What is AIS? 7.

Launch
An accounting information system (AIS) system of 8. Tools
collection, storage and processing 9. Support
Financial and accounting data that is used by decision
makers. An accounting information system is generally a What is ACCOUNTING INFORMATION
computer-based method for tracking accounting activity SYSTEM?
in conjunction with information technology resources.  Accounting is an information system.
The resulting statistical reports can be used internally by  It identifies, collects, processes, and
management or externally by other interested parties communicates economic information about
including investors, creditors and tax authorities. The
a firm using a wide variety of technologies.
actual physical devices and systems that allows the AIS
to operate and perform its functions  It captures and records the financial effects
1. Internal controls and security measures: what is of the firm's transactions.
implemented to safeguard the data  It distributes transaction information to
2. Model Base Management operations personnel to coordinate many
key tasks.
History of AIS
 The goal behind AIS is to gather, store, and
Initially, accounting information systems were
predominantly developed “in-house” as legacy systems. the process of the accounting financial data.
Such solutions were difficult to develop and expensive Therefore, it delivers instructive reports that
to maintain. Today, accounting information systems are will give insight to managers and directors
more commonly sold as prebuilt software packages from in on decision making (Horngren, 2006).
vendors such as Microsoft, Sage Group, SAP and Oracle Accounting is an information system.
where it is configured and customized to match the Information system is the set of formal procedures by
organization’s business processes. As the need for which data are collected, processed into information, and
connectivity and consolidation between other business distributed to users.
systems increased, accounting information systems were WHY DO BUSINESSES USE AIS?
merged with larger, more centralized systems known as AIS ensures the highest level of accuracy with the
enterprise resource planning (ERP). company's financial transactions and record-keeping. It
also allows specific employees to access the information
Before, with separate applications to manage different they need while limiting sensitive information to others
business functions, organizations had to develop and protecting the overall security of company data. An
complex interfaces for the systems to communicate with AIS increases a company's ability to detect fraud and
each other. In ERP, a system such as accounting helps it ensure that its finances are running smoothly. A
information system is built as a module integrated into a well-designed AIS allows everyone within the company
suite of applications that can include manufacturing, to access the same system and retrieve the same
supply chain, human resources. These modules are information.
integrated together and are able to access the same data Functions of an AIS
and execute complex business processes. With the There are three basic functions of AIS:
ubiquity of ERP for businesses, the term “accounting Efficient and effective collection and storage of
information system” has become much less about pure financial data: An AIS can collect transaction data from
accounting (financial or managerial) and more about source documents, record transactions in journals and
tracking processes across all domains of business. post to ledgers.
Supplying information for decision-making: An AIS
Advantages and implications of AIS: can produce managerial reports and financial statements
How to effectively implement AIS for managers, chief financial officers (CFO) and other
1. Detailed requirements analysis key decision-makers.
2. System Design (synthesis) Putting controls in place: An AIS can put controls in
3. Documentation place to record and process data accurately.
3. Testing
5. Training
6. Data conversion
 Data that doesn't go into the AIS includes things like
AIS COMPONENTS manuals, memos and correspondence. While these things
Accounting information systems comprise six parts that can be related to a company's finances, they aren't
keep them running efficiently and fluidly: considered part of financial record keeping
1. People 4. AIS software
This includes anyone who uses the information system. The AIS has a software component that's essential to
It could include accountants, managers, CFOs and other store, retrieve, process and analyze financial data for the
C-suite executives, financial analysts and auditors. AIS company. Though AIS used to be a manual-based
helps different departments work together effectively. system, companies today use customized software
For example, to streamline operations, management can programs to meet the needs of each business. For
set sales goals, which can then inform staff about the publicly traded companies, the structure of the AIS is to
amount of inventory available to meet those goals. some extent dictated by Sarbanes-Oxley Act regulations.
Salespeople can enter their customer orders into the AIS, 5. IT infrastructure
which alerts accounting to send invoices, tell warehouse IT infrastructure refers to the hardware that's used to
employees to package orders and the shipping operate the AIS and includes things like computers,
department to mail them. servers, routers and other components most businesses
2. Procedures and instructions already have. An optimized IT infrastructure requires
AIS uses procedures and instructions to regulate how compatibility with the software selected for the AIS and
companies collect, store, process and distribute financial the ability to run efficiently for other software the
information, helping employees complete training on company may be using. The infrastructure also includes
these procedures. These methods are both manual and contingency plans for things like power outages,
automated and can come from internal sources like hardware failure and anything else that could affect the
employees or external sources like online orders placed ability of the system to run as designed.
