Topic Overview

Topic A05: ICT Applications in Accounting

Topic Overview P.1

Topic Overview Topic Level Duration

BAFS Elective Part – Accounting Module – Financial Accounting A05: ICT Applications in Accounting S5 / S6 3 lessons (40 minutes per lesson)

Learning Objectives: 1. To understand the advantages and disadvantages of using computerised accounting systems; 2. To understand possible solutions to minimise the disadvantages; 3. To understand the impacts on different implementation methods of computerised accounting systems; and 4. To understand how Accounting Information System (AIS) assists management decision-making.

Overview of Contents: Lesson 1 Lesson 2 Lesson 3

Advantages and Disadvantages of AIS - Part 1 Advantages and Disadvantages of AIS - Part 2 How AIS Assists Management Decision-making?

Resources:

Topic Overview, Teaching Plan and Answers to Student Worksheet PowerPoint Presentation Student Worksheet

Suggested Activities:

Case Studies Group Discussion Role play Decision-making Game

BAFS Learning and Teaching Example As at April 2009


Topic Overview P.2

Lesson 1 Theme

Advantages and Disadvantages AIS - Part 1

Duration

40 minutes

Expected Learning Outcomes: Upon completion of this lesson, students will be able to identify the advantages and disadvantages of using a computerised accounting system. Teaching Sequence and Time Allocation: Activities

Reference

Part I: Introduction Teacher begins lesson by emphasising the business PPT#1-3 trend of using computerised accounting information system (AIS). Part II: Content A Case Study Teacher briefs students on the case before starting PPT #4-5 the role play. Student Activity 1: Role play Students are divided into five groups, each group Worksheet represents one party. p.1 Groups will discuss and identify the advantages and disadvantages of using the computerised AIS PPT #6-7 from their roles’ viewpoints. Each group nominates one representative to role Student play. Worksheet Teacher chairs the meeting. pp.2-6 Each representative presents an opinion. Teacher concludes meeting. PPT #8-13 Part III: Conclusion Teacher reviews the key points and briefs students to PPT #14-28 prepare them for the next lesson.

Time Allocation

2 minutes

5 minutes

15 minutes

10 minutes 8 minutes

Preparation for the next lesson: Students will collect data concerning the impact of using different implementation methods of the computerised accounting systems and possible solutions to minimise the disadvantages.



Topic Overview P.3

Lesson 2 Theme

Advantages and Disadvantages AIS - Part 2

Duration

40 minutes

Expected Learning Outcomes: Upon completion of this lesson, students will be able to: 1. 2.

Find out possible solutions in minimising the disadvantages; and Distinguish the impacts on different implementation methods of a computerised accounting system.

Teaching Sequence and Time Allocation: Activities

Reference

Part I: Introduction Teacher begins by recalling the case and key points of last lesson.

Time Allocation

PPT #29-31 3 minutes

Part II: Content

Activity 2: Group Discussion Students are divided into five groups. Groups will discuss and identify solutions to minimise problems with the computerised AIS. Each group presents their findings. Teacher reviews the key points and ask students to vote on group findings.

PPT #32

15 minutes

Student Worksheet pp.7-8 PPT #33-41 4 minutes

PPT#42-43 10 minutes Activity 3: Role play Students remain in the same groups from Activity 2. Student Groups will identify the advantages of the election Worksheet method on their role, and the disadvantages of the P.9-13 other two methods. Each group nominates one representative to role play. PPT#44-45 5 minutes Teacher chairs the meeting. Each representative presents an opinion. Teacher concludes meeting.

Part III: Conclusion Teacher reviews the key points and briefs students in preparation for the next lesson.




Topic Overview P.4

Preparation for the next lesson: Students are required to review the following accounting ratios: • Gross Profit Ratio; • Net Profit Ratio; • Current Ratio; • Quick Ratio; and • Sales to Capital Employed. For the group discussion in lesson 3 Students will make investment decisions using the AIS reports and analysis.



Topic Overview P.5

Lesson 3 Theme

How AIS Assists the Management Decision-making?

Duration

40 minutes

Prior knowledge required: Ratio analysis Expected Learning Outcomes: Upon completion of this lesson, students will be able to: 1. 2.

Describe the ICT applications in accounting Explain how AIS assists management decision-making

Teaching Sequence and Time Allocation: Activities

Reference

Part I: Introduction ¾ Teacher begins by recalling the last lesson case work. The Olympics faced another problem on how AIS assists management decision-making. ¾ Teacher illustrates ICT applications in accounting. Part II: Content Case Study Teacher briefs students on the case. Activity 4: Group Discussion Students are divided into five groups. Groups will discuss and comment on the company’s performance based on the ratios provided. Teacher checks answer with the class. Activity 5: Decision-making Game Students remain in the five groups. Students will make two decisions: z Analysis NOT using AIS reports. z Analysis USING AIS reports. Students compare their investment decision results to illustrate the importance of AIS reports and analysis in decision making. Part III: Conclusion Teacher concludes by highlighting the key points.

Time Allocation


PPT #62 PPT #63-66 10 minutes Student Worksheet pp.14-15

PPT #67-72 17 minutes Student Worksheet pp.16-17

PPT #73

3 minutes



Topic Overview P.6

Answer for Activity 2 Disadvantages Work flow is controlled by the system.

Suggested Solutions 1. System requirements must be clearly investigated and defined before system selection process; choose a system best fit for the current company work flow; 2. Thorough system analysis for possible unexpected events before system selection process, and 3. Develop possible manual override procedures to handle unexpected events.

System breakdowns will affect company operations

1. Arrange regular system maintenance ; 2. Use fault-tolerant / fault-safe systems; 3. Install suitable anti-virus software to avoid breakdowns due to viruses; 4. Check for and install security updates regularly; and 5. Do not allow staff to install unauthorised backup system software.

