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Banking environment has become highly competitive today.

To be able to survive and


grow in the changing market environment banks are going for the latest technologies,
which is being perceived as an ‘enabling resource’ that can help in developing learner
and more flexible structure that can respond quickly to the dynamics of a fast changing
market scenario. It is also viewed as an instrument of cost reduction and effective
communication with people and institutions associated with the banking business.

The Software Packages for Banking Applications in India had their beginnings in the
middle of 80s, when the Banks started computerising the branches in a limited manner.
The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive
but high powered PC’s and Services and banks went in for what was called Total Branch
Automation (TBA) packages. The middle and late 90s witnessed the tornado of financial
reforms, deregulation globalisation etc. coupled with rapid revolution in communication
technologies and evolution of novel concept of convergence of communication
technologies, like internet, mobile/cell phones etc. Technology has continuously played
on important role in the working of banking institutions and the services provided by
them. Safekeeping of public money, transfer of money, issuing drafts, exploring
investment opportunities and lending drafts, exploring investment being provided.

Information Technology enables sophisticated product development, better market


infrastructure, implementation of reliable techniques for control of risks and helps the
financial intermediaries to reach geographically distant and diversified markets. Internet
has significantly influenced delivery channels of the banks. Internet has emerged as an
important medium for delivery of banking products and services.

The customers can view the accounts; get account statements, transfer funds and
purchase drafts by just punching on few keys. The smart card’s i.e., cards with micro
processor chip have added new dimension to the scenario. An introduction of ‘Cyber
Cash’ the exchange of cash takes place entirely through ‘Cyber-books’. Collection of
Electricity bills and telephone bills has become easy. The upgradeability and flexibility of
internet technology after unprecedented opportunities for the banks to reach out to its
customers. No doubt banking services have undergone drastic changes and so also the
expectation of customers from the banks has increased greater.

IT is increasingly moving from a back office function to a prime assistant in increasing


the value of a bank over time. IT does so by maximizing banks of pro-active measures
such as strengthening and standardising banks infrastructure in respect of security,
communication and networking, achieving inter branch connectivity, moving towards
Real Time gross settlement (RTGS) environment the forecasting of liquidity by building
real time databases, use of Magnetic Ink Character Recognition and Imaging technology
for cheque clearing to name a few. Indian banks are going for the retail banking in a big
way

The key driver to charge has largely been the increasing sophistication in technology and
the growing popularity of the Internet. The shift from traditional banking to e-banking is
changing customer’s expectations.
E-Banking:

E-banking made its debut in UK and USA 1920s. It becomes prominently popular during
1960, through electronic funds transfer and credit cards. The concept of web-based
baking came into existence in Eutope and USA in the beginning of 1980.

In India e-banking is of recent origin. The traditional model for growth has been through
branch banking. Only in the early 1990s has there been a start in the non-branch banking
services. The new pribate sector banks and the foreign banks are handicapped by the lack
of a strong branch network in comparison with the public sector banks. In the absence of
such networks, the market place has been the emergence of a lot of innovative services by
these players through direct distribution strategies of non-branch delivery. All these
banks are using home banking as a key “pull’ factor to remove customers away from the
well entered public sector banks.

Many banks have modernized their services with the facilities of computer and electronic
equipments. The electronics revolution has made it possible to provide ease and
flexibility in banking operations to the benefit of the customer. The e-banking has made
the customer say good-bye to huge account registers and large paper bank accounts. The
e-banks, which may call as easy bank offers the following services to its customers:

• Credit Cards/Debit Cards


• ATM
• E-Cheques
• EFT (Electronic Funds Transfer)
• DeMAT Accounts
• Mobile Banking
• Telephone Banking
• Internet Banking
• EDI (Electronic Data Interchange)

Benefits of E-banking:

To the Customer:

• Anywhere Banking no matter wherever the customer is in the world. Balance


enquiry, request for services, issuing instructions etc., from anywhere in the world
is possible.
• Anytime Banking – Managing funds in real time and most importantly, 24 hours a
day, 7days a week.
• Convenience acts as a tremendous psychological benefit all the time.
• Brings down “Cost of Banking” to the customer over a period a period of time.
• Cash withdrawal from any branch / ATM
• On-line purchase of goods and services including online payment for the same.

