Romney Ais Solman Ch1

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CHAPTER 1

ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

1.1The value chain classifies all business activities into two categories: primary activities and support activities. The five primary activities are: inbound logistics, operations, outbound logistics, sales & marketing, and service. The four support activities are: firm infrastructure, human resources management, technology, and purchasing.

The inbound logistics function at S&S includes all processes involved in receiving merchandise and storing it. S&S does not manufacture any goods, thus its operations activities consist of the processes involved in displaying various merchandise for sale. The outbound logistics activity at S&S includes delivering the products to the customer. The sales & marketing activity includes advertising and the actual processing of sales transactions. The service activity includes all post-sales services offered to customers, such as repairs and periodic maintenance.

The firm infrastructure at S&S includes the accounting function. Its human resource management activity includes all the processes involved in recruiting, hiring, training, evaluating, and dismissing employees. The technology support activity includes all investments in computer technology and various input/output devices, such as point-of-sale scanners. The purchasing support activity includes all processes involved in identifying and selecting vendors from whom S&S will acquire goods and negotiating the best prices, terms, and support from those suppliers.

1.2Usually, most organizations will only produce information if its value exceeds its cost. There are two basic situations, however, in which information may be produced even if its costs exceed its value. First, it is often difficult to accurately estimate the value of information and, sometimes, the cost of producing it. Therefore, organizations may produce information that they expect will produce benefits in excess of its costs, only to be disappointed after the fact. The second reason is that production of the information may be mandated by either a government agency or a private organization. Examples include the tax reports required by the IRS and disclosure requirements for financial reporting established by the Financial Accounting Standards Board.

1.3Well-designed controls should not be viewed as “red tape” because they can actually improve both efficiency and effectiveness. Consider a control procedure mandating weekly backup of critical files. Regular performance of this control prevents the need to spend a huge amount of time and money recreating files lost when the system crashes, if it is even possible to recreate the files at all. Similarly, control procedures that require workers to design structured spreadsheets can help ensure that the spreadsheet decision aids are auditable and are documented well enough so that other workers can use them.

1.4Initially, if a product has a marginal cost of production and distribution that is close to zero, there is the potential to significantly increase profits. An important issue, however, is whether the asset in question is unique. If other companies can provide the same product, or a close substitute, then intense price competition may ensue. In a free market, the result is likely to reflect a basic economic principle that marginal revenue = marginal cost. There are also accounting policy implications to digitized assets: how to value the asset, how to account for its use (depreciation or amortization), and how to safeguard that asset from misappropriation.

1.5Since people are one of the basic components of any system, it will always be difficult to successfully transfer a specific information systems design intact to another organization. Considering in advance how aspects of the new organizational culture are likely to affect acceptance of the system can increase the chances for successful...
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