Question

Describe the ways in accounting information systems can help to create value for business

a minimum of 5 references
arguments and points should be illustrated with real-world examples

Answer 1

An accounting as an information system (AIS) is a system of collecting, storing and processing financial and accounting data that are used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources.

Ways to create value for business:

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.

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 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

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.2 3 Small to mid-sized businesses might use SAP's Business One.4 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.5 6 7 8

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.

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:

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

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.

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

Real World Examples of Accounting Information Systems : -

WorldCom

In 2002, WorldCom's internal auditors Eugene Morse and Cynthia Cooper used the company's AIS to uncover nearly $4 billion in fraudulent expense allocations and other accounting entries.10 Their investigation led to the termination of CFO Scott Sullivan, as well as new legislation—section 404 of the Sarbanes-Oxley Act, which regulates companies' internal financial controls and procedures.11 12

Lehman Brothers

When investigating the causes of Lehman's collapse, a review of its AIS and other data systems was a key component, along with document collection and review, plus witness interviews. The search for the causes of the company's failure "required an extensive investigation and review of Lehman's operating, trading, valuation, financial, accounting, and other data systems," according to the 2,200-page, nine-volume examiner's report.