PROJECT | ACCOUNTING INFORMATION SYSTEM

MANAGEMENT INFORMATION SYSTEM

FINAL PROJECT
Kanza Mehmood (13454)
GROUP MEMBERS Fatima Shabbir Hussain (13458)

PROGRAM BBA 5

DATE OF SUBMISSION 16th Dec,2019

INSTRUCTOR Sir Amir Hussain

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To : Mr. Amir Hussain

Subject : Submission of report on Accounting Information System

Sir;
With great gratification, we the students of BBA 5 are submitting our report that you have
assigned to us as an important requirement of “Management Information course”. Please inspect
our report on Germany.
We hope that this report will reflect our dedication towards the course. We are thankful for your
support and guidance.

From:
Fatima Shabbir Hussain (13458)
Kanza Mehmood Anwar (13454)

Date: Dec 16, 2019

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Acknowledgement

All appreciation are forever in the name of Almighty Allah, who has all the
sovereignty over the entire universe, who helps us to reach our goals and
objectives. Without the assistance of Almighty nobody can accomplish anything.
We would like to express our sincere gratitude to our teacher and the instructor of
the course, Management Information System, Sir. Amir Hussain, who gave us this
wonderful opportunity to explore organizations in a different light.

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Preface

This report reviews Accounting Information System or AIS in detail. This report
covers all the parameters of Accounting Information System i.e. from its
components to the implementation of it’s in the organization. This reports help to
understand that with changing time how much it is necessary for the corporations
to remain updated with technology.

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TABLE OF CONTENT
S no: Title Page no:
1. Introduction 06
2. Components of AIS 06
3. Functions of AIS 09
4. Qualities/Characteristics- AIS 10
5. Implementation of AIS 12
6. Reliability of AIS 13
7. Advantages of AIS 13
8. Disadvantages of AIS 14
9. AIS- Jobs 15
10. Conclusion 15
11. References 15

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 PROJECT | ACCOUNTING INFORMATION SYSTEM

ACCOUNTING INFORMATION SYSTEM

Introduction:
An accounting information system (AIS) involves the collection, storage, and processing of
financial and accounting data. It is generally a computer-based method for tracking accounting
activity in conjunction with information technology resources. An AIS combines traditional
accounting practices, such as the use of Generally Accepted Accounting Principles (GAAP), with
modern information technology resources.
AIS is a structure that a business uses to collect, store, manage, process, retrieve and report its
financial data so it can be used by accountants, consultants, business analysts, managers, chief
financial officers (CFOs), auditors, regulators, and tax agencies. E.g., Microsoft, Sage Group, SAP
AG|SAP and Oracle Corporation, Oracle.
Specially trained accountants work in-depth with AIS to ensure the highest level of accuracy in a
company's financial transactions and record-keeping, as well as make financial data easily
available to those who legitimately need access to it—all while keeping data intact and secure.
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.

Components of Accounting Information System:

Accounting information systems generally
consist of six primary components:
1. People
2. Procedures and instructions,
3. Data,
4. Software,
5. Information technology
infrastructure
6. Internal controls

1. AIS People
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, salespeople can enter customer orders, accounting can invoice customers,

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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.

2. Procedures 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.

3. AIS Data
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 impact 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

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 payroll information
 timekeeping
 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 record-keeping, 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 include 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 record-keeping.

4. AIS Software
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, an AIS was a manual, paper-
based system, but today, most companies are using computer software as the basis of the AIS.
Small businesses might use Intuit's Quickbooks or Sage's Sage 50 Accounting, but there are 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, the 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 with which
public companies must comply.

5. IT Infrastructure
Information technology infrastructure is just a fancy name for the hardware used to operate the
accounting information system. Most of these hardware items a business would need to have
anyway, including computers, mobile devices, servers, printers, surge protectors, routers, storage
media, and possibly back-up power supply. In addition to cost, factors to consider in selecting
hardware include speed, storage capability and whether it can be expanded and upgraded.

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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.

Functions of an Accounting Information System

Accounting information systems have three basic functions:

1. Efficient and Effective Data Collection:

The first function of an AIS is the efficient and effective collection and storage of data concerning
an organization’s financial activities, including getting the transaction data from source
documents, recording the transactions in journals, and posting data from journals to ledgers.

2. Make Information Available:

The second function of an AIS is to supply information useful for making decisions, including
producing managerial reports and financial statements.

