(Solution Manual) Corporate Accounting Information Systems

Boczko, 1

Business

Solution Manual

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Solution Manual for Corporate Accounting Information Systems, The downloadable file consists of 341 pages, and the total size of the file is 1.13 MB. Purchase now only for highly discounted price.

Author(s): Boczko

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Solutions Manual Corporate Accounting Information Systems First Edition 33 © Pearson Education Limited 2007 Solutions to end-of-chapter questions 34 © Pearson Education Limited 2007 CHAPTER 1 Information systems in accounting and finance: a contemporary overview Question 1 The long-term financial objective of a company is often seen as being ‘…the maximisation of shareholder wealth.’ Briefly describe how a company’s accounting information system can assist in achieving this objective. Suggested Answer There is an intimate relationship between: • the corporate search for comparative advantag e and the elimination of competitive threats and environmental disturbances • the development of market opportunities and the op timisation of the long-term rate of return • the management of social, political and economic change and, • the maximisation of shareholder wealth. While there can be little doubt that the maximisation of shareholder wealth is seen – at least in liberal economic context as the primary long-term financial objective, the key to sustainable long-term success is information. Indeed, as s uggested by Lynch (2003)1: ‘….whether it ... (a company)… needs to make a profit or not, ever y organisation needs information to survive,’ (Lynch 2003: 402). Information that can be used to; • control activity • compare performance • ensure accountability • facilitate surveillance and perhaps most important of all • enforce regulations. Because of the vast the range of influences aff ecting the company, the continued survival and growth of a company increasingly depends on a supply of effective accounting information – on a wide range of issues – to a wide range of diverse stakeholder groups. In maximising 1 Lynch R. (2003) Corporate Strategy,Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 35 © Pearson Education Limited 2007 shareholder wealth, and ensuring – at least th eoretically – corporate survival, corporate accounting information systems possess two common interrelated purposes: • to provide users with information – or a ‘deci sion facilitating function’ – that is, a function concerned with assisting decision making/decision makers by providing ‘useful’ information and, • to support decision making and facilitate cont rol – or a ‘decision influencing/mediating function’ – that is a function concerned with controlling and inducing alternative forms of behaviour in transacting parties where conflic t exists and/or mediation is required. Question 2 Contemporary accounting information systems ar e ultimately political in nature. Discuss. Suggested Answer Like all socially created organisational struct ures, corporate accounting information systems are political in nature and possess a range of general characteristics: • they are goal orientated – that is they are purposeful • they are generally composed of a range of interacting components (subsystems) • they exist/function with a hierarchical context • as a system they have a defined (often imposed) boundary and • as system they possess synergistic qualities. More importantly, because corporate accounting in formation systems have many users, and involve many different gr oups of stakeholders, they are subject to a range of social, political and economic influences and controls – both inte rnal to, and external of the company. Such internal influences include issues related to: • the size of the company, • the knowledge base and intellectual capacity of the company (and its employees) • the structure/organisation of the company, a nd the complexity of information demands and requirements • internal management factors/features and of course • the availability of company resources. Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 36 © Pearson Education Limited 2007 Such external influences would include issues related to: • political influences such as company law requi rements and other legal/political requirements imposed by quasi-governmental organisations • social influences such as professional reporting standards requirements like UK GAAP, and other professional pronouncements • economic influences such as market regulatory requirements (London Stock Exchange requirements), and other industry st andards/regulations and of course • technological influences such as of hardware/software technologies constraints Question 3 The increasing uncertainty and risk of organi sational activity has resulted in an increasing dependency on trust systems. Explain to what extent contemporary accounting information systems can be regarded as a trust system and illu strate how it is related to the changing nature of capital. Suggested Answer The continued dominance of contemporary market capitalism remains a central feature of today’s global business environment. A global business environment in which the primary aim of traditional market based economic activity is the achievement and maintenance of competitive advantage and wealth maximisation. However, while the transformative consequences of global capital and the dominance of market economics in the late 20th and early 21st century have produced many social, political and economic benefits (e.g., in a macro context su stained national/interna tional economic growth, national/international market stability, social and political security and in a micro context, low investment risk, stable corporate growth and increasing market/product opportunities/ development), such benefits have been, and indeed continue to be achieved at some social, economic