Lecture 7- Organization Structure for Accounting Information System- theITeducation.com

Centralize Data Processing

Organization Structure

The structure of an organization reflects the distribution of responsibility, authority, and accountability throughout the organization. Moreover How this control function flows is illustrated in Figure 1. Similarly firms achieve their overall objectives by establishing measurable financial goals for their operational units. Hence understanding of the distribution pattern of responsibility, authority, and accountability is essential for better measurement of user information needs.

The Evolution of Accounting Information System ,e commerce and accounting information system case study solutions course is being taught in many university at undergraduate level to BBA.BCOM. MCOM, MIT, and many other classes.

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responsibility, authority, and accountability throughout the organization
Flow of responsibility, authority, and accountability

Business Segmentation

Firms are organized into segments to promote internal efficiencies by cost-effective and specialized allocation of resources. However managers within a segment can focus their attention on narrow areas of responsibility to achieve higher levels of operating efficiency. Moreover Firms can be segmented into three ways

  1. Geographic : segments of an organization at different geographic locations
  2. Product line : separate divisions according to manufacturing of different products at different places.
  3. Business Function: segmentation on basis of tasks like production unit, marketing unit, packing unit etc.

Functional segmentation

Segmentation of a business on the basis of function is the most common method of organizing. For example we will take an example of a manufacturing firm that uses these resources like  materials, labor, financial capital, and information and compare it with a public utility. Public organization may have little in the way of a marketing function compared to an automobile manufacturer. Similarly A service organization may have no formal production function and little in the way of inventory to manage. One firm may call its labor resource personnel, whereas another uses the term human resources. Moreover Functional segmentation of a common organization is better described in Figure-2

Funcation Segmentation
Functional Segmentation in Organization Structure

How Accounting Function integrate in Functional segmentation

Accounting function of any business manages the financial information resource of the firm. Moreover It plays two important roles in transaction processing. However First, captures and records the financial effects of the firm’s transactions. These include events such as the movement of raw materials from the warehouse into production, shipments of the finished products to customers, cash flows into the firm and deposits in the bank, the acquisition of inventory, and the discharge of financial obligations.

Second, the accounting function distributes transaction information to operations personnel to coordinate many of their key tasks. Accounting activities that contribute directly to business operations include inventory control, cost accounting, payroll, accounts payable, accounts receivable, billing, fixed asset accounting, and the general ledger. We deal with each of these specifically in later chapters.

Accounting Function Role

The information generated and processed by the accounting function must have following characteristics

  • The Value of Information means how much information is reliable, relevant, accurate, complete, summarized, and efficient.
  • Accounting Independence : Information reliability rests heavily on the concept of accounting independence. Simply stated, accounting activities must be separate and independent of the functional areas that maintain custody of physical resources.

The Information Technology Function

Every business has IT function as its integral part.There are possible ways of IT Function integration

Centralized Data Processing

Under the centralized data processing model, all data processing is performed by one or more large computers housed at a central site that serve users throughout the  organization.

  1. Database Administration
  2. Data Processing
  3. Systems Development and Maintenance

Figure 3-Organization of IT Function in a Centralized System

Organization of IT Function in a Centralized System
Organization of IT Function in a Centralized System
  • In CDP End users compete for these resources on the basis of need.
  • The IT function is usually treated as a cost center whose operating costs are charged back to the end users.
  • These include database administration, data processing, and systems development and maintenance

Centralize Data Processing

Centralize Data Processing
Centralize Data Processing Figure 2(Organization Structure)

Database Administration

Centrally organized companies maintain their data resources in a central location that is shared by all end users. In this shared data arrangement, a special independent group—called database administration—headed by the database administrator is responsible for the security and integrity of the database.

Data Processing

The data processing group manages the computer resources used to perform the day-to-day processing of transactions. Data control, data conversion, computer operations, and the data library. Data control groups have all but disappeared from modern organizations. Traditionally, this function was responsible for receiving batches of transaction documents for processing from end users and then distributing computer output (documents and reports) back to the users. Today this function is usually automated and distributed back to the end users.

