NORTHEASTERN COLLEGE

Santiago City
COLLEGE OF ACCOUNTANCY AND BUSINESS ADMINISTRATION

ACCOUNTING INFORMATION SYSTEM

Module 1

INTRODUCTION TO ACCOUNTING INFORMATION SYSTEMS (AIS)

Accounting Information System (AIS)

• An accounting information system (AIS) is used by companies to collect, store, manage, process, retrieve, and
report financial data.

• AIS can be used by accountants, consultants, business analysts, managers, chief financial officers, auditors, and
regulators.

• An AIS helps the different departments within a company work together.

• An effective AIS uses hardware and software to effectively store and retrieve data.

• The internal and external controls of an AIS are critical to protecting a company's sensitive data.

An accounting information system is a way of tracking all accounting and business activity for a company. Accounting
information systems generally consist of six primary components:
1. People,
2. Procedures and instructions,
3. Data,
4. Software,
5. Information technology infrastructure, and
6. Internal controls.

1. 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:

Accountants
Consultants
Business analysts
Managers
Chief financial officers
Auditors

For example, management can establish sales goals for which staff can then order the appropriate amount of inventory.
The inventory order notifies the accounting department of a new payable.

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

1. Salespeople enter the customer orders into the AIS.

2. Accounting bills or sends an invoice to the customer.
3. The warehouse assembles the order.
4. The shipping department sends the order out to the customer.
5. 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.
6. The customer service department tracks the order and customer shipments.
7. Management uses AIS to create sales reports and perform cost analysis, which can include inventory, shipping,
and manufacturing costs.

With a well-designed AIS, everyone within an organization can access the same system and retrieve the same information.

An AIS also simplifies the process of reporting information to people outside of the organization, when necessary.

For example, consultants might use the information in an AIS to analyze the effectiveness of the company's pricing structure
by looking at cost data, sales data, and revenue. Also, auditors can use the data to assess a company's internal controls,
financial condition, and compliance with regulations such as the Sarbanes-Oxley Act (SOX).

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The AIS should be designed to meet the needs of the people who will be using it. The system should also be easy to use
and should improve, not hinder efficiency.

2. Procedures and Instructions

The procedure and instructions of an AIS are the methods it uses for collecting, storing, retrieving, and processing data.
These methods are both manual and automated. The data can come from both internal sources (e.g., employees) and
external sources (e.g., customers' online orders). Procedures and instructions will be coded into the AIS software. However,
the procedures and instructions should also be "coded" into employees through documentation and training. The procedures
and instructions must be followed consistently in order to be effective.

3. AIS Data

An AIS must have a database structure to store information, such as structured query language (SQL), which is a computer
language commonly used for databases. SQL allows the data that's in the AIS to be manipulated and retrieved for reporting
purposes. The AIS will also need various input screens for the different types of system users and data entry, as well as
different output formats to meet the needs of different users and various types of information.

The data contained in an AIS is all of the financial information pertinent to the organization's business practices. Any
business data that impacts the company's finances should go into an AIS.

The type of data included in an AIS depends on the nature of the business, but it may consist of the following:

• Sales orders
• Customer billing statements
• Sales analysis reports
• Purchase requisitions
• Vendor invoices
• Check registers
• General ledger
• Inventory data
• Payroll information
• Timekeeping
• Tax information

The data can be used to prepare accounting statements and financial reports, including accounts receivable aging,
depreciation or amortization schedules, a trial balance, and a profit and loss statement. Having all of this data in one place—
in the AIS—facilitates a business's record-keeping, reporting, analysis, auditing, and decision-making activities. For the data
to be useful, it must be complete, accurate, and relevant.

On the other hand, examples of data that would not go into an AIS include memos, correspondence, presentations, and
manuals. These documents might have a tangential relationship to the company's finances, but, excluding the standard
footnotes, they are not really part of the company's financial record-keeping.

4. AIS Software

The software component of an AIS is the computer programs used to store, retrieve, process, and analyze the company's
financial data. Before there were computers, an AIS was a manual, paper-based system, but today, most companies are
using computer software as the basis of the AIS. Small businesses might use Intuit's Quickbooks or Sage's Sage 50
Accounting, but there are others. Small to mid-sized businesses might use SAP's Business One. Mid-sized and large
businesses might use Microsoft's Dynamics GP, Sage Group's MAS 90, or MAS 200, Oracle's PeopleSoft, or Epicor
Financial Management.

Quality, reliability, and security are key components of effective AIS software. Managers rely on the information it outputs
to make decisions for the company, and they need high-quality information to make sound decisions.

AIS software programs can be customized to meet the unique needs of different types of businesses. If an existing program
does not meet a company's needs, the software can also be developed in-house with substantial input from end-users or
can be developed by a third-party company specifically for the organization. The system could even be outsourced to a
specialized company.

For publicly-traded companies, no matter what software program and customization options the business chooses,
Sarbanes-Oxley regulations will dictate the structure of the AIS to some extent. This is because SOX regulations establish
internal controls and auditing procedures with which public companies must comply.

5. IT Infrastructure

Information technology infrastructure is just a fancy name for the hardware used to operate the accounting information
system. Most of these hardware items a business would need to have anyway and can include the following:

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 • Computers
• Mobile devices
• Servers
• Printers
• Surge protectors
• Routers
• Storage media
• A back-up power supply

In addition to cost, factors to consider in selecting hardware include speed, storage capability, and whether it can be
expanded and upgraded.

Perhaps most importantly, the hardware selected for an AIS must be compatible with the intended software. Ideally, it would
be not just compatible, but optimal—a clunky system will be much less helpful than a speedy one. One way businesses can
easily meet hardware and software compatibility requirements is by purchasing a turnkey system that includes both the
hardware and the software that the business needs. Purchasing a turnkey system means, theoretically, that the business
will get an optimal combination of hardware and software for its AIS.

A good AIS should also include a plan for maintaining, servicing, replacing, and upgrading components of the hardware
system, as well as a plan for the disposal of broken and outdated hardware, so that sensitive data is completely destroyed.

6. Internal Controls

The internal controls of an AIS are the security measures it contains to protect sensitive data. These can be as simple as
passwords or as complex as biometric identification. Biometric security protocols might include storing human
characteristics that don't change over time, such as fingerprints, voice, and facial recognition.

An AIS must have internal controls to protect against unauthorized computer access and to limit access to authorized users,
which includes some users inside the company. It must also prevent unauthorized file access by individuals who are allowed
to access only select parts of the system.

An AIS contains confidential information belonging not just to the company but also to its employees and customers. This
data may include:

• Social Security numbers

• Salary and personnel information
• Credit card numbers
• Customer information
• Company financial data
• Financial information of suppliers and vendors

All of the data in an AIS should be encrypted, and access to the system should be logged and surveilled. System activity
should be traceable as well.

An AIS also needs internal controls that protect it from computer viruses, hackers, and other internal and external threats
to network security. It must also be protected from natural disasters and power surges that can cause data loss.

Assignment:

Readings on:
1. WorldCom Case
2. Lehman Brothers Case

Required:

Essay discussing the salient points to summarize the above cases. Minimum 200 words, Maximum 300 words. Must be
hand written in 1 whole yellow pad paper.

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