3. Controls Accuracy:
The third function of an AIS is to make sure controls are in place to accurately record and process
data.
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Accounting Information System- Qualities/Characteristics:

Accounting information qualitative characteristics are summarized below
There is general agreement that, before it can be regarded as useful in satisfying the needs of
various user groups, accounting information should satisfy the following criteria:

Understandability:
Understandability is the quality of information that enables users to perceive its significance. The
benefits of information may be increased by making it more understandable and hence useful to a
wider circle of users. Presenting information which can be understood only by sophisticated users
and not by others, creates a bias which is inconsistent with the standard of adequate disclosure.
Presentation of information should not only facilitate understanding but also avoid wrong
interpretation of financial statements. Thus, understandable financial accounting information
presents data that can be under-stood by users of the information and is expressed in a, form and
with terminology adopted to the user’s range of understanding.

Relevance:
This implies that, to be useful, accounting information must assist a user to form, confirm or maybe
revise a view - usually in the context of making a decision (e.g. should I invest, should I lend
money to this business? Should I work for this business?)
Relevance is closely and directly related to the concept of useful information. Relevance implies
that all those items of information should be reported that may aid the users in making decisions
and/or predictions. In general, information that is given greater weight in decision-making is more
relevant.
The relevant information also reduces decision-maker’s uncertainty about future acts. A necessary
test of the relevance of reportable data is the ability to predict events of interest to statement users.

Consistency:
This implies consistent treatment of similar items and application of accounting policies.
Consistency of method over a period of time is a valuable quality that makes accounting numbers
more useful. Consistent use of accounting principles from one accounting period to another
enhances the utility of financial statements to users by facilitating analysis and understanding of
comparative accounting data.
Lack of consistency produces lack of comparability. The value of inter-company comparisons is
substantially reduced when material differences in income are caused by variations in accounting
practices.

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Comparability:
This implies the ability for users to be able to compare similar companies in the same industry
group and to make comparisons of performance over time. Much of the work that goes into setting
accounting standards is based around the need for comparability.
Comparable financial accounting information presents similarities and differences that arise from
basic similarities and differences in the enterprise or enterprises and their transactions, and not
merely from difference in financial accounting treatment.
Information, if comparable, will assist the decision-maker to determine relative financial strengths
and weaknesses and prospects for the future, between two or more firms or between periods in a
single firm

Reliability
This implies that the accounting information that is presented is truthful, accurate, complete
(nothing significant missed out) and capable of being verified (e.g. by a potential investor).
Reliability is described as one, of the two primary qualities (relevance and reliability) that make
accounting information useful for decision-making. Reliable information is required to form
judgements about the earning potential and financial position of a business firm. Reliability differs
from item to item.
The reliability of a measure rests on the faithfulness with which it represents what it purports to
represent, coupled with an assurance for the user that it has that representational quality. To be
useful, information must be reliable as well as relevant. Degrees of reliability must be recognised.

Objectivity
This implies that accounting information is prepared and reported in a "neutral" way. In other
words, it is not biased towards a particular user group or vested interest
A neutral choice between accounting alternatives is free from bias towards a predetermined result.
The objectives of (general purpose) financial reporting serve many different information users who
have diverse interests, and no one predetermined result is likely to suit all users’ interests and
purposes.
Therefore, accounting facts and accounting practices should be impartially determined and
reported with no objective of purposeful bias toward any user or user group. If there is no bias in
selection of accounting information reported, it cannot be said to favour one set of interests over
another. It may, in fact, favour certain interests, but only because the information points that way

Materiality
This refers to a relative significance or importance of an item - dependent on individual’s judgment
- to the overall financial condition of a company. Information materiality and cost-benefit

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relationship (i.e., whether information benefits outweigh its costs) impose constraints on the
usefulness of accounting information.
These qualities make accounting information understandable and useful for decision and reporting
purposes: the goal of financial reporting is to provide useful information to current and potential
investors, creditors, and other users of accounting information (e.g., government, standard-setting
bodies) to make investment, credit, and other decisions.

Implementation of Accounting Information System:

The following steps are necessary to follow to implement an accounting information system
effectively:

1. Detailed requirements analysis – The process of interviewing all who are involved in
the system. Information from the users is gathered; this will provide the developer with the users’
specific needs.

2. Systems design – This step allows for the review of the information gathered and the creation
of the new system. The process involves understanding how data is used and how it is stored.

3. Documentation – As the design of the system occurs, a record is kept to include all vendor
documentation of the system and procedures. It also outlines the specific steps users need to
understand to use the system. Documentation is then tested during the training portion.

4. Testing – This is the step prior to the launch where all processes are tested from input and
output. The process involves testing to ensure all processes are documented. An audit trail is
created to ensure management that all transactions are handled consistently.

5. Training – Takes place prior to launch and ensures that all procedures are understood. Each
user learns how to use the system. This step occurs prior to data conversion.

6. Data conversion- Data with the current system is converted to the new system.Launch
occurs after all above steps are in place. Everyone within the organization is aware of the transition.