and political cost. The achievement and maintenance of competitive advantage, the development and maintenance of key success factors, the extending of product and service life cycles and the continued maximisation of product and service profitability , have all become heavily dependent on information – on information and communicati on technologies – on intangible knowledge based systems, (specifically accounting information) to ensure the effective management of corporate resources, the accurate measurement of corporate performance and provide a necessary determination of continued corporate survival. While the need for information is by no means a new phenomenon, in a global business environment increasingly shaped by the comp lex business transactions that have become evermore uncertain, evermore compressed and in creasingly lacking in transparency, corporate business activities have out of necessity, b ecome bound with a growing dependency on networks of surveillance – on regulation and control – on the development of sophisticated Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 37 © Pearson Education Limited 2007 systems for collecting, storing and processing info rmation – on networks of trust, not in people but in systems Such networks of trusts exist not because of a lack of power – but because of a lack of knowledge. More importantly such trust in systems provides a means of: • understanding the causes of change • controlling the effects of change and • regulating the impact of change Such a trust in systems has become an important component of a market based society in which the need to know and the ability to control have become a central feature in the search for competitive advantage – the search for profit – th e maximisation of corporate wealth. A market based society in which the politics of global competition and the economics of the marketplace have not only contributed to changing the structur e, nature and context of contemporary society itself, but more importantly contributed to changing contemporary notions/perceptions of the company – the corporate entity. Question 4 All users of corporate accounting information sy stems are interested in one issue only – how profitable is the company/will the company be. Discuss. Suggested Answer While in a traditional liberal economic manageme nt context maximising shareholder wealth is seen as essential to the continued survival, gr owth and success of a company, there is nonetheless a wide range of diverse stakeholder groups – both internal and external to the company whose priorities may not necessarily be directly by dictated by the demands for shareholder wealth maximisation. Clearly, the nature, size, location and complexity of a company will have a direct impact on not only the range of corporate accounting information systems users, but also on the types of information various stakeholder groups may requi re. For example, a large diversified UK based multinational company would have a greater range of accounting information systems users and information demand requirements than say a small regional single purpose private limited company. So who are the users of corporate accounting information systems? The primary internal users of any corporate accounting information systems would be: • financial accountant • account managers • management accountants Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 38 © Pearson Education Limited 2007 • systems developers • internal auditors and • other departmental managers. Many of these users would be generally con cerned with outputs from the corporate accounting information system. For example, outputs such as: • profit and loss accounts • financial statements of affairs and balance sheets • cash flow statements • performance budgets/reports • costing and activity reports and • financing summaries. Others would of course also be interested in: • accounting information systems inputs, for example, the collection/recording of relevant business transactions • accounting information systems processes, for ex ample, the processing and maintenance of proper accounting records and • accounting information systems controls, for example, the application of appropriate regulatory requirements and standards. Such users would for example, include the financ ial accountant, internal auditor and perhaps the systems developer. The primary external users of any corporate accounting information systems would be: • shareholders • external auditors • shareholders and potential lenders • markets regulators • government regulators • taxation authorities • suppliers and creditors and • other interest groups such as trades unions, employee groups and other social/political agencies. Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 39 © Pearson Education Limited 2007 As with internal users, many of these external users would be generally concerned with outputs from the corporate accounting information system. For example, outputs such as: • published profit and loss accounts • balance sheet and • cash flow statements Again, as with internal users, so me external users would of course also be interested in inputs, process and relevant controls. Such users would for example, include the external auditor, government regulators, market regulators and or course taxation authorities and their interest would generally derive from some le gal and/or institutional requirement. Question 5 Contemporary accounting information systems can be regarded the fundamental/core resource/ asset of any corporate organisation. Discuss. Suggested Answer The basis of contemporary market based cap italism is the notion of resource movement/ exchange – that is the temporal and spatia l displacement of resources is the foundation of conventional economic activity, corporate prof itability and wealth maximisation. More importantly, from a liberal economic perspective at