by customers. Procedures and instructions coded into the 6. Internal controls
AIS software and implemented with employees through Internal controls refer to the security measures used to
training and documentation are most effective when protect data stored within the AIS. Internal controls
professionals follow them consistently. include everything from passwords to biometric
3. AIS data verification methods to encryption methods. It filters out
For convenient record-keeping and reporting, the AIS sensitive data for employees without verified access
often has a database structure that stores information in while still making the information readily available for
one central location. The structure, like Microsoft's those with full access. Internal controls are an essential
structured query language (SQL), allows data in the AIS component of the AIS, as the AIS usually contains
to be sorted and retrieved for reporting. The AIS stores sensitive employee and customer information like credit
any information relevant to the organization's business cards and Social Security numbers and the company's
practices that could affect its finances. financial data.
Any business data that affect the company's finances go
into the AIS. While the data may vary depending on the AIS Subsystems
business, it typically includes: • Transaction processing system (TPS)-
 Inventory data supports daily business operations
 Tax information • General Ledger / Financial Reporting
 Check registers System (GL/FRS)- produces financial
 General ledger statements and reports
 Customer billing statements • Management Reporting System (MRS)-
 Sales orders produces special-purpose reports for internal
 Purchase requisitions use
 Vendor invoices AIS versus MIS
 Sales analysis reports • Accounting Information Systems (AIS) process-
 Payroll information financial transactions; e.g., sale of goods and
 Timekeeping information nonfinancial transactions that directly affect the
processing of financial transactions; e.g., addition of
newly approved vendors
• Management Information Systems (MIS) process- bookkeeping systems, which relied on paper ledgers
nonfinancial transactions that are not normally processed and journals to time record financial transactions.
by traditional AIS; e.g., tracking customer complaints Over, technological advancements have led to the
HISTORY/ EVOLUTION OF ACCOUNTING development of more sophisticated AIS, including
INFORMATION SYSTEM computerized systems and enterprise resource planning
-The Evolution of Accounting Information System (ERP) systems.
 Manual Process Model In the 1970s and 1980s, the introduction of
The manual process model is the oldest and most computers and accounting software revolutionized the
traditional form of accounting systems. Manual systems way businesses managed their financial information.
constitute the physical events, resources, and personnel These systems automated many of the manual tasks
that characterize many business processes. It includes associated with bookkeeping, including data entry,
order-taking, warehousing, materials, manufacturing record keeping, and financial reporting. As a result,
goods for sale, shipping goods to customers, and businesses could more easily track their financial
placing orders with vendors. It also includes the performance and make informed decisions based on
physical task of record keeping. real-time data.
 Flat File Model In the 1990s, the development of ERP systems
It is based on Legacy Model of computers. Large marked another milestone in the evolution of AIS. These
mainframe systems that were implemented in the late integrated software solutions allowed businesses to
1960s through the 1980s are used for Flat File Model. manage multiple functions, including accounting,
Organizations today still use these systems extensively. human resources, inventory management, and
Eventually, modern database management systems will customer relationship management, within a single
replace them, but in the meantime accountants must platform. This streamlined approach helped businesses
continue to deal with legacy system technologies. to reduce costs, increase efficiency, and improve
 Database Model decision-making.
Today, AIS continue to evolve, with cloud-based
An organization can overcome the problems associated
software solutions becoming increasingly popular. These
with flat files by implementing the database model to
systems provide businesses with access to real-time
data management DBMS (Database management
financial data from anywhere, at any time, and can be
system). However the DBMS is a special software
easily integrated with other business applications.
system that is programmed to know which data
Additionally, advancements in artificial intelligence
elements each user is authorized to access.
and machine learning are opening up new possibilities
Moreover DBMS validates and authorizes access to
for the use of AIS in areas such as fraud detection,
the database in accordance with the user’s level. He or
financial forecasting, and data analysis.
she is not authorized to access, the request is denied.
Overall, the evolution of AIS has had a significant
Clearly, the organization’s procedures for assigning user
impact on the way businesses manage their financial
authority are an important control issue for auditors to
information and will likely continue to do so in the
consider.
future.
 The REA Model
This model is also based on modern database technology WHAT IS A SYSTEM?
but with different viewpoint of implementation. -GROUP OF TWO OR MORE INTERRELATED
However REA is an accounting framework based COMPONENTS OR SUBSYSTEMS THAT SERVE A
resources, events, and agents (REA) and the COMMON PURPOSE.
relationships between them. Moreover both accounting 1.Natural
and non-accounting data about REA identified, 2. Artificial (man - made)
captured, and stored in a relational database. And
then different user views are constructed that meet the MULTIPLE COMPONENTS RELATEDNESS AND
needs of all users in the organization. The REA model PURPOSE SYSTEM VS SUBSYSTEM
was proposed in 1982 as a theoretical model for The distinction between the terms system and subsystem
accounting. Advances in database technology have is a matter of perspective.
focused renewed attention on REA as a practical
alternative to the classical accounting framework.
