ACCOUNTING INFORMATION SYSTEM

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 non impact 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.