To the Bank:
• Innovative, scheme, addresses competition and present the bank as technology
driven in the banking sector market
• Reduces customer visits to the branch and thereby human intervention
• Inter-branch reconciliation is immediate thereby reducing chances of fraud and
misappropriation
• On-line banking is an effective medium of promotion of various schemes of the
bank, a marketing tool indeed.
• Integrated customer data paves way for individualised and customised services.

Impact of IT on the Service Quality:

The most visible impact of technology is reflected in the way the banks respond
strategically for making its effective use for efficient service delivery. This impact on
service quality can be summed up as below:

• With automation, service no longer remains a marketing edge with the large
banks only. Small and relatively new banks with limited network of branches
become better placed to compete with the established banks, by integrating IT in
their operations.
• The technology has commoditising some of the financial services. Therefore the
banks cannot take a lifetime relationship with the customers as granted and they
have to work continuously to foster this relationship and retain customer loyalty.
• The technology on one hand serves as a powerful tool for customer servicing, on
the other hand, it itself results in depersonalising of the banking services. This has
an adverse effect on relationship banking. A decade of computerization can
probably never substitute a simple or a warm handshake.
• In order to reduce service delivery cost, banks need to automate routine customer
inquiries through self-service channels. To do this they need to invest in call
centers, kiosks, ATM’s and Internet Banking today require IT infrastructure
integrated with their business strategy to be customer centric.

Impact of IT on Banking System:

The banking system is slowly shifting from the Traditional Banking towards relationship
banking. Traditionally the relationship between the bank and its customers has been on a
one-to-one level via the branch network. This was put into operation with clearing and
decision making responsibilities concentrated at the individual branch level. The head
office had responsibility for the overall clearing network, the size of the branch network
and the training of staff in the branch network. The bank monitored the organisation’s
performance and set the decision making parameters, but the information available to
both branch staff and their customers was limited to one geographical location.

Traditional Banking Sector


The modern bank cannot rely on its branch network alone. Customers are now
demanding new, more convenient, delivery systems, and services such as Internet
banking have a dual role to the customer. They provide traditional banking services, but
additionally offer much greater access to information on their account status and on the
bank’s many other services. To do this banks have to create account information layers,
which can be accessed both by the bank staff as well as by th customers themselves.

The use of interactive electronic links via the Internet could go a ling way in providing
the customers with greater level of information about both their own financial situation
and about the services offered by the bank.

The New Relationship Oriented Bank

Impact of IT on Privacy and Confidentiality of Data:


Data being stored in the computers, is now being displayed when required on through
internet banking mobile banking, ATM’s etc. all this has given rise to the issues of
privacy and confidentially of data are:

• The data processing capabilities of the computer, particularly the rapid


throughput, integration, and retrieval capabilities, give rise to doubts in the minds
of individuals as to whether the privacy of the individuals is being eroded.
• So long as the individual data items are available only to those directly concerned,
everything seems to be in proper place, but the incidence of data being cross
referenced to create detailed individual dossiers gives rise to privacy problems.
• Customers feel threatened about the inadequacy of privacy being maintained by
the banks with regard to their transactions and link at computerised systems with
suspicion.

Aside from any constitutional aspect, many nations deem privacy to be a subject of
human right and consider it to be the responsibility of those who concerned with
computer data processing for ensuring that the computer use does not revolve to the stage
where different data about people can be collected, integrated and retrieved quickly.
Another important responsibility is to ensure the data is used only for the purpose
intended

Accounting Information Systems

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Accounting Information Systems (AISs) combine the study and practice of accounting
with the design, implementation, and monitoring of information systems. Such systems
use modern information technology resources together with traditional accounting
controls and methods to provide users the financial information necessary to manage their
organizations.

AIS TECHNOLOGY

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

Process Basic processing is achieved through computer systems ranging from individual
personal computers to large-scale enterprise servers. However, conceptually, the
underlying processing model is still the "double-entry" accounting system initially
introduced in the fifteenth century.
Output 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 reports from budgets and tax reports to
multinational financial statements.

MANAGEMENT INFORMATION SYSTEMS (MIS)

MISs are interactive human/machine systems that support decision making for users both
in and out of traditional organizational boundaries. These systems are used to support an
organization's daily operational activities; current and future tactical decisions; and
overall strategic direction. MISs are made up of several major applications including, but
not limited to, the financial and human resources systems.

Financial applications make up the heart of an AIS in practice. Modules commonly


implemented include: general ledger, payables, procurement/purchasing, receivables,
billing, inventory, assets, projects, and budgeting.

