copy of ais lecture 1

8/8/2019 Copy of AIS Lecture 1

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ACCOUNTING INOFRMATION

Introduction and Overview



Data and Information

Data is the raw material for dataprocessing. Data relates to facts, events,figures and transactions.Information is data that has beenprocessed in such a way as to bemeaningful to the person who receives

it.



Data Classification

Quantitative datai.e. data that is capable of being measurednumerically, e.g. the standard labour hoursrequired to produce a unit of output, invoiceamount owed to a supplier etc.

Qualitative data is that data not capable of being measurednumerically and may reflect distinguishingcharacteristics; e.g. the grade of labour usedto produce the unit of output.



Data Classification

Discrete data i.e. data that can only take on specific fixedvalues, e.g. the actual number of customers a cocan have at a particular time could be 35 but not35.3.

Continuous data i.e. data that takes any numerical value e.g. adebtors control a/c balance is Ksh 8451.521



Data Classification

Primary datais data collected for a particular enquiry in

hand, e.g. to establish a std time for accounting activity, accountants would beobserved performing a ‘value adding’activity.



Data Classification

Secondary datacollected by a trade association from a

number of firms and comprising tradeassociation statistics would becomesecondary data when used by a firm in thesector making an enquiry of its own



Classification of information

Strategic – that information relating to thelonger term planning strategic focus of thebusiness.

e.g. Strategic information would relate to thelonger-term strategy on the company’s marketshare, which in turn forms the production plan.This plan would be used to predetermine thelevel of investment required in capitalequipment in the longer term. This processwhich ‘compels planning’ would lead toinvestigating new methods for the technology.



Classification of information

Tactical – that information used in shortterm planning and decision makingwithin an organization.I.e. could include short-term Financial,production or performance budget for 12months.

Operational – that relevant day-to-daydecision making



Qualities of Accounting Information

Quality information is that, which whenused, ‘adds value’.



Relevant for the purpose

Information should always be relevant tothe issue being considered. Irrelevantinformation or sections in financialreports, can have adverse effect on theunderstanding of the information by theuser.



Completeness

I.e. all information required for decision-making should be made available. Theremust be close co-operation between theinformation provider and the end user.Therefore, all factors influencingdecision-making should be included.



Accurate for the Purpose

Managers rely on information toeffectively manage their ‘value adding’activities. For example, to satisfy theVAT regulations, a VAT invoice must beaccurate to the nearest cent. However,the aged debtors list would containrounding to the nearest Ksh.



Confidence

I.e for information to be used effectivelyby the managers, the users must haveconfidence in its source.It should be supported by the fact thatthe source was reliable in the past andthere is a good and clear channel of

communication between the provider and the user of the information.



Communicated to the right person

Managers should receive information tocarry out their defined tasks. Suchinformation should be communicated tothe right person at the right time withinthe organization.



Timely

For effective decisions to be taken,information needs to be reported tomanagement on a timely basis.

For example, a budgetary control or standard costing report containing

adverse variances would need to betimely for managers to take immediatecorrective action.



Communicated in an appropriatechannel

For a manager to use the informationeffectively it must be transmitted in thecommunication process. The processtakes many forms and the channelselected must take account of nature,purpose, speed and requirement of theuser.



Volume

The detail and volume of the informationcommunicated should be consistent withthe need of the user.

The information should focus clearly onthe issue and main points highlighted

and not ‘clouded’ by superfluous andexcessive volume.



UnderstandableThe level and skill of the manager isimportant. Managers need to continuallyupdate their skills through training for them

to fully understand their role in aresponsibility accounting environment, andto interpret the management accountingreports.

The provider of the info;n also needs tochoose the style and language appropriateto the user.



Cost Effective

That is the costs of providing informationmust not outweigh the ‘value added’benefits derived from its use.



USES OF ACCOUNTING INFO’N

1. Decision MakingInformation reduces uncertainty in decisionmaking. Adequate information on possiblealternative solution to a problem will make thedecision maker to make the right choice.



2. Performance control

Information on targets/objectives for anorg’n, an individual actual performanceetc will form a basis for assessing theperformance of a department/ unit/ anindividual in an organization.



3 Planning

I.e setting future goals based on currentinformation.



4. Historical evidence

Provides historical evidence support inauditing financial task



5. Communication

Information provides a mechanism for communication hence helps in directing,organizing, coordinating etc.



Users of accounting information

InvestorsLendersSuppliersCustomersEmployeesGovernment

Members of thepublic

Trade unionsManagement



How Accounting Information Assiststo Gain Competitive Advantage

Competitive advantage is the profitableand sustainable position.It exists in the minds of customers, whobelieves the value they will receive from aproduct or service is greater than both theprice they will pay and the value offered by

the competitors.



Strategies (for achieving Comp adv)1. Cost leadership – I.e. being the lowest cost

producer in the industry.Accounting systems support this strategy by:

Facilitating cost reductions e.g less accountantsemployed as a result of computerization of accountingsystem.Allowing better resource utilization e.g. providingaccurate stock info’n allowing lower inventories to beheld hence low costs to the org’n.Some AIS support JIT systems (reduce costs)



1. Differentiation:- differentiation is a firm's ability todistinguish its products/service from the rest of the market.If a product or service is perceived as unique, thefirm can extract an above-average profit.AIS has contributed on this by automating thetraditional accounting system hence hencedifferentiating on info’n. Users of a/c info’n can

access higher quality info’n presented in variety of ways to make quality decisions.



1. Focus:- this involves innovation strategy usedin creating a new product/service or in alteringa process

The possibility of online monitoring of transaction accounting data and the use of sophisticated modeling and drill down analysistools may result to a better product or service

to be produced /service for the customer



Accounting info as a Resource

Reasons that make accountinginformation to be considered as aresource.

Costs : i.e. accounting information incurscosts to collect, process and storeIt generates revenue : e.g. Accountinginformation can generate capital flows

through shareholders buying more shares inthe company. Also audit firms thro bookingcan generate income.



Accounting info’n can be stored just like anyother resource.Decisions made as a result of accounting info’n

can give an org’n a competitive edge.Accounting info’n requires to be managed justlike any other resource.

copy of ais lecture 1

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