Accounting Information System Summary

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Introduction

The advent of information technology has consistently led to the evolution of the business environment. An information system is any formal process involved with the collection, processing, and dissemination of information. It follows, therefore, that an accounting information system (AIS) is any information system suite adopted within a business for accounting purposes. The primary use of an accounting information system (AIS) is the collection, storage, and processing of financial and accounting data to produce meaningful, information reports for managerial review, and other interested parties for decision-making (Ceran, Güngör & Konya, 2016). Although there is a distinct possibility of an AIS being a manual system, most modern accounting information systems are computer-based.

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Role and Purpose of Accounting Information Systems, and Transactions Processing in the AIS

Arguably, an essential function of an AIS is the effective and efficient collection and storage of organizational data of the company’s financial activities. This often involves the collection of transaction data from source documents, as well as recording the corresponding transactions following accounting principles, in journals, and posting data accordingly from the journals to appropriate ledgers. This is the implementation phase in which accountants and bookkeepers collect data from cash sales, accounts receivables, and payrolls (Shareia, 2016). By using the Accounting Information System, the debits and credits are processed into ideally accurate management databases. The second primary function of an AIS is the dissemination of information that is useful for decision-making, including the production of financial statements and managerial reports. Finally, the third function of an AIS is to implement redundancies and safeguards that ensure that data is accurately recorded and processed for auditing and financial forensic purposes (Shareia, 2016). These functions allow the inherent mission of AIS to be accomplished.

Transaction processing within an AIS is broadly categorized within two subsystems depending on the processing behavior implemented. The first is batch processing and comprises a group of similar or comparable transactions that are accumulated over some time and then processed together in bulk. For it to be considered a batch transaction processing, however, the individual transactions ought to be independent of each other during the timeframe during which the transactions were accumulated (Ceran, Güngör & Konya, 2016). Due to the nature of batch processing, there exists a time lag between the event and its processing.

The procedure implemented in batch processing involves the initial keystroke, were clerks or bookkeepers transcribe source documents to magnetic form for later processing. An edit run is then conducted, where clerical errors in the batch are identified, and consequently placed within an error file. Further, a sort run is executed, which sets the transaction file in the same order as the master file using a primary key. An update run follows, which changes the value of appropriate fields in the master file to reflect the transaction. Finally, the backup procedure allows the master to continue to exist, but a new redundant file is created (Ceran, Güngör & Konya, 2016). The primary advantage of batch processing would be the increased efficiency afforded by grouping a large number of transactions for processing.

On the other hand, real-time processing involves transaction processing individually at the moment in which an economic event occurs. Consequently, there is no time lag between commercial development and subsequent processing. Unfortunately, this approach requires more significant organizational resources than batch processing, which limits its applicability in contemporary small businesses, and they need a dedicated processing capacity. However, the cost differentials associated with this approach are consistently decreasing (Ceran, Güngör & Konya, 2016). Another adverse effect of this approach is that it often requires longer system development time as well.

Internal Controls and Computer Crime and Information Technology Security

The internal controls of an Accounting Information System, AIS, comprise the security and accessibility measures that the system contains to protect sensitive and privileged data. The range of measures implemented varies greatly, from simple numeric and alphanumeric passwords to complex biometric identification (Fanxiu, 2016). The latter involves the storage of human characteristics that often remain unchanged over time, such as facial recognition, fingerprints, iris scanning, and voice recognition.

Internal controls virtually assure achievement of a company’s organizational objectives by ensuring operational efficiency and effectiveness, as well as reliable financial reporting, and regulatory compliance with laws and policies. In broad concepts, internal control seeks to mitigate risks towards an organization. In AIS, these risks are primarily from unauthorized or unlawful access to computerized data, in which the act constitutes computer crime (Liu, 2016). Computer-based financial records developed through AIS require similar internal control protocols of separation of duties and controlled access.

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This actual implementation model of internal control and information technology security depends heavily on the information technology infrastructure that the company is using. For instance, a larger company using mainframe computers may have a different internal control model over their AIS than a smaller firm using minicomputers or microcomputers (Liu, 2016). However, despite the scale of infrastructure, several controls are familiar and useful.

The first is the requirement that all computer users implement tight control over the storage of any programs and data on their corresponding nodes. This is achieved through the separation of duties, where an appropriate individual is given access to specific information in a computerized AIS System (Fanxiu, 2016). This significantly reduces the incidence of computer crime through unauthorized access and unlawful dissemination of financial data. Security redundancies can be made through the creation of backup files in a different and secured location.

Password protection can also be relatively easily implemented to limit access to data files stored either locally, or online in a secured vault. In situations where local area networks (LAN) is used to link the company’s information technology infrastructure, limited permissions can be granted to specific individuals and nodes in the system to access sensitive or privileged files such as financial data (Fanxiu, 2016). It is essential to understand that the need for internal control is not nullified by computerized AIS. On the contrary, unauthorized access to a computer system, and the resultant financial data can compromise systems within a shorter timeframe than a manual system.

Conclusion

Overall, the standard components of internal control within an AIS include the control environment, which is the overarching attitude and organizational tone towards internal control. This is highly dependent on corporate management and determines the possibility and extent of internal control implementation. The risk assessment component involves identifying and determining how relevant risks affect the overall business objectives of the company. Effective internal control is often mapped to specific risks that could impede the efficacy of the AIS system, and consequently, organizational success. Information and communication involve processes to ensure that information is relayed accordingly to required parties. This also supports internal control implementation as management can communicate accordingly with employees, and the latter are explicitly aware of their responsibilities. Further, monitoring involves the regular checking and maintenance of the internal control system, while control activities comprise the actual steps taken to assert internal control (Liu, 2016). An effectively implemented internal control system in AIS will ensure the overall achievement of overarching organizational goals.

References

Ceran, M. B., Güngör, S., & Konya, S. (2016). The role of accounting information systems in preventing the financial crises experienced in businesses. Economics, Management and Financial Markets, 11(1), 294. Web.

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Fanxiu, G. A. O. (2016). A Study of the Internal Controls of Accounting Information Systems in the Network Environment. International Journal of Simulation-Systems, Science & Technology, 17(18). Web.

Liu, B. (2016). Internal Control of Accounting Information System based on Network Environment. In 2nd International Conference on Electronics, Network and Computer Engineering (ICENCE 2016). Atlantis Press. Web.

Shareia, B. (2016). The present role of accounting information system in meeting the development needs The case of Libya. International Journal of Business, Humanities and Technology, 6 (2), 17-28. Web.

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