Accounting Information Systems (AIS) refers to infrastructure used by organizations to gather, store, manage, retrieve and report financial information in a manner that can be used by various people such as business analysts, corporate leaders, managers, auditors, accountants, and tax agencies. The central players in AIS are accountants who use AIS to keep accurate financial records for use by their organizations and any other person who may need the data for various legitimate reasons (Romney & Steinbart, 2012).
A typical accounting information system is composed of six components namely data, software, people, internal control systems, procedures, and instructions. All these components work together in a coordinated manner to make the system efficient, effective and reliable.
AIS is surrounded by mysteries and misconceptions which majorly arise from the failure to understand what AIS is, what they can do and what they cannot do. AIS is also surrounded by assumptions that may lead to inefficiency and in some cases outright fraud or incredible losses. One of the scholars who discovered that AIS is characterized by assumptions was Russell Ackoff, who in 1967 described five assumptions made by leaders about AIS.
Assumptions about AIS
In today’s business world, corporate leaders still make wrong assumptions about AIS. The assumptions majorly arise from the failure by corporate leaders to familiarize themselves with AIS. One of the assumptions made by corporate leaders is that AIS is very reliable and not prone to mistakes. There is a tendency by corporate leaders to trust AIS to the extent that they cannot operate their businesses without them.
This assumption is wrong because AIS is just systems like any others which use computer technology to store, process and retrieve information. What the leaders forget is that a system produces what is kept in it, meaning that if you enter the wrong information in a system, it would produce wrong data. There is, therefore, a need to ensure that all data which is entered into the system is double-checked for accuracy to ensure that the data produced by the system is valid, accurate and reliable.
Another assumption is that AIS is ever correct and accurate. Some corporate leaders tend to use the data generated from AIS without double-checking for accuracy. Since AIS are computer systems that rely on computer software, there is a possibility of software failure which may lead to distortion of the data kept in the systems. For example, there is what is known as a computer bug, which is a computer error caused by poor programming of computer software or failure to update the system. Some computer bugs are known to multiply the data stored in a system by a certain constant which can lead to the generation of wrong information by the system.
Corporate leaders may assume that AIS can be understood by anybody in their companies. In some companies, those in charge of the AIS are clerks who do data entry with the belief that the systems can manage and update themselves. The corporate leaders just invest in purchasing very sophisticated AIS and think that they have solved all their financial problems for their companies. They forget that such sophisticated systems need sophisticated people to operate and maintain.
This assumption leads to a situation in which correct data is entered but due to a lack of qualified personnel to manage the systems or detect any errors, some wrong data ends up being generated by the systems. This can be very costly for companies because it not only makes them hire a person to repair the systems but it also causes gross inefficiencies in the companies.
Corporate leaders also make the mistake of failing to learn about AIS. As leaders, they should take their time to learn more about the systems and how they work. This is important because it enables them to detect problems with data generated by the systems. It also makes them detect any error which may be committed by accountants, tax agencies or auditors.
Negative impacts of the assumptions
The above assumptions are not only wrong but they have negative impacts on businesses. The most costly negative impact on businesses is the loss of revenue due to poor system management and lack of internal control systems which are used to automatically detect any system failure. If an accounting information system dysfunctions, the losses incurred may be huge and hard to recover. In some cases, AIS may inflate a company’s financial status thus giving misleading information to shareholders and potential investors. When it comes to sharing of dividends, the shareholders may be surprised by getting dividends which are not commensurate to the company’s financial status. This can lead to conflict, lack of trust and in some cases; it can make some shareholders leave the company altogether.
The failure to have internal control systems may also lead to fraud. Some accountants can manipulate the systems for them to steal companies’ funds. Once they do this, they may lay the blame on other issues such as increased cost of production or inflation. The corporate leaders may not be able to know because the majority of them do not have an understanding of how the systems work and therefore cannot detect any manipulation of the systems by the accountants. It is therefore very important for corporate leaders to have in place very strong internal control measures for their systems. They should also hire external information technology experts to check their systems from time to time. This would ensure that the systems are up to date and free from any errors (Gelinas, Dull & Wheeler, 2012).
Importance of proper management of information
Proper management of information within a business system may improve organizational performance. The information to be managed includes business financial reports, profit margins, employee turnover, assets and liabilities among others. For organizations to properly manage their information, they not only need to have qualified personnel in the accounts departments but they should also have public relations officers, who should be charged with the responsibility of managing the image of the organizations. Such persons should also learn their organizations’ strengths and avail such information to the public.
One of how organizational performance may be improved by the proper management of information is through increased efficiency. Proper management of information ensures that organizations use their funds properly. If organizations keep on making profits, they have a high probability of realizing growth and expansion because the profits are reinvested back in the business for the generation of more profits (Turner & Weickgenannt, 2008).
Proper management of information within a business system may also lead to an increased number of customers and shareholders since the majority of them are attracted to companies that have good financial management and big profit margins. When information is properly managed, a business can improve the quality of its products and services. This leads to increased customer satisfaction, more customers and more profits.
If organizations properly manage their information within a business system, they may have a good image among the public which can be achieved through the marketing of the organizations and their products and services by the public relations officers. Organizations with a good image are not only very popular among customers but also have a competitive edge over their competitors.
Proper management of information within a business system also reduces disputes or disagreements between organizations and tax agencies, or donors. If organizations maintain accurate financial data, all the shareholders and stakeholders are satisfied with the operations of the organizations. When disputes are reduced, organizations can concentrate on how to increase their profit margins and how to move towards the attainment of the set goals and objectives.
Levels of systems security
For AIS to have information of high integrity, they must have a high level of security to cushion the data from any malicious interference. The software used should be of the latest version and old software should be replaced with newer versions. The data should also be encrypted so that it cannot be easy to manipulate. Organizations must also ensure that they minimize the number of persons operating their AIS so that if a mistake happens, it is easy to know who is responsible. This not only makes it easier to correct mistakes or errors but also reduces the uncertainty about the mistakes or errors in the AIS.
Gelinas, U.J., Dull, R.B., & Wheeler, P.R.(2012). Accounting information systems. (9th ed). Mason, OH: South-Western/Cengage Learning.
Romney, M.B., & Steinbart, P.J. (2012). Accounting information systems. Upper Saddle River, NJ: Prentice-Hall.
Turner, L., & Weickgenannt, A. (2008). Accounting information systems: controls and the processes. Hoboken, N.J.: Wiley; Chichester: John Wiley.