Human resource applications make up another major part of modern information


systems. Modules commonly integrated with the AIS include: human resources, benefits
administration, pension administration, payroll, and time and labor reporting.

AIS—INFORMATION SYSTEMS IN CONTEXT

AISs cover all business functions from backbone accounting transaction processing
systems to sophisticated financial management planning and processing systems.

Financial reporting starts at the operational levels of the organization, where the
transaction processing systems capture important business events such as normal
production, purchasing, and selling activities. These events (transactions) are classified
and summarized for internal decision making and for external financial reporting.

Cost accounting systems are used in manufacturing and service environments. These
allow organizations to track the costs associated with the production of goods and/or
performance of services. In addition, the AIS can provide advanced analyses for
improved resource allocation and performance tracking.

Management accounting systems are used to allow organizational planning, monitoring,


and control for a variety of activities. This allows managerial-level employees to have
access to advanced reporting and statistical analysis. The systems can be used to gather
information, to develop various scenarios, and to choose an optimal answer among
alternative scenarios.

DEVELOPMENT
The development of an AIS includes five basic phases: planning, analysis, design,
implementation, and support. The time period associated with each of these phases can be
as short as a few weeks or as long as several years.

Planning—project management objectives and techniques The first phase of systems


development is the planning of the project. This entails determination of the scope and
objectives of the project, the definition of project responsibilities, control requirements,
project phases, project budgets, and project deliverables.

Analysis The analysis phase is used to both determine and document the accounting and
business processes used by the organization. Such processes are redesigned to take
advantage of best practices or of the operating characteristics of modern system solutions.

Data analysis is a thorough review of the accounting information that is currently being
collected by an organization. Current data are then compared to the data that the
organization should be using for managerial purposes. This method is used primarily
when designing accounting transaction processing systems.

Decision analysis is a thorough review of the decisions a manager is responsible for


making. The primary decisions that managers are responsible for are identified on an
individual basis. Then models are created to support the manager in gathering financial
and related information to develop and design alternatives, and to make actionable
choices. This method is valuable when decision support is the system's primary objective.

Process analysis is a thorough review of the organization's business processes.


Organizational processes are identified and segmented into a series of events that either
add or change data. These processes can then be modified or reengineered to improve the
organization's operations in terms of lowering cost, improving service, improving quality,
or improving management information. This method is appropriate when automation or
reengineering is the system's primary objective.

Design The design phase takes the conceptual results of the analysis phase and develops
detailed, specific designs that can be implemented in subsequent phases. It involves the
detailed design of all inputs, processing, storage, and outputs of the proposed accounting
system. Inputs may be defined using screen layout tools and application generators.
Processing can be shown through the use of flowcharts or business process maps that
define the system logic, operations, and work flow. Logical data storage designs are
identified by modeling the relationships among the organization's resources, events, and
agents through diagrams. Also, entity relationship diagram (ERD) modeling is used to
document large-scale database relationships. Output designs are documented through the
use of a variety of reporting tools such as report writers, data extraction tools, query tools,
and on-line analytical processing tools. In addition, all aspects of the design phase can be
performed with software tool sets provided by specific software manufacturers.

Reporting is the driving force behind an AIS development. If the system analysis and
design are successful, the reporting process provides the information that helps drive
management decision making. Accounting systems make use of a variety of scheduled
and on-demand reports. The reports can be tabular, showing data in a table or tables;
graphic, using images to convey information in a picture format; or matrices, to show
complex relationships in multiple dimensions.

There are numerous characteristics to consider when defining reporting requirements.


The reports must be accessible through the system's interface. They should convey
information in a proactive manner. They must be relevant. Accuracy must be maintained.
Lastly, reports must meet the information processing (cognitive) style of the audience
they are to inform.

Reports are of three basic types: A filter report that separates select data from a database,
such as a monthly check register; a responsibility report to meet the needs of a specific
user, such as a weekly sales report for a regional sales manager; a comparative report to
show period differences, percentage breakdowns and variances between actual and
budgeted expenditures. An example would be the financial statement analytics showing
the expenses from the current year and prior year as a percentage of sales.

Screen designs and system interfaces are the primary data capture devices of AISs and
are developed through a variety of tools. Storage is achieved through the use of
normalized databases that assure functionality and flexibility.

