ACCOUNTING INFORMATION SYSTEMS

An accounting information system (AIS) combines the study and practice of
accounting with the design, implementation, and monitoring of an information system.
Such a system involves applying modern information technology resources to
traditional accounting controls and methods to provide users the financial information
necessary to manage their organizations. This system is often a component of an
entity's management information system.

TECHNOLOGY
Contemporary technological capabilities permit a range of possible designs for an
AIS. Yet, the basic structure of a system continues to include essentially the same
three components: input, processing, and output.

Input
The input devices commonly associated with an AIS include standard personal
computers (PCs) or workstations running applications, scanning devices for
standardized data entry, and electronic communication devices for electronic data
interchange (EDI) and electronic commerce (e-commerce). In addition, many
financial systems come "Web enabled" to allow devices that connect to the World
Wide Web AIS access.

Processing
Basic processing is achieved through computer systems ranging from individual PCs
to large-scale enterprise servers. Conceptually, however, the underlying processing
model is still the double-entry accounting system invented many centuries ago.

Output
The output devices used include computer displays, impact and nonimpact printers,
and electronic communication devices for EDI and e-commerce. The output content
may encompass almost any type of financial report, from budgets and tax reports to
multinational financial statements and sustainability reports.

inventory. . These events (transactions) are classified and summarized for internal decision making and for external financial reporting. and overall strategic direction. These allow organizations to track the costs associated with production of goods and performance of services. and insurance companies. payables. purchasing.MANAGEMENT INFORMATION SYSTEMS Management information systems (MISs) are interactive human/machine systems that support decision making for users both in and out of traditional organizational boundaries. billing. pension administration. projects. INFORMATION SYSTEMS IN CONTEXT AISs cover all business functions from backbone accounting transaction processing systems to sophisticated financial management planning and processing systems. procurement/purchasing. Modules commonly integrated with the AIS include: human resources. Financial Information Applications Financial information applications make up the heart of AIS in practice. Modules commonly implemented include: general ledger. current and future tactical decisions. and budgeting. benefits administration. Cost Accounting Systems Cost accounting systems such as activity-based costing (ABC) systems are used primarily in manufacturing environments. MISs are made up of several major applications. such as banks. These systems are used to support an organization's daily operational activities. including the financial information and human resources systems. receivables. and time and labor reporting. and selling activities. real estate firms. but increasingly are being applied to service companies. Human Resource Applications Human resource applications make up another major part of modern information systems. payroll. Financial Reporting Financial reporting starts at the operational levels of the organization where the transaction processing systems capture important business events such as normal production. assets.

design. project budgets. the definition of project responsibilities. This method is used when decision support is the system's primary objective. Planning The first phase of systems development is the planning of the project. Organizational processes often are identified and segmented into a series of events . implementation. Analysis The analysis phase requires a thorough evaluation and documentation of the accounting and business processes in use by the organization. The systems are used to gather information to consider alternative scenarios. reporting. and to identify an optimal answer among the hypothetical scenarios. Data analysis involves a thorough review of the accounting information that is being collected by an organization. Decision analysis is a through review of the decisions a manager is responsible for making.Management Accounting Systems Management accounting systems such as master budgets are used to facilitate organizational planning. control requirements. Process analysis is a thorough review of the organization's business processes. This phase may include reengineering to take advantage of modern best practices and the operating characteristics of modern system solutions. Such data are often compared to budgeted data prepared for financial management and for external financial reporting. analysis. monitoring. project phases. and support. DEVELOPMENT OF AN AIS The development of all AISs includes the basic phrases of planning. The time associated with each of these phrases can be as short as a few weeks or as long as several years. and making actionable choices. Such systems allow all managerial levels to have access to prompt reporting and statistical analysis. This entails determination of the scope and objectives of the project. and project deliverables. and control for a variety of activities. Then models are created to support the manager in gathering financial and related information. The primary decisions that managers are responsible for are identified on an individual basis. developing and designing alternatives.

and work flow. improving service. Design The design phase takes the results of the analysis phase and turns them into detailed specific designs that can be implemented in a subsequent phase. Inputs may be defined using screen layout tools and application generators. It involves the detailed design of all inputs. These processes can then be modified or reengineered to improve the organization's operations in terms of lowering cost. to show complex relationships in multiple dimensions. This means that much of the base processing capabilities come delivered with the accounting or enterprise software. and improving management information. showing data in a table or tables. improving quality. Storage is achieved through the use of normalized databases that increase functionality and flexibility. There are numerous characteristics to consider when defining reporting requirements: The reports must be accessible through the system's interface. events. Data capture and storage Screen designs and system interfaces are the primary data capture devices of AISs and are developed through a variety of tools. Modern AISs use specialized databases and processing designed specifically for accounting operations. Accounting systems make use of a variety of scheduled and on-demand reports. Processing Business process maps and flowcharts are used to document the operations of the systems. processing. graphic.that either add or change data. Output designs are documented through the use of a variety of reporting tools such as report writers. and agents in diagrams. the reporting process provides the information that helps drive management decision making and external financial reporting. entity relationship diagram modeling is used to document large-scale database relationships. Reporting Reporting is the driving force behind AIS development. or matrices. storage. data extractions tools. The reports can be tabular. query tools. If the system analysis and design are successful. Logical data storage designs are shown by modeling the relationships between the organization's resources. Processing can be shown through the use of flowcharts or business process maps that define the system logic. Also. and online analytical processing tools. using images to convey information in a picture format. They should convey . and outputs of the proposed accounting system. operations.

