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Accounting Information Systems

Abstract

            Accounting information systems have become increasingly essential among organization’s business process in the contemporary business environment. Notably, decision makers across different business organizations have embraced this method due to the rapid technological changes that affect their operations. Besides, these systems generate efficient and reliable statistical reports used internally or externally for effective decision-making. It consists of six main components including people, data, software, IT infrastructure, procedures and instructions, and internal controls. Well-designed AIS is beneficial to organizational operations. AIS has several advantages and implications to an organization and for organizations to enjoy its benefits, it requires effective implementation following every step carefully. This paper will discuss AIS in broad sense explicating relevant issues as regards to the use of this computer-based accounting process to enhance proper financial reporting.

Accounting Information Systems

            Accounting information system is a computer-based approach for collecting, storing, managing, processing, retrieving, and reporting accounting data related to a particular business organization. These reports are essential tools among different parties both within and outside the business including managers, accountants, chief financial officers, auditors, tax authorities, and investors throughout their decision-making process. According to Bushmana, Chenb, Engelc, & Smithc (2004), accounting information systems are operated by accountants with special skills and expertise. They record and prepare reports pertaining to different financial transactions and making them available for the users of these data.

Gordon & Miller (1992) assert that security measures and other internal controls are implemented in a bid to safeguard the data and make the information available to legitimate parties only as and when required. The complexity in business processes has been tackled through this method and financial reports can successfully be done within a very short period unlike before when technology was not widely utilized among businesses. The use and application of AIS involves several components including people, data, software, IT infrastructure, procedures and instructions, and internal controls. Each component is essential in its own unique way. AIS are readily available in the market where they are sold by vendors as readymade software packages (Hall, 2012). Even though these systems are readily available in the market, some company’s prefer to internally develop their but due to the heavy costs and time involved in coming up with own systems, most companies prefer to purchase prebuilt systems. Normally, AIS are customized in a manner that suits the needs and requirements of a given business as regards to its business processes (Romney & Steinbart, 2003). The use of AIS is beneficial to an organization but in a bid to enjoy these benefits, the organization has to ensure that it implements a well-designed system, which is well maintained for accuracy and efficient operation.

Components of AIS

            Accounting information systems are made up of six key components, which should be integrated in business processes for a company to achieve desired outcome.

People

            The first component is people who are the users of the system and include accountants, auditors, chief financial officers, consultants, and managers among other users. The use of AIS enhances integration whereby it brings different departments together and work as a single unit within a given company (Driver & Mock, 1975). For instance, managers establishes sales objective, which the employees relies on to place an order for suitable amount of stock. The stock order then alerts the department of accounting regarding a new payable and when sales are made, the sales persons enters customer orders making it easy for invoicing of the orders to the respective customers by the accountants. The orders are then assembled in the warehouse allowing the delivery department to ship the orders to their respective customers. The system then creates sales reports by the customer service department by tracking customer deliveries and submits the reports to the managers who critically analyze all the costs involved throughout the process. This enables cost control measures where costs are identified to be too high. The security measures implemented allows only authorized people within the organization to access the information.

            The use of AIS also involves the outside people including tax authorities and investors who rely on the same information provided by the system reports to make informed decisions. By examining the cost data, sales data, and revenue data, consultants can easily evaluate the efficiency of an organization’s pricing formation using the statistical data derived from the information in the system. In addition, auditors can assess the internal controls of a company, financial state, and conformity with the Sarbanes-Oxley Act (SOX) by simply using the data availed by the system (Ezzamel & Bourn, 1990). For maximum benefits, organizations desire to introduce AIS that addresses the needs of the users of the system and should be easy to use to improve efficiency.

Information technology infrastructure

            Another AIS component is the information technology infrastructure, which is simply the hardware where the AIS run. They include computers, storage media, routers, and servers among others. An organization wishing to implement this system ought to consider a number of factures in relation to the best hardware. These factors include cost, speed, and storage capacity among other factors (Gelinas, Dull, & Wheeler, 2011). More importantly, an organization ought to consider the compatibility of hardware with the software for effective operation of the AIS.