Business process maps and flowcharts are used to document the operations of the
systems. Modern AISs use specialized databases and processing designed specifically for
accounting operations. This means that much of the base processing capabilities come
delivered with the accounting or enterprise software.

Implementation The implementation phase consists of two primary parts: construction


and delivery. Construction includes the selection of hardware, software and vendors for
the implementation; building and testing the network communication systems; building
and testing the databases; writing and testing the new program modifications; and
installing and testing the total system from a technical standpoint. Delivery is the process
of conducting final system and user acceptance testing; preparing the conversion plan;
installing the production database; training the users; and converting all operations to the
new system.

Tool sets are a variety of application development aids that are vendor-specific and used
for customization of delivered systems. They allow the addition of fields and tables to the
database, along with ability to create screen and other interfaces for data capture. In
addition, they help set accessibility and security levels for adequate internal control
within the accounting applications.

Security exists in several forms. Physical security of the system must be addressed. In
typical AISs the equipment is located in a locked room with access granted only to
technicians. Software access controls are set at several levels, depending on the size of
the AIS. The first level of security occurs at the network level, which protects the
organization's communication systems. Next is the operating system level security, which
protects the computing environment. Then, database security is enabled to protect
organizational data from theft, corruption, or other forms of damage. Lastly, application
security is used to keep unauthorized persons from performing operations within the AIS.

Testing is performed at four levels. Stub or unit testing is used to insure the proper
operation of individual modifications. Program testing involves the interaction between
the individual modification and the program it enhances. System testing is used to
determine that the program modifications work within the AIS as a whole. Acceptance
testing ensures that the modifications meet user expectations and that the entire AIS
performs as designed.

Conversion entails the method used to change from an old AIS to a new AIS. There are
several methods for achieving this goal. One is to run the new and old systems in parallel
for a specified period. A second method is to directly cut over to the new system at a
specified point. A third is to phase in the system, either by location or system function. A
fourth is to pilot the new system at a specific site before converting the rest of the
organization.

Support The support phase has two objectives. The first is to update and maintain the
AIS. This includes fixing problems and updating the system for business and
environmental changes. For example, changes in generally accepted accounting
principles (GAAP) or tax laws might necessitate changes to conversion or reference
tables used for financial reporting. The second objective of support is to continue
development by continuously improving the business through adjustments to the AIS
caused by business and environmental changes. These changes might result in future
problems, new opportunities, or management or governmental directives requiring
additional system modifications.

ATTESTATION

AISs change the way internal controls are implemented and the type of audit trails that
exist within a modern organization. The lack of traditional forensic evidence, such as
paper, necessitates the involvement of accounting professionals in the design of such
systems. Periodic involvement of public auditing firms can be used to make sure the AIS
is in compliance with current internal control and financial reporting standards.

After implementation, the focus of attestation is the review and verification of system
operation. This requires adherence to standards such as ISO 9000-3 for software design
and development as well as standards for control of information technology.

Periodic functional business reviews should be conducted to be sure the AIS remains in
compliance with the intended business functions. Quality standards dictate that this
review should be done according to a periodic schedule.

ENTERPRISE RESOURCE PLANNING (ERP)


ERP systems are large-scale information systems that impact an organization's AIS.
These systems permeate all aspects of the organization and require technologies such as
client/server and relational databases. Other system types that currently impact AISs are
supply chain management (SCM) and customer relationship management (CRM).

Traditional AISs recorded financial information and produced financial statements on a


periodic basis according to GAAP pronouncements. Modern ERP systems provide a
broader view of organizational information, enabling the use of advanced accounting
techniques, such as activity-based costing (ABC) and improved managerial reporting
using a variety of analytical techniques.

Reasons For Taking Comm 4230 - Information


Technology In Finance
IT affects almost everything that we do. Indeed, there is an excellent chance that in your
next job you will be working with sophisticated IT systems that connect to networked
databases of customer, transactions, and financial information. Even if you concentrate in
Finance or Accounting (that is, even if you are not in IT), you are going to be involved with
Information Technology. Consultants, analysts, traders and IT auditors not only use IT, but
also participate in the management, redesigning, and auditing of these systems. Do you feel
ready for that? This class can help.
I believe that it is a good idea that you learn a bit more about the Information Technologies
that support business processes and decision making in finance and accounting. Comm4230
provides you with an hands-on introduction to these technologies and can help you gaining an
edge in a competitive job market.