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C H A P TER 1 The Information System: An Accountant’s Perspective 15

companies and larger firms that have standardized information needs are the primary market for commer-
cial software. Three basic types of commercial software are turnkey systems, backbone systems, and ven-
dor-supported systems.
Turnkey systems are completely finished and tested systems that are ready for implementation. Typi-
cally, they are general-purpose systems or systems customized to a specific industry. In either case, the
end user must have standard business practices that permit the use of canned or off-the-shelf systems.
The better turnkey systems have built-in software options that allow the user to customize input, output,
and processing through menu choices. However, configuring the systems to meet user needs can be a
formidable task. 2
Backbone systems consist of a basic system structure on which to build. The primary processing logic
is preprogrammed, and the vendor then designs the user interfaces to suit the client’s unique needs. A
backbone system is a compromise between a custom system and a turnkey system. This approach can
produce satisfactory results, but customizing the system is costly.
Vendor-supported systems are custom (or customized) systems that client organizations purchase
commercially rather than develop in-house. Under this approach, the software vendor designs, imple-
ments, and maintains the system for its client. This is a popular option with health care and legal services
organizations that have complex systems requirements but are not of sufficient magnitude to justify
retaining an in-house systems development staff. Indeed, this has become a popular option for many
organizations that traditionally have relied on in-house development but have chosen to outsource these
activities. In recent years, public accounting firms have expanded their involvement in the vendor-
supported market.

Organizational Structure

The structure of an organization reflects the distribution of responsibility, authority, and accountability
throughout the organization. These flows are illustrated in Figure 1-7. Firms achieve their overall objectives
by establishing measurable financial goals for their operational units. For example, budget information flows
downward. This is the mechanism by which senior management conveys to their subordinates the standards
against which they will be measured for the coming period. The results of the subordinates’ actions, in the
form of performance information, flow upward to senior management. Understanding the distribution pat-
tern of responsibility, authority, and accountability is essential for assessing user information needs.

BUSINESS SEGMENTS
Business organizations consist of functional units or segments. Firms organize into segments to promote
internal efficiencies through the specialization of labor and cost-effective resource allocations. Managers
within a segment can focus their attention on narrow areas of responsibility to achieve higher levels of
operating efficiency. Three of the most common approaches include segmentation by:
1. Geographic Location. Many organizations have operations dispersed across the country and around
the world. They do this to gain access to resources, markets, or lines of distribution. A convenient
way to manage such operations is to organize the management of the firm around each geographic
segment as a quasi-autonomous entity.
2. Product Line. Companies that produce highly diversified products often organize around product lines,
creating separate divisions for each. Product segmentation allows the organization to devote special-
ized management, labor, and resources to segments separately, almost as if they were separate firms.
3. Business Function. Functional segmentation divides the organization into areas of specialized
responsibility based on tasks. The functional areas are determined according to the flow of primary
resources through the firm. Examples of business function segments are marketing, production,
finance, and accounting.

2 Enterprise resource planning (ERP) systems such as Oracle and SAP are examples of this approach to systems implementation.
ERP systems are discussed later in this chapter. SAP and Oracle are discussed in more detail in Chapter 11.