Internal controls                       

            They refer to the security measures taken by an organization in a bid to protect certain information from unauthorized access. Some organizations prefer to use encrypted passwords while others prefer to use biometric security measures or a combination of both to protect sensitive data from landing into wrong hands. Accounting information is very sensitive and can be targeted by malicious people (Hall, 2012). Therefore, through internal control measures, the organization is able to keep the information confidential to enhance the efficiency and reliability of the system. Besides, the fact that the system contains not only confidential information about the company but also those of employees and customers, it makes the protection of this information necessary so that only authorized people can access the information. Therefore, all of the data in AIS ought to be encrypted and access to this information from the system ought to be logged and ensure continuous surveillance where all the activities on the system are easily traced for accountability (Gordon & Miller, 1992). AIS are also susceptible to computer viruses and other internal as well as external threats to network security that can seriously compromise the data and render it useless.

Data   

            All the financial information pertinent to an organization’s business operations contained in an accounting information system is called data. This means that, recording and storing of all the business information that affects the organization’s financial activities is necessary in the AIS for easy retrieval of the data to make effective decisions. Notably, the data recorded and stored in the AIS depend on the nature of the business (Gordon & Miller, 1992). The data is used to prepare reports and AIS the trial balance, the company’s profit and loss account, and the company’s stamen of financial position among other statements. This data is protected through internal control and security measures to ensure that only authorized individuals have access to the information.

Procedure and instruction  

            The methods used in gathering, storing, processing, and retrieving data are called the procedures and instructions. The methods are either automated or manual and they depend on data from both internal and external sources. The coding of procedures and instructions into AIS software is very crucial to ensure the effectiveness of the system (Ezzamel & Bourn, 1990). In addition, the procedures and instructions are coded into the workers via documentation and training to ensure that they follow them without failure for efficiency.

Software

            The computer programs applied in storing, retrieving, processing, and analyzing information are called software. The modern accounting information relies on technological development to operate business processes. Organizations look for quality, security, and reliability of a good software before implementing AIS software because the more accurate the data generated the easier the managers find it to make valuable decisions. The development process of AIS is flexible and allows developers to customize the programs in a manner that provide effective solutions specific to an organization (Romney & Steinbart, 2003). Software is readily available in the market where organizations can purchase their best choice because organizations consider them cheaper and reliable. However, some organizations prefer to develop their own due to various reasons including availability of resources and internal staff to develop a software program that addresses their needs.

Advantages and implications of AIS

            Accounting information systems are advantageous to an organization especially because of the fact that they enhances automated and streamlined reporting in relation to all accounting standards required.  According to Gelinas, Dull, & Wheeler (2011), accounting information system draws data from the consolidated catalog, processes, and converts it and eventually creates a synopsis of the same data as information that can now easily be used after careful evaluation by business manager, analysts, or other decision makers. The systems operate more efficiently to ensure that financial reports are prepared within the time scheduled to allow enough time for analysis before making sound decisions. Indeed, this eliminates the possibility where decision-makers might be compelled to rely on previous, extraneous data, which may simply hamper their ability to act fast and efficiently based on the results from the report (Grabski, Leech, & Schmidt, 2011). AIS enhances consolidation as far as reporting is concerned, which saves time because people do not have to go through a wide array of transactions. Accounting information systems stresses the use of internal controls, a fact that is stipulated in the Sarbanes-Oxley Act of 2002 in relation to reporting of all accounting statements.

Effective implementation of AIS

            The implementation of accounting information systems should be done carefully considering all the six components and despite their unique nature, they ought to be treated equally during the implementation process. For successful implementation of accounting information system, the following steps are a requisite.

