Question

• Implementing a new AIS system could prove to be beneficial or detrimental to an organization’s IT infrastructure. Assess the risks associated with integrating a new AIS system and suggest what management can do to minimize those risks.
• You have been selected as the change agent for the implementation of a new AIS system that will ultimately affect the way all employees complete their daily tasks. The new AIS system will also require online approvals for all source documents. This will result in significant cost savings for the firm; however, in the past, employees have been resistant to radical changes such as this. Evaluate the risks and rewards of such a move by the firm. Provide specific examples to support your response.

Answer 1

Answer.

An information system is a formal process for collecting data, processing the data into information, and distributing that information to users. The purpose of an accounting information system (AIS) is to collect, store, and process financial and accounting data and produce informational reports that managers or other interested parties can use to make business decisions. Although an AIS can be a manual system, today most accounting information systems are computer-based.

Functions of an Accounting Information System

Accounting information systems have three basic functions:

1. The first function of an AIS is the efficient and effective collection and storage of data concerning an organization’s financial activities, including getting the transaction data from source documents, recording the transactions in journals, and posting data from journals to ledgers.
2. The second function of an AIS is to supply information useful for making decisions, including producing managerial reports and financial statements.
3. The third function of an AIS is to make sure controls are in place to accurately record and process data.

Parts of an Accounting Information System

An accounting information system typically has six basic parts:

1. People who use the system, including accountants, managers, and business analysts
2. Procedure and instructions are the ways that data are collected, stored, retrieved, and processed
3. Data including all the information that goes into an AIS
4. Software consists of computer programs used for processing data
5. Information technology infrastructure includes all the hardware used to operate the AIS
6. Internal controls are the security measures used to protect data.

Benefits of AIS:

• Classification:
  
  When data is entered in an accounting system, manual or computerized, an accountant needs to classify it in a detailed fashion. For example, a transaction could be a sales revenue or an interest revenue. Using information systems, this classification process is easily accomplished with a drop-down menu from which you choose the proper category. You can also quickly generate reports involving classifications. With a manual system, this process takes much more time.

• Speed

  The main benefit of information systems in accounting is the speed of processing tasks. Data is entered once and can then be used and reused in compiling reports by literally pressing a button. If a transaction needs correction, it is easily done, with reports generated afterward at speeds never possible with manual accounting systems.

• Increased automation - more consistent output and fewer resource (people) needs.
  
• Better information - this is important for strategic decision-making.
  
• Faster turnaround times - this is important for compliance filing as well as management reporting
  

• Safety:
  Once data is entered into a computer, it is safe. The chances of losing data are remote, especially when you perform regular system backups. In manual systems, paper pads can be lost or damaged more easily. You can save data on the Internet, where it will not only be accessible anytime you need it but will also still be secure even if your computer is lost or damaged.

Risks/Limitations of AIS:

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Disadvantages of Accounting Software

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An accounting information system is designed for businesses to use for recording their financial transactions. Information is entered, processed, stored and distributed through this type of system. Accounting information systems have many benefits; however, there are also some disadvantages to them.

Learning the System

Learning an accounting information system can often be difficult and time-consuming. Individuals must be trained on a system, and this can cause a disadvantage to companies in terms of time and manpower. An accounting information system is made up of many different components, and almost all systems are computerized. Because of their complexity, some people may find them hard to use. It can take weeks or months for a person to understand an accounting system, and usually the individual still does not understand completely what the system is capable of. If the employee quits working at the organization, it can take weeks or months, once again, to train another employee.

Loss of Information

Accounting information systems are usually computerized. Because of this, there is always a risk of losing information through power outages or system crashes. When this happens, there is a chance that all the information in the system could be lost. Companies take precautions for this problem by backing up their files regularly and performing standard maintenance on all computer systems. They also install anti-virus software as another precaution. Still, none of these steps eliminates the potential problem that may occur. Accounting information systems store a company’s financial information for years. If a system crash occurs, it causes a major disadvantage to the company. All, or some, information is lost, and there’s a chance it may never be recovered.

Re-evaluation

Companies often change their way of doing business to keep up with the latest trends. To keep up in a demanding business world, these changes may impact an accounting system. An accounting information system is difficult to set up because every company is unique in its own way. In order to keep up with changes, accounting information systems must be re-evaluated often. Changes often need to be made in a system in order to process information efficiently. This can be a disadvantage to companies because it takes time for the re-evaluation, and it costs money.

Loss of Data or Service

When a business is reliant on accounting software, any loss of service due to a power or computer outage could cause a work disruption. Work disruptions can prevent the input of new information as well as prevent access to stored information. Additionally, if information is not properly backed up, a computer outage could result in lost financial data.

Incorrect Information

The information in an accounting system is only as valid as the information put into the system. Since most accounting systems require some manual input of data, financial results could be incorrect unless all input data is reviewed. If there is a tendency to only review the final reports or output of an accounting system, it may be difficult to find faulty information.

System Configuration

Every business has unique aspects that may cause difficulties when it tries to tailor a generic accounting software package to its needs. While customization is available for many programs, it may cause downtime and potential inaccuracies if not done correctly. Also, as a business grows, there may be a need to change accounting software packages; this could cause a large disruption, as information must be migrated and new training is needed for personnel.

Cost

A disadvantage of accounting software is the cost involved. Beyond the initial outlay to purchase the software there is the cost of maintenance, customization, training and computer hardware. While time savings may justify the cost, for some businesses it may take years before an accounting software investment pays for itself.

Fraud

Information stored electronically can be manipulated and accessed if proper controls and security measures are not in place. Strict controls are needed to make sure only authorized personnel use the accounting software and have access to reports. Since financial data can be sensitive and confidential, using accounting software creates the potential for fraud