Accounting information system

INTRODUCTION

This essay will examine the typical computer based information system used in Accounting, also known as Accounting information system. It will address the definition of such a system, look into how it supports the business area and what benefits it brings to that particular area and the organization as a whole. In addition, the factors that affect and influence accounting information system will also be discussed.

Accounting Information System: Definition

Accounting information system is a part of or in other words sub system of management information system. According to Nicolaou (2000) Accounting Information System is defined as a computer based system that processes financial information and supports decision tasks. According to the American Institute of Certified Public Accountants "Accounting actually is information system and if we be more precise, accounting is the practice of general theories of information in the field of effective economic activities and consists of a major part of the information which is presented in the quantitative form".

Support

At present there are many accounting software that have been developed such as Microsoft Dynamics GP, Sage mas 200 and SYSPRO and the use of these software is increasing. This in itself has made the need for learning their usage. Accounting itself is an important part of the organization. Maintaining records, budgeting, reporting financial statements are a few important aspects of accounting. The main user of accounting, Finance Department, is a key department for the working of other department. For example, the finance department will budget for next year's marketing expenditure advising the marketing department on the amount they can use for advertisement and promotions. For the Human Resource Department, employee accounts will be maintained along with the payrolls. This will also serve as a record for the human resource department. This kind of support that the finance department would give is crucial at almost every stage of decision making and therefore it is important that the data collected is accurate for the accounting information system to produce effective results. This also shows that the organization using accounting systems needs to constantly update it so that is in line with the requirements of the company. Otley (1980) mentions accounting systems to be an important fabric of organizational life and therefore argues the need for it to be evaluated in their wider managerial, organizational and environmental contexts.

Using accounting information systems, organizations can also maintain records for future use and analysis.

Functions

Accounting information systems cover a variety of business functions ranging from transaction processing to more sophisticated financial management planning. It typically includes:

Financial Reporting

This usually takes place at the operational level of an organization where transactions relating to sales, purchases and other such activities are recorded. These activities are then analyzed and summarized for internal decision making uses and for external reporting purposes.

Cost Accounting

This system is generally used in manufacturing and service departments. Using this system, the organization can keep a track of the relevant costs associated with production and through analysis, it can improve performance.

Management Accounting

This system is used by the management level and allows planning, monitoring and controlling a number of different activities. The management will usually use this system to gather information and come up with alternative solutions to find the optimum one.

Benefits

Although much software have been developed and the use of accounting information system is becoming more and more popular, it is of great importance to consider the support and benefits it brings to its users. Although the normal benefits of using such a system would be that it is fast, maintains records and easier to use and produce data, the system can only be beneficial to its user and the organization if it helps in the decision making process. For this decision making to be effective or for it to lead the satisfaction of the user, information produced should be accurate and easily understandable. Kim (1989) pointed that the use of accounting information system depends on the user's perception of the quality of information. This quality in turn depends on its reliability, its relevance to the decision, the form of reporting and the timeliness. According to Doll and Torkzadeh (1988), timeliness, ease of use, format, information content and accuracy are some of the concepts used for measuring the effectiveness of accounting information systems.

In their study, Nejad, Sajady et al (2008) tested the effectiveness of the following benefits of of