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

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1 : Topic Overview P.1 Topic Level Duration Topic Overview Accounting Module Financial Accounting A05: 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 Advantages and Disadvantages of AIS - Part 1 Lesson 2 Advantages and Disadvantages of AIS - Part 2 Lesson 3 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 As at April 2009

2 : 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 Part I: Introduction Teacher begins lesson by emphasising the business trend of using computerised accounting information system (AIS). Part II: Content A Case Study Teacher briefs students on the case before starting the role play. Activity 1: Role play Students are divided into five groups, each group represents one party. Groups will discuss and identify the advantages and disadvantages of using the computerised AIS from their roles viewpoints. Each group nominates one representative to role play. Teacher chairs the meeting. Each representative presents an opinion. Teacher concludes meeting. Part III: Conclusion Teacher reviews the key points and briefs students to prepare them for the next lesson. Reference PPT#1-3 PPT #4-5 Student Worksheet p.1 PPT #6-7 Student Worksheet pp.2-6 PPT #8-13 Time Allocation 2 minutes 5 minutes 15 minutes 10 minutes PPT # 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. BAFS As at April 2009

3 : 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. Find out possible solutions in minimising the disadvantages; and 2. Distinguish the impacts on different implementation methods of a computerised accounting system. Teaching Sequence and Time Allocation: Activities Part I: Introduction Teacher begins by recalling the case and key points of last lesson. Reference Time Allocation PPT # 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 Student Worksheet pp.7-8 PPT # minutes 4 minutes Activity 3: Role play Students remain in the same groups from Activity 2. Groups will identify the advantages of the election method on their role, and the disadvantages of the other two methods. Each group nominates one representative to role play. 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. PPT#42-43 Student Worksheet P.9-13 PPT# minutes 5 minutes PPT # minutes BAFS As at April 2009

4 : 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. BAFS As at April 2009

5 : Topic Overview P.5 Theme Duration Lesson 3 How AIS Assists the Management Decision-making? 40 minutes Prior knowledge required: Ratio analysis Expected Learning Outcomes: Upon completion of this lesson, students will be able to: 1. Describe the ICT applications in accounting 2. Explain how AIS assists management decision-making Teaching Sequence and Time Allocation: Activities Part I: Introduction Teacher begins by recalling the last lesson case work. The Olympics faced another problem on how AIS assists management decision-making. 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: Analysis NOT using AIS reports. Analysis USING AIS reports. Students compare their investment decision results to illustrate the importance of AIS reports and Reference Time Allocation PPT # minutes PPT #62 PPT # minutes Student Worksheet pp PPT # minutes Student Worksheet pp analysis in decision making. Part III: Conclusion Teacher concludes by highlighting the key points. PPT #73 3 minutes BAFS As at April 2009

6 : Topic Overview P.6 Answer for Activity 2 Disadvantages Work flow is controlled by the system. System breakdowns will affect company operations Hackers may breach the system to steal valuable information Employees may be fired due to a lack of required technology skills 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. 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. 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. 1. Train unskilled workers to competently operate the system; and 2. Schedule regular training to keep workers abreast of latest technology changes. BAFS As at April 2009

7 : Topic Overview P.7 Additional financial support is required to install and maintain the system Special skills required to operate 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. 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. BAFS As at April 2009

8 : Topic Overview P.8 (Tick 1 box for 1 mark) Mark Sheet: 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 Disadvantages (1 mark for each point, maximum 4 marks) Presentation skill (Maximum 2 marks) Total BAFS As at April 2009

9 : Topic Overview P.9 Manager of Professional 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 BAFS As at April 2009

10 Accounting Module Financial Accounting : Lesson 1 Advantages and Disadvantages of the AIS - Part 1 Technology Education Section Curriculum Development Institute Education Bureau, HKSARG April Introduction This session aims to introduce ICT Accounting applications to students. Students will gain a solid understanding through active participation in debate and case study. Duration Three 40-minute lessons Lesson 1 Pre-lesson preparation: Students will collect information about using the computerised accounting information system (AIS) such as: efficiency, cost, workflow, control, skills, competence, etc. 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

11 Learning Objective Activity 1: Role Play Identify the advantages and disadvantages of using AIS 3 4 Students will identify the advantages and disadvantages of using the AIS through a role plays with other members of a pseudo company. After discussing the advantages and disadvantages in role play, teacher will summarise their findings by highlighting that the advantages outweigh the disadvantages generally. Students read worksheet P.1 before the lesson and prepare for role-play activities. Teacher introduces the case in P.1 of student worksheet. 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