Hackers may breach the system to steal valuable information

1. Install suitable anti-virus software to handle virus attacks; 2. Regularly check for and install security updates; 3. Do not allow staff to install unauthorised software; and 4. Train staff to eliminate possible security pitfalls.

Employees may be fired due to a lack of required technology skills

1. Train unskilled workers to competently operate the system; and 2. Schedule regular training to keep workers abreast of latest technology changes.



Topic Overview P.7

Additional financial support is required to install and maintain the system

1. Select a proper system to increase the efficiency in order to compensate for additional costs; and 2. Hidden profits may also compensate for additional costs: company image, increased efficiency, rapid response to external events, improved clarity of current financial situation, accurate cost estimation, etc.

Special skills required to operate the system

1. Ask system supplier to provide system operations training; 2. Ask system supplier to provide thorough documentation; 3. Arrange in-house training to instruct staff on system operation; and 4. Auditor will seek assistance from system experts about how to conduct auditing with the system.



Topic Overview P.8

Mark Sheet: (Tick 1 box for 1 mark)

Manager of Super Systems Limited Advantages (1 mark for each point, maximum 4 marks)

Sub-total

Disadvantages (1 mark for each point, maximum 4 marks)

Presentation skill (Maximum 2 marks)

Total

Manager of IT Department Advantages (1 mark for each point, maximum 4 marks)

Sub-total



Total



Topic Overview P.9

Manager of Professional Limited Advantages (1 mark for each point, maximum 4 marks)

Sub-total



Total


BAFS Elective Part Accounting Module – Financial Accounting

Lesson 1 Advantages and Disadvantages of the AIS - Part 1


Technology Education Section Curriculum Development Institute Education Bureau, HKSARG April 2009

Topic A05 ICT Applications in Accounting

Introduction

Lesson 1

This session aims to introduce ICT Accounting applications to students. Students will gain a solid understanding through active participation in debate and case study.

Pre-lesson preparation:

2

BAFS Elective Part Learning and Teaching Example

Students will collect information about using the computerised accounting information system (AIS) such as: efficiency, cost, workflow, control, skills, competence, etc.

Duration Three 40-minute lessons Contents Lesson 1 – Advantages and Disadvantages of AIS - Part 1 Lesson 2 – Advantages and Disadvantages of AIS - Part 2 Lesson 3 – How AIS Assists in Management Decision-making?

1

2

Activity 1: Role Play Learning Objective Identify the advantages and disadvantages of using AIS


3



4


Students read worksheet P.1 before the lesson and prepare for role-play activities.

Students will identify the advantages and disadvantages of using the AIS through a role plays with other members of a pseudo company.

Teacher introduces the case in P.1 of student worksheet.

After discussing the advantages and disadvantages in role play, teacher will summarise their findings by highlighting that the advantages outweigh the disadvantages generally.

This case study explores the advantages and disadvantages when using the computerised accounting system under different company roles. Students are divided into 5 groups with different roles: 1. Financial Controller – Internal financial control, responsible to maintain the financial health of the company 2. Auditor – external party to audit the company financial reports 3. Shareholder/Owner – owner of the company, responsible to provide required capital 4. Customer – customer of the company 5. Employee – responsible for daily company operations To enhance group discussions keep groups to 6 students as there may be more than one group for each role. Teacher can assign role to the groups. Each group will nominate a secretary, who is responsible to jot down discussions, and a presenter. The presenter will present the group discussions. The secretary will provide clear written details of group discussions to teacher.

3

4

Directions for discussion z z z z z z

Meetings Begin

Efficiency Cost Work flow Control Skills Competence


5



6


Teacher may give some directions to students for discussion.

Meeting begins

For each role, students may consider how computerisation may affect their role in the following aspects:

Teacher acts as director and chairs the meeting. Each group will form a circle to facilitate the discussions. Each group nominates a secretary and a presenter. The discussion starts.

1. Efficiency – How the efficiency of their daily work be affected? Students have 5-8 minutes for discussions. They can also use worksheet P.2-6 to jot down the main points of their discussions.

2. Cost – How the operation cost of the company be affected? Is there any hidden cost? 3. Work flow – How the daily work flow be affected? 4. Control – Is there any possible system breakdown? 5. Skills – What are the education background / training received by the parties? 6. Competence – Is the role able to control/operate the new system?

5

6

Discussion in progress

Presentation The Director invites the 5 parties to present their findings on using a computerised system.


7



Teacher tours around during the discussions to provide input and assistance as required.

8


Teacher asks students to stop discussions and prepare for presentations. Each group will present their findings. Teacher reminds groups to think of how the advantages of other roles may benefit their role, and how to solve/minimise the impact of disadvantages. Teacher collects copy of discussions from secretary to review ideas maintaining a neutral position to guide students in presenting their viewpoint.

7

8

Financial controller

Auditor

Financial controller illustrates how a computerised system improves efficiency. Also explaining the possible limitations of using such a system.

Auditor explains how the audit process is affected / improved by the new system.


9



The Financial controller group will present first.

10


The auditor group presents the advantages and disadvantages of computerisation.

9

10

Shareholder/Owner

Customer

Shareholder/Owner explains how the new system brings improvement / drawbacks to the company.

Customer explains if the new system has any improvement / drawback on their relationship with the company.



11


The shareholder / owner group presents the advantages and disadvantages of computerisation.

12


The customer group presents the advantages and disadvantages of computerisation.

11

12

Employee Employee explains how the system improves / affects their work.


13



The last presenter is the employee group. They are affected most by computerisation. They have to learn new skills and they may be laid off due to the reduction of manpower.

