Accounting

Information System

Dessa Marie M. Medina, CPA, MBA

 COVERAGE
1. Basic Concepts
2. Role of Consultants
3. Objectives of anAccounting
Information System (AIS)
4. Essential Elements of an AIS
5. Characteristics of an EffectiveAIS
6. Basic Components of a Manual
Accounting System
 COVERAGE
7. Overview of a ComputerizedAIS
8. Comparisonof the Accounting Cycle
in a Computerized & Manual System
9. Differences between Computerized
Data Processing and Manual
Processing
10.Principles of AIS Design
11.Common Business Applications of
Computers
 BASIC CONCEPTS
Accounting Information System (AIS)
- A subsystem of the Financial
Information System
- Orderly arrangement of procedures,
personnel, records, equipment &
devices
- Utilized for a logical & orderly
gathering, processing,& reporting of
financial & other information
- Info essential to efficient conduct &
evaluation of business activities
 ROLE OF CONSULTANTS
- System consultants: help on issues
concerning info systems
- Management consultants: may
evaluate efficiency and effectiveness
of existing AIS
- Information systems auditors: analyze
risks of computerized info systems
 OBJECTIVE OF AN AIS
- To collect, process & provide financial
info
- needed by mgt. & other parties in
conducting & evaluating business
activities
 ESSENTIAL ELEMENTS OF
AN AIS
1. Procedures
2. Accounting policies and standards
3. Records and reports
4. Bookkeeping system
5. Personnel
6. Equipment and devices
 CHARACTERISTICS OF AN
EFFECTIVE AIS
Particular goals of anAIS:
1. Properly identify & record all valid transactions.
2. Describe transactions on timely basis & in
enough detail for financial reporting.
3. Support transaction recording in the proper
period.
4. Measure transaction value to supportproper
reporting in the FS.
5. Support proper presentation & disclosureof
transactions in the FS.
6. Assist in planning , controlling & decision
making
 CHARACTERISTICS OF AN
EFFECTIVE AIS
To achieve foregoing goals, AISmust
have ff. characteristics:
1. Compatibility w/ co’s org.
2. Provision of necessary reports
3. Provision for controls
4. Adequate audit trail
5. Qualified & competent personnel
6. Simplicity
7. Flexibility
8. Favorable cost/benefit relationship
 ACCTG. CYCLE: COMPUTERIZED
VS. MANUAL SYSTEMS
Computerized System Manual System
1. Start w/ acct. balances at Same
period beg.
2. Analyze & classify bus. Analyze & journalize
transactions by type. Access transactions as they
menus for data entry. occur

3. Computer automatically Post journal entries to the

posts transactions as a batch ledger accts.
or when entered on-line
4. Unadjusted balances are Compute unadjusted
available immediately after balance in each acct. at
each posting period end
 ACCTG. CYCLE: COMPUTERIZED
VS. MANUAL SYSTEMS
Computerized System Manual System
5. Trial balance can be Enter trial balance in work
accessed as report sheet & complete worksheet

6. Enter & post adjusting Prepare FS. Journalize &

entries. Print FS. Run post adjusting entries.
automatic closing procedure Journalize & post closing
after backing up period’s entries.
acctg. records.