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

13 Discussion in progress Presentation The Director invites the 5 parties to present their findings on using a computerised system. 7 8 Teacher tours around during the discussions to provide input and assistance as required. 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

14 Financial controller Financial controller illustrates how a computerised system improves efficiency. Also explaining the possible limitations of using such a system. Auditor Auditor explains how the audit process is affected / improved by the new system The Financial controller group will present first. The auditor group presents the advantages and disadvantages of computerisation. 9 10

15 Shareholder/Owner Shareholder/Owner explains how the new system brings improvement / drawbacks to the company. Customer Customer explains if the new system has any improvement / drawback on their relationship with the company The shareholder / owner group presents the advantages and disadvantages of computerisation. The customer group presents the advantages and disadvantages of computerisation

16 Employee Employee explains how the system improves / affects their work 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. Teacher summarises the advantages and disadvantages in the following slides. Teacher also makes comments on the students findings 13 14

17 Financial Controller Advantages 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 Financial Controller Disadvantages 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. 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. With the help of the system, user may retrieve transactions without searching through bundles of accounting books or receipts. 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. Teacher summarises the disadvantages from the financial controller s perspective. 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. All company personnel must be trained in operation of the software. 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

18 Auditor Advantages Easier transactions retrieval Easier data extraction all data is stored in system Different aspects of report available Shorter time for audit process Auditor Disadvantages Special system auditing skills required More difficult data extractions some data may be hidden in system 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

19 Shareholder / Owner Advantages 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 Shareholder / Owner Disadvantages 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 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. The system also keep tracks of data for years and provides valuable information for budget estimation and cost controls. 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. 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. 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. System breakdown will impact all parties due to ceasing company operations. The computer system reduces inputting and recording transactions, thus less employees are required

20 Customer Advantages Fast transaction processing More accurate transaction records Better stock records, better shopping experience Customer Disadvantages Possible personal information (e.g. credit card number) leakage 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 Employee Advantages Less effort to record a transaction Less time to record a transaction Employee Disadvantages All steps are controlled by system unable to manage unexpected events Must learn new technology skills Possibility of unemployment especially low skilled workers 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: - Less effort to record a transaction; and - Less time to record a transaction. 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. 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

22 Conclusion Overall advantages Higher efficiency Better financial and cost control Better company image Conclusion Overall disadvantages Company work flow controlled by system Possible system breakdown and data leakage Possibility of unemployment Financial cost and hidden cost 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. 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). 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) 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

23 Conclusion The impact of the disadvantages should be minimised by implementing effective measures. Advantages of computerised accounting outweigh the disadvantages. Preparation for next lesson You are required to discuss: 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. 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. Teacher asks students to prepare for discussions in next lesson. End of lesson

24 Learning Objectives Lesson 2 Advantages and Disadvantages of AIS - Part 2 Identify possible solutions in minimising impact of disadvantages Identify impacts on different implementation methods of computerised accounting systems 30 Lesson 2 In this lesson, students will continue to work on the cases from lesson 1. Group discussions and role-plays will be conducted. 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

25 Recap of last lesson Impacts of disadvantages of AIS must be minimised! Disadvantages include: Affect company work flow System breakdown Data leakage Unemployment Financial cost and hidden cost Activity 2: Open forum discussion 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

26 Impact on Work Flow The system controls the work flow of the company Normal work flow Unexpected events 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

27 Impact on System Breakdown Company operations stopped if system fails Impact on Data Leakage Hackers may invade the system to steal valuable information Suggested solutions: Suggested solutions: Arrange adequate regular system maintenance procedures 1. Use fault-tolerant / fault-safe systems 2. Install suitable anti-virus software to avoid breakdowns caused by viruses 3. Regularly check and Install security updates 4. Do not allow staff to install unauthorised programs or files 5. Backup system software 1. Install suitable anti-virus software to avoid breakdowns due to virus inflections 2. Check for and Install security updates regularly 3. Do not allow staff to install unauthorised software 4. Train staff to eliminate possible security pitfalls 35 36

28 Impact on Unemployment Employees may be released due to reduction in processes and lack of technology skills to manage system Impact on Financial Cost Additional cost to install and maintain the system Suggested solutions: Suggested solutions: 1. Train un-skilled workers to operate the system 2. Regularly update workers on new technology advances 1. Select a proper system to increase the efficiency to compensate for additional costs 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