The data conversion function changes transaction data from source to digital format which is suitable for computer processing by the central computer. Accounting applications are usually run according to a strict schedule that is controlled by mangers. The data library is a room often adjacent to the computer center that provides safe storage for the offline data files, such as magnetic tapes and removable disk packs.

Systems Development and Maintenance

The information needs of users are met with these two functions. System development analyze user needs and for design new systems to satisfy those needs. Systems professionals that are involved in system developments include systems analysts, database designers, and programmers. End users and stakeholders also participate in system development. End users are those for whom the system is built (workers to managers). Stakeholders are individuals inside or outside the firm who have an interest in the system but are not end users.

Distributed Data Processing

DDP involves reorganizing the IT function into small information processing units (IPUs) that are distributed to end users and placed under their control. IPUs may be distributed according to business function, geographic location, or both. Look at Figure 4, Central IT function has been eliminated from the organization structure. During last few years, DDP has become an economic and operational feasibility that has revolutionized business operations.

Figure-4: Distributed Data Processing

Distributed Data Processing
Distributed Data Processing

Advantages of DDS

  • Cost reductions : In the past, achieving economies of scale was the principal justification for the centralized approach. Moreover The economics of data processing favored large, expensive, powerful computers.
  • Powerful, inexpensive ,and small scale computers which can cost-effectively perform specialized functions have changed the economics of data processing dramatically.
  • By entering and editing data at the IPU data conversion and control cost reduces.
  • By dividing a system into IPUs reduces application complexity and has decreased system development and maintenance costs

  • Improved cost control responsibility :Managers assume the responsibility for the financial success of their operations. Moreover this requires that they be properly empowered with the Authority to make decisions about resources has been shifted to IPU manager.
  • Improved user satisfaction : by getting hold of resources as CDP, by getting system professionals at each IPU, Moreover by getting actively involved in system development and implementation
  • Backup :The final argument in favor of DDP is the ability to back up computing facilities to protect against potential disasters such as fires, floods, sabotage, and earthquakes. One solution is to build excess capacity into each IPU.

Disadvantages of DDP

  • Mismanagement of organization-wide resources: Some argue that when organization-wide resources exceed a threshold amount, say 5 percent of the total operations budget, they should be controlled and monitored centrally.
  • Hardware and software incompatibility:uncoordinated and poorly conceived decisions and Working independently can lead to dissimilar and incompatible operating systems, technology platforms, spreadsheet programs, word processors, and database packages.
  • Redundant tasks. Autonomous systems development activities distributed throughout the firm can result in each user area reinventing the wheel.For example, application programs created by one user, which could be used with little or no change by others, will be redesigned from scratch rather than shared.
  • Consolidating incompatible activities: The distribution of the IT function to individual user areas results in the creation of many very small units that may not permit the necessary separation of incompatible functions.

There are many functions of accounting information system . Similarly The functions offered by accounting information system are now available in many accounting information system software. Moreover You can use accounting information system software to accomplish or to complete your different accounting information system projects.

theITeducation.com sources

  • http://www.slideshare.net/HabibUllahQamar/lecture-7-organization-structure-chapter-1-jamed-a-hall-58568055 (slides)
  • James A Hall Chapter 1: Accounting information Systems- A managerial Approach

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Author: Habibullah Qamar

Its me Habib Ullah Qamar working as a Lecturer (Computer Sciences) in Pakistan. I have an MS(M.Phil) degree in computer sciences with specialization in software engineering from Virtual University of Pakistan Lahore. I have an experience of more than 15 years in the filed of Computer Science as a teacher. Blog Writing is my passion. I have many blogs, This one is special made with the aim of providing 100% Free online coaching and training to the students of under-graduate and postgraduate classes. Most of the students enrolled in computer sciences, information technology, software engineering and related disciplines find it difficult to understand core concepts of programming and office automation. They find difficult in understanding and solving their assignments.