Accounting information system
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An accounting as an information system (AIS) is a system of collecting, storing and processing financial and accounting data that are used by decision makers . An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting financial reports can be used internally by management or externally by other interested parties including investors , creditors and tax authorities. Accounting information systems are designed to support all accounting functions and activities including auditing , financial accounting & reporting, managerial/ management accounting and tax . The most widely adopted accounting information systems are auditing and financial reporting modules.
- 1 History
- 2 An example of architecture
- 3 Advantages and implications
- 4 Implementation
- 5 Career
- 6 See also
- 7 References
History[ edit ]
Traditionally, accounting is purely based on manual approach. Experience and skilfulness of an individual accountant are critical in accounting processes. Even using the manual approach can be ineffective and inefficient. Accounting information systems resolve many of above issues. AISs can support an automation of processing large amount of data and produce timely and accuracy of information.
Early accounting information systems were designed for payroll functions in 1970s. Initially, accounting information systems were predominantly developed “in-house” as legacy systems. Such solutions were expensive to develop and difficult to maintain. Therefore, many accounting practitioners preferred the manual approach rather than computer-based. Today, accounting information systems are more commonly sold as prebuilt software packages from large vendors such as Microsoft, Sage Group, SAP AG|SAP and Oracle Corporation|Oracle where it is configured and customized to match the organization’s business processes. Small businesses often use accounting lower costs software packages such as MYOB and Quickbooks. Large organisations would often choose ERP systems. As the need for connectivity and consolidation between other business systems increased, accounting information systems were merged with larger, more centralized systems known as enterprise resource planning (ERP). Before, with separate applications to manage different business functions, organizations had to develop complex interfaces for the systems to communicate with each other. In ERP, a system such as accounting information system is built as a module integrated into a suite of applications that can include manufacturing, supply chain, human resources. These modules are integrated together and are able to access the same data and execute complex business processes. Today, Cloud-based accounting information systems are increasingly popular for both SMEs and large organisations for lower costs. With adoption of accounting information systems, many businesses have removed low skills, transactional and operational accounting roles.
An example of architecture[ edit ]
An AIS typically follows a multitier architecture separating the presentation to the user, application processing and data management in distinct layers. The presentation layer manages how the information is displayed to and viewed by functional users of the system (through mobile devices, web browsers or client application). The entire system is backed by a centralized database that stores all of the data. This can include transactional data generated from the core business processes (purchasing, inventory, accounting) or static, master data that is referenced when processing data (employee and customer account records and configuration settings). As transactions occur, the data is collected from the business events and stored into the system’s database where it can be retrieved and processed into information that is useful for making decisions. The application layer retrieves the raw data held in the log database layer, processes it based on the configured business logic and passes it onto the presentation layer to display to the users. For example, consider the accounts payable department when processing an invoice. With an accounting information system, an accounts payable clerk enters the invoice , provided by a vendor , into the system where it is then stored in the database. When goods from the vendor are received, a receipt is created and also entered into the AIS. Before the accounts payable department pays the vendor, the system’s application processing tier performs a three-way matching where it automatically matches the amounts on the invoice against the amounts on the receipt and the initial purchase order. Once the match is complete, an email is sent to an accounts payable manager for approval. From here a voucher can be created and the vendor can ultimately be paid.
Advantages and implications[ edit ]
A big advantage of computer-based accounting information systems is that they automate and streamline reporting , develop advanced modelling and support data mining.  Reporting is major tool for organizations to accurately see summarized, timely information used for decision-making and financial reporting . The accounting information system pulls data from the centralized database, processes and transforms it and ultimately generates a summary of that data as information that can now be easily consumed and analyzed by business analysts, managers or other decision makers. These systems must ensure that the reports are timely so that decision-makers are not acting on old, irrelevant information and, rather, able to act quickly and effectively based on report results. Consolidation is one of the hallmarks of reporting as people do not have to look through an enormous number of transactions. For instance, at the end of the month, a financial accountant consolidates all the paid vouchers by running a report on the system. The system’s application layer provides a report with the total amount paid to its vendors for that particular month. With large corporations that generate large volumes of transactional data, running reports with even an AIS can take days or even weeks.
