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Objectives:

Definition of AIS
Objective of AIS
Role of accountants in AIS
Comparisons between manual and computer based system ( in terms of accounting records and processing)
Introduction to risk exposures
Introduction to control on CBIS

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Definition of AIS

“ A unified structure within an entity (such a business firm) that employs physical resources and other components to transform economic data into accounting information, with the purpose of satisfying the information needs of a variety of users”

* The system of records a business keeps to maintains its accounting system.

Input

process

output

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Objectives of AIS

To support the day to day operation.
To support decision making by internal decision makers.
To fulfill obligations relating to stewardship.

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To support the day to day operation.

The information system provides information to operations personnel to assist them in the efficient and effective discharge of their daily tasks.

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The information system supplies managers with the information they need to carry out their decision-making responsibilities.

To support decision making by internal decision makers.

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Stewardship is the responsibility of management to properly utilize the resources of the firm entrusted to them.
The information system provides information about resource utilization to external users via traditional financial statements and other mandated reports

To fulfill obligations relating to stewardship.

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Users of AIS

Management
Employee
Government
Supplier
Customer
Bankers

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Benefits of having computerized AIS

Information can be prepared on time.
Produce more accurate and presentable accounting information.
Information can be accessed or retrieved quickly and timely.
In the long run, save time and cost in the preparation and safe keeping of information.

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Role Of Accountants In AIS

Accountants as System Users
As the end users, accountants must provide a clear pictures of their needs to the designers of their system

Accountants as System Designers
Is responsible for the conceptual system.

Accountants as System Auditors
To express their opinion on the company’s computer system

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Accountants as Information System Users

Accountants must be able to clearly convey their needs to the systems professionals (programmer) who design the system.

E.g.: accountant must specify accounting rules and techniques to be used, internal control requirement and special algorithms such as depreciation models.

The accountant should actively participate in systems development projects to ensure appropriate systems design.

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Accountants as System Designers

The accountant function is responsible for the conceptual system, while the programmer function is responsible for the physical system.

The conceptual system determines the nature of the information required, its sources, its destination, and the accounting rules that must be applied.

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Accountants as System Auditors

Form opinions based on a systematic process.

To evaluate selected components of the accounting information system to establish their degree of compliance with organizational objectives and internal control standard.

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Comparisons Manual Vs Computer Based System

Accounting records
Processing

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1. Accounting record:�Manual Vs Computer Based Systems

Manual system	Computer based system
Paper base document:	Paperless/softcopy:
Document	Master file
Journal	Transaction file
Ledgers	Reference file
	Archive file
* Provide audit trail for tracing transactions	* Audit trail is embedded in the system

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Manual System Accounting Records

Journals - a record of chronological entry

special journals - specific classes of transactions that occur in high frequency
general journal - nonrecurring, infrequent, and dissimilar transactions

Ledger - a book of financial accounts

general ledger - shows activity for each account listed on the chart of accounts
subsidiary ledger - shows activity by detail for each account type

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Manual System Accounting Records

Source Documents - used to capture and formalize transaction data needed for transaction processing

Product Documents - the result of transaction processing

Turnaround Documents - a product document of one system that becomes a source document for another system

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Computer Files

Master File - generally contains account data (e.g., general ledger and subsidiary file)

Transaction File - a temporary file containing transactions since the last update

Reference File - contains relatively constant information used in processing (e.g., tax tables, customer addresses)

Archive File - contains past transactions for reference purposes

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Audit Trail

Source

Document

Journal

General

Ledger

Financial

Statements

Financial

Statements

General

Ledger

Journal

Source

Document

Accountants should be able to trace in both directions.

Sampling and confirmation are two common techniques.

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2. Accounting processing: Manual Vs Computer Based Systems

Manual	Computer based systems
S1:Source document S2:Journal S3:Ledger S4:Trial balance S5:Financial statement * All done manually	Batch system Assemble transaction into groups for processing. Time lags. E.g. payroll system Real time system Transaction are processed as the economic events occurred. - E.g. Sales system

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Computer based system:�Batch System Vs Real Time System

Distinguish characteristic	Data processing methods
Distinguish characteristic	Batch system	Real time system
Information time frame	Lag exists between time when the economic events occurs and when it is recorded	Processing take place when the economic events occurred
Resources (hardware, programming & training)	Fewer resources required	More resources are required
Operational efficiency	Certain records are processed after the events to avoid operational delay	All records pertaining to the events are processed immediately

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Introduction to Risk Exposures

Business firms face risks that reduce the chances of achieving their control objectives.
The absence of weakness of a control is called an exposure.
Exposures, which are illustrated as holes in the control shield, increase the firm’s risk to financial loss or injury from undesirable events.
A weakness in internal control may expose the firm to the types of risks such as theft of asset and disruption of the information system.
Risk exposures arise from internal sources, such as employees, as well as external sources, such as computer hackers.

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Example of risk exposures:

Internal Sources	External Sources
Managers and accountants who have access to records and financial reports and often have authority to approve transactions.	Competitors who may desire to acquire confidential information of the firm such as new product plans.
Clerical and operational employees who process transactional data and have access to assets.	Customer and suppliers who generate many of the transactions processed by the firm.
Computer programmers who prepare computer programs and knowledge relating to the instructions by which transactions are processed.	Outside persons, such as computer hackers and criminals who have various reasons to access the firm’s data or its assets or to commit destructive acts.
	Acts of nature or accidents such as floods and fires and equipment breakdowns.

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Introduction to control on CBIS

Internal control - The plan of organization and the methods a business uses to safeguard assets, provide accurate and reliable information, promote and improve operational efficiency and encourage adherence to prescribed managerial policies.

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