            The first step is called analysis of system requirements and it involves interviewing of existing system users whereby this is done essentially to provide answers to unanswered questions and giving solutions to the problems (Hall, 2012). All the user needs and requirements are identified and documented for the users to understand and accept the change. The next step is called the system design. After critical review of the analysis and need for change is identified, a new system is designed. The creation of a new system is done considering the identified gaps in the old system. This is done after a careful study of the requirements and the system is customized to meet the needs of the company in relation to accounting needs and reporting. The third step is documentation, which is usually done concurrently while the system is under the designing phase. Documentation is majorly done in reference to the procedures and instructions in a bid to make the work of the system users easy in tackling each business process more effectively. The fourth step is testing the system before launching (Romney & Steinbart, 2003). All processes are tested from input through output, using the documentation as a tool to ensure that all processes are thoroughly documented and that users can easily follow the procedures and be able to use the system easily without incurring any hitch that could hamper the efficiency of operations within the organization.

            Testing is vital to ensure that an organization implements a system that will address its process, a system that will be compatible with the company hardware and enhance efficiency in a bid to enjoy its benefits. Otherwise, for those organizations that simply buy a system and implement it without testing it, there is danger of failure and this could cost the company enormous amount of money as well as render the company’s operations weak leading to poor performance. All the data and reports obtained from the test should be reviewed more than once to make sure that there is minimal or completely no error that could otherwise be detrimental to a company’s future reporting (Bushmana, Chenb, Engelc, & Smithc, 2004). After successful testing and the system is declared effective and reliable, the organization then undertake its employees or the users through a training program that seeks to familiarize the users with all the relevant procedures and instructions to be able to execute their duties through the system well.

            Usually, training enables users to identify any problem in relation to the system and are allowed to ask questions where they do not understand for clarification. Training prepares the users to accept the change of systems as well as familiarize with the new system (Driver & Mock, 1975). The next step is data conversion, which is done by using well-developed tools to convert data from the old system into the new system where new data files are created. After successful conversion of data, the system is then said to be fit for use and is launched and this is done after all the people have been informed about the system and its date of implementation. It should be noted that the old system is run parallel with the new system until the new system is operational in all the departments of the organization.

Conclusion

            In conclusion, AIS is an essential tool for any organization not only because it enhances efficiency but also because it enhances the competitive edge of an organization against its competitors. Because of the rapid changes in technology, organizations should always endeavor to embrace these changes to remain competitive. This paper unveils that AIS has six components, which must be taken into consideration for successful implementation. The paper has identified several advantages that accrue to the use of AIS as well as the implications of AIS including increased efficiency and improved performance. Notably, the paper identified the process of effective implementation of AIS highlighting all the relevant details at every step involved therein. Following these steps one by one ensures the effective implementation of the AIS and thus enabling an organization to enjoy the benefits of the system.

References

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http://www.sciencedirect.com/science/article/pii/S0165410103000697

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http://www.jstor.org/discover/10.2307/245007?sid=21105936369651&uid=4&uid=2

Ezzamel, M., & Bourn, M. (1990). The roles of accounting information systems in an         organization experiencing financial crisis. Accounting, Organizations and Society , 399–           424.

http://www.sciencedirect.com/science/article/pii/036136829090025P

Gelinas, U., Dull, R., & Wheeler, P. (2011). Accounting Information Systems. New York: Cengage Learning.

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Gordon, L. A., & Miller, D. (1992). A contigency framework for design of accounting      information systems. In L. A. Gordon, & D. Miller, Readings in Accounting for             Management Control (pp. 569-585). New York: Springer.

http://link.springer.com/chapter/10.1007/978-1-4899-7138-8_26

Grabski, S. V., Leech, S. A., & Schmidt, P. J. (2011). A Review of ERP Research: A Future        Agenda for Accounting Information Systems. Journal of Information Systems , 37-78.

http://www.aaajournals.org/doi/abs/10.2308/jis.2011.25.1.37

Hall, J. (2012). Accounting Information Systems. New York : Cengage Learning.

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Romney, M. B., & Steinbart, P. J. (2003). Accounting information systems. Prentice Hall             Business Publishing , 10-67.