least, such resource movement/exchange is also the foundation of continued corporate survival. Indeed, in today’s highly competitive (some would say chaotic) global market place companies must not only be flexible and adaptive, but also responsive to social, political and economic change. One consequence of this need/desire for continued flexibility/adaptability in an ever more hectic business environment, is that corporate accounting information systems as an essential part of a company’s arsenal of competitive technologies have become increasingly complex – a complexity directly related to notions of security, of control and risk reduc tion. A complexity directly influenced by: • ever increasing volumes of accounting/financ ial management data and business data processing, • ever increasing demands of internal and exte rnal users to reduce data processing times, • an evermore critical emphasis placed on correct processing, • an increasing importance of detail management, • ever increasing computerisation of accounting/ financial management transactions and, • ever increasing requirement/demand of market participants to minimise, management/ regulatory intervention in competitive business activities However, despite such ever increasing pressures, corporate accounting information systems are by their very nature created resource structures – that is they emerge from a need/desire to Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 40 © Pearson Education Limited 2007 protect, control and manage resource activities and wealth creation processes, the purpose of such systems being to provide 2 clear functions: • a decision facilitating function and • a decision influencing/mediating function. Such a duality of function can and indeed ofte n is interpreted in a number of alternative contexts. Such contexts include: • a procedural/processing context, • an organisational and re lational context and, • a functional context. From a procedural/processing context, corporat e accounting information systems are essentially ‘data transformation management systems.’ That is, such a contextualisation of corporate accounting information systems suggests that the pur pose of such a system is to facilitate five key procedures: • data collection • data maintenance • data management • data control and • information generation. From an organisational context corporate accounting information systems are essentially hierarchical information systems. They are designed to: • assist in defining business strategies/policies • embed information into tactical decision making processes • provide useful information for operational control purposes From a relational context corporate accounting information systems are essentially a component part of an integrated corporate information sy stem. They exist as an essential part/component of a company’s overall management information system, Such organisational and relational contexts are of course related to a range of internal/external factors such as: • size of the company and the complexity of corporate structures/lines of accountability • organisation of the company and the intricacy of data/information flows, • company maturity and the current stage of corporate evolution/development Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 41 © Pearson Education Limited 2007 • internal psychological factors and the unde rlying nature/philosophy of management behaviour/activity. Also the related the attitudes of information users • external environmental factors (including so cial/political/geographical factors) and the levels of risk and competition the company faces and • company resources and the availability of fina ncial resources for investment in systems development. From a functional context corporate accounting information systems are essentially transaction processing systems. They are designed to mirror a company’s cycles of operation and/or business activity – the temporal and spatial displacement of resources founded on the following: • tangible/intangible products and services absorb resource expenses • resources are bought and sold • resources are converted • equity is increased and/or diminished and • debts are incurred and/or liquidated Such activities are generally analysed within the context of four functional subsystems: • an expenditure cycle – generally consisting of an acquisition control system, a receiving and inspection system and a purchasing and creditor system • a conversion cycle – generally consisting of a stock control system, a production control system and a payroll system • a revenue cycle – generally consisting of a ma rketing system, a transportation system and sales and debtors system and • a management and administrative cycle – generally consisting of a cash receipts and payments system, a fixed assets and property system, and a general ledger system. 42 © Pearson Education Limited 2007 CHAPTER 2 Systems thinking: understanding the connections Question 1 Classical systems theory often considers a comp any to be a ‘hard’ closed system, whereas contemporary systems theory often considers a company to be a ‘soft’ open system. Required Define ‘hard’ and ‘soft’ systems. With the aid of diagrams, comment on, and di scuss the difference between these two theoretical approaches, and their implications on designing computer based accounting information systems. Suggested Answer Burrell and Morgan’s (1979)1, developed a framework c onstructed on two simple dimensions/criteria; • an ontological dimension, that is, a subjective/objective criteria, and • an ethical/contextual dimension, that is a change criteria or a scale ranging from radical and chaotic change to regulation and stability. While such a framework provides a structure with in which two broad categories of systems (or views of social reality can be identified); • a hard systems view, or hard systems thinking, and • a soft systems view, or soft systems thinking A hard system is a system which possesses/exhi bits highly structural characteristics, is functional in nature, and based on strict definitive rules. 