7. Next period’s opening Prepare post-closing trial

balances created balance (used in step 1 for
automatically after closing next period).
 COMPUTERIZED VS.
MANUAL PROCESSING
Point of Discussion
Difference
1. Transaction EDP: transaction trails may exist for short
(audit) trail time or only on computer-readable form
2. Uniform EDP: uniformly processes like
processing transactions – avoids manual errors.
Risk: programming errors
3. Segregation EDP: combines functions of several
of functions people in manual system – need for
compensating controls
 COMPUTERIZED VS.
MANUAL PROCESSING
Point of Difference Discussion
4. Visibility of EDP: files & records in machine-
information sensible form – not susceptible to
observation. Risk: undetected errors/
irregularities
5. Unauthorized EDP: greater risk of unauthorized
access access to data/assets w/o visible
evidence
6. Transaction EDP: Automatic transaction
initiation/execution initiation/execution for certain
transactions – authorization may not
be documented
 COMPUTERIZED VS.
MANUAL PROCESSING
Point of Difference Discussion
7. System changes EDP: changes more difficult to
implement & control
8. Mgt. supervision EDP: more timely reports supports
better operational
supervision/review - enhancing
controls
9. Other controls’ Comp. reports/output are used in
dependence on doing manual control procedures –
computer manual controls’ effectiveness
processing controls hinges on comp. processing quality
PRINCIPLES OF AIS DESIGN
1. Design of accounting reports
2. Design of procedures
3. Classification & coding of accounts
4. Design of ledgers
5. Design of journals
6. Design of forms
 PRINCIPLES OF AIS DESIGN
1. Design of Accounting Reports
• Reports must provide info to help mgt. to:
-Evaluate operations
-Pinpoint operating problems &
opportunities
-Evaluate alternatives w/
recommendations
• Info must be: relevant, complete, concise,
accurate, timely, logically presented at
least cost
PRINCIPLES OF AIS DESIGN
2. Design of Procedures
• Procedures: steps to carry out some
function/part of the system
• Procedures must:
1. Be consistent w/ co. policies
2. Consider co’s org. structure
3. Attain objective efficiently & economically.
4. Meet mgt. & internal control requirements.
5. Be integrated w/ other procedures
6. Consider personnel capabilities &limitations.
7. Be flexible to accommodateworkload
variations.
PRINCIPLES OF AIS DESIGN
3. Classification & Coding of Accounts
• Primary function of chart of accounts:
support classification & summarizationof
transactions in concise form
• Account classification affected by:
1. Report requirements
2. Company’s organizational setup
3. Requirement on accountability& control
over assets, operations & transactions
4. Use of equipment & devices
 PRINCIPLES OF AIS DESIGN
• Basic principles in formulating a chart of
accounts:
1. Adequate number of accounts
2. Only 1 kind of data in an account
3. Acct. nature, purpose clearly indicated in
acct. title
4. Acct. arrangement facilitates report
preparation
5. Legal requirements considered
6. Control & accountability considered in
breaking down f/s elements
PRINCIPLES OF AIS DESIGN
4. Design of Ledgers
• Ledger’s primary function: classify &
summarize transactions into concise
& useful form suitable for FS reports.
• Observe principles in assigning chart
of accts. (see prev. discussion)
PRINCIPLES OF AIS DESIGN
5. Design of Journals
• Journals: show transaction info in one
place, chronological transaction records,
facilitate posting to ledger
PRINCIPLES OF AIS DESIGN
Design principles:
1. Special journals used for repetitive transactions
of same class/nature
2. General journal used for transactions other than
#1
3. Special column headings for most frequently-
used accounts
4. “Sundry accounts” column for accts. w/o special
columns
5. Economy & efficiency in recording
PRINCIPLES OF AIS DESIGN
6. Design of Forms
• Business forms:
- historical record of completed transactions
- means of transmitting information
- fix responsibility for performing transaction
processing stages (initiation, verification,
approval, etc.)
 PRINCIPLES OF AIS DESIGN
Forms should:
1. Be properly identified
2. Be serially numbered (if accountability is
necessary)
3. Carry necessary instructions
4. Logically arrange data
5. Facilitate data recording
6. Provide for signatures & related data
7. Consider internal controls
 COMMON COMPUTERIZED
BUSINESS APPLICATIONS
Types of business applications:
1. Management information system
2. Transaction processing systems
3. Office automation system
4. Decision support system
5. Spreadsheet programs
6. Artificial Intelligence
 COMMON COMPUTERIZED
BUSINESS APPLICATIONS
Mgt. Information System (MIS)
- Integrates transaction processing
systems w/ business functions of
mktg., production, personnel &
finance to provide info for planning &
control
 TRANSACTION PROCESSING
SYSTEMS
• Process routine transactions in day-to-day
business operations