7. Support- Support should be ongoing throughout this time, ensuring each user is capable and
that all processes become familiar.
By completing all of these steps, the accounting information system is effective for the firm. Each
user has the proper skills as well.

The Reliability of Accounting Information Systems

Because an AIS stores and provides such valuable business information, reliability is vitally
important. The American Institute of CPAs (AICPA) and Canadian Institute of Chartered
Accountants (CICA) have identified five basic principles important to AIS reliability:

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1. Security - Access to the system and its data is controlled and limited only to those authorized.
Unauthorized shouldn’t be allowed to access the system easily. This will not only protect
company’s data but will also help maintain

2. Confidentiality - The protection of sensitive information from unauthorized disclosure.

Maintaining the confidentiality of data is very important.

3. Privacy - The collection, use, and disclosure of personal information about customers is done
in an appropriate manner. Violating the privacy of customers will only damage the reputation of
the company.

4. Processing integrity - The accurate, complete, and timely processing of data done with
proper authorization. This will also require skilled employees.

5. Availability - The system is available to meet operational and contractual obligations. The
availability of system all the time can make the system more reliable.

Advantages of Accounting Information System (AIS)

Below are the advantages of Accounting Information System (AIS).

1. Cost Effectiveness –
In the era of digitalization and artificial intelligence, each organization is moving towards cost
cutting with the use of artificial intelligence. AIS has helped to reduce manual efforts and can
perform the same operation more cost-effectively.

2. Time Effectiveness –
AIS has assisted business organizations to reduce the amount of time involved in recording,
classifying, reporting any financial information. A large quantum of manual work can be
completed by AIS with much fewer efforts and time involved.

3. Easy Access (Portability) –

Data stored in AIS can be retrieved via information system connected with internet anywhere and
at any time. Where manually prepared books of accounts cannot be carried easily, AIS data can
be.

4. Accuracy –
With the involvement of AIS, the reliability of data is increased. As we had discussed earlier in
this article that an AIS follows a predefined set of instructions, therefore chances of error-prone
information are less and therefore AIS have an added advantage of accurate data.

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Disadvantages of Accounting Information System (AIS)

Following are the disadvantages of Accounting Information System (AIS).

1. Initial Cost of Instalment and Training –

While we discussed that an AIS is cost-effective, the same may not be true in the case of small
business enterprises. Cost of initial setup may be high and may not actually generate value to the
organization.

2. Manual Intervention –
Although we discussed that AIS reduces manual intervention but the same cannot be completely
eliminated. AIS needs manual intervention at a certain point of time which may bring inefficiency
in the system.

3. Error cannot be Completely Eliminated –

We discussed, AIS reduces chances of error but there are chances of wrong coding in software
which may lead to error-prone results, also manual intervention is still present here which can also
generate an error.

4. Confidentiality –
Although we discussed portability of AIS data the same can also be disastrous for an organization
if such information is hacked i.e. stolen. An intruder may amend the information or he can disclose
sensitive financial information.

5. Virus Attack –
Any data stored on IS can be infected with a virus which may lead to disruption, modification of
financial information stored on AIS.

6. Obsoletion -
In the era of digitalization, technology is changing at a very fast pace. It takes very few moments
for technology to get obsolete. This generates needs for an organization to adopt the changes at
the earliest otherwise it may lead to error-prone data.

Accounting Information System Jobs:

Students can pursue bachelors, masters, and doctorate degrees in accounting information systems.
These degrees generally provide students with both accounting knowledge and an understanding
of the technology involved in setting up an AIS. This prepares accounting program graduates to

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work with the information technology, information systems, and people needed to set up and
maintain an AIS.
Accounting information system specialist jobs are available in corporations, accounting firms,
consulting firms, non-profit organizations, and government agencies.

Conclusion:
Accounting Information System (AIS) can be described as a boon to any organization as we
studied both advantages and disadvantages, limitations of AIS. However, overall it is very
beneficial for an organization to migrate from manual accounting to AIS based accounting. For
overcoming various disadvantages, limitations of AIS, there is software which secures the
organization’s AIS from virus, hackers and other attacks.
Artificial Intelligence, an extended version of Accounting Information System (AIS) have already
started reducing manual intervention and will grow at a very fast pace in the near future.

References:
https://www.investopedia.com/articles/professionaleducation/11/accounting-information-
systems.asp
https://www.investopedia.com/terms/a/accounting-information-system-ais.asp
https://www.accountingedu.org/accounting-information-systems.html
http://simplestudies.com/what-are-the-qualities-of-accounting-information.html
http://www.accountingnotes.net/financial-reporting/top-11-qualitative-characteristics-of-
accounting-information/5409
https://www.gkaplancpa.com/how-to-effectively-implement-an-accounting-information-system/
https://www.wallstreetmojo.com/accounting-information-system/

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