Introduction to Accounting Information Systems – AIS

An accounting info system (AIS) is a construction {that a} enterprise makes use of to gather, retailer, handle, course of, retrieve, and report its monetary information so it may be utilized by accountants, consultants, enterprise analysts, managers, chief monetary officers (CFOs), auditors, regulators, and tax companies.

Specifically educated accountants work in-depth with AIS to make sure the very best stage of accuracy in an organization’s monetary transactions and record-keeping, in addition to make monetary information simply out there to those that legitimately want entry to it—all whereas maintaining information intact and safe.

Understanding Accounting Info Programs (AIS)

An accounting info system is a means of monitoring all accounting and enterprise exercise for a corporation. Accounting info techniques typically include six major elements: individuals, procedures and directions, information, software program, info expertise infrastructure, and inside controls. Under is a breakdown of every element intimately.

1. AIS Individuals

The individuals in an AIS are the system customers. An AIS helps the completely different departments inside an organization work collectively. Professionals who may have to make use of a corporation’s AIS embrace:

• Accountants
• Consultants
• Enterprise analysts
• Managers
• Chief monetary officers
• Auditors

For instance, administration can set up gross sales targets for which workers can then order the suitable quantity of stock. The stock order notifies the accounting division of a brand new payable. When gross sales are made in a enterprise, the individuals and departments concerned within the gross sales course of might embrace the next:

1. Salespeople enter the shopper orders into the AIS.
2. Accounting payments or sends an bill to the shopper.
3. The warehouse assembles the order.
4. The transport division sends the order out to the shopper.
5. The accounting division will get notified of a brand new accounts receivable, which is an IOU from the shopper that is sometimes paid inside 30, 60, or 90 days. 
6. The customer support division tracks the order and buyer shipments.
7. Administration makes use of AIS to create gross sales reviews and carry out price evaluation, which may embrace stock, transport, and manufacturing prices.

With a well-designed AIS, everybody inside a corporation can entry the identical system and retrieve the identical info. An AIS additionally simplifies the method of reporting info to individuals outdoors of the group, when needed.

For instance, consultants would possibly use the knowledge in an AIS to research the effectiveness of the corporate’s pricing construction by taking a look at price information, gross sales information, and income. Additionally, auditors can use the info to evaluate an organization’s inside controls, monetary situation, and compliance with rules such because the Sarbanes-Oxley Act (SOX).

The AIS needs to be designed to satisfy the wants of the individuals who will likely be utilizing it. The system also needs to be straightforward to make use of and may enhance, not hinder effectivity.

2. Procedures and Directions

The process and directions of an AIS are the strategies it makes use of for gathering, storing, retrieving, and processing information. These strategies are each handbook and automatic. The information can come from each inside sources (e.g., staff) and exterior sources (e.g., clients’ on-line orders). Procedures and directions will likely be coded into the AIS software program. Nonetheless, the procedures and directions also needs to be “coded” into staff by documentation and coaching. The procedures and directions have to be adopted constantly with a view to be efficient.

3. AIS Information

An AIS will need to have a database construction to retailer info, akin to structured question language (SQL), which is a pc language generally used for databases. SQL permits the info that is within the AIS to be manipulated and retrieved for reporting functions. The AIS can even want numerous enter screens for the several types of system customers and information entry, in addition to completely different output codecs to satisfy the wants of various customers and numerous sorts of info.

The information contained in an AIS is the entire monetary info pertinent to the group’s enterprise practices. Any enterprise information that impacts the corporate’s funds ought to go into an AIS.

The kind of information included in an AIS relies on the character of the enterprise, however it could include the next:

• Gross sales orders
• Buyer billing statements
• Gross sales evaluation reviews
• Buy requisitions
• Vendor invoices
• Verify registers
• Common ledger
• Stock information
• Payroll info
• Timekeeping
• Tax info

The information can be utilized to organize accounting statements and monetary reviews, together with accounts receivable growing older, depreciation or amortization schedules, a trial stability, and a revenue and loss assertion. Having all of this information in a single place—within the AIS—facilitates a enterprise’s record-keeping, reporting, evaluation, auditing, and decision-making actions. For the info to be helpful, it have to be full, correct, and related.

Then again, examples of information that may not go into an AIS embrace memos, correspondence, shows, and manuals. These paperwork might need a tangential relationship to the corporate’s funds, however, excluding the usual footnotes, they don’t seem to be actually a part of the corporate’s monetary record-keeping.

4. AIS Software program

The software program element of an AIS is the pc applications used to retailer, retrieve, course of, and analyze the corporate’s monetary information. Earlier than there have been computer systems, an AIS was a handbook, paper-based system, however in the present day, most firms are utilizing pc software program as the premise of the AIS. Small companies would possibly use Intuit’s Quickbooks or Sage’s Sage 50 Accounting, however there are others. Small to mid-sized companies would possibly use SAP’s Enterprise One. Mid-sized and enormous companies would possibly use Microsoft’s Dynamics GP, Sage Group’s MAS 90, or MAS 200, Oracle’s PeopleSoft, or Epicor Monetary Administration.

