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The Information System: An Accountants Perspective

The Information Environment

The basic things that we should know in learning Accounting Information System
is the information itself. Information has taken a huge role that it becomes a crucial part
in a business organization. Information have the ability to flow both horizontal and
vertical, up to the top management and down to operations management at all levels.
There are 3 fundamental objectives of an information;
1. To support the firms day-to-day operations.
2. To support management decision making
3. To support the stewardship function of management.
We sometimes misinterpret information as data, and vice versa. Well in fact, it isnt.
Data are facts, which may or may not be processed (edited, summarized, or refined) and
have no direct effect on users actions. By contrast, information causes the user to take
an action that he or she otherwise could not or would not have taken.

An Information System Framework

The information system is the set of formal procedures by which data are
collected, stored, processed into information and distributed to users. It accepts input,
called transactions, which are converted through various processes into output
information that goes to users. The information system classified into two branches, the
accounting information system (AIS) and the management information system (MIS).
The Accounting Information System, composed of three major subsystems:
Transaction Processing System: converts economic events into financial
transactions, records financial transactions in the accounting records, and
distributes essential financial information to operations personnel.
General Ledger/Financial Reporting Systems: summaries of transaction
activity are processed here to update the general ledger accounts
Management Reporting System: produced typical reports such as
budgets, variance reports, cost-volume-profit analysis needed by
managers in order to manage a business.
The Management Information System, processes nonfinancial transactions that
are not normally processed by traditional AIS.

A general model for AIS


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The Information System: An Accountants Perspective

External Sources of Data Data Information External

Data Collection Processing Generation End Users


Internal Sources of Internal End of

Data Users


Data sources: are financial transactions that enter the information system from
either internal or external sources.
Data collection: the first operational stage in the information system with the aim
of ensuring event data entering the system are valid, complete, and free from
material errors.
Data processing: data processed to produce information.
Database management: a physical repository for financial and nonfinancial data.
It involves three fundamental tasks; storage, retrieval, and deletion.
Information generation: the process of compiling, arranging, formatting, and
presenting information to users. The usefull information has the following
characteristics; relevance, timeliness, accuracy, completeness, and
End users divided into two general groups: external (creditors, stockholders,
potential investors, regulaotry agencies, tax authorities, suppliers, and
customers) and internal (management at all levels).

Organizational Structure and AIS

Segmentation by business function is a common method of organizing a
business entity. The segments and the functions within them will vary among
organizations, depending on their size and lines of business.


Materials Information
Production Marketing Distribution Personnel Finance Accounting
Management Technology

Materials management
The Information System: An Accountants Perspective

The objective is to plan and control the materials inventory of the company by
purchasing, receiving, and stores.
The activities around the conversion cycle of raw materials, labor, and plant
assets are used to create finished products.
Deals with strategic problems of product promotion, advertising, and market
The activity of getting the product to the customer after the sale.
The function is to effectively manage the resource.
To manage the financial resources of the firm through banking and treasury
activites, portfolio management, credit evaluation, cash disbursement, and cash
The objective is to manages financial information resources of the firm.
Information technology
There are 4 IT functions; (1) data processing, (2) systems development and
maintenance, (3) database administration, and (4) network administration.

The Role of Accountants in AIS

Accountant as system designers
Accountant has a role as a domain expert in which they are responsible for the
conceptual system as well as operational rules, reporting requirements, and
framing internal control objectives that the system must achieve.

Accountant as system auditors

Accountant conducts audits which indirectly require the accounting information
system. Business organization demands audit for various reasons. The most
common audits are external audits, internal audits, and fraud audits. The
characteristic that differ between external and internal audits is their respective
constituencies: external auditor represent outsiders and in the other side internal
auditors represent the interest of the organization. Meanwhile, fraud audits is
initiated when corporate management suspect employee fraud. In fraud audits,
they investigate anomalies and gather evidence of fraud that may lead to criminal

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