14


Teacher summarises the advantages and disadvantages in the following slides. Teacher also makes comments on the students’ findings

13

14

Financial Controller z

Financial Controller

Advantages z z z z z z z

z

Simplified transaction postings Easier transaction retrievals Readily available financial data Shorter time to prepare reports Different aspects of reports available More information for budgeting Higher overall operations efficiency


15

Disadvantages z

z

z


Work flow may be limited / controlled by the program – a change of work flow may require a change of program Knowledge on how to operate the system is required Possible system breakdown may affect company operation, or even a disaster


Teacher summarises the advantages from financial controller’s view point.

16


Teacher summarises the disadvantages from the financial controller’s perspective.

Most computerised systems allow users to input sales and purchases directly. The transactions will be automatically posted (debit and credit) to suitable accounts in the accounting system.

The company work flows will be controlled by the accounting software. Existing work flows may have to be changed to suit the software unless a custom software program is purchased. However, changes in work flows (e.g. company expansion, new sales store) will require a change of program.

With the help of the system, user may retrieve transactions without searching through bundles of accounting books or receipts.

All company personnel must be trained in operation of the software. The system keeps up-to-date records of all transactions. The balance of accounts are readily available for inspection producing reports in a short time.

Company operations will be halted should the system fail.

The system produces a variety of reports such as by different class of customers, different class of products, and different time periods. The system tracks of data for years and provides valuable information for budget estimations.

15

16

Auditor z

Auditor

Advantages z z

z z

z

Easier transactions retrieval Easier data extraction – all data is stored in system Different aspects of report available Shorter time for audit process


17

Disadvantages z z


Special system auditing skills required More difficult data extractions – some data may be hidden in system


18


Teacher summarises the advantages from auditor’s view point.

Teacher summarises the disadvantages from auditor’s view point.

Auditor may retrieve transactions without searching through bundles of accounting books or receipts.

Auditor must have adequate IT skills to extract data before the audit process can begin.

Company data stored in the system allows quick extraction and transfer to auditing software for analysis without any manual data inputs. This minimises data input and search time. Depending on the auditing software used, many auditing reports can generated to assist in the auditing process. Thus the auditing time will be reduced.

Having all data stored in the system has both advantages and disadvantages: the data can be easier to retrieve but some may be hidden.

17

18

Shareholder / Owner z

Shareholder / Owner

Advantages z z z z

z z

z

Current financial situation is easily available Data for sales budgeting is available Easier cost control Work flow is controlled by system – less chance for manual override Improved company image Reduce staff


19

Disadvantages z z

z


System installation and maintenance costs Must set-up a new IT department / employ IT related staff Possible system failures may affect operations, or even a disaster


20


Teacher summarises the advantages from shareholder’s view point.

Teacher summarises the disadvantages from shareholder’s view point.

The accounting system keeps up-to-date record of all transactions. The balance of accounts and financial situation are readily available for inspection.

Additional costs are required to install and maintain the system. In lesson 3, students will learn that the AIS system can be implemented in 3 ways: Buy off-the-shelf software, in-house development, or outsource to third parties. The first two ways involve costs to install and system maintenance. Developing in-house is expensive and costs more than pre-built, off-the-shelf software.

The system also keep tracks of data for years and provides valuable information for budget estimation and cost controls.

Whether the company decides to buy off-the-shelf commercial software or develop its own, it has to set-up a new IT department / employ IT related staff to maintain the system, resulting in increased costs and changing the management hierarchy.

For the owner, the work flow control is an advantage. However, it may be a disadvantage for financial controller and employees. The company image is improved when compared to those companies without a computer system. Customer feels the company has enhanced it accounting systems because it is expanding and growing.

System breakdown will impact all parties due to ceasing company operations.

The computer system reduces inputting and recording transactions, thus less employees are required.

19

20

Customer z

Customer

Advantages z z z

z

Fast transaction processing More accurate transaction records Better stock records, better shopping experience


21

Disadvantages z


Possible personal information (e.g. credit card number) leakage


22


Teacher summarises the advantages from customer’s view point.

Teacher summarises the disadvantages from customer’s view point.

Fast transaction processing since manual operation is minimised. The customer’s statement can be generated directly from the computerised AIS.

Hackers may steal personal information (e.g. credit card number) from the system.

Accurate transaction records such as the customer’s statement. Some systems have the capability of inventory control. It provides better stock control and a better customer shopping experience. If a customer order is out of stock, the AIS will indicate immediately for appropriate action.

21

22

Employee z

Employee

Advantages z z

z

Less effort to record a transaction Less time to record a transaction

Disadvantages z

z z


23


All steps are controlled by system – unable to manage unexpected events Must learn new technology skills Possibility of unemployment – especially low skilled workers


24


Teacher summarises the advantages from employee’s view point.

Teacher summarises the disadvantages from employee’s view point.

Most manual operations are minimised, as a result:

All working steps are controlled by system. If an unexpected event occurs that is not covered in the system, employees may not know how to handle, E.g. Bad debts caused by financial crisis.

- Less effort to record a transaction; and - Less time to record a transaction.

Existing staff are familiar with manual accounting procedures. They have to learn new skills for the computerised AIS. There is a possibility of releasing low skilled workers who cannot manage the computerised AIS.

23

24

Conclusion z

Conclusion

Overall advantages z z z

z

Higher efficiency Better financial and cost control Better company image

Overall disadvantages z z z z


25


Company work flow controlled by system Possible system breakdown and data leakage Possibility of unemployment Financial cost and hidden cost


26


Teacher concludes the advantages.

Teacher summaries the overall disadvantages as shown on the slides.

Manual operations are minimised, therefore efficiency will be improved leading to faster responses to a rapid changing market.