1 Burrell, G. and Morgan, G. (1979) Sociological Paradigms and Organizational Analysis: Elements of the Sociology of Corporate Life , Heinemann, London. Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 43 © Pearson Education Limited 2007 Within hard systems context Burrell and Morgan (1979) identified two views; • the functionalist view, which perceives social r eality/systems to be real, external to the individual, structured, purposeful and stable. Individuals are regarded as no more than a component part, with understanding based on id entifying relationships and regularities, and • the radical structuralist view which perceiv es social reality/social systems to be real, structured, but generally unstable. Agai n human intention is secondary, however, understanding is based on identifying contra dictions, irregularities and conflict. Radical Change Regulation Subjective Objective Radical StructuralismRadical Humanism Interpretive FunctionalistTony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 44 © Pearson Education Limited 2007 A soft system is a system which possesses/exhi bits significant humanist characteristics, is interpretive in nature and based on consensual intention and free will. Within soft systems context Burrell and Morgan (1979) identified two further views of social reality/systems; • the interpretive view, which perceives social reality/social systems to be humanist, interpretive in nature and based on consen sual intention and free will, but nonetheless stable, and • the radical humanist view, which perceives social reality/social systems to be humanist, creatively constructed and as such interpretiv e in nature, but generally unstable with arrangements and relationships be transi ent and subject to continuing change. But what is the importance and relevance of this distinction to computer based accounting information systems? Accounting in general, and accounting information systems in particular are often viewed as a hard system, as functionalistic, structured, purposeful, specific and stable. However, nothing could be further from the truth! Financial statements are socially constr ucted and politically created statements. More importantly, the human interface that is ev er present in corporate accounting systems, the choice, the flexibility and the interpretive nature of accounting standards and regulations used in the preparation (and creation) of such financia l statements all result in unstable and sometimes contradictory, often unpredictable outcomes. Question 2 ‘Management do not always know what information they need and information specialists often do not know enough about management to produce re levant information for the managers they serve. An example given by Professor Kaplan gra phically illustrates this point. He reported that a group of American industrialists visiting Japan found that their counterparts were regularly supplied with information on the proportion of pr oducts that pass through the factory without re- working or rectification. They found that a typi cal percentage of products that needed no re- working was 92%. The American managers found that this information was not available to them at their factories at home but on investigation it was found that their ratio was 8%. They then worked on this factor for 6 months at whic h point the ratio had moved up to 66% and, more importantly, productivity was 25% higher.’ (Lucey, 2000:3)2 Required Assume that you are the Information Systems Director of Test Kits Ltd. This is a growing company, which produces a range of chemical test kits for a wide range of products and markets. Currently the company is experiencing a boom in demand for its BSE test kit for beef. 2 See Lucy, T., (2000) Management Information Systems, Letts, London. Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 45 © Pearson Education Limited 2007 You were planning a presentation to the Bo ard of Directors entitled ‘The Accounting Information System: An abstract representation of the company’, when your Managing Director hands you the above quotation. He asks you to address those issues raised in the quotation in your presentation, and also how they affect lower, middle and senior management. Draft out the main points of the Information Systems Director’s presentation. Ensure that you include a definition and diagram of a system and its principal components, explain the principal systems concepts and address the practical problems raised in the quotation. Suggested Answer First, all systems exist within a range of differi ng levels of complexity. As suggested by Wren (1994)3 alternative levels of complexity can be id entified within systems thinking, these being: • level 1 – a structural framework, a static, predictable and descriptive system • level 2 – a clockwork system – a semi-dynamic, moving and predictable system that must be controlled externally • level 3 – a cybernetic system – a semi-dynamic and predictable system, capable of self- regulation within certain limits • level 4 – a cell – an open and dynamic system, programmed for self-maintenance under changing external conditions • level 5 – a plant system – an open, dynamic a nd genetically determined system, capable of self-regulation through wide range of cha nging external and internal conditions • level 6 – an animal system – an open, dynamic and genetically determined system that adjusts to its environment by making internal adjustments and by forming simple social groups • level 7 – a human being – an open, dynamic and self-regulating system, that is adaptive through wide circumstances because of the ab ility to think abstractly and communicate symbolically • level 8 – a social system – a system more complex than an individual, more open to environmental influence, and more adap tive to circumstance because of collective experience and a wider reservoir of skills and • level 9 – a transcendental system – a system that is freely adaptable to circumstance and change because it rises above and extends be yond the boundaries of both individuals and social systems. May infer a teleological underpinning. 