Accounting information Systems

An accounting as an information system (AIS) is a system of collecting, storing and processing financial and accounting data that are used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting financial reports can be used internally by management or externally by other interested parties including investors, creditors and tax authorities. Accounting information systems are designed to support all accounting functions and activities including auditing, financial accounting & reporting, managerial/management accounting and tax. The most widely adopted accounting information systems are auditing and financial reporting modules.

An accounting information system (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.

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.

AIS People

The people in an AIS are the system users. An AIS helps the different departments within a company work together. Professionals who may need to use an organization’s AIS include:

• Consultants
• Accountants
• Business analysts
• Managers
• Chief financial officers
• Auditors

When sales are made in a business, the people and departments involved in the sales process could include the following:

• Salespeople enter the customer orders into the AIS.
• Accounting bills or sends an invoice to the customer.
• The warehouse assembles the order.
• The shipping department sends the order out to the customer.
• The accounting department gets notified of a new accounts receivable, which is an IOU from the customer that’s typically paid within 30, 60, or 90 days.
• The customer service department tracks the order and customer shipments.
• Management uses AIS to create sales reports and perform cost analysis, which can include inventory, shipping, and manufacturing costs.

Functions of an Accounting Information System

• The second function of an AIS is to supply information useful for making decisions, including producing managerial reports and financial statements.
• 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.
• The third function of an AIS is to make sure controls are in place to accurately record and process data.

Implementation

Many large and SMEs are now adopting cost effective cloud-based accounting information system in recent years.

Looking back years ago, most organizations, even larger ones, hire outside consultants, either from the software publisher or consultants who understand the organization and who work to help select and implement the ideal configuration, taking all components into consideration.

The steps to implement an accounting information system are as follows:

Detailed Requirements Analysis

where all individuals involved in the system are interviewed. The current system is thoroughly understood, including problems, and complete documentation of the system; transactions, reports, and questions that need to be answered are gathered. User needs that are not in the current system are outlined and documented. Users include everyone, from top management to data entry. The requirements analysis not only provides the developer with the specific needs, it also helps users accept the change. Users who have the opportunity to ask questions and provide input are much more confident and receptive of the change, than those who sit back and don’t express their concerns.

Systems Design (synthesis)

The analysis is thoroughly reviewed and a new system is created. The system that surrounds the system is often the most important.

• What data needs to go into the system and how is this going to be handled?
• What information needs to come out of the system how is it going to be formatted?

If we know what needs to come out, we know what we need to put into the system. The program we select will need to appropriately handle the process. The system is built with control files, sample master records, and the ability to perform processes on a test basis. The system is designed to include appropriate internal controls and to provide management with the information needed to make decisions. It is a goal of an accounting information system to provide information that is relevant, meaningful, reliable, useful, and current. To achieve this, the system is designed so that transactions are entered as they occur (either manually or electronically) and information is immediately available online for management.

Once the system is designed, an RFP is created detailing the requirements and fundamental design. Vendors are asked to respond to the proposal, to provide demonstrations of the product, and to specifically respond to the needs of the organization. Ideally, the vendor will input control files, sample master records, and be able to show how transactions are processed that result in the information that management needs to make decisions. An RFP for the information technology infrastructure follows the selection of the software product because the software product generally has specific requirements for infrastructure. Sometimes, the software and the infrastructure is selected from the same vendor. If not, the organization must ensure that vendors will work together without “pointing fingers” when there is an issue with either the software or the infrastructure.

Documentation

As the system is being designed, it is documented. The documentation includes vendor documentation of the system and, more importantly, the procedures or detailed instructions that help users handle each process specific to the organization. Most documentation and procedures are online and it is helpful if organizations can add to the help instructions provided by the software vendor. Documentation and procedures tend to be an afterthought but is the insurance policy and the tool used during testing and training before launch. The documentation is tested during the training so that when the system is launched, there is no question that it works and that the users are confident with the change.