Teacher reminds students that the cost may include financial costs (e.g. buy and maintain the system) and hidden costs (e.g. company image, staff emotion, customer loyalty, etc)

As all financial data is readily available in the system, better financial and cost control is expected. Also, a better budgeting will improve financial controls (such as cash flow).

Though the advantages of the computerised AIS outweigh its disadvantages, teacher should highlight that management must consider the possible solutions to minimise the disadvantages before implementing a computerised AIS.

25

26

Conclusion z

z

Preparation for next lesson

The impact of the disadvantages should be minimised by implementing effective measures.

z

z

Advantages of computerised accounting outweigh the disadvantages.


27

You are required to discuss:

z


Possible solutions to minimise disadvantages of using computerised accounting systems; and The impacts of different computerised accounting systems implementation methods


Teacher informs students that a second meeting will held to discuss how to minimise the disadvantages.

28


Teacher asks students to prepare for discussions in next lesson. End of lesson 1.

Teacher concludes that the advantages outweigh the disadvantages if the impact can be minimised. For example, install suitable anti-virus software to avoid breakdowns due to virus inflections and train un-skilled workers to effectively operate the system.

27

28

Learning Objectives Lesson 2

z

Advantages and Disadvantages of AIS - Part 2

z

Identify possible solutions in minimising impact of disadvantages Identify impacts on different implementation methods of computerised accounting systems


Lesson 2

30


As a continuation of lesson 1, students will identify possible solutions in minimising the disadvantages and impacts on different implementation methods of computerised accounting systems in this lesson.

In this lesson, students will continue to work on the cases from lesson 1. Group discussions and role-plays will be conducted.

29

30

Activity 2: Open forum discussion

Recap of last lesson z

z

Impacts of disadvantages of AIS must be minimised! Disadvantages include: z z z z z

Affect company work flow System breakdown Data leakage Unemployment Financial cost and hidden cost


31



32


Teacher recap the conclusion from last lesson.

Teacher introduces activity 2 by referring to p.7 of student worksheet.

Teacher can refer to slide #26 for details.

The objective of this activity is to explore the possible solutions in minimising the impacts of disadvantages of AIS as discussed in lesson one. Students are divided into 5 groups and are required to propose solutions to minimise the impacts. In each group, a leader and a secretary are nominated. The leader will lead the discussion whilst the secretary will jot down the points in the student worksheet. In guiding the discussion, teacher may refer to the suggested answer in appendix of overview. Teacher tours around during their discussion and provides assistance if required.

31

32

Impact on Work Flow z

The system controls the work flow of the company z z


33


Normal work flow Unexpected events


34


Teacher asks students to present a short summary of their discussions.

Teacher reviews the suggested solutions in the following slides.

Teacher will cover the suggested answers with students in the following slide.

Suggested solutions: 1. System requirements must be clearly investigated and defined before a system selection process; choose a best fit system that matches current company work flows; 2. Thorough system analysis about possible unexpected events must be conducted prior to system selection; and 3. Develop possible manual override procedures to manage unexpected events.

33

34

Impact on System Breakdown z

Impact on Data Leakage

Company operations stopped if system fails


35

z


Hackers may invade the system to steal valuable information


36


Suggested solutions:


Arrange adequate regular system maintenance procedures

1. Install suitable anti-virus software to avoid breakdowns due to virus inflections

1. Use fault-tolerant / fault-safe systems

2. Check for and Install security updates regularly

2. Install suitable anti-virus software to avoid breakdowns caused by viruses

3. Do not allow staff to install unauthorised software

3. Regularly check and Install security updates

4. Train staff to eliminate possible security pitfalls

4. Do not allow staff to install unauthorised programs or files 5. Backup system software

35

36

Impact on Unemployment z

Impact on Financial Cost

Employees may be released due to reduction in processes and lack of technology skills to manage system


37

z


Additional cost to install and maintain the system


38




1. Train un-skilled workers to operate the system

1. Select a proper system to increase the efficiency to compensate for additional costs

2. Regularly update workers on new technology advances

2. Hidden profits may also compensate the financial costs: company image, employer efficiency, rapid response to external events, understand of current financial situation, accurate cost estimation, etc

37

38

Vote for the following statements

Impact on Hidden Cost z

Special skills required to manage and operate the system

z

z


39


Disadvantages of using a computerised accounting system can be minimised by suggesting possible solutions. I would support the implementation of a computerised accounting system.


40



Teacher asks students to vote for the following statements:

1. Ask system vendor to provide training on operating the system

1.Disadvantages of using a computerised accounting system can be minimised by the suggesting possible solutions.

2. Ask system vendor to provide thorough documentation

2.I would support the implementation of a computerised accounting system.

3. Arrange in-house training for staff on system operation Teacher counts the no. of students for and against the statements. A majority of students will vote for this statement after the discussion in activity 2. It would reinforce their concept that the disadvantages of using computerised accounting systems can be minimised by the suggested solutions.

4. Auditor to seek guidance from auditing expert to effectively use system

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40

Activity 3: Role Play

Summary of Activity 2 z

Impacts of disadvantages may be reduced by the suggested solutions

z

Company decides to implement the computerised system


41

Meeting: Selection of Implementation Method



Teacher declares that the company will implement the computerised system.

42


Teacher addresses different implementation AIS methods as listed in p.9 of student worksheet. The objective of the case study is to guide students’ discussions on how the advantages of using a computerised accounting system may vary due to using different implementation methods. Students remain in the 5 groups as in Activity 2. Each acts as one of the 3 parties in the student worksheet, the manager of Super Systems Limited, the manager of IT Department and the manager of Professional Limited. Students will discuss within their groups and identify the advantages of their selection method based on their role, and the disadvantages of the other two. One student will act as the discussion leader and jot down their points from others on the student worksheet.