3 See Wren, D., A., (1994) The evolution of management thought , Wiley, New York Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 46 © Pearson Education Limited 2007 Second, all systems, whether hard or soft have a number of common elements, these being: • input • throughput or transformation process • output • an external environment, and boundary • control • feedback, and were appr opriate feedforward and • a goal and/or objective. Third all systems possess the following fundamental s, if somewhat generic characteristics: • all systems consists of a set of objectives and their relationships • all systems tend toward equilibrium (or balance) • the constant interaction between systems r esults an a constant state of flux/change • all systems are composed of interrelated part s – that is a hierarchical system/subsystem relationship • where such subsystems are arranged in a series, the output of one is the input for another; therefore, process alterations in one re quires alterations in other subsystems • the parts of the system (subsystems) constitute an indissoluble whole • although each subsystem may be a self-contained system, it is nonetheless part of a wider and higher order • each subsystem works together towards the goal of the higher system. • the system (and subsystems) must exhibit some predictability, however, some systems are very complex and are impacted by an infinite number of other systems, and as such can never attain total predictability of effects • the value of the system is greater than the sum of its parts (or individual subsystems) • to be viable, all systems must be strongly goa l-directed, governed by feedback, and have the ability to adapt to changing circumstances – that is exhibit properties of emergent evolution and • no system exists in isolation. A system interfaces with other systems that may be of a similar or different nature. Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 47 © Pearson Education Limited 2007 In the extract, the flow of information regardi ng the reworking would be part of the control cycle – specifically part of the feedback process. It would appear that the component parts of the control cycle feedback loop (see Chapter 3) are functioning adequately. The term feedback loop refers to a ‘systemic connection’ and can comprise of any mechanism, process, procedure and/or action either physical (tha t is manually orientated), or virtual (that is essentially computer orientated), which gathers da ta on past performance from the output side of a system or set of inter-connected systems. The data are used to direct future performance by adjusting the input side of a system or set of inter-connected systems. The component parts of a feedback loop would be; • a sensor – an organisational system(s) for measuring actual outcomes • a comparator – an organisational system(s) for comparing actual outcomes with expectation • an effector – an organisational system(s) used to issue instructions based on comparisons. Such a feedback loop can have many levels, fo r example, single-loop feedback (one level), double-loop feedback (two levels) in which a hi gher order control facility is introduced, or multi-loop feedback in which a number of higher order control facilities exist. Question 3 ‘Sociological systems theory contributed a pr ofound understanding of the nature and role of organisational subsystems in mee ting organisational needs. The inspiration came in the form of a rigorous working out of the idea that organisms – and other types of complex systems – were ‘open systems.’ (Jackson 1991: 48)4 Required Explain, with the aid of a diagram, the relevance to an understanding of the accounting information system of ‘open systems’. Suggested Answer Social systems possess a number of distinguishing characteristics. First, there is a distinction between a static system and a dynamic system. A static system is a system in which neither th e system elements nor the system itself changes much over time in relation to the environment (e.g., level 1). 4 See Jackson, M, C., (1991) Systems Methodology for the Management Sciences , Plenum, London Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 48 © Pearson Education Limited 2007 A dynamic system is a system, which is not onl y constantly changed by the environment, but also changes the environment, in which it exists , (e.g., levels 4 to 9) . Levels 2 and 3 could perhaps best be described as semi-dynamic (or semi-static), since control and influence is generally external imposed/moderated (see below). Second there is a distinction between an open system and a closed system. 9. Transcendental system 8. Social system 7. Human beings 6 Animal system 6. Animal system 5. Plant system 4. Cell 3. Cybernetic system 2. Clockwork system 1. Structural Framework Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 49 © Pearson Education Limited 2007 An open system is a system which is interactiv e with the environment, exchanging information, energy and/or raw materials for information, goods and/or services produced by the system. Such systems are generally self-regulating, a nd capable of growth, development and more importantly, adaptation. Example of such system s would range from nature based systems such as the human body and other plants and animals to created organisational systems such as banks and financial institutions, manufacturing plan ts, governmental bodies, associations, businesses and many more (see below) A closed system is a system which is not inte ractive with its environment. Fixed and often