Note: Computerized accounting systems vary in

complexity & extent of computer use.
- Batch mode vs. real time
- Simple processing vs. complex & integrated
 TRANSACTION PROCESSING
SYSTEMS
Some computer-based accounting
subsystems (see book):
1. Purchasing 5.Accounts
2. Accounts Payable Receivable
3. Payroll 6. Inventory
4. Billing 7. General Ledger
 OFFICE AUTOMATION
SYSTEM
- Allow performance of housekeeping
functions, improving clerical
productivity; e.g. word processing,
electronic mail
 OFFICE AUTOMATION
SYSTEM
1. Word processing software
2. Graphic packages
3. Desktop publishing packages
4. Office automation packages
5. Message-oriented packages
6. Integrated packages
7. Data bank services
 OFFICE AUTOMATION
SYSTEM
Word Processing Software
- Enables drafting of text directly on video screen
& easily making changes; e.g., MS Word
Graphic Packages
- Enables display of info in graphical & pictorial
forms
-E.g., Chart Master, Telepaint
Desktop Publishing Packages
- Enables format & printing of newsletters, textual
products
- E.g, Ventura Publisher, PC PageMaker
 OFFICE AUTOMATION
SYSTEM
Office Automation Packages
- Allows performance of housekeeping
functions, improving clerical productivity
- E.g., timekeeping packages, electronic
calendars
Message-Oriented Packages
- Enables transmission of info to geographically-
dispersed locations
- E.g., email, voice mail, fax software
 OFFICE AUTOMATION
SYSTEM
Integrated Packages
- Combine 2 or more software packages w/
interfaces among them
-E.g., Symphony, Framework
Data Bank Services
- Permits access to specialized external
data bases
- E.g., Dow Jones Retrieval Service
 DECISION SUPPORT
SYSTEMS
- computer-based systems designed
to support specific decision-making
situations like forecasting and
sensitivity analysis; e.g.:
- Cost Accounting System
- Financial Modeling Package
- Capital Budgeting System
- Budget Variance Analysis System
 DECISION SUPPORT
SYSTEMS
Characteristics:
• Support mgt. decision making
• Solve unstructured problems
• Allow “what-if” questions
• Address different problems
• Have user-friendly interface
 DECISION SUPPORT
SYSTEMS
• Other decision support systems:
1. Executive information system:
provide support for strategic
decisions made by top mgt.
2. Group decision support system:
used by mgt. groups or teams
SPREADSHEET PROGRAMS
- Electronic spreadsheet: multicolumn
worksheet projected on a computer
screen allowing users to work with a
huge number of rows and columns, to
perform powerful computer-aided
functions and to store the results in
computer-readable files; most popular
accounting & business application
(e.g. Excel, Lotus 123, Quattro Pro)
SPREADSHEET PROGRAMS
Characteristics:
1.Display of data in familiar format
2.Eliminates onerous manual
calculations
3.Instantaneous recalculations
suitable for “what if” analysis
4.Templates which can be
constructed/repeatedly used
ARTIFICIAL INTELLIGENCE
- An area of computer science
concerned with designing intelligent
computer systems - systems that
exhibit the characteristics associated
with intelligence in human behavior –
understanding language, learning,
reasoning, solving problems, etc.
ARTIFICIAL INTELLIGENCE
Expert Systems
- Software programs using facts, knowledge,
and reasoning techniques to solving
problems typically requiring human abilities
- ES captures the specific knowledge of an
acknowledged expert concerning a specific
problem domain and attempts to duplicate
the expert’s decision process.
- E.g., risk assessment system, internal audit
subsystems, tax preparation system, etc.
ARTIFICIAL INTELLIGENCE
Steps in creating expert system:
1.Knowledge acquisition: understanding
problem
2.Knowledge representation:
understanding expert’s thought
processes in problem solving
3.Computational modeling: reproducing
expert’s decision process
4.Model validation: model testing&
validation
ARTIFICIAL INTELLIGENCE
