Subsystem of a Management Information System (MIS) that processes financial transactions to provide
- internal reporting to managers for use in planning and controlling current and future operations and for nonroutine decision making;
- external reporting to outside parties such as to stockholders, creditors, and government agencies.
Accounting information system is a system of records, usually computer based, which combines accounting principles and concepts with the benefits of an information system and which is used to analyze and record business transactions for the purpose to prepare financial statements and provide accounting data to its users. Some accounting information systems are still manual, i. e. accounting records are made with a pen, paper and manual entries into accounting books. How are Such Systems Used? These systems can be customized to meet the needs of a business.
For example, information technology professionals responsible for business processes and information technology professionals responsible for the accounting information system can work together to develop and implement such a system so that it automatically gets information from other sources already in use by the business. Also, the systems can be set up to feature certain functions that are important to the business and eliminate functions minor to the business. Information can be automatically fed, or manually fed into a business accounting information system at whatever pace and however often it is necessary.
What are the Benefits of Using Accounting Information System? Businesses use accounting information systems to make their accounting activities easier, quicker, and more accurate, since accounting records are analyzed and financial statements are prepared within the system, which allows to safe time of employees and avoid mistakes. Since many accounting information systems are equipped with error-reducing mechanisms and gather information regarding transactions electronically and automatically, data entry and computing errors are rare.
Also, as mentioned above, since such systems are often automatically populated with transaction information, many accounting processes are less cumbersome and time-consuming when using such system. Of course implementation of such system requires investment and time to be spent on the implementation, however future benefits are much higher that the expenses incurred. Also to consider whether business needs accounting information system and what kind of system is required thorough analysis of business and accounting processes has to be made to determine precise requirements.
Explore more information on accounting basics and use home learning accounting courses to understand the importance of accounting for the business. Why wait? Start learning accounting basics now. 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. hows examples of the data inputs and information outputs from an accounting information system.
View larger image Figure 1: A simple accounting information system Long description Businesses continue to exist because managers take decisions about what they should do. In order to take a decision, a manager needs information. The information is provided to the manager from an information system. It is an item of output from the information system. The decision taken by the manager is input back into the information system. Changes are then made to information held within the information system, and then output from the information system to the recipient(s).
For example, a manager who is in charge of ordering raw materials will be told by the information system how much raw material is held by the organisation and how much will be needed. The manager then decides how much raw material to order and who to order it from. That decision is entered into the information system by the manager, the order is sent to the supplier by the information system and the information system is updated to show that an order has been placed. Business organisations have a number of systems, all of which must work together in an effective and efficient way.
There are systems for purchasing, production, marketing, human relations, etc. The accounting system is just one of the systems within an organisation, They also have an information system. The information system receives data from its environment, processes it, and then sends the converted data into its environment in the form of information. The accounting information system is part of the organisation’s information system. Whereas the information system will process a mixture of quantitative (i. e. numerical) and qualitative (i. e. on-numerical) data, the accounting information system focuses almost entirely on processing quantitative data.
Companies must be sure to keep their accounting information system up-to-date so they can take advantage of current technology. While maintaining computerized accounting systems or applications can be expensive, letting the system become inefficient because of its age can create difficulties for a company. Attempting to significantly upgrade old information systems can also require more capital during the replacement process.