After the wave of corporate scandals from large companies such as Tyco International , Enron and WorldCom , major emphasis was put on enforcing public companies to implement strong internal controls into their transaction-based systems. This was made into law with the passage of the Sarbanes–Oxley Act of 2002 which stipulated that companies must generate an internal control report stating who is responsible for an organization’s internal control structure and outlines the overall effectiveness of these controls.  Since most of these scandals were rooted in the companies’ accounting practices, much of the emphasis of Sarbanes Oxley was put on computer-based accounting information systems. Today, AIS vendors tout their governance, risk management, and compliance features to ensure business processes are robust and protected and the organization’s assets (including data) are secured.
Implementation[ edit ]
Many large and SMEs are now adopting cost effective cloud-based accounting information system in recent years.
Looking back years ago, most organizations, even larger ones, hire outside consultants, either from the software publisher or consultants who understand the organization and who work to help select and implement the ideal configuration, taking all components into consideration.
The steps to implement an accounting information system are as follows:
- Detailed Requirements Analysis
- where all individuals involved in the system are interviewed. The current system is thoroughly understood, including problems, and complete documentation of the system—transactions, reports, and questions that need to be answered—are gathered. User needs that are not in the current system are outlined and documented. Users include everyone, from top management to data entry. The requirements analysis not only provides the developer with the specific needs, it also helps users accept the change. Users who have the opportunity to ask questions and provide input are much more confident and receptive of the change, than those who sit back and don’t express their concerns.
- Systems Design (synthesis)
- The analysis is thoroughly reviewed and a new system is created. The system that surrounds the system is often the most important. What data needs to go into the system and how is this going to be handled? What information needs to come out of the system how is it going to be formatted? If we know what needs to come out, we know what we need to put into the system. The program we select will need to appropriately handle the process. The system is built with control files, sample master records, and the ability to perform processes on a test basis. The system is designed to include appropriate internal controls and to provide management with the information needed to make decisions. It is a goal of an accounting information system to provide information that is relevant, meaningful, reliable, useful, and current. To achieve this, the system is designed so that transactions are entered as they occur (either manually or electronically) and information is immediately available online for management.
- Once the system is designed, an RFP is created detailing the requirements and fundamental design. Vendors are asked to respond to the proposal, to provide demonstrations of the product, and to specifically respond to the needs of the organization. Ideally, the vendor will input control files, sample master records, and be able to show how transactions are processed that result in the information that management needs to make decisions. An RFP for the information technology infrastructure follows the selection of the software product because the software product generally has specific requirements for infrastructure. Sometimes, the software and the infrastructure is selected from the same vendor. If not, the organization must ensure that vendors will work together without “pointing fingers” when there is an issue with either the software or the infrastructure.
- As the system is being designed, it is documented. The documentation includes vendor documentation of the system and, more importantly, the procedures or detailed instructions that help users handle each process specific to the organization. Most documentation and procedures are online and it is helpful if organizations can add to the help instructions provided by the software vendor. Documentation and procedures tend to be an afterthought but is the insurance policy and the tool used during testing and training—before launch. The documentation is tested during the training so that when the system is launched, there is no question that it works and that the users are confident with the change.
- Before launch, all processes are tested from input through output, using the documentation as a tool to ensure that all processes are thoroughly documented and that users can easily follow the procedures: They know it works and that the procedures will be followed consistently. The reports are reviewed and verified, so that there’s no garbage in-garbage out. This is done in a test system not yet fully populated with live data. Unfortunately, most organizations launch systems before thorough testing, adding to end-user frustration when processes don’t work. The documentation and procedures may be modified during this process. All identified transactions must be tested during this step. All reports and online information must be verified and traced through the audit trail so that management is ensured that transactions will be handled consistently and that the information can be relied upon to make decisions.