41

42

Directions for discussion z z z z z

Discussion in progress

Cost Time Control Users’ requirements Staff competence, etc.


43



Teacher may give some directions to students for discussion.

44


Teacher tours around during their discussions to provide input and guidance as required.

For each role, students discuss how the advantages of using a computerised accounting system may vary due to different implementation methods.

Students are asked to use worksheet p.10-12 during discussions

Directions for discussion: Cost – What is the AIS cost due to different implementation methods? Time – What is the time required for implementing the AIS by different methods? Control – What is the degree of control over the AIS by different methods? Users’ requirements – Would the different methods meet the all users’ requirements? Staff competence – Will staff be competent enough to use the AIS developed by the different methods?

43

44

Meeting Begins


Final Director Decision

45



During the meeting, the director (teacher) should be neutral as each method have both advantages and disadvantages. In starting the meeting, he should invite the participants to present their views in the following order:

46


At the end of the meeting, teacher is convinced by the manager with the highest marks (i.e. relevant points and presentation skill) and select their suggested best implementation method.

1. Manager of Super Systems Limited 2. Manager of IT Department

A summary of the advantages and disadvantages of implementing different methods is conducted by teacher in the following slides.

3. Manager of Professional Limited Teacher should listen carefully to the points addressed by each student, raise questions if their points are not clear and guide them to express their viewpoints. In the meantime, he should also fill in the mark sheet in the appendix of the topic overview (p.8-9) on: 1. Advantages (1 mark for each point, maximum 4 marks) 2. Disadvantages (1 mark for each point, maximum 4 marks) 3. Presentation skill (maximum 2 marks)

45

46

Buy an AIS Commercial version z

Buy an AIS

Advantages z

z z z

z

Cost is cheaper when comparing with developing in-house Available within a short period Updates are inexpensive The purchased AIS are more likely to be bugfree after various testing


47

Disadvantages z z

z

z


Purchased AIS may not fit exact requirements Developer may close down or cease to update the AIS Evaluation of the purchased AIS is timeconsuming and costly Reduced competitive advantages


Teacher summarises the advantages of buying the AIS commercial version.

48


Teacher summarises the disadvantages of buying an AIS commercial version.

• Cost is cheaper compared to developing in-house as the cost is shared by other accounting package customers • Available immediately as its off the shelf.

• The purchased AIS may not fit exact requirements as it was developed for the general customer usage

• Updates are inexpensive as the cost of updates are shared by other accounting package customers.

• If the developer closes down or ceases to update the AIS, the buyer will be in trouble.

• The commercial version has been tried and tested over a period of time and known bugs have been eliminated.

• As the AIS was not developed by the company, evaluation of the purchased AIS by the company is time-consuming and costly. • As the AIS can be acquired by other companies in the market, it reduces the company’s competitive advantages.

47

48

Develop an in-house AIS z

Develop an in-house AIS

Advantages z z

z z

z

Tailored to exact user needs System development process can be managed and controlled Users may have greater loyalty Competitive advantages are built by a unique AIS


49

Disadvantages z z z z


costly labor intensive takes longer New programs contain bugs


50


Teacher summarises the advantages of developing an in-house AIS.

Teacher summarises the disadvantages of developing an AIS.

• As the AIS was developed by IT department based on the company requirements, it can be tailored to exact users’ needs

• It is costly as all cost is borne by the company. • It is labor intensive and the AIS is solely developed by the IT department. It requires IT staff to monitor and support the system.

• As the AIS was developed in-house, the system development process can be managed and controlled.

• It takes a longer time for system development and testing.

• Users may have greater loyalty of systems developed in-house by the IT department. They can suggest some functions that are company specific.

• The developed AIS is a new program and must be tested for bugs and repaired requiring excessive time to perfect.

• A competitive advantages are built by a unique AIS. No other company will adopt the same software in handling their accounting tasks.

49

50

Outsourcing z

Outsourcing

Advantages z z

z z

z

less costly Improved company cash flow when avoiding substantial capital investment in computer hardware and software Development time is not required Access to more advanced technology


51

Disadvantages z z z z


Loss of control Reduced competitive advantages Inflexible 5-year contract Ineffective if communication fails between outsourcer and client


52


Teacher summarises the advantages of outsourcing.

Teacher summarises the disadvantages of outsourcing.

• It is less costly as no cost is incurred on the hardware and software.

• Loss of control of the AIS as it is owed by the outsourcer.

• As no substantial cost is incurred in the hardware and software, it improves the company cash flow.

• Reduced competitive advantages as the AIS is owned by the outsourcer. Other competitors may use the same outsourcer for handling their accounting tasks.

• As the AIS is already developed, development time is not required.

• Inflexible in 5-year contract. The company has to pay penalty for cancellation of agreement. (The company may negotiate with the outsourcer for shorter contract period.)

• The outsourcer will usually update with more advanced technology to attract customers.

• If there is lack of good communications between the outsourcer and client, the AIS will not function properly.

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52

Preparation for next lesson z

You are required to review the following accounting ratios: z z z z z

z

Lesson 3

Gross profit ratio Net profit ratio Current ratio Quick ratio Sales to capital employed

How AIS assists in management decision-making?

Make investment decisions with AIS reports and analysis


53


Students prepare for the discussion in next lesson.

Lesson 3

End of lesson 2.

In this lesson, students are going to discuss how AIS assists in management decision-making. Students will conduct a group discussion to argue with whether to use AIS when having decision-making.

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54

ICT Applications in Accounting ~ Financial Reporting ~

Learning Objectives z z

Describe ICT applications in accounting Explain how AIS assists management decision-making

z

Generate financial reports z z z z z


55


Debtors / Creditors’ aging report Trial balance Profit and loss account / income statement Balance sheet Cash flow statement


Students will understand ICT application in accounting and how AIS assists management decision-making by group discussion and decision-making game.

