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

28th February 2011Presentation title 3

Link to other topics.

Important

International student attendance

What is a business process?


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?


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


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


Subsidiary

ledger


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


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.

44

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?


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


Very important

Note these following source documents are important for

internal controls also.

More on this in the internal controls lecture


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.


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


How does business cope with

changes to business processes?


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

30

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

38

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).


http://www.jps-dir.com/forum/uploads/12967/Davenport_1998.pdf

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


Documents

8_ACW2851 2014 Lec 8 BizProcess