- Before launch, all users need to be trained, with procedures. This means a trainer using the procedures to show each end user how to handle a procedures. The procedures often need to be updated during training as users describe their unique circumstances and the “design” is modified with this additional information. The end user then performs the procedure with the trainer and the documentation. The end user then performs the procedure with the documentation alone. The end user is then on his or her own with the support, either in person or by phone, of the trainer or other support person. This is before data conversion.
- Data Conversion
- Tools are developed to convert the data from the current system (which was documented in the requirements analysis) to the new system. The data is mapped from one system to the other and data files are created that will work with the tools that are developed. The conversion is thoroughly tested and verified before final conversion. There’s a backup so it can be restarted, if necessary.
- The system is implemented only after all of the above is completed. The entire organization is aware of the launch date. Ideally, the current system is retained and often run in “parallel” until the new system is in full operation and working properly. With the current mass-market software used by thousands of companies and fundamentally proven to work, the “parallel” run that is mandatory with software tailor-made to a company is generally not done. This is only true, however, when the above process is followed, the system is thoroughly documented and tested, and users are trained before launch.
- Online resources are available to assist with strategic planning of accounting information systems. Information systems and financial forms aid in determining the specific needs of each organization, as well as assigning responsibility to principles involved. 
- The end users and managers have ongoing support available at all times. System upgrades follow a similar process and all users are thoroughly apprised of changes, upgraded in an efficient manner, and trained.
- Many organizations chose to limit the time and money spent on the analysis, design, documentation, and training, and move right into software selection and implementation. If a detailed requirements analysis is performed with adequate time being spent on the analysis, the implementation and ongoing support will be minimal. Organizations that skip the steps to ensure the system meets their needs are often left with frustrated end users, costly support, and information that is not current or correct. Worse yet, these organizations build the system three times instead of once.
Career[ edit ]
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Many AIS professionals work for consulting firms, large corporations, insurance companies, financial firms, government agencies and public accounting firms, among other types of companies. With technological advancement, traditional accounting practice will shift to accounting information systems practice. Both accounting and information technology professional bodies are working on the new directions of accounting programs and industry practices. System Auditors is one of the top choices in the past two decades, they look at the controls, data processing, data integrity, general operation, maintenance, security and other aspects of all types of information systems used by businesses. A lot of the companies will deal with software and finding a software that is right for the company, or maintaining a software for a company.
If you are interested in the career, you might have the choice of working in the financial department of any type of business, or of working with a financially oriented company or a programming-oriented company that specializes in AIS. Some job titles in this field of work include financial manager, financial examiner and chief financial officer. You could also become a computer systems analyst, a computer information systems manager or a computer software engineer or programmer specializing in financial software.
If you are working with a financially oriented company, your job duties could range from analyzing an AIS for data integrity to managing the entire AIS. In a programming-oriented company, your focus may be directed towards developing new software in AIS or fixing bugs in an AIS. In both cases, you may also have the option of consulting, which requires travelling to different companies to provide analysis and advice concerning the company’s AIS.
There are industry associations offer certificates that related to AIS area include CISA, AIS, CISSP, CIA, AFE, CFE, and CITP.
See also[ edit ]
- Accounting software
- List of ERP software packages
References[ edit ]
- ^ “Archived copy” . Archived from the original on October 18, 2011. Retrieved November 3, 2010.
- ^ http://www.coso.org/
- ^ Accounting Information Systems: Information on Collection, Storage and Processing of Financial and Accounting Data. Accounting Information Systems. Retrieved 7 December 2012.
- Information systems
- Accounting software
- CS1 maint: Archived copy as title
- Wikipedia articles with style issues from April 2017
- All articles with style issues
- Articles needing additional references from April 2017
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- This page was last edited on 26 November 2018, at 17:08 (UTC).
- Text is available under the Creative Commons Attribution-ShareAlike License ;
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An accounting information system (AIS) is a structure that a business uses to collect, store, manage, process, retrieve and report its financial data so that it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors, regulators and tax agencies.