56


Teacher briefs students on the ICT applications in financial reporting.

Generate financial reports

55

•

Debtors / Creditors’ aging report: shows details of transactions with debtors / creditors and due days eg. Due within 0-30 days, 31 – 60 days etc.

•

Trial balance: shows ending balance (debit / credit) of accounts on a specific date

•

Profit and loss account / income statement: shows income and expenses for a period

•

Balance sheet: shows assets, liabilities and on a specific date

•

Cash flow statement: shows cash inflows and cash outflows for a specific period

56

ICT Applications in Accounting ~ Costing Analysis ~ z

z z z

Examples of accounting systems and software

Perform financial result analysis in actual, fixed budget and flexible budget Conduct financial statement analysis Conduct profit volume analysis Perform discounted cash flow analysis for financial management


57

z z z


MYOB DacEasy Microsoft Excel


Teacher briefs students on the ICT applications in costing analysis.

58


MYOB and DacEasy are international providers of computerised accounting package for business owners and accountants.

1. Perform financial results analysis in actual, fixed budget and flexible budget: • e.g. Sales budget, purchase budget and cash budget etc.

MYOB provides multi-user business management software with accounting, inventory, time billing and multiple currency transaction capability

• A fixed budget is designed to remain unchanged irrespective of the quantity of goods produced.

The DacEasy product line includes different systems, for example, Accounting, Payroll, Order Entry, Point of Sale and Job Costing.

• A flexible budget is designed to change in accordance with the level of the quantity of goods produced. 2. Conduct financial statement analysis, eg. compares the result between this year and last year and shows the difference (variance).

Microsoft Excel is an electronic spreadsheet program that can produce professional-looking documents that perform numeric calculations. Its basic functions are formulas and charts.

3. Conduct profit volume analysis: • Study the relationship between costs and operating income at different sales levels for management decision-making. 4. Perform discounted cash flow analysis for financial management: • Compute present value and net present value for investment decision.

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Examples of ICT Applications in Accounting z

Examples of ICT Applications in Accounting

Charts and graphs in Excel

z

Financial Functions in Excel: z

z

z


59


“PMT” function is used to calculate the periodic cash flow of annuity “PV” function is used to calculate the monthly contribution for a given return and expected sum “NPV” function is used to calculate the net present value of a stream of cash flows based on certain discount rate


An example Excel charts and graphs

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Teacher briefs students on the usage of different financial functions. “PMT” function (PMT stands for payment) • use this function to determine the monthly payment, total interest, and total costs for a mortgage with input of principal, interest rate and repayment period. “PV” function (PV stands for present value) • use this function to calculate the present value of an investment with input of investment amount, interest rate and repayment period. “NPV” function (NPV stands for net present value) • use this function to calculate the net present value of cash flow stream by a certain interest rate.

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How AIS assists the management decision-making? z

Activity 4 - Case Study

Step I:

z

Identify areas requiring management actions z

Identify areas requiring management actions

Step II: Provide a basis for choosing among alternative actions


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Teacher briefs students on the two steps on how AIS assists the management decision-making.

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Teacher briefs the case as listed in P.14 of student worksheet. The objective of the case study is to apply the 2 steps on how AIS assists management decision-making by:

Step I: Identify areas requiring management action

Activity 4: identifying areas requiring management actions (accounting ratios analysis)

E.g. The AIS generates Profit and Loss Account and Balance Sheet. By computing the accounting ratios, the accountant can identify areas requiring management action.

Activity 5: providing a basis for choosing among alternative actions (evaluation of investment proposals)

Step II: Provide a basis for choosing among alternative actions

In activity 4, students are provided with an AIS report containing accounting ratios. They are required to comment on the company’s performance in the following aspects: profitability, liquidity and efficiency. Group discussions are suggested using student worksheet p.15 for recording notes.

Once an area of action is identified in step I, management must evaluate different actions to remedy the area. E.g. Evaluate the profitability of different investment proposals by AIS.

Prior knowledge required: ratio analysis Teacher conducts a review of accounting ratios in the next slide.

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Accounting Ratios z z z

z

z

Profitability

Gross profit ratio: Gross profit / Sales Net profit ratio: Net profit / Sales Current ratio: Current assets / Current liabilities Quick ratio: (Current assets – Inventory) / Current liabilities Sales to capital employed: Sales / Capital employed


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z

z

z


Both the Gross Profit Ratio and Net Profit Ratio dropped. It may be caused by low selling prices, high costs, high administrative expenses etc. It indicates the company has poor cost controls or marketing policies.


1.Gross profit ratio: Gross profit / Sales

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Before going through the answer, teacher invites groups to provide comments. Then teacher goes through the suggested answers with students.

• indicates a company’s good or bad cost controls and its marketing policies. Low margins may be caused by relatively low selling prices, high costs or both. 2.Net profit ratio: Net profit / Sales • indicates the profitability generated by a company. It can be viewed as a measurement of efficient cost controls. 3.Current ratio: Current assets / Current liabilities • is used to measure the ability of a company to meet its current liabilities from current assets. 4.Quick ratio: (Current assets – Inventory) / Current liabilities • indicates a company’s ability to meet its immediate commitments. 5.Sales to capital employed: Sales / Capital employed • indicates the efficiency of using capital to generate sales.

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Liquidity z

z

Efficiency

Both the Current Ratio and Quick Ratio dropped.

z

Poor ratios indicate company has liquidity problems and is unable to meet its current commitments.


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A sales drop to capital used indicates an inefficiency in using capital to generate sales.


Teacher goes through the suggested answer with students.