29 Impact on Hidden Cost Special skills required to manage and operate the system Vote for the following statements Disadvantages of using a computerised accounting system can be minimised by suggesting possible solutions. I would support the implementation of a computerised accounting system Suggested solutions: 1. Ask system vendor to provide training on operating the system 2. Ask system vendor to provide thorough documentation 3. Arrange in-house training for staff on system operation 4. Auditor to seek guidance from auditing expert to effectively use system Teacher asks students to vote for the following statements: 1.Disadvantages of using a computerised accounting system can be minimised by the suggesting possible solutions. 2.I would support the implementation of a computerised accounting system. 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

30 Summary of Activity 2 Impacts of disadvantages may be reduced by the suggested solutions Activity 3: Role Play Meeting: Selection of Implementation Method Company decides to implement the computerised system Teacher declares that the company will implement the computerised system. 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

31 Directions for discussion Discussion in progress Cost Time Control Users requirements Staff competence, etc Teacher may give some directions to students for discussion. For each role, students discuss how the advantages of using a computerised accounting system may vary due to different implementation methods. Teacher tours around during their discussions to provide input and guidance as required. Students are asked to use worksheet p 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

32 Meeting Begins Final Director Decision 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: 1. Manager of Super Systems Limited 2. Manager of IT Department 3. Manager of Professional Limited 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. A summary of the advantages and disadvantages of implementing different methods is conducted by teacher in the following slides. 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

33 Buy an AIS Commercial version Advantages 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 Buy an AIS Disadvantages 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. 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. Updates are inexpensive as the cost of updates are shared by other accounting package customers. The commercial version has been tried and tested over a period of time and known bugs have been eliminated. Teacher summarises the disadvantages of buying an AIS commercial version. The purchased AIS may not fit exact requirements as it was developed for the general customer usage If the developer closes down or ceases to update the AIS, the buyer will be in trouble. 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

34 Develop an in-house AIS Advantages 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 Develop an in-house AIS Disadvantages costly labor intensive takes longer New programs contain bugs Teacher summarises the advantages of developing an in-house AIS. As the AIS was developed by IT department based on the company requirements, it can be tailored to exact users needs As the AIS was developed in-house, the system development process can be managed and controlled. Users may have greater loyalty of systems developed in-house by the IT department. They can suggest some functions that are company specific. A competitive advantages are built by a unique AIS. No other company will adopt the same software in handling their accounting tasks. Teacher summarises the disadvantages of developing an AIS. 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. It takes a longer time for system development and testing. The developed AIS is a new program and must be tested for bugs and repaired requiring excessive time to perfect

35 Outsourcing Advantages 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 Outsourcing Disadvantages Loss of control Reduced competitive advantages Inflexible 5-year contract Ineffective if communication fails between outsourcer and client Teacher summarises the advantages of outsourcing. It is less costly as no cost is incurred on the hardware and software. As no substantial cost is incurred in the hardware and software, it improves the company cash flow. As the AIS is already developed, development time is not required. The outsourcer will usually update with more advanced technology to attract customers. Teacher summarises the disadvantages of outsourcing. Loss of control of the AIS as it is owed by the outsourcer. Reduced competitive advantages as the AIS is owned by the outsourcer. Other competitors may use the same outsourcer for handling their accounting tasks. 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.) If there is lack of good communications between the outsourcer and client, the AIS will not function properly

36 Preparation for next lesson You are required to review the following accounting ratios: Gross profit ratio Net profit ratio Current ratio Quick ratio Sales to capital employed Make investment decisions with AIS reports and analysis Lesson 3 How AIS assists in management decision-making? 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

37 Learning Objectives Describe ICT applications in accounting Explain how AIS assists management decision-making ~ Financial Reporting ~ Generate financial reports 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. Teacher briefs students on the ICT applications in financial reporting. Generate financial reports Debtors / Creditors aging report: shows details of transactions with debtors / creditors and due days eg. Due within 0-30 days, 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 55 56

38 ~ Costing Analysis ~ 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 Examples of accounting systems and software MYOB DacEasy Microsoft Excel Teacher briefs students on the ICT applications in costing analysis. 1. Perform financial results analysis in actual, fixed budget and flexible budget: e.g. Sales budget, purchase budget and cash budget etc. A fixed budget is designed to remain unchanged irrespective of the quantity of goods produced. 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). 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. MYOB and DacEasy are international providers of computerised accounting package for business owners and accountants. MYOB provides multi-user business management software with accounting, inventory, time billing and multiple currency transaction capability The DacEasy product line includes different systems, for example, Accounting, Payroll, Order Entry, Point of Sale and Job Costing. Microsoft Excel is an electronic spreadsheet program that can produce professional-looking documents that perform numeric calculations. Its basic functions are formulas and charts