automatic relationships exist between syst em components with no exchange with the environment. Such systems are generally incapable of growth, or any form of development/adaptation and as such possess limited life. Examples of such systems would range from nature based systems such as, a rock as an example of the most closed type of system, to a mechanistic process such as an autonomous piece of manufacturing machinery, to detached social systems such as families and/or commun ities that are isolated from the society and resistant to any outside influence (see below) Input Process Output Control Environment Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 50 © Pearson Education Limited 2007 This distinction between an open system and a cl osed system also encap sulates what is called the ‘principle of equifinality’ – that is the capac ity of an open system, because of its interactive nature, to reach its final state or achieve its goal(s) and objective(s) in a number of different ways, whereas a closed system can only achieve its final goal(s)/objective(s) or state based on its initial conditions. Question 4 Katz and Kahn in The Social Psychology of Orga nisations (1966) cite five generic types of subsystem to meet an organisation’s functional needs: • The production or technical subsystem, concerned with the work done on the throughput • The supportive subsystem, concerned with obtaini ng inputs and disposing of outputs • The maintenance subsystem, which ensures conformance of personnel to their roles through selection, and through rewards and sanctions. • The adaptive subsystem, ensuring responsiveness to environmental variations • The managerial subsystem, which directs, co-ordinat es and controls other subsystems and activities through various regulatory mechanisms. Required Identify these subsystems in accounting terms, and give an example of how the accounting information system obtains and supplies information for each of these subsystems. Input Process Output Control Environment Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 51 © Pearson Education Limited 2007 Suggested Answer In accounting terms – specifically an accounting in formation system context, the above generic subsystems could be mapped as follows: The production and technical subsystem is a subsyste m concerned with converting inputs into outputs and is responsible for the creation and development of saleable products and services. In an accounting information systems context th is subsystem would be synonymous with the conversion cycle. The supportive subsystem is a subsystem designed to: • obtain inputs • dispose of outputs and • promote and maintain good relati onships with the between the company/organisation and its environment In an accounting information systems context th is subsystem would be synonymous with the revenue cycle and the expenditure cycle. The maintenance subsystem – a subsystem designed to deal with personnel and human resources within the company/organisation, the focus being on maintaining stability within the company/organisation. In an accounting information systems context th is subsystem would be synonymous with the human resource system/payroll system s within the expenditure cycle. The adaptive subsystem – a subsystem designed to ensu re the company/organisation is able to meet the needs of the environment, and adap t to change, and would be responsible for: • research and development • the testing of theories • the creation of knowledge and • the application of problem solving processes ad procedures In an accounting information systems context this system would be synonymous with the management cycle. The managerial subsystem – a subsystem designed to: • co-ordinate the functions of the other subsystems • mediate disputes and conflicts between subsys tems and between hierarchical levels and • represent the company/organisation to its environment. In an accounting information systems context this system would be synonymous with the management cycle. Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 52 © Pearson Education Limited 2007 Question 5 Using general systems theory as your analyti cal framework, identify and describe the main control elements of a medium sized FMCG co mpany’s accounting system. In your description you should identify how the component parts of the accounting system are connected together, and the related information requirements of each component part. Suggested Answer A system can be represented as: Input Process Output Control Feed forward Feed back Control Boundary Environment Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 53 © Pearson Education Limited 2007 and would generally have the following elements: • input – the data, energy and/or raw materials transformed by the system • transformation process – the function or purpose of the system that is the process or processes used by the system to convert data, raw materials or energy from the environment into information, products and or services that are usable by either the system itself or by the environment • output – the information, product and/or service which results from the system’s transformation process • systems boundary – the functional barrier between systems (or subsystems), that is the line or point where a system or subsystem can be differentiated from its environment or from other subsystems. Such a boundary can be ri gid or permeable, tangible or intangible, physical or virtual • systems environment – the part of the environment external to the system • control – the mechanism for regulating performan ce to expectations, that is the activities, processes and procedures used to evaluate i nput, throughput and output in order to make corrections • feedback – information about some aspect of output that can be used to evaluate and monitor the system and to guide it to more effective performance • feedforward – information about some