Download - 8_ACW2851 2014 Lec 8 BizProcess
Business and Economics
ACW2851 Accounting Information Systems and Financial Modelling
Lecture 8
AIS and Business Processes
Adapted from:Simkin, Rose, & Norman (2012) Core Concepts of Accounting Information Systems (12th ed.) andGelinas & Dull (2008) Accounting Information Systems (7th ed.)
Learning Objectives
Understand the steps in the financial accounting process
used by AISs
Recognise the objectives, inputs, and outputs of a range of
business processes, including: sales, purchasing, human
resource management, fixed asset management,
production, and financing
Appreciate ways in which technology can support those
business processes
Appreciate that some industries require specialised AISs
Understand the concepts of outsourcing and business
process reengineering
Link to textbook
Topic 5 & 6, 2nd edition, Page 139-203
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Link to other topics.
Important
International student attendance
What is a business process?
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Business Processes
A business process is a collections of activities or flow of
work that creates value
AISs collect and report data related to business processes
An economic event
– is an economic activity
– impacts financial statements (accounting transactions)
A business event
– is important to the business
– does not impact financial statements
– e.g. hiring an employee; customer enquiry that doesn’t
result in a sale
Business Processes
To simplify information processing (i.e. the recording,
maintaining, and reporting of business and economic
activities) we group similar activities into business
processes.
Business processes you will read about include:
– Sales Core process
– Purchasing Core process
– Human resource management
– Fixed asset management
– Production
– Financing
What are examples of business
processes?
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Example 1:Steps in the
Financial Accounting
Process Cycle
Journals
are a chronological record of economic events by
account. The account structure of an organisation is its
chart of accounts.
2 types of journals:-
– a special journal captures specific types
types of transactions (usually ones
that occur frequently)
– a general journal allows any type of
accounting transaction to be recorded
Special Journals for AISs
Sales JournalRecord of credit sales transactions
Purchases JournalRecord of credit purchase transactions
Cash Receipts JournalRecord of transactions involving receipts of cash
Cash Disbursements JournalRecord of transactions involving cash payments
General Journal
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Ledgers
General ledger
contains detailed monetary information about an
organisation’s
• assets and liabilities
• revenues and expenses
• owners equity
The Chart of Accounts provides the organisational
structure for the general ledger
Subsidiary ledger
– contains detailed records pertaining to a particular
account in the general ledger
Ledgers
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Subsidiary
ledger
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Trial Balances
A listing of all accounts with their debit and credit balances
Three end-of-period trial balances:
A pre-adjusting trial balance after all entries have been
posted
An adjusted trial balance after adjustments have been
recorded and posted
A post-closing trial balance after closing entries have
been recorded and posted
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Financial Statements
are the primary output of a financial accounting system
include the following Statements of :
– Comprehensive Income (Income Statement)
– Changes in Equity (Owners’ Equity)
– Financial Position (Balance Sheet)
– Cash Flows
Example 2: The Sales Process
The sales process
begins with a customer order for goods or services and
ends with the collection of cash from the customer.
The primary objectives of the sales process are to:
process sales in a timely and efficient manner
collect cash in a timely and efficient manner.
An organisation that generates revenues, but fails to collect these revenues on a timely basis, may find itself in a position where it cannot pay its bills.
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The Sales Process
Sales Process Summary
Example 3: The Purchasing ProcessThe purchasing process begins with a request for goods or services and ends with the payment of cash to the vendor
The primary objectives of the purchasing process are to:
purchase high-quality goods/services at best price
pay the vendors at the optimal time (often on credit terms)
Objectives of purchasing process
Tracking purchases of goods/services from vendors
Tracking amounts owed
Maintaining vendor records
Controlling inventory
Making timely and accurate vendor payments
Forecasting purchases and cash outflows
Purchasing Process
Purchasing Process Summary
Human ResourceManagement Summary
Fixed Asset Management Summary
Production Process Summary
Financing Process Summary
Why is the business process
important to AIS and Financial
Computer System?
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Ans1: Business process requires and also
produces important source documents A source document
– records a business activity such as the purchase or sale of
goods, can be a piece of paper, or in electronic form.