High quality, reliability, and safety are key elements of efficient AIS software program. Managers depend on the knowledge it outputs to make selections for the corporate, and so they want high-quality info to make sound selections.

AIS software program applications will be personalized to satisfy the distinctive wants of several types of companies. If an current program doesn’t meet an organization’s wants, the software program may also be developed in-house with substantial enter from end-users or will be developed by a third-party firm particularly for the group. The system might even be outsourced to a specialised firm.

For publicly-traded firms, it doesn’t matter what software program program and customization choices the enterprise chooses, Sarbanes-Oxley rules will dictate the construction of the AIS to some extent. It is because SOX rules set up inside controls and auditing procedures with which public firms should comply.

5. IT Infrastructure

Info expertise infrastructure is only a fancy title for the {hardware} used to function the accounting info system. Most of those {hardware} gadgets a enterprise would wish to have anyway and may embrace the next:

• Computer systems
• Cellular units
• Servers
• Printers
• Surge protectors
• Routers
• Storage media
• A back-up energy provide

Along with price, elements to think about in choosing {hardware} embrace velocity, storage functionality, and whether or not it may be expanded and upgraded.

Maybe most significantly, the {hardware} chosen for an AIS have to be appropriate with the meant software program. Ideally, it will be not simply appropriate, however optimum—a clunky system will likely be a lot much less useful than a speedy one. A method companies can simply meet {hardware} and software program compatibility necessities is by buying a turnkey system that features each the {hardware} and the software program that the enterprise wants. Buying a turnkey system means, theoretically, that the enterprise will get an optimum mixture of {hardware} and software program for its AIS.

AIS also needs to embrace a plan for sustaining, servicing, changing, and upgrading elements of the {hardware} system, in addition to a plan for the disposal of damaged and outdated {hardware}, in order that delicate information is totally destroyed.

6. Inside Controls

The interior controls of an AIS are the safety measures it incorporates to guard delicate information. These will be so simple as passwords or as advanced as biometric identification. Biometric safety protocols would possibly embrace storing human traits that do not change over time, akin to fingerprints, voice, and facial recognition.

An AIS will need to have inside controls to guard towards unauthorized pc entry and to restrict entry to approved customers, which incorporates some customers inside the corporate. It should additionally forestall unauthorized file entry by people who’re allowed to entry solely choose elements of the system.

An AIS incorporates confidential info belonging not simply to the corporate but additionally to its staff and clients. This information might embrace:

• Social Safety numbers
• Wage and personnel info
• Bank card numbers
• Buyer info
• Firm monetary information
• Monetary info of suppliers and distributors

All the information in an AIS needs to be encrypted, and entry to the system needs to be logged and surveilled. System exercise needs to be traceable as nicely.

An AIS additionally wants inside controls that defend it from pc viruses, hackers, and different inside and exterior threats to community safety. It should even be protected against pure disasters and energy surges that may trigger information loss.

Actual World Examples of Accounting Info Programs

A well-designed AIS permits a enterprise to run easily on a day-to-day foundation whereas a poorly designed AIS can hinder its operation. The third use for an AIS is that, when a enterprise is in hassle, the info in its AIS can be utilized to uncover the story of what went unsuitable. The circumstances of WorldCom and Lehman Brothers present two examples.

WorldCom

In 2002, WorldCom’s inside auditors Eugene Morse and Cynthia Cooper used the corporate’s AIS to uncover almost $4 billion in fraudulent expense allocations and different accounting entries. Their investigation led to the termination of CFO Scott Sullivan, in addition to new laws—part 404 of the Sarbanes-Oxley Act, which regulates firms’ inside monetary controls and procedures.

Lehman Brothers

When investigating the causes of Lehman’s collapse, a evaluation of its AIS and different information techniques was a key element, together with doc assortment and evaluation, plus witness interviews. The seek for the causes of the corporate’s failure “required an in depth investigation and evaluation of Lehman’s working, buying and selling, valuation, monetary, accounting, and different information techniques,” based on the two,200-page, nine-volume examiner’s report.

Lehman’s techniques present an instance of how an AIS ought to not be structured. Examiner Anton R. Valukas’ report states, “On the time of its chapter submitting, Lehman maintained a patchwork of over 2,600 software program techniques and functions… A lot of Lehman’s techniques had been arcane, outdated or non-standard.”

The examiner determined to focus his efforts on the 96 techniques that appeared most related. This examination required coaching, research, and trial and error simply to learn to use the techniques.

Valukas’ report additionally famous, “Lehman’s techniques had been extremely interdependent, however their relationships had been tough to decipher and never well-documented. It took extraordinary effort to untangle these techniques to acquire the mandatory info.”

The Backside Line

The six elements of an AIS all work collectively to assist key staff acquire, retailer, handle, course of, retrieve, and report their monetary information. Having a well-developed and maintained accounting info system that’s environment friendly and correct is an indispensable element of a profitable enterprise.