Question

Action Items

1. Read the article below: Information Systems and Internal Control.
2. Write: Develop a bulleted list of 1 issue or best practice that you identified based on your reading of this article and how it may impact you while performing in an accounting position.

;;;;;;;;;;;;;;;;;;;;;;;;

Information Systems and Internal Control

G1.01 Definitions

The term “information systems” (IS) refers to the hardware, software, facilities, people, and processes used by a company to gather, process, store, retrieve, and transmit information of importance to the entity. It includes mainframe computers, virtualized servers, desktop computers, telecommunication networks, database management systems, distributed systems, storage area networks, e-commerce, and access control methods—virtually everything involved in a company's information and data processing environment. With such a broad definition, the internal auditor may be overwhelmed in determining how to assess the control environment of the company's information systems.

A plethora of terms define the use of IS within the business community. These include “information technology” (IT), “financial information systems” (FIS), “manufacturing resource planning” (MRP) systems, and “enterprise resource planning” (ERP) systems. The particular use of an IS activity can be determined by its commonly used name. For example, IT refers primarily to the technology infrastructure on which business systems operate. IT may also be used to loosely describe the collection of business systems and technology infrastructure that collectively make up IS. FIS will relate to the systems used to record, process, reconcile, and report financial information. MRP systems focus on the entity's manufacturing processes, including planning, materials ordering, scheduling, assembly, and product delivery. ERP systems have become popular as the ultimate integrated means of controlling all aspects of an enterprise's operations, where critical systems “talk to each other” and react when certain criteria are met. SAP and Oracle Financials are two of the more popular examples of ERP systems and integrate various accounting functions with supply chain, product lifecycle, and enterprise management processes.

The U.S. government defines IT as:

The branch of technology devoted to (a) the study and application of data and the processing thereof, i.e., the automatic acquisition, storage, manipulation (including transformation), management, movement, control, display, switching, interchange, transmission or reception of data, and (b) the development and use of the hardware, software, firmware, and procedures associated with this processing. ¹

This definition supports the idea that the terms IS and IT have significant overlap, and, in fact, tend to be highly interchangeable. The term EDP (electronic data processing) was used widely in the past to describe similar activities of IS and IT, but with a narrower focus on a centralized computing environment. The concepts are the same in that electronic equipment is used as a tool to gather, process, and report information. The difference today is that many companies have moved away from the centralized data center toward a dispersed, decentralized, or shared IS environment. Although large centralized data centers may have diminished in importance for some companies, they are still prevalent within the business community. With virtualization of servers, we are almost coming full circle and returning to a more centralized computing environment. In terms of current terminology, it is perhaps best to think of IT as referring more to the technology infrastructure—the servers, routers, operating systems, and other supporting technologies—and IS as including business systems that utilize this underlying infrastructure.

Answer 1

After reading the above given para, the best practice or idea that I feel will impact me while performing in an accounting position is as follows -

1. The biggest impact IT has made on accounting is the ability of companies to develop and use computerized systems to track and record financial transactions. This system allows companies to create individual reports quickly and easily for management decision making. Yes I am talking about ERP systems as mentioned in the above para.

2. An ERP system ensures that your accounting is automated. It simplifies operations related to accounts receivable, accounts payable, improves cash flow problems, and cash management. It becomes pretty easier to manage the entire organization by generating information and compiling it.

3. There are many areas in an organization that you can manage through an ERP system, some of them are as follows -

a) You can use an ERP system to estimate the capital requirements and for management of cash.

b) You can accurately come up with a budget.

c) Allocation of costs for various activities such as labor, raw material, and transportation.

d) Management of payments, including those made to the vendors and paying wages to staff.

I hope the above solution is what you were looking for. For any further queries or doubts in the solution, please feel free to drop a comment. Please do leave a positive feedback, Thank you :)