Characteristics of ES:
1.Rely on rich knowledge about a
problem.
2.Mimic expert’s thought processes in
problem solving
3.Explain reasoning process, allow
for uncertainty
4. They “learn”.
ARTIFICIAL INTELLIGENCE
Components of ES:
1. Knowledge database: procedural
knowledge/rules dictating actions to
follow
2. Inference engine: decides when to
apply rules & order of application
3. User interface: distinguishes
between solvable problems & those
lacking info for solution
ARTIFICIAL INTELLIGENCE
Benefits of ES:
1. Consistency in solution development
2. Efficient, easily modified
3. Valuable training tool
4. Knowledge of many experts
5. Retention of expert knowledge
6. 24/7 work
ARTIFICIAL INTELLIGENCE
Risks/limitations of ES:
1. Legal issues: reliance on expert
system for decision making
2. Valuable if performing equal to or
better than human expert
3. Expensive
4. Can’t “think” and need consensus
among “ experts”
ARTIFICIAL INTELLIGENCE
Neural Networks
- Software that “learn” from experience,
observe data patterns, & use this
learning to predict
- Best for working with fuzzy or
incomplete data since they look for
overall patterns rather than individual
pieces of data
ARTIFICIAL INTELLIGENCE
Components of NN:
1. Nodes: receive data from the
external environment
2. Connections: unique communication
lines between neurons
ARTIFICIAL INTELLIGENCE
Characteristics of NN:
1. Historical data/examples available
for system training
2. Data set may be incomplete or have
errors
3. Output dependent on multiple,
interacting parameters
4. Function determining output is
unknown/too expensive to discover
ARTIFICIAL INTELLIGENCE
Case-Based Reasoning Systems
- Software that reason by analogy and
for problems that require humans to
search through historical data to find
similar problems with successful
solutions; “learn”, “solve”, “explain”
2 main application areas:
1. Classification tasks
2. Synthesis tasks
ARTIFICIAL INTELLIGENCE
Fuzzy Logic Systems
- A form of artificial intelligence dealing with
imprecise data & problems with many
solutions; used to solve real-world problems
where a system is difficult to model, or
where control of a human operator or expert
is involved, or where ambiguity or
vagueness is common
ARTIFICIAL INTELLIGENCE
Fuzzy Logic Systems
- Useful in design of industrial controls, data
retrieval,
- Key benefits: simplified, reduced
development cycle; ease of implementation;
user-friendly, efficient performance
ARTIFICIAL INTELLIGENCE
Genetic Algorithms (Adaptive Computation)
- Problem solving methods using
evolutionary processes – the model of
living things adapting through
reproduction, mutation, and natural
selection
ARTIFICIAL INTELLIGENCE
Intelligent Agents
- Programs applying built-in/learned
knowledge base to execute specific,
repetitive, predictable task
- E.g. showing a computer user how to
perform a task or searching web sites
for particular financial information
 COMPARISON OF INFO & KNOWLEDGE
PROCESSING SYSTEMS

Decision Rule-Based Case-Based

Characteristics Support Expert Neural Reasoning
Systems Systems Networks Systems

Decision- Support, but Make Make Make

making don’t make decisions decisions decisions
decisions

Processing Process Process Process Process

quantifiable numeric & numeric symbolic
info symbolic knowledge knowledge
knowledge
 COMPARISON OF INFO & KNOWLEDGE
PROCESSING SYSTEMS

Decision Rule-Based Case-

Characteristics Support Expert Neural Based
Systems Systems Networks Reasoning
Systems
Problem Type Unstructured Structured Structured Structured
problems; problems w/ problems w/ problems w/
precedence precedence precedence precedence
not required (stable) (stable) (dynamic)
Learning No learning No learning Learn from Learn from
capability capability mistakes mistakes
Explanation No Can explain No Can explain
capability explanation how & why explanation how & why
capability of decisions capability of decisions