– evidence of transactions
Source documents help establish the authenticity of accounting
data in (more details – see following slides) :
establishing an audit trail
testing for authorisation of cash disbursement cheques or
inventory movements
establishing accountability for the collection or distribution of
money
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Very important
Note these following source documents are important for
internal controls also.
More on this in the internal controls lecture
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The Sales Process - InputsSales Order - prenumbered, usually prepared in multiple
copies at time of sale, and used to prepare sales invoiceSales Invoice - prepared after shipment of goods or provision
of a service. Remittance Advice – produced by customer. Serves as
source document for credits to accounts receivable (often accompanies payment). Often used as checking to make sure which item of invoice are paid by your customer.
Shipping Notice - prepared after goods are released from
warehouse for shipment, and may serve as a packing slip.
Used as evidence of what we packed for shipment.
Debit/Credit memo - issued for sales returns and
allowances; debit memos increase amount customer owes
The Sales Process – Outputs (1)
Customer Billing Statement
includes sales, returns, and cash receipts
Accounts Receivable Aging Report
contains data concerning the status of open balances of
all active credit customers and arranges the overdue
amounts by time periods
Bad Debt Report
contains info about collection follow-up
procedures for overdue customer accounts
Accounts Receivable Aging Report
Cash Receipts Forecast
data from source documents in revenue transactions are
inputs ($ amounts, terms, prior payment experience with
customers etc.). Important for cash budgeting and also
production – can you remember prodplan.
Approved Customer Listing
list of customer approved for sales; includes customer
codes, contacts, shipping and billing addresses, credit
limits, and billing terms. Used to determine whether to sell
by credit to customer.
The Sales Process – Outputs (2)
Purchasing Process – Inputs (1)
Purchase Requisition
shows items requested; may indicate names of vendors.
Need authorisation before one can proceed.
Purchase Order (PO)
is based on purchase requisition including vendor
information. PO is sent to the vendor.
Receiving Report (RR)
reflects the count and condition of goods received. Used as
evidence that the items, amount and quality of items we
actually received.
Vendor Invoice
includes prices, shipping terms and discounts.
Sample Purchase Order
Purchasing Process – Inputs (2)
Bill of lading
accompanies the goods sent and given by the freight
carrier to the supplier as a receipt (carrier assumes
responsibility for the goods)
Packing slip
indicates the specific quantities and items in the shipment
and those items that are on back order. It is sometimes
included in the merchandise package. This packing slip
will be produced by the vendor.
Debit/Credit Memoranda
debits or credits accounts payable. Vendor will advice us
Sample Packing Slip
Purchasing Process – Outputs (1)
Vendor Cheques - supported by a voucher and signed by a
person designated by management. We need to match the
PO, RR and vendor invoice before paying.
Cheque Register - list of all cheques issued for a particular
period. Is there any cheques unaccounted for?
Discrepancy Reports - used to identify any differences
between quantities or amounts on the purchase order, the
receiving report, and the purchase invoice.
Cash Requirements Forecast - predicts future payments
and payment dates. Important for cash budget.
Ans2: Business process influence AIS
The purpose of any AIS is to capture info, process it and
transform into outputs for decision makers.
Data and info required are affected by different business
process. Also different industries and even companies have
different business processes. See example in the next few
slides.
Since the data and info required are different, these would
affect the requirements and the types of AIS used.
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Business Processes in Special Industries
Vertical market refers to markets or industries that are
distinct in terms of the services they provide or the goods
they produce
e.g. professional services, not-for-profit, health care,
construction, banking and financial services, and
hospitality.
These organisations may require more information than is
typically output from a traditional AIS
Examples of specialised information needs include
– time and billing systems
– activity based costing systems
– point-of-sale systems
Industries with Specialised AISs
Professional service organisations have several unique
operating characteristics:
no merchandise inventory
professional employees
difficulty in measuring output
Not-for-profit
professional employees and volunteers
usually not affected by the market
sometimes have a political environment
extra focus on “funds” and (nonmonetary) “process”
measures
Professional Service Organisation Bill
Industries with Specialised AISs
Health care
Share many of the professional and not-for-profit
organisations’ special AIS needs
Special accounting needs because of third-party
billing - private and government
• standardised/specialised codes for services
• need to maintain (secure) patient information
• practice management and specialised health
care software can enhance data capture,
process monitoring, and reporting.
