BAFS Elective Part Accounting Module – Financial Accounting · ICT Applications in Accounting...

BAFS Elective Part Accounting Module –Financial Accounting

Topic A05: ICT Applications in Accounting

Technology Education SectionCurriculum Development Institute

Education Bureau, HKSARGApril 2009

2Topic A05ICT Applications in Accounting

BAFS Elective PartLearning and Teaching Example

Lesson 1Advantages and Disadvantages of the AIS - Part 1



Learning Objective

Identify the advantages and disadvantages of using AIS



Activity 1: Role Play



Directions for discussion

EfficiencyCostWork flowControlSkillsCompetence



Meetings Begin



Discussion in progress



Presentation

The Director invites the 5 parties to present their findings on using a computerisedsystem.



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.



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.



Employee

Employee explains how the system improves / affects their work.



Financial ControllerAdvantages

Simplified transaction postingsEasier transaction retrievalsReadily available financial dataShorter time to prepare reportsDifferent aspects of reports availableMore information for budgetingHigher overall operations efficiency



Financial Controller

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



Auditor

AdvantagesEasier transactions retrievalEasier data extraction – all data is stored in systemDifferent aspects of report availableShorter time for audit process



Auditor

DisadvantagesSpecial system auditing skills requiredMore difficult data extractions – some data may be hidden in system



Shareholder / Owner

AdvantagesCurrent financial situation is easily availableData for sales budgeting is availableEasier cost controlWork flow is controlled by system – less chance for manual overrideImproved company imageReduce staff



Shareholder / Owner

DisadvantagesSystem installation and maintenance costsMust set-up a new IT department / employ IT related staffPossible system failures may affect operations, or even a disaster



Customer

AdvantagesFast transaction processingMore accurate transaction recordsBetter stock records, better shopping experience



Customer

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



Employee

AdvantagesLess effort to record a transactionLess time to record a transaction



Employee

DisadvantagesAll steps are controlled by system – unable to manage unexpected eventsMust learn new technology skillsPossibility of unemployment – especially low skilled workers



Conclusion

Overall advantagesHigher efficiency Better financial and cost controlBetter company image



Conclusion

Overall disadvantagesCompany work flow controlled by systemPossible system breakdown and data leakagePossibility of unemploymentFinancial cost and hidden cost



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; andThe impacts of different computerisedaccounting systems implementation methods

Lesson 2

Advantages and Disadvantages of AIS - Part 2



Learning Objectives

Identify possible solutions in minimisingimpact of disadvantagesIdentify impacts on different implementation methods of computerisedaccounting systems



Recap of last lesson

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

Affect company work flowSystem breakdownData leakageUnemploymentFinancial cost and hidden cost



Activity 2: Open forum discussion



Impact on Work Flow

The system controls the work flow of the company

Normal work flowUnexpected events



Impact on System Breakdown

Company operations stopped if system fails



Impact on Data Leakage

Hackers may invade the system to steal valuable information



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



Impact on Hidden Cost

Special skills required to manage and operate the system



Vote for the following statements

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



Summary of Activity 2

Impacts of disadvantages may be reduced by the suggested solutions

Company decides to implement the computerised system



Meeting: Selection of Implementation Method

Activity 3: Role Play



Directions for discussion

CostTimeControlUsers’ requirementsStaff competence, etc.



Discussion in progress



Meeting Begins



Final Director Decision



Buy an AIS Commercial version

AdvantagesCost is cheaper when comparing with developing in-houseAvailable within a short periodUpdates are inexpensiveThe purchased AIS are more likely to be bug-free after various testing



Buy an AIS

DisadvantagesPurchased AIS may not fit exact requirementsDeveloper may close down or cease to update the AISEvaluation of the purchased AIS is time-consuming and costlyReduced competitive advantages



Develop an in-house AIS

AdvantagesTailored to exact user needsSystem development process can be managed and controlledUsers may have greater loyalty Competitive advantages are built by a unique AIS



Develop an in-house AIS

Disadvantagescostlylabor intensivetakes longerNew programs contain bugs



Outsourcing

Advantagesless costlyImproved company cash flow when avoiding substantial capital investment in computer hardware and softwareDevelopment time is not requiredAccess to more advanced technology



Outsourcing

DisadvantagesLoss of controlReduced competitive advantagesInflexible 5-year contractIneffective if communication fails between outsourcer and client



Preparation for next lesson

You are required to review the following accounting ratios:

Gross profit ratioNet profit ratioCurrent ratioQuick ratioSales to capital employed

Make investment decisions with AIS reports and analysis

Lesson 3

How AIS assists in management decision-making?



Learning Objectives

Describe ICT applications in accountingExplain how AIS assists management decision-making



ICT Applications in Accounting ~ Financial Reporting ~

Generate financial reportsDebtors / Creditors’ aging reportTrial balanceProfit and loss account / income statementBalance sheetCash flow statement



ICT Applications in Accounting ~ Costing Analysis ~

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



Examples of accounting systems and software

MYOBDacEasyMicrosoft Excel



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



How AIS assists the management decision-making?

Step I: Identify areas requiring management actions

Step II: Provide a basis for choosing among alternative

actions



Activity 4 - Case Study

Identify areas requiring management actions



Accounting Ratios

Gross profit ratio: Gross profit / SalesNet profit ratio: Net profit / Sales Current ratio: Current assets / Current liabilitiesQuick ratio: (Current assets – Inventory) / Current liabilitiesSales 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.



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.



Activity 5 –Decision-making Game

Mr. Risky Ms Prudent

•Choosing among alternative actions



Decision 1

Which is the best proposal?



Analysis of Loan Proposals

Scenario Summary

Bank A Bank B Bank C Bank D

Changing Cells:

Loan $100,000 $100,000 $100,000 $100,000

Interest rate 7% 8% 9% 10%

Years 7 8 9 10

Result Cells:

Monthly payment $1,509 $1,414 $1,354 $1,322

Total Interest $126,779 $135,712 $146,263 $158,581



Decision 2

Which is the best investment plan?



Analysis of Investment PlansPlan 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

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



Activity 5: Decision Game

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



The End

BAFS Elective Part Accounting Module – Financial Accounting · ICT Applications in Accounting...

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