Module 2 (Informating System)

• Information is a business resource
• Information failure


  A type of market failure where individuals or firms have a lack of information about economic decisions
• Types of information failure

  • Information asymmetries
  • Failure to disclose information
  • Difficulty in estimating costs and benefits
  • Lack of education/awareness
  • Framing issues
  • Moral Hazard
  • Irrelevant information / misinformation
  • Information bias
• Information asymmetries


  Where one party has access to information that another party doesn't
• Failure to disclose information


  Agents may not make full disclosure in economic transactions
• Difficulty in estimating costs and benefits

  It is often difficult to be aware of social costs of goods
• Lack of education/awareness


  Consumers unaware of the true personal cost/benefit of merit and demerit goods
• Framing issues


  Consumers influenced by how a good is portrayed when making purchasing decisions
• Moral Hazard


  Individuals alter their behavior because of certain guarantees
• Irrelevant information / misinformation


  Information that is no longer relevant or false information/slander that is hard to deny
• Information bias


  Regulators become sympathetic to the firm they are regulating and allow price rises
• Internal & External Information Flows

  1. Operations Personnel

  2. Operations Management

  3. Middle Management

  4. Top Management

  5. Customers

  6. Suppliers

  7. Stakeholders
• Operations management


  Directly responsible for controlling day-to-day operations
• Middle management


  Accountable for short-term planning and coordinating activities to accomplish organizational objectives
• Top management


  Responsible for longer-term planning and setting organizational objectives
• External users


  • Trading partners
  • Stakeholders
• Information Objectives


  • Support the firm's day to day operations
  • Support management decision making
  • Support the stewardship function of management
• Information system


  The set of formal procedures by which data are collected, processed into information, and distributed to users
• Transaction


  An event that affects or is of interest to the organization and is processed by its information system as a unit of work
• Financial transaction


  An economic event that affects the assets and equities of the organization, is reflected in its accounts and is measured in monetary terms
• Nonfinancial transaction


  An event that doesn't meet the definition of a financial transaction
• Transactions


  • Financial Transactions
  • Nonfinancial Transactions
• Accounting information system (AIS)

  Processes financial and some nonfinancial transactions
• AIS Subsystems


  • Transaction processing system (TPS)
  • General ledger/financial reporting system (GL/FRS)
  • Management reporting system (MRS)
• Transaction processing system (TPS)


  • Converts economic events into financial transactions
  • Records financial transactions in the accounting records
  • Distributes essential financial information to support operations
• General ledger/financial reporting system (GL/FRS)

  • Takes information from the TPS and other input and updates general ledger control accounts
  • Handles nondiscretionary reporting requirements
• Management reporting system (MRS)


  Provides the internal information needed to manage a business and handles discretionary reporting
• SOX legislation requires corporate management to design and implement internal controls over the entire financial reporting process and certify that these controls are effective</b>
• Management and auditors need a conceptual view of the information system that clearly distinguishes key processes and areas of risk and legal responsibility from other aspects of the system
• The General AIS Model

  1. Data Collection

  2. Data Processing

  3. Information Generation
• End users


  • External users include creditors, stockholders, government agencies, suppliers and customers
  • Internal users include management and operations personnel
• Data


  Facts which may or may not be processed and have no direct effect on a user's actions
• Information


  Causes a user to take an action that would otherwise not have been taken
• Data sources


  Financial transactions that enter the information system from internal or external sources
• Data collection


  The first operational stage in the information system to ensure data are valid, complete and free from material errors
• Levels in the data hierarchy

  • Data attribute
  • Record
  • File (or table)
• Database management


  Involves three fundamental tasks: storage, retrieval and deletion
• Information generation


  The process of compiling, arranging, formatting, and presenting information to users
• Useful information


  • Relevance
  • Timeliness
  • Accuracy
  • Completeness
  • Summarization
• Feedback


  A form of output sent back to the system as a source of data