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Teacher goes through the suggested answer with students. Teacher recaps that activity 4 is to identify areas requiring management decisions. It evaluates the company’s performance by accounting ratios generated by the AIS. Teacher reminds students that the AIS will calculate the ratios thereby eliminating manual calculations.

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Activity 5 – Decision-making Game

Decision 1

•Choosing among alternative actions

Which is the best proposal?

Mr. Risky Topic A05 ICT Applications in Accounting

Ms Prudent 67



As mentioned before, the objective of the case study is to apply the 2 steps on how the AIS assists management decision-making by:

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Teacher briefs students on Decision 1 by referring to P.16 of student

• Activity 4: identifying areas requiring management actions (accounting ratios analysis)

worksheet.

• Activity 5: providing a basis for choosing among alternative actions (evaluation of investment proposals)

Teacher asks students to choose the best proposal for Mr. Risky. No report would be provided to them. They are also not allowed to use a calculator in making this decision. They have to write down their choice on the worksheet as Mr. Risky.

The company’s performance is not good in activity 4, so the company would like to improve profitability and liquidity by taking 2 actions: 1. Decision 1: purchase a machine by bank loan (Which bank loan is more favourable?) 2. Decision 2: make investments (Which investment is more profitable?) The objective of this decision-making game is to show that Ms Prudent would make better decisions than Mr. Risky with more useful information and analysis. Teacher briefs students on the decision game. In this game, students remain in the group as in activity 4. In each group, they have dual roles of both Mr. Risky and Ms Prudent. • Mr. Risky makes decisions without AIS reports and analysis but by experience. • Ms Prudent makes decisions with AIS reports and analysis. One student will act as discussion leader and record answers of Mr. Risky and Ms Prudent. At the end, students will discover the importance of the AIS in selecting alternatives actions.

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Analysis of Loan Proposals

Decision 2

Scenario Summary Bank A

Bank B

Bank C

Bank D

$100,000

$100,000

$100,000

$100,000

7%

8%

9%

10%

7

8

9

10

$1,509

$1,414

$1,354

$1,322

$126,779

$135,712

$146,263

$158,581

Which is the best investment plan?

Changing Cells: Loan Interest rate Years Result Cells: Monthly payment Total Interest


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Based on the AIS report, students are required to make decisions for Ms Prudent. They have to write down their choice on the worksheet as Ms Prudent.

worksheet.

(This analysis is intentionally not provided in the worksheet. Otherwise, students may refer to it in answering the question for Mr. Risky.)

Students must select the best proposal for Mr. Risky. No report would be provided to them. They are also not allowed to use a calculator in making this decision.

Teacher briefs students on Decision 2 by referring to P.17 of student

The correct answer is Bank C because: 1. Monthly payment is <$1,400 (i.e. Bank A and B are not feasible) 2. Total interest is $146,263 (the least comparing with Bank C and Bank D)

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Analysis of Investment Plans

Activity 5: Decision Game

Plan A

Plan B

Plan C

Plan D

8%

8%

8%

8%

Interest Rate Year 1

Initial Cost

($300,000)

($400,000)

($500,000)

($600,000)

Year 2

Returns

$95,000

$120,000

$150,000

$175,000

Year 3

Returns

$95,000

$120,000

$150,000

$175,000

Year 4

Returns

$95,000

$120,000

$150,000

$175,000

Year 5

Returns

$95,000

$120,000

$150,000

$175,000

Year 6

Returns

$95,000

$120,000

$150,000

$175,000

Net Present Value

$79,307

$79,125

$98,907

$98,724


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By comparing the answer of Mr. Risky and Ms Prudent, whose management decisions are better? And why?



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Based on the AIS report, students are required to make decisions for Ms Prudent. The correct answer should be Plan C, which gets the highest Net Present Value.

The objective of this decision-making game is to show that Ms Prudent would make better decisions than Mr. Risky due to more useful information and analysis.

(This analysis is intentionally not provided in the worksheet. Otherwise, students may refer to it in answering the question for Mr. Risky.)

Ms Prudent’s performance is better because the AIS provides more useful information to make better and correct decisions. Mr. Risky’s performance is poor due to insufficient information.

Note: At the end of the game, students will see the importance of the AIS in providing valuable information to choose among alternatives.

NPV of returns

End of lesson 3

Year 2: Returns / (1+8%) Year 3: Returns /{ (1+8%) (1+8%)} Year 4: Returns /{ (1+8%) (1+8%) (1+8%)} Year 5: Returns /{ (1+8%) (1+8%) (1+8%) (1+8%)} Year 6: Returns /{ (1+8%) (1+8%) (1+8%) (1+8%) (1+8%)} NPV of investment plan: NPV of returns – Initial cost

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The End


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Teacher concludes the lesson by highlighting the key points learned. End of Lesson 3.


Student Worksheet p.1

BAFS Elective Part – Accounting Module – Financial Accounting Topic A05: ICT Applications in Accounting

Activity 1 – Role Play

Olympics Limited is a sportswear trading company. Due to substantial increases in transactions, the current ‘manual system’ cannot meet the stakeholder requirements, especially in generating timely reports. The financial controller proposed implementing a computerised accounting system to improve efficiency and effectiveness of accounting. Meeting: Director calls a meeting with the following participants: 1. 2. 3. 4. 5.

Financial Controller Auditor Shareholder/Owner Customer Employee

They are required to discuss the advantages and disadvantages of the implementation of computerised accounting information systems (AIS) from their roles’ viewpoints. (Hint: Efficiency, cost, work flow, control, skills, competence etc.)




