CH I Introudction AIS
CH I Introudction AIS
Learning objective
1. Introduction
2. Accounting Information System
3. Responsibilities of Accounting Information System
4. AIS - The MIS Subsystem
5. Objectives and Users of
6. Resources Required for an AIS
7. Roles of Accountants with Respect to AIS
8. Ethical Standards for Consulting
9. Reasons for Studying AIS
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
Many readers are exploring these Subjects as part of a college or university course named accounting
information systems. There is often a misconception that AIS is just a course about computers for
accounting majors. And although the AIS course does involve computers and is designed for accountants
in training, it is more appropriate to regard it as a course about information and about systems,
computerized or manual, that process accounting information. In business, the accounting information
system is an integral part of the accounting function.
Introduction
Before understanding the concept of Accounting Information System, we all are awareof the general idea
about the Accounting and Information System distinctively that the former is the language of business and
the latter is a system composed of people and computers that processes or interprets information.
In a broader sense, accounting can be explained as, the principal way of organizing and reporting
financial information. It has been called the language of business. The accounting system is used to
identify, analyse, measure, record, summarize, and communicate relevant economic information to
interested parties.
Information System can be explained as, it is a system composed of people and computers that
processes or interprets information. The term is also sometimes used in more restricted senses to refer to
only the software used to run a computerized database or to refer to only a computer system.
But for an Information System, one must require data to process it into proper categorized information
when needed. Therefore, data are raw facts and figures that are processed to produce information.
AndInformation is data that have been processed and are meaningful and useful to users. The terms
meaningful and useful are value-laden terms and usually subsume other qualities such as timeliness,
relevance, reliability, consistency, comparability, etc.
What are the components that really make an information system work? We'll explore IPO (input, process
and output) and how this system works.
1. Input is anything we wish to embed in a system for some type of use. A variety of sources are
used to input: keyboard, scanner, microphone, mouse, even another computer. What we input has
a purpose or an objective that can be termed as a data - but until and unless it is processed and
generated in some form of output, it is technically of no use or purpose to be achieved.
2. Processing takes place in the internal parts of the computer system.
3. Output or the processed information in a usable format comes in various forms: monitor or
printer for visual work, a speaker for audio. Sometimes our output is short-term, such as printing a
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
photo, and sometimes what we work on needs to be kept around for a while. That's where storage
comes in.
Storage is the term used to indicate that we will be saving data for a period of time. We store for many
reasons: for future reference; to prevent full loss of data; because we forget to purge. But, storage is vital.
There are several mediums on which we can keep output and processed data: a hard disk, a USB drive, a
CD.
Feedback is where the output from a system is fed back into the system in order to influence the input.
For example, when you try to withdraw too much money from your account at an ATM a warning on the
screen will advise you that it isnt possible and will suggest that you try to withdraw a smaller amount.
This is a type of feedback because it is trying to influence your input.
Accounting and Information Systems comprise the functional area of business responsible for providing
information to the other areas to enable them to do their jobs and for reporting the results to interested
parties.
By combining the two conceptsAccounting and Information Systems together, can be expressed as, An
Accounting Information System (AIS) is a structure that a business uses to collect, store, manage, process,
retrieve and report its financial data so that it can be used by accountants, consultants, business analysts,
managers, chief financial officers (CFOs), auditors and regulatory and tax agencies.
In particular, specially trained accountants work with AIS to ensure the highest level of accuracy in a
company's financial transactions and recordkeeping and to make financial data easily available to those
who legitimately need access to it, all while keeping data intact and secure. This article will describe the
primary components of AIS and some of its real-life applications.
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
To collect and store data about the organizations business activities and capture data about the transaction
on source documents with effectivity and efficiently. Later, recordingof transactional data in journals to
ledgers under various accounts is required which can present a chronological order of transactional
events.
Providing management with information which will be useful for decision making like planning,
implementation and monitoring all the accounting data for the betterment or the future aspects of an
organisation in terms of financial stability. In the manual systems, this information is provided in the form
of reports that fall into two main categories:
o Financial Statements
o Managerial Reports
It is to ensure that the information produced by the accounting system is reliable or not, if not then
corrections required for the smooth accounting system to prevent accounting errors like errors of
commission: a transaction that is calculated incorrectly or errors of omission: a transaction that is not
recorded, so that the business activities are performed efficiently and in accordance with managements
objectives and safeguard and proper utilization of all theorganizational assets.
Accounting information systems are subsystems of the management information system (MIS). MIS can
be defined as a set of organized procedures that provides information to support decision making and
control in the organization.
Decision-Making activities
Strategic planning these activities are primary concern of a top management (e.g. identification
of major markets and product lines).
Management control these activities are primarily concern of middle management. Their aim is
to operate their segments efficiently while achieving the objectives identified by top management.
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
Operational control these activities are implemented by department heads and supervisors, the
lowest-level managers in an organization. Their aim is to achieve those specific tasks assigned to
them by middle management.
Transaction processing system The most structured component of the MIS. It provides
information used by clerical and managerial personnel at the operational level.
Responsibility Reporting System It summarizes historical data on a periodic basis and provides
bottom-up information flows. It is a example of highly structured information system that is useful
for management control.
