An accounting information system, also called AIS, applies information technology to accounting principles and tasks. It is a technological method of recording and accessing information about the accounting activities that take place in a business or organization. Documentation and related activities that used to be done with paper and pencils are done with sophisticated software and updated technology. The ways to conduct accounting might change, but the fundamentals of the profession remain the same.
The Six Fundamental Components
An accounting information system is comprised of six basic components. Each one contributes to maintaining the accuracy of the financial data and the efficiency of working with it. A breakdown in one area can be problematic for a business, sometimes to a significant extent.
- The people who are authorized to use the system represent the first component. Sales personnel, managers, accounts payable and accounts receivable employees are common users in AIS. Depending on the situation and the individual organization, users might also be auditors or customers.
- The procedures and instructions for handling the accounting data cover collection, storage, retrieval and processing. This second component of AIS may include instructions for manual and computerized procedures. The failure to follow instructions can create inefficiency in AIS, and it can lead to costly financial blunders. Thorough documentation and effective training help to improve the effectiveness of this component.
- The third part of AIS is the data. Any information that is applicable to the financial operation of the business will be considered relevant data. If it affects a company financially, it should be represented in the AIS. When relevant data does not enter into the AIS, it could affect the financial health of the organization.
- The fourth part of the AIS consists of the software used in the handling of the data. The software must accurately collect, process, store and return data as requested. Small businesses typically use desktop software programs for managing financial data. Mid-sized businesses often use software that is a little more robust than desktop programs installed on a single machine. Larger businesses typically use enterprise-level software for their AIS. Frequently, the software is part of a larger ERP system. Software of higher quality might be customized for a business that can afford it. All programs are expected to be reliable and have adequate security.
Hardware is the fifth component of AIS. The information technology infrastructure for AIS can be a costly investment, but careful planning can lead to the best possible purchasing decisions. Considerations will also have to include compatibility with the software that a business intends to use for its AIS, but technology is making this a little easier every day.
- Security is the sixth part of AIS. Internal controls for security ensure the safety and integrity of the data that flows through the AIS. Internal controls also include the governance of a business, its cultural norms and organizational expectations. Risk detection and prevention will also fall under this component.
The Primary Functions
The six components of an AIS combine to fulfill the three primary functions of an accounting system. A business needs to acquire and store its financial data, convert the data to information, and ensure availability when it is required. When all six components are operating as intended, the AIS can perform these three major functions optimally. This helps to ensure that the best financial decisions are made.
The Primary Subsystems
The primary functions of AIS, as accomplished via the six components of the system, also serve the interests of the subsystems of the AIS. The subsystems are the transaction processing systems (TPS), the general ledger system (GLS) and financial reporting system (FRS), and the management reporting system (MRS). The TPS gathers and stores information about the financial transactions. The general ledger system summarizes accounting cycle activities, and the FRS produces reports about the financial status of the business. An optimized MRS details organizational performance and health. The exact designs and application of the subsystems are devised with the specific organization’s goals in mind.
The Role of Cloud Technology
As the information technologies for accounting systems evolve, businesses naturally adapt. One of the recent innovations to take hold involves cloud technology. Cloud systems provide freedom to the people who operate within the AIS. While users must adhere to security procedures, mobility allows flexibility of operations for personnel. A business enjoys improved productivity using a cloud configuration for AIS, and it could create opportunities for a business geographically. The people in an organization responsible for infrastructure should be educated on the new options available and how they might benefit the business.
The type of service to use is among the decisions made with regard to an AIS operating through the cloud. One of the choices is called Software-as-a-Service (SaaS). With this solution, a business purchases the usage of a cloud-based accounting software system. The provider maintains responsibility for the maintenance of the hardware and the software. The business can purchase an AIS on this basis, or the business might choose to purchase the use of an ERP system overall. Alternatively, a business might utilize Platform-as-a-Service cloud technology. In this case, the provider maintains responsibility for the infrastructure, and the business maintains the software installed on the platform.
Technology will undoubtedly continue to evolve, and accounting systems will adapt to take advantage of applicable innovations. No matter the new technology used, however, the goals will remain the same. The accounting system will be expected to perform accurately, securely and reliably.
Journal of Accountancy http://www.journalofaccountancy.com/issues/2014/apr/cloud-computing-20149398.html
AIS Guidance and Information http://www.accountinginformationsystems.org/