 SYSTEM DECOMPOSITION
The evolution of accounting information systems
(AIS) can be traced back to the early days of manual
Dividing the system into smaller sub-system parts. This is the process of recording financial transactions
is the convenient way of representing, viewing, and pertaining to a business.
understanding the relationship among subsystems.  SYSTEM
 SYSTEM INTEDEPENDENCY Group of two or more interrelated components or sub-
A system’s ability to achieve its goal depends on the systems that serve a common purpose.
effective functioning and harmonious interaction of its  INFORMATION SYSTEM
sub-systems. Set of formal procedures by which data are collected,
stored, processed into information and distributed to
 INFORMATION SYSTEM users.
FRAMEWORK  ACCOUNTING INFORMATION
A set of formal procedures by which data is collected, SYSTEM
processed into information, and distributed to users. An accounting information system is a set of business
Transaction is an event that affects or is of interest to the processes that record transactions using journals and
organization and is processed by its information system ledgers (a paper-based system) or computer files (using a
as a unit of work. computerized system) to keep track of a company ' s
money and other assets.
WHAT IS ACCOUNTING INFORAMATION - could be manual, computerized or hybrid.
SYSTEM? AIS subsystems process financial transactions and
A system, typically computer-based, used for nonfinancial transactions that directly affect the
storing, collecting, and analyzing a company's financial processing of financial transactions.
and accounting data. Accounting information systems
are generally used by executives to make decisions,  AIS SUB SYSTEMS
develop company strategies, and generate reports for Transaction Processing System (TPS)
shareholders, internal personnel, and regulatory Management Reporting System (MRS)
agencies. Accounting information systems also General Ledger/ Financial Reporting System
streamline accounting cycles and reduce the incidence of (GL/FRS)
accounting errors.
 COMPONENTS OF AIS
HISTORY OF ACCOUNTING INFORAMATION
1.PEOPLE
SYSTEM?
2. DATA
Early Accounting Information Systems were
3. IT INFRASTRUCTURE
designed for payroll functions in 1970s. Initially,
4. PROCEDURES AND INSTRUCTIONS
accounting information systems were developed "in-
5. SOFTWARE
house" as no packaged solutions were available. Such
6. INTERNAL CONTROLS
solutions were expensive to develop and difficult to
maintain. Therefore, many accounting practitioners
 USERS OF AIS
preferred the manual approach rather than computer-
based. Today, accounting information systems are more INTERNAL USERS
commonly sold as prebuilt software packages from large EXTERNAL USERS
vendors such as Microsoft, Sage Group, SAP and Oracle
where it is configured and customized to match the  OBJECTIVE OF ACCOUNTING
organization's business processes. Small businesses often INFORMATION SYSTEM
use accounting lower costs software packages such as The goal behind AIS is to gather, store, and process
Tally. ERP 9, MYOB and Quick books. Large accounting financial data.
organizations would often choose ERP systems. As the  MANUAL SYSTEMS
need for connectivity and consolidation between other - are primarily used by smaller organizations where the
business systems increased, accounting information entire system is manual, with no technological
systems were merged with larger, more centralized integration.
systems enterprise resource planning (ERP).  LEGACY SYSTEMS
- have been prevalent before the advent of high-end
 ACCOUNTING technology. While it does have some benefits of
knowing the historical data of your firm and the ease of
use, but it definitely lacks the flexibility and reliability
that modern technology can offer.
 MODERN/ INTEGRATED SYSTEMS
-are windows-based technologies that are considered to
be much more user-friendly than legacy accounting
systems.

HISTORY OF AIS
TRADITIONALLY, accounting is purely based
on a manual approach. The experience and skillfulness
of an individual accountant are critical in accounting
processes. Even using the manual approach can be
ineffective and inefficient. Accounting information
systems resolve many of the above issues. AISs can
support the automation of processing a large amount of
data and produce timely and accurate information.
Were designed for payroll functions in 1970s.
Initially, accounting information systems were
developed "in-house " as no packaged solutions were
available.
BEFORE, with separate applications to manage
different business functions, organizations had to
develop complex interfaces for the systems to
communicate with each other. In ERP, a system such as
an accounting information system is built as a module
integrated into a suite of applications that can include
manufacturing, supply chain, human resources.