information in a proactive manner. corruption. installing the production database. Security Security exists in several forms. software. they help set accessibility and security levels for adequate internal control within the accounting applications. Next is the operating system level security. They allow the addition of fields and tables to the database along with ability to create screen and other interfaces for data capture. which protects the computing environment. and vendors for the implementation. reports must meet the information processing (cognitive) style of the audience they were meant to inform and meet applicable reporting standards. Management reports come in three basic types:    Filter reports —separate selected data from a database. Delivery is the process of conducting final system and user acceptance testing. writing and testing the new program modifications. including physical security. In typical AISs the equipment is located in a locked room with access granted only to technicians. Lastly. such as a report showing the expenses from the current year and the prior year as a percentage of sales Implementation The implementation phase consists of two primary parts. building and testing the network communication systems. Then database security is enabled to protect the organizational data from theft. percentage breakdowns and differences (variances) between actual and budgeted expenditures. depending on the size of AIS. In addition. and installing and testing the total system from a technical standpoint. They must be relevant. Software access controls are set at several levels. Construction includes the selection of hardware. which protects the organization's communication systems. and other threats. and converting all operations to the new system. Lastly. application . Accuracy and reliability must be considered. such as a monthly check register Responsibility reports —such as a weekly sales report for a regional sales manager Comparative reports —created to show period differences. The first level of security occurs at the network level. training the users. Tool sets Tool sets are a variety of application development aids that are vendor specific and used for customization of delivered systems. building and testing the databases. preparing the conversion plan. construction and delivery.

changes in generally accepted accounting principles (GAAP) or new regulations such as the Sarbanes-Oxley Act of 2002 might necessitate changes to the AIS. These changes might result in future problems. Stub or unit testing is used to ensure the proper operation of individual modifications. including the services of both external auditors (public accountants) and internal auditors. The first is to update and maintain the AIS. A fourth method is to pilot the new system at a specific site before converting the rest of the organization. or management or governmental directives requiring additional system modifications. External auditors can provide a variety of services. The second objective of support is to continue development by continuously improving the business through adjustments to business and environmental changes. This includes fixing problems and updating the system for business and environmental changes. Acceptance testing ensures that the modifications meet user expectations and that the entire AIS performs as designed. Conversion Conversion entails the method used to change from an old to a new AIS. new opportunities. either by location or system function. Internal auditors focus on . A third method is to phase in the system. Program testing involves the interaction between the individual modification and the program it enhances. Support The support phase has two objectives.security is used to keep unauthorized persons from performing operations within the AIS. One is to run the new and old systems in parallel for a specified period. Several methods are available to achieve this goal. ASSURANCE. A second method is to directly cut over to the new system at a specified time. For example. AUDIT. Testing Testing is performed at four levels. including providing assurance that the controls over external financial reporting are adequate and attestations that the external financial statement are "fairly presented" in accordance with GAAP. System testing is used to determine that the program modifications work within the AIS as a whole. AND ATTESTATION Quality control of AISs involves many activities.

such as paper. Continuous improvement of AISs change the way internal controls are implemented and the types of audit trails that exist within a modern organization. After the implementation. Quality standards dictate this review should be done according to a periodic schedule. Consequently. the focus of attestation is the review and verification of system operation. a large number of American organizations operate internationally. In this respect. Periodic functional business reviews should be conducted to make sure the AIS remains in compliance with the intended business functions. as well as standards for control of information technology. Otherwise. Periodic involvement of public auditing firms can be used to make sure the AIS is in compliance with current internal control requirements. necessitates the involvement of accounting and auditing professionals in the design of such systems. Conclusion of Conventional Accounting Systems Thus. This requires adherence to such standards as ISO 9000 for software design and development. such as the Section 404 requirements of the Sarbanes-Oxley Act and revised financial reporting standards. The lack of traditional forensic evidence. as they operate internationally. it is important to remember about the growing integration of American companies and not-for-profit organizations into international cooperation. the introduction of IFRS can be viewed as an essential step toward the convergence of homogenous international financial reporting standards and accounting systems . it should be said that traditional approaches such as normative accounting will gradually give in to more progressive approaches such as positive accounting. they need the introduction of new. universal standards that will be acceptable worldwide.providing assurance that AISs are effective and efficient in providing information to assist managerial decision making. traditional accounting systems and theories are not very effective nowadays and need to be improved in order to make them more effective and to facilitate the functioning of companies. In addition. To put it more precisely. they need to maintain different standards and accounting systems. Therefore.