic position among three
choices:
–Variety-based strategic position
–Needs-based strategic position
–Access-based strategic position
THE AIS AND CORPORATE STRATEGY
•Serve a subset of customers who differ from
others in terms of factors such as geographic
location or size..
•EXAMPLE: Satellite Internet services are
intended primarily for customers in rural areas
who cannot get DSL or cable services.

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•Porter also argues that companies must
choose a strategic position among three
choices:
–Variety-based strategic position
–Needs-based strategic position
–Access-based strategic position
•These strategic positions are not
mutually exclusive and can overlap.
THE AIS AND CORPORATE STRATEGY

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•Choosing a strategic position is important
because it helps a company focus its efforts as
opposed to trying to be everything to everybody.
–EXAMPLE: A radio station that tries to play all types
of music will probably fail.
•It’s critical to design the organization’s activities
so they reinforce one another in achieving the
selected strategic position. The result is
synergy, which is difficult for competitors to
imitate.
THE AIS AND CORPORATE STRATEGY

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•The growth of the Internet has profoundly
affected the way value chain activities are
performed:
–Inbound and outbound logistics can be streamlined
for products that can be digitized, like books and
music.
–The Internet allows companies to cut costs, which
impacts strategy and strategic position.
–Because the Internet is available to everyone, intense
price competition can result. The outcome may be
that many companies shift from low-cost to product-
differentiation strategies.
–The Internet may impede access-based strategic
positions.
THE AIS AND CORPORATE STRATEGY

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•The AIS should help a company adopt and
maintain its strategic position.
–Requires that data be collected about each
activity.
–Requires the collection and integration of both
financial and nonfinancial data.
THE AIS AND CORPORATE STRATEGY

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•The authors believe:
–Accounting and information systems should
be closely integrated.
–The AIS should be the primary information
system to provide users with information they
need to perform their jobs.
THE AIS AND CORPORATE STRATEGY

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SUMMARY
•What we’ve learned so far:
–The meaning of system, data, and
information
–What an AIS is
•Why it’s an important topic to stody
•What its role is in the value chain
•How it provides information for decision making
–What are the basic strategies and strategic
positions an organization can pursue
•How these interact with the AIS