aspect of input that can be used to modify the system processing procedures, and to guide it to more effective performance and • goal/objective – the overall purpose for existence of the system, or the desired outcome of the system – that is its reason for being. In accounting information systems context: Input In terms of externalised inputs – data/info rmation regarding resource availability, product demand and changes in the marketplaces regardi ng the structure of the market, prices and competitors. In terms of internalised inputs – data/inform ation regarding resource availability, internal production schedules and changes in operating procedures and management structures. Transformation process These transaction processes would include: • acquisition transformation processes (expenditure cycle) – these would include converting/transforming resource requirements into physical resources Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 54 © Pearson Education Limited 2007 • conversion (manufacturing) transformation processes (conversion cycle)– these would include not only the conversion of raw materials to finished saleable products, but also staff training – of employees from non-trained employees to specialist manufacturers • retail transformation processes (revenue cycle) – these would include the marketing and distribution of products and resources – conve rting potential demand to actual retail sales and • resource management transformation processes (administrative cycle) – these would include the conversion of sales into useable resources. More importantly each of the above transformation processes would also comprise of a number of self contained but interrelated and interconnected transformation processes. Output Externalised outputs would include for example; • finished products for sale • data/information about the co mpany and its products and • financial performance information about the profitability of the company. Internalised outputs (including data, information and resources) would occur at various stages of the transformation process, between the acquisition transformation processes, the conversion (manufacturing) transformation processes, the retail transformation processes and the resource management transformation processes. Systems boundaries Many functional boundaries would exist – some of which would be tangible and physically identifiable boundaries, other woul d be virtual and intangible. Whereas tangible boundaries would possibly act as barriers to prevent unauthorised access – for example: • controlled access to manufacturing locations, a nd retail locations outside normally retail hours • security codes preventing access between different parts of the company and • password codes restricting access to th e company’s information database intangible or virtual boundaries would exist as a prescriptive demarcation, enforcing a limit within which the access to certain elements/com ponents/attributes of the company and their interrelationships can be imposed. Such boundaries would include: • the company organisational structure • work related functional descriptors, which pr escribe functions/duties within the company Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 55 © Pearson Education Limited 2007 Systems environment A systems environment would comprise of not only those external elements whose change may affect the nature, context, properties and functioning of the company, but also those elements, which would themselves be affected by the company’s behaviour. In essence the contemporary marketplace! In such a marketplace key elements would include: • shareholder pressure for increased value • supplier pressure • customer demand for greater value for money • market competitors • employees • debtors demands for increase payment periods • creditor pressure for reduced payment times • directors • banks and other financ ial institutions and • government and other regulatory agencies For a system, changes to the nature and structur e of the company’s external environment, its increasingly complexity and competitive nature is the source of both opportunity and concern. Indeed, it is important to recognise that while the company as a whole has a systems environment outside its organisation boundaries, within the company individual subsystems (e.g., conversion (manufacturing) transformation processes) would have an external systemic environment within the company – governed to gr eater extent by internal management policy but nonetheless influenced by influences outside the company. Systems control As a complex organisation functioning w ithin a competitive, but expanding business environment, it is perhaps important for the co mpany to not only co-ordinate and regulate its activities, but also monitor efficiency, and/or compare performance and activity to expectations. Such control would normally exist at a number of leve ls – at a strategic level, at a tactical level and at an operational level. In a systems context: • strategic control would normally be feedforward in nature • tactical control would be a combination of both feedforward and feedback, whereas • operational control would almost entirely be feedback orientated. Tony Boczko, Corporate Accounting Information Systems , 1st Edition, Instructor’s Manual 56 © Pearson Education Limited 2007 For example, control issues would be At a strategic level: • environmental pressures affecting the company • appropriate business focus and • general financing requirements of the company. At a tactical level: • medium term allocation of resource to company activities • quality policy of the company • production management (including resour ce allocation) of the company and • organisation facilities required to meet corporate objectives. At an operational level: • short-term allocation of resource to company activities, and • day to day management of operational resources.