39 Examples of ICT Applications in Accounting Charts and graphs in Excel Examples of ICT Applications in Accounting Financial Functions in Excel: 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 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

40 How AIS assists the management decision-making? Step I: Identify areas requiring management actions Activity 4 - Case Study Identify areas requiring management actions Step II: Provide a basis for choosing among alternative actions Teacher briefs students on the two steps on how AIS assists the management decision-making. Step I: Identify areas requiring management action 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. Step II: Provide a basis for choosing among alternative actions 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. 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: Activity 4: identifying areas requiring management actions (accounting ratios analysis) Activity 5: providing a basis for choosing among alternative actions (evaluation of investment proposals) 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. Prior knowledge required: ratio analysis Teacher conducts a review of accounting ratios in the next slide

41 Accounting Ratios 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 Profitability 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 Gross profit ratio: Gross profit / Sales 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. Before going through the answer, teacher invites groups to provide comments. Then teacher goes through the suggested answers with students

42 Liquidity Both the Current Ratio and Quick Ratio dropped. Poor ratios indicate company has liquidity problems and is unable to meet its current commitments. Efficiency A sales drop to capital used indicates an inefficiency in using capital to generate sales Teacher goes through the suggested answer with students. 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

43 Activity 5 Decision-making Game Choosing among alternative actions Decision 1 Which is the best proposal? Mr. Risky Ms Prudent As mentioned before, the objective of the case study is to apply the 2 steps on how the AIS assists management decision-making by: Activity 4: identifying areas requiring management actions (accounting ratios analysis) Activity 5: providing a basis for choosing among alternative actions (evaluation of investment proposals) 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?) Teacher briefs students on Decision 1 by referring to P.16 of student worksheet. 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 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

44 Analysis of Loan Proposals Decision 2 Scenario Summary Changing Cells: Bank A Bank B Bank C Bank D Which is the best investment plan? Loan $100,000 $100,000 $100,000 $100,000 Interest rate 7% 8% 9% 10% Years Result Cells: Monthly payment $1,509 $1,414 $1,354 $1,322 Total Interest $126,779 $135,712 $146,263 $158, 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. (This analysis is intentionally not provided in the worksheet. Otherwise, students may refer to it in answering the question for Mr. Risky.) Teacher briefs students on Decision 2 by referring to P.17 of student worksheet. 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. 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) 69 70

45 Analysis of Investment Plans Activity 5: Decision Game Plan A Plan B Plan C Plan D Interest Rate 8% 8% 8% 8% Year 1 Initial Cost ($300,000) ($400,000) ($500,000) ($600,000) Year 2 Returns $95,000 $120,000 $150,000 $175,000 By comparing the answer of Mr. Risky and Ms Prudent, whose management decisions are better? And why? 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, 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.) Note: NPV of returns 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%)} 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. At the end of the game, students will see the importance of the AIS in providing valuable information to choose among alternatives. End of lesson 3 NPV of investment plan: NPV of returns Initial cost 71 72

46 The End 73 Teacher concludes the lesson by highlighting the key points learned. End of Lesson 3.

47 Student Worksheet p.1 Accounting Module Financial 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. Financial Controller 2. Auditor 3. Shareholder/Owner 4. Customer 5. 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.) BAFS As at April 2009

48 Student Worksheet p.2 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 BAFS As at April 2009

49 Student Worksheet p.3 Auditor Auditor explains how their audit process is affected / improved by the new system. Advantages of computerised AIS Disadvantages of computerised AIS BAFS As at April 2009

50 Student Worksheet p.4 Shareholder / Owner Shareholder/Owner explains how the new system brings improvements / drawbacks to the company. Advantages of computerised AIS Disadvantages of computerised AIS BAFS As at April 2009

51 Student Worksheet p.5 Customer Customer explains if the new system has any improvement / drawback on their relationship with the company. Advantages of computerised AIS Disadvantages of computerised AIS BAFS As at April 2009

52 Student Worksheet p.6 Employee Employee explains how the system improves / affects their work. Advantages of computerised AIS Disadvantages of computerised AIS BAFS As at April 2009

53 Student Worksheet p.7 Activity 2 Open Forum Discussion Group Discussion: 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. BAFS As at April 2009

54 Student Worksheet p.8 Disadvantages Work flow is controlled by the system. Group Discussion 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. BAFS As at April 2009

55 Student Worksheet p.9 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. Manager of Super Systems Limited 2. Manager of IT Department 3. Manager of Professional Limited BAFS As at April 2009