Financial Controller Financial controller illustrates how a computerised system improves efficiency. He also explains the possible limitations of using such a system. Advantages of computerised AIS

Disadvantages of computerised AIS




Auditor Auditor explains how their audit process is affected / improved by the new system. Advantages of computerised AIS





Shareholder / Owner Shareholder/Owner explains how the new system brings improvements / drawbacks to the company. Advantages of computerised AIS





Customer Customer explains if the new system has any improvement / drawback on their relationship with the company. Advantages of computerised AIS





Employee

Employee explains how the system improves / affects their work. Advantages of computerised AIS





Activity 2 – Open Forum Discussion Group Discussion: z Solutions to minimise implementation impacts of computerised AIS. Director calls a meeting to discuss solutions to minimise the implementation impacts of the computerised AIS.

The main areas of impact are: Company work flow System breakdown Data leakage Potential Unemployment Costs Students form 5 groups to discuss and propose solutions to minimise the impact. Based on your particular role you will vote on agreeing or not with the solutions. Students can refer to p.8 for discussion.




Group Discussion Disadvantages Work flow is controlled by the system.

Suggested Solutions

System breakdowns will affect company operations.

Hackers may try to break into the system and steal valuable information.

Employees may be fired due to a lack of necessary technology skills.

Additional financial support is required to install and maintain the system.

Special skills are required to operate the system.




Activity 3 – Role Play Meeting : Selection of Implementation Method

After the first meeting, Olympics Limited decides to adopt a computerised accounting information system (AIS) to enhance the efficiency and effectiveness of accounting. There are three ways to acquire the system:

1.

Buy an AIS Quotation of $700,000 is received from Super Systems Limited, a supplier of popular accounting software. Setup is immediate.

2.

Develop an AIS in-house The company Information Technology (IT) manager advised that the AIS could be developed in-house at $1,000,000. Setup will take approximately 3 months.

3.

Outsourcing All accounting data processing activities could be handled by an outside firm, Professional Limited, for a monthly fee of $50,000 for 5 years.

Director calls a meeting to select an implementation method for Olympics Limited with the following participants: 1. 2. 3.

Manager of Super Systems Limited Manager of IT Department Manager of Professional Limited




Manager of Super Systems Limited

Quotation of $700,000 is received from Super Systems Limited, a supplier of popular accounting software. Setup is immediate. The manager tries to convince the Director to buy the AIS by emphasising the advantages and the disadvantages of the other 2 methods. (Hint: Cost, time, control, user requirements, staff competence etc.) Advantages of buying the AIS

Disadvantages of developing the AIS in-house

Disadvantages of outsourcing




Manager of IT Department

The Information Technology (IT) manager advises that the AIS could be developed in-house at $1,000,000 within 3 months. The manager tries to convince the Director to develop the AIS by emphasising the advantages of developing it in-house and the disadvantages of the other 2 methods. (Hint: Cost, time, control, user requirements, staff competence etc.) Advantages of developing the AIS in-house

Disadvantages of buying the AIS

Disadvantages of outsourcing




Manager of Professional Limited

All accounting data processing activities could be handled by outsourcing to Professional Limited at $50,000/month for 5 years. The manager tries to convince the Director to outsource by emphasising the advantages / disadvantages of outsourcing compared to the other 2 methods. (Hint: Cost, time, control, user requirements, staff competence etc.) Advantages of outsourcing

Disadvantages of developing the AIS in-house

Disadvantages of buying the AIS




Director

The Director (teacher) invites the 3 managers to present their proposals and then guides the discussion. After presenting their proposals, the managers are allowed to challenge other proposals by emphasising the disadvantages. In conducting the meeting, the Director should fill in the mark sheet based on relevant points made by managers and their presentation skills. At the end of the meeting, the Director would be convinced by the manager with the highest marks and select their proposal as the implementation method.




Activity 4 – Group Discussion After the Lesson 2 meeting, Olympics Limited has implemented a computerised accounting information system (AIS) to enhance the efficiency and effectiveness of the accounting work.

The AIS generated the company’s financial statements and the following ratios: Ratios 1 2 3 4 5

Gross Profit Ratio Net Profit Ratio Current Ratio Quick Ratio Sales to capital employed

Current Year 19.8% 12.9% 1.62 0.42 1.58

Previous Year 22.7% 15.6% 1.92 0.72 1.63

Notes: Gross profit ratio: Gross profit / Sales Net profit ratio: Net profit / Sales Current ratio: Current assets / Current liabilities Quick ratio: (Current assets – Inventory) / Current liabilities Sales to capital employed: Sales / Capital employed




Based on the above ratios, comment on the company’s performance:

Profitability

Liquidity

Efficiency




Activity 5 – Decision-making Game To improve the profitability and liquidity of the company, managers are required to make two decisions. Two managers of Olympics Limited have different decision-making approach: Mr. Risky makes decisions WITHOUT the AIS reports and analysis but by experience.

Ms Prudent makes decisions WITH the AIS reports and analysis.

Decision 1: Olympics Limited will purchase a machine at $100,000 for upgrading the product quality. The purchase will be financed by a bank loan. According to the cash flow budget, the company has surplus cash $1,400 available per month for loan repayment. The following four proposals were received from banks:

Bank A Bank B Bank C Bank D

Offer a 7-year loan at an annual interest rate of 7% Offer an 8-year loan at an annual interest rate of 8% Offer a 9-year loan at an annual interest rate of 9% Offer a 10-year loan at an annual interest rate of 10%

Which one is the best proposal?

Mr. Risky

Ms Prudent




Decision 2: Olympics Limited would like to make investments through a fund manager. Assuming that the annual interest rate for the coming 6 years is 8%, the following four investment plans were received from the fund manager.

Plan A

The investment requires an initial outlay of $300,000 at the beginning of first year. The expected returns at the beginning of second year to sixth year are $95,000.

Plan B


Plan C


Plan D


Which one is the best investment plan?

Mr. Risky

Ms Prudent


Topic Overview

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