Testing

Before launch, 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: They know it works and that the procedures will be followed consistently. The reports are reviewed and verified, so that there’s no garbage in-garbage out. This is done in a test system not yet fully populated with live data. Unfortunately, most organizations launch systems before thorough testing, adding to end-user frustration when processes don’t work. The documentation and procedures may be modified during this process. All identified transactions must be tested during this step. All reports and online information must be verified and traced through the audit trail so that management is ensured that transactions will be handled consistently and that the information can be relied upon to make decisions.

Training

Before launch, all users need to be trained, with procedures. This means a trainer using the procedures to show each end user how to handle a procedures. The procedures often need to be updated during training as users describe their unique circumstances and the “design” is modified with this additional information. The end user then performs the procedure with the trainer and the documentation. The end user then performs the procedure with the documentation alone. The end user is then on his or her own with the support, either in person or by phone, of the trainer or other support person. This is before data conversion.

Data Conversion

Tools are developed to convert the data from the current system (which was documented in the requirements analysis) to the new system. The data is mapped from one system to the other and data files are created that will work with the tools that are developed. The conversion is thoroughly tested and verified before final conversion. There’s a backup so it can be restarted, if necessary.

Launch

The system is implemented only after all of the above is completed. The entire organization is aware of the launch date. Ideally, the current system is retained and often run in “parallel” until the new system is in full operation and working properly. With the current mass-market software used by thousands of companies and fundamentally proven to work, the “parallel” run that is mandatory with software tailor-made to a company is generally not done. This is only true, however, when the above process is followed, the system is thoroughly documented and tested, and users are trained before launch.

Tools

Online resources are available to assist with strategic planning of accounting information systems. Information systems and financial forms aid in determining the specific needs of each organization, as well as assigning responsibility to principles involved.

Support

The end users and managers have ongoing support available at all times. System upgrades follow a similar process and all users are thoroughly apprised of changes, upgraded in an efficient manner, and trained.

Many organizations chose to limit the time and money spent on the analysis, design, documentation, and training, and move right into software selection and implementation. If a detailed requirements analysis is performed with adequate time being spent on the analysis, the implementation and ongoing support will be minimal. Organizations that skip the steps to ensure the system meets their needs are often left with frustrated end users, costly support, and information that is not current or correct. Worse yet, these organizations build the system three times instead of once.

Evolution

Accounting Information System is characterizing by large amount of different approaches and methodologies Over the past 50 years. Due to the restrictions and weaknesses of previous models each new model evolved. Interestingly After the production of newest technique the newer or recent models of evolution does not eliminate or replace the older or previous technique instantly. However, Several Generations and peers of systems exists among different institutions, organizations, groups at the same time and possibly exists within a single or same institution. Similarly, the up-to-date inspector needs to be aware with the functioning features of all AIS approaches that he or she is likely to encounter. currently there are four approaches can be identified which has been evolved during last 50 years.

• Manual Process Model
• Flat File Model
• Database Model System
• REA Model (Resource, Event and Agents)

Types of Accounting Information Systems

There are multiple types or categories of accounting information systems. What a business firm uses depends on the type of business, the size of the business, the needs of the business, and the sophistication of the business.

Manual Systems

Manual accounting information systems are used mostly by very small businesses and home-based businesses. If a system is entirely manual, it would require the following: source documents, general ledger, general journal, and special journals or subsidiary journals you might need.

Legacy Systems

Legacy systems are often in existing business firms and were used before information technology got as sophisticated as it is today. Even though legacy systems may appear to be old-fashioned, they have some definite advantages to the firm. They contain valuable historical data about the firm. The firm personnel tend to know how to use the system and understand it. A legacy system has usually been customized to the specific needs of an individual firm. You won’t find this kind of customization in generic accounting software packages.

Unfortunately, legacy systems also have significant disadvantages. Often, they have no documentation. It is usually hard to find replacement parts because hardware and software may become obsolete. Even the computer language that legacy systems use is usually an older language. Most legacy systems have been built from scratch.