Mini-based Hospital System
Ans3: AIS also influence business process
Some large computer system such as ERP (Enterprise
Resource Planning or Enterprise System) are generic and
difficult and too expensive to modify extensively.
These software contain generic “best-practice” business
process because they are mass produced and businesses
have to change their business processes to fit into the
software.
These changes are risky cause lots of pain and costs.
More on this in the Lecture on AIS
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How does business cope with
changes to business processes?
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Why does business process have to change?
Business process change because
– Changes in regulations and laws.
• Eg GST introduction
– Changes in technology
• Eg introduced ERP in company (see slides in
lecture on AIS, used cloud for accounting s/w)
– Changes in business strategy
• Eg change to high volume production, invest in
new market
Ans 1: Oursourcing?
What is outsourcing?
– Instead of doing the business process in-house, the organization transfers their business process outside the organization. Outsourcing is hiring an outside company to handle all or part of an organisation’sbusiness process activities.
Common business processes outsourced – human resources & payroll– finance and accounting – customer services – learning services and training – information technology
Outsourcing – Potential Advantages
Business processes are outsourced for a range of reasons,
including to gain strategic competitive advantage and to
save costs
– Allow business to focus on it’s key competencies
– Better asset utilisation
– Access to greater expertise & better technology
– Lower costs
– Less development time
– Reduce cost effect of seasonal usage
– Facilitate downsizing
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Outsourcing – Success or failure?
Not all outsourcing efforts are successful!!!!
Estimated 25-50% fail rate, often due to:
a lack of planning and company buy-in
blind imitation of competitors
shifting responsibility for a bad process to someone else
overlooking deeper company problems
ill-defined outsourcing agreements
difficult to manage a systems development undertaken by
outsiders
Outsourcing – Disadvantages
Other possible disadvantages include:
Inflexibility and “locked-in” system
Loss of control
Reduced competitive advantage
Unfulfilled goals
Poor service
Increased risk
Ans2: Business Process Reengineering (BPR)
A drastic, “one-time-event” approach to redesigning
business processes that are no longer efficient or effective
May result in the integration of functional activities that
were previously performed by several staff and/or
departments
3 principles for successful BPR
– organise around outcomes, not tasks
– centralise and disperse data
– capture data once – at their source
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When should a process be reengineered?
Three forces drive companies to redesign business processes
(The 3 c’s - Hammer & Champy, 1993)
Customers
– are becoming increasingly more demanding
Competition
– has intensified and is harder to predict
Change
– in technology
– constant pressure to improve & design new products
faster (flexibility and ability to change fast are
requirements for business survival!)
Common reasons for BPR failures
1. Lack of support from senior management
2. Unrealistic expectations
3. Poor understanding of the organisation and infrastructure
4. Inability to deliver the necessary technology
5. Employee resistance (fear of downsizing)
6. Neglecting people’s values and beliefs
Ans3: Business Process Management (BPM)
Due to the “low-ish” success rate of BPR, these principles
have evolved into BPM, “a systematic approach to
continuously improving and optimising an organisation’s
business processes” - a more gradual and ongoing business
process improvement that is supported and enabled by
technology.
BPM key principles - Business processes:
– can produce competitive advantages
– must be managed end to end
– should be agile
– must be aligned with organisational strategy and needs
Further Reading
Davenport, Thomas (1998) “Putting the enterprise
into the enterprise system”.
http://www.jps-
dir.com/forum/uploads/12967/Davenport_1998.pdf
Note: An interesting paper that shows how important
business process is to any AIS (in this case ERP).
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Conclusion
Recognise the importance of source documents
used as internal controls
Appreciate ways in which technology can support
those business processes
Appreciate that some industries require specialised
AISs
Understand the concepts of outsourcing and
business process reengineering
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