In order to explain how accounting information system could achieve the mentioned responsibilities, it is
needed to classify organizations activities into five main cycles which are the subsystems of AIS:
Most organizations engage in many similar and repetitive transactions. These transaction types can be
grouped into the five basic cycles, each of which constitutes a basic subsystem in the AIS:
a. The expenditure cycle consists of the activities involved in buying and paying for goods or
services used by the organization.
b. The production cycle consists of the activities involved in converting raw materials and
labor into finished products. (Only manufacturing companies have a production cycle;
retail organizations buy finished goods for resale to others.
c. The human resources/payroll cycle consists of the activities involved in hiring and paying
employees.(part of expenditure cycle)
d. The revenue cycle consists of the activities involved in selling goods or services and
collecting payment for those sales.
e. The financing cycle consisted of those activities involved in obtaining the necessary funds
to run the organization and in repaying creditors and distributing profits to investors.
As shown in Figure 1.1, the basic activities in each of the five cycles can be described in terms of a give-
to-get relation. For example, the expenditure cycle entails giving up cash in order to get goods and
services. Similarly, the revenue cycle entails giving up goods and services in order to get cash. Figure 1.1
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
also shows how the five cycles (or subsystems) of the AIS are related to one another and how each feeds
data to the general ledger and reporting system that provides information to both internal and external
users.
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
The General ledger is a subsystem of the AIS. It accumulates financial transaction data, classifies the data
by general ledger accounts, records the data in those accounts and serves as a basis for financial reporting
and managerial reporting subsystems. The general ledger serves as the hub from which general purpose
and external financial reports are prepared. The external financial reports must conform to GAAP and
maybe prepared using the general ledger.
The revenue cycle in a merchandising firm processes millions of bits of data every year related to sales
order processing [(i.e. preparing invoices, granting credit, shipping products or rendering services), billing
customers, and recording transactions in the accounts (i.e. accounts receivables, inventory, expense and
sales)]. This cycle also processes millions of transactions related to cash receipts processing (i.e.
collecting cash, depositing cash in the bank, and recording these transactions in the appropriate accounts,
such as accounts receivable and cash). The Expenditure cycle on the other hand processes millions of
transactions every year related to purchase/accounts payable systems, cash disbursements systems and
payroll systems while the Production cycle processes transactions related to the production system and
cost accounting system.No Planning, Control, Investment, or Production Cycles are reflected here.
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
Function of AIS
Each organization must tailor its information system to the needs of its users. Therefore, specific
information system objectives may differ from firm to firm. Three fundamental objectives are, however,
common to all systems:
Stewardship refers to managements responsibility to properly manage the resources of the firm. The
information system provides information about resource utilization to external users via traditional
financial statements and other mandated reports. Internally, management receives stewardship
information from various responsibility reports.
The information system supplies managers with the information they need to carry out their decision-
making responsibilities with the help and support of Trend Analysis, availability and acquiring of
quantitative and qualitative data,and find out non-transactional sources for management decision making.
The information system provides information to operations personnel to assist them in the efficient and
effective discharge of their daily tasks through transaction processing in the AIS.
An accounting information system that combines traditional accounting practices such as the Generally
Accepted Accounting Principles (GAAP) with the available modern information technology
resources.Seven elements compose the typical accounting information system:
Accountants provide the information necessary to determine and evaluate the long term and short term
financial stability of companies, organization or individuals. Accountants track expenses, provide detailed
insight about the expenses and future paths, as well as prepare, analyse and verify financial documents.
They look for ways to be more financially efficient, keep public records and make sure taxes are paid
properly.
Reasons
In Statement of Financial Accounting Concepts No. 2, The FASB stated that the primary objective of
accounting is to provide information useful to decision makers. Accounting information systems provides
businesses with the ability to record all types of financial information for future use. In addition, these
systems are huge time-savers and make the accounting processes and procedures easily repeatable.
Because of that, these systems save companies money because the number of people needed to complete
accounting processes is reduced. Also, the risk of human error is drastically reduced because the computer
systems manage the accounting processes, and documents are automatically created by the systems. It is
imperative that businesses keep accurate books, and accounting information systems make this
requirement much easier to meet.
Auditors need to understand the systems that are used to produce a companys financial statements, Tax
professionals need to understand enough about the clients AIS to be confident that the information used
for tax planning and compliance work is complete and accurate, One of the fastest growing types of
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
consulting services entails the design, selection, and implementation of new Accounting Information
Systems.
In contrast AIS focuses on understanding how the accounting system works: how to collect data about an
organizations activities and transactions; how to transform that data into information that management
can use to run the organization
1. Data Processing
Electronic data processing (EDP) is the use of computer technology to perform an organizations
transaction-oriented data processing. EDP is a fundamental accounting information system application in
every organization. As computer technology has become commonplace, the term data processing (DP)
has come to have the same meaning as EDP.
Management information system (MIS) describes information which supports managers to make a
decision. An MIS provides a wide variety of information beyond that which is associated with DP in
organizations. MIS recognizes that managers within an organization use and require information in
decision-making, and that computer based information systems can assist in providing information to
mangers. Many organizations apply the MIS concept to specific functional areas within the organization.
Terms such as marketing information system, manufacturing information system, human resource
information system and financial information system indicate the tailoring of MIS concept to the
development of specific information system to support decision making in a particular, well- defined
organization sub unit.
In a decision support system (DSS), data are processed into a decision making format for the end user. A
DSS requires the use of decision models and specialized databases, and differs significantly from DP
system. A DSS is directed at serving ad hoc, specific, non-routine information requests by management.
4. Expert Systems
An expert system (ES) is knowledge based information system that uses its knowledge about a specific
application area to act as an expert consultant to end-users
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout
SIMAD UNIVERSITY
You may want to pick a certificate program or designation that applies to your
specific field within AIS, such as auditing, upper management or otherwise. The following
list includes some options:
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Lecturer: Yusuf Hussein Mohamed Subject: AIS Handout