Finance Infomation Systems

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I. Overview of Financial Information Systems
1. Differences between Data and Information:

a) Data:
* Are the raw figures relating to the routine activities of a business organization. * These figures alone do not enable decisions of any consequences to be taken. * In order for data to be more useful, they need to be processed to provide information (i.e. the data needs to be converted into usable facts and figures). Data “distilled” into a smaller amount of information becomes usable for decisions of greater consequences to the firm, e.g. the huge number of transactions of a business may be processed resulting to the balance sheet of the business. b) Information:

* Basically the processed data containing usable facts and figures. * There can be three levels of information in a business organization: * Corporate information, such as the company’s balance sheet. * Departmental information, such as the departmental expenditure (Branch Statistics). * Individual information.

2. Characteristics of good information:

a) Brevity:
* Every recipient of information should be provided only with information that meets his/her needs. * Too much detail can result in overlooking of vital facts. * A large amount of information should therefore (whenever possible) be split into smaller packets tailored to suit individual recipients. * There is need for being specific, i.e. information should go straight to the point, especially if immediate action(s) are called for. b) Accuracy:

* The degree of accuracy of information relates to its usage, i.e. no need for great accuracy if it is of no consequence. * Examples:
i. Marketing director not interested in the exact value of sales accurate to the cents. (The nearest hundred/thousand may be sufficient, depending on the overall turnover). ii. The financial accountant needs accuracy to the cent. *Generally, the degree of accuracy of information is known to its recipient. c) Timeliness and up-to-datedness:

* Information should be as timely and up-to date as is necessary for its effective use. (Note: Speed in creating information increases its cost).
* Information that arrives too late or is out of date is useless, i.e. Information should be delivered punctually after its preparation. * Up-to date means that it is accurate at a certain stated date/time. * In some situations timeliness takes priority over up-to datedness. Example: The Sales Manager wants previous day’s figures first thing next morning, although they do not include the last hour’s sales. * Up-to datedness may however be paramount, e.g. a financial report must be fully up to date as at the exact end of the financial year. d) Others:

i. Relevance to user’s needs (or appropriate for the type of action needed). ii. Neutrality
iii. Cost effectiveness and efficiency
iv. Comparable
v. Appropriately communicated
Note:
i. Information calling for action must be directed to the person(s) who initiate the appropriate action. (It is important that it gets directly to that person and not via a chain of unconcerned managers). ii. Information should comprise sufficient facts and figures to enable effective and immediate action to be taken.

3. Categories of Information:
* There are three main categories of business information based on usage of information. * Higher levels of information are mainly associated with strategic information, while lower levels of information are associated with tactical and operational information.

a) Strategic Information:
* Relates to long-term planning policies; it is therefore of most interest to top management. * “Long term” at corporate level may mean ≥ 5 years. * Strategic information should facilitate long term planning (it includes projections and forecasts). * Company-wise strategic information includes:

* Market availability and penetration...
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