Specially trained accountants work in-depth with AIS to ensure the highest level of accuracy in a company’s financial transactions and recordkeeping, as well as make financial data easily available to those who legitimately need access to it — all while keeping data intact and secure.
Accounting information systems generally consist of six primary components: people, procedures and instructions, data, software, information technology infrastructure and internal controls. Let’s look at each component in detail.
The people in an AIS are simply the system users. Professionals who may need to use an organization’s AIS include accountants, consultants, business analysts, managers, chief financial officers and auditors. An AIS helps the different departments within a company work together.
For example, management can establish sales goals for which staff can then order the appropriate amount of inventory. The inventory order notifies the accounting department of a new payable. When sales are made, sales people can enter customer orders, accounting can invoice customers, the warehouse can assemble the order, the shipping department can send it off, and the accounting department gets notified of a new receivable . The customer service department can then track customer shipments and the system can create sales reports for management. Managers can also see inventory costs, shipping costs, manufacturing costs and so on.
With a well-designed AIS, everyone within an organization who is authorized to do so can access the same system and get the same information. An AIS also simplifies getting information to people outside of the organization, when necessary.
For example, consultants might use the information in an AIS to analyze the effectiveness of the company’s pricing structure by looking at cost data, sales data and revenue. Also, auditors can use the data to assess a company’s internal controls, financial condition and compliance with the Sarbanes-Oxley Act (SOX).
The AIS should be designed to meet the needs of the people who will be using it. The system should also be easy to use and should improve, not hinder, efficiency.
Introduction To Accounting Information Systems
2. Procedure and Instructions
The procedure and instructions of an AIS are the methods it uses for collecting, storing, retrieving and processing data. These methods are both manual and automated. The data can come from both internal sources (e.g., employees) and external sources (e.g., customers’ online orders). Procedures and instructions will be coded into AIS software — they should also be “coded” into employees through documentation and training. To be effective, procedures and instructions must be followed consistently.
To store information, an AIS must have a database structure such as structured query language (SQL), a computer language commonly used for databases. The AIS will also need various input screens for the different types of system users and data entry, as well as different output formats to meet the needs of different users and various types of information.
The data contained in an AIS is all the financial information pertinent to the organization’s business practices. Any business data that impacts the company’s finances should go into an AIS.
The type of data included in an AIS will depend on the nature of the business, but it may consist of the following:
- sales orders
- customer billing statements
- sales analysis reports
- purchase requisitions
- vendor invoices
- check registers
- general ledger
- inventory data
- payroll information
- tax information
This data can then be used to prepare accounting statements and reports such as accounts receivable aging, depreciation / amortization schedules , trial balance , profit and loss, and so on. Having all this data in one place — in the AIS — facilitates a business’s recordkeeping, reporting, analysis, auditing and decision-making activities. For the data to be useful, it must be complete, correct and relevant.
On the other hand, examples of data that would not go into an AIS includes memos, correspondence, presentations and manuals. These documents might have a tangential relationship to the company’s finances, but excluding the standard footnotes, they are not really part of the company’s financial recordkeeping.
The software component of an AIS is the computer programs used to store, retrieve, process and analyze the company’s financial data. Before there were computers, AISs were manual, paper-based systems, but today, most companies are using computer software as the basis of the AIS. Small businesses might use Intuit’s Quickbooks, Sage Peachtree Accounting, or Microsoft’s Small Business Accounting, but there are many others. Small to mid-sized businesses might use SAP ‘s Business One. Mid-sized and large businesses might use Microsoft’s Dynamics GP, Sage Group’s MAS 90 or MAS 200, Oracle’s Peoplesoft or Epicor Financial Management.
Quality, reliability and security are key components of effective AIS software . Managers rely on the information it outputs to make decisions for the company, and they need high-quality information to make sound decisions.
AIS software programs can be customized to meet the unique needs of different types of businesses. If an existing program does not meet a company’s needs, software can also be developed in-house with substantial input from end users or can be developed by a third-party company specifically for the organization. The system could even be outsourced to a specialized company.
