An accounting information system (AIS) is the structure through which business keep their financial records in order. It involves the collection, storage, processing, and management of a company’s finances.
An AIS is a key part in streamlining the distribution financial information to shareholders and executives without compromising security. It increases fraud detection and can help businesses make sure their finances are running smoothly. It’s a vital tool in guiding managers to make the best decisions regarding the overall health of their business.
In today’s technology driven economy, most accounting information systems are computer based, though the process can be done manually by smaller businesses.
Every accounting information system has three basic functions that it must be able to perform.
These functions provide a framework for businesses to make sure their information systems are up to par. An AIS that doesn’t work effectively can be an even larger threat to the overall security of a company and its customers than having no accounting information system at all.
Parts of an Accounting Information System
An AIS is generally made up of six parts that keep it running fluidly and efficiently.
This refers to anyone who uses the information system. In a typical business, this may include positions like accountants, managers, financial analysts, C suite executives, and auditors.
A well-designed AIS helps each member of the system work together to make sure every financial matter is handled efficiently. There should be no discrepancies in the information accessed by individuals who are permitted to view it. Consistency in data is key when it comes to understanding the larger picture and making the best decisions for a business.
Procedure and Instructions
This aspect covers how the system actually works. This can be made up of both automated and manual components, compiling data from internal sources (like information directly entered by employees) and external sources (like data from customer billing records).
This part of the system refers to the way financial information is collected, stored, processed, and distributed. It also has to do with direction and instruction given to the people who use it by means of employee training, interface design, and system function.
This refers to all of the information that is compiled and processed by an AIS.
In order to store information, an accounting information system must employ a reliable database structure. It will need to use reliable input and output methods so make sure no relevant data slips through the cracks.
An AIS should capture all of the data needed to make informed business decisions. This may include information such as
Keeping all of a company’s transactional data in one place allows for a full and accurate picture of financial health.
An accounting information system’s software refers to the computer programs used to keep and access data.
This can range from simple and user-friendly systems like QuickBooks to huge corporate databases. AIS software must, above all else, be reliable, efficient, and secure. Managers and executives rely on the information generated by their AIS to make pertinent financial choices for their businesses.
Publicly traded companies will find some additional regulations concerning their AIS software. The Sarbanes-Oxley Act of 2002 requires certain levels of transparency and accountability in the software systems of corporations owned by shareholders. This act was passed in the wake of corporate scandals around the turn of the century involving companies like Enron, WorldCom, and dozens more.
Information Technology Infrastructure
This term refers to the hardware used to run an accounting information system.
This typically consists of normal office equipment like computers, printers, monitors, routers, servers, surge protection, and storage software. It must be fully compatible with the software used to compile and store financial information. An accounting IT infrastructure should be efficiently run and optimized for all of the required software.
An IT infrastructure should also cover contingency plans for problems like hardware failure, power outages, or anything else that could cause a kink in the process.
Internal controls are the security measures used to protect any and all data stored within the system. They protect sensitive information from hackers, viruses, and anything else that could compromise the integrity of the AIS.
These controls can take the form of anything from passwords to encryption to biometric verification methods. It needs to make information accessible to those who are permitted to view it, while weeding out sensitive data for lower level employees who aren’t qualified to access it.
This is an especially important part of any accounting information system, because any given AIS may contain more than just company financial information. It can also hold identification details for both employees and customers, like social security numbers, credit cards, and other sensitive data that could be used to facilitate fraud or identity theft.
Because of the incredibly sensitive nature of the information handled by an AIS, reliability is of the utmost importance in maintaining an effective system. The American Institute of Certified Public Accountants (AICPA) has identified the five main factors that make an information system reliable.
An AIS should only be accessible to and controlled by those who have permission to view the information. There should be no wiggle room, and the database should be tightly protected against hackers, viruses, and malware.
Accounting information systems can hold incredibly sensitive information of both a personal and financial nature. This determines whether a system passes muster in preventing any and all unwanted information from leaking out.
Hand in hand with confidentiality, privacy refers to the way personal and financial information is handled within the system. Data must be collected and used in a legal, ethical and appropriate manner.
A system should make sure all T’s are crossed and I’s dotted in the way it processes information. In order to be truly reliable, businesses should be confident that no information is being left out or misidentified.
The system should be available to those who have permission to access the information it holds. It should be able to meet its functional and legal obligations and should be able to seamlessly provide information when needed.
Students who are interested in pursuing a career related to accounting information systems can obtain a bachelor’s, master’s, or doctoral degree in the field.
People who choose AIS technology as a career usually focus on the implementation and maintenance of these systems. They are the go-to employee when things within the AIS need to be set up, updated, or repaired. Specialists in this field can go on to work in accounting firms, corporations, consulting groups, non-profits, or academia.