For publicly-traded companies, no matter what software program and customization options the business chooses, Sarbanes-Oxley regulations will dictate the structure of the AIS to some extent. This is because SOX regulations establish internal controls and auditing procedures that public companies must comply with.
5. Information Technology Infrastructure
Information technology infrastructure is just a fancy name for the hardware used to operate the accounting information system. Most of these hardware items are things a business would need to have anyway, including computers, mobile devices, servers, printers, surge protectors, routers, storage media, and possibly a backup power supply. In addition to cost, factors to consider in selecting hardware include speed, storage capability and whether it can be expanded and upgraded.
Perhaps most importantly, the hardware selected for an AIS must be compatible with the intended software. Ideally, it would be not just compatible, but optimal — a clunky system will be much less helpful than a speedy one. One way businesses can easily meet hardware and software compatibility requirements is by purchasing a turnkey system that includes both the hardware and the software that the business needs. Purchasing a turnkey system means, theoretically, that the business will get an optimal combination of hardware and software for its AIS.
A good AIS should also include a plan for maintaining, servicing, replacing and upgrading components of the hardware system, as well as a plan for the disposal of broken and outdated hardware so that sensitive data is completely destroyed.
6. Internal Controls
The internal controls of an AIS are the security measures it contains to protect sensitive data. These can be as simple as passwords or as complex as biometric identification. An AIS must have internal controls to protect against unauthorized computer access and to limit access to authorized users which includes some users inside the company. It must also prevent unauthorized file access by individuals who are allowed to access only select parts of the system.
An AIS contains confidential information belonging not just to the company, but also to its employees and customers. This data may include Social Security numbers, salary information, credit card numbers, and so on. All of the data in an AIS should be encrypted, and access to the system should be logged and surveilled. System activity should be traceable as well.
An AIS also needs internal controls that protect it from computer viruses, hackers and other internal and external threats to network security . It must also be protected from natural disasters and power surges that can cause data loss.
How AISs Work In Real Life
We’ve seen how a well-designed AIS allows a business to run smoothly on a day-to-day basis or hinders its operation if the system is poorly designed. A third use for an AIS is that when a business is in trouble, the data in its AIS can be used to uncover the story of what went wrong.
The cases of WorldCom and Lehman Brothers provide two examples.
In 2002, WorldCom internal auditors Eugene Morse and Cynthia Cooper used the company’s AIS to uncover $4 billion in fraudulent expense allocations and other accounting entries. Their investigation led to the termination of CFO Scott Sullivan, as well as new legislation — section 404 of the Sarbanes-Oxley Act, which regulates companies’ internal financial controls and procedures.
When investigating the causes of Lehman’s collapse, a review of its AIS and other data systems was a key component, along with document collection and review, plus witness interviews. The search for the causes of the company’s failure “required an extensive investigation and review of Lehman’s operating, trading, valuation , financial, accounting and other data systems,” according to the 2,200-page, nine-volume examiner’s report.
Lehman’s systems provide an example of how an AIS should not be structured. Examiner Anton R. Valukas’s report states, “At the time of its bankruptcy filing, Lehman maintained a patchwork of over 2,600 software systems and applications… Many of Lehman’s systems were arcane, outdated or non-standard.”
The examiner decided to focus his efforts on the 96 systems that appeared most relevant. This examination required training, study and trial and error just to learn how to use the systems.
Valukas’s report also noted, “Lehman’s systems were highly interdependent, but their relationships were difficult to decipher and not well documented. It took extraordinary effort to untangle these systems to obtain the necessary information.”
(Also, check out Case Study: The Collapse of Lehman Brothers .)
The Bottom Line
The six components of an AIS all work together to help key employees collect, store, manage, process, retrieve, and report their financial data. Having a well-developed and maintained accounting information system that is efficient and accurate is an indispensable component of a successful business.
(Learn how you can get a job in this field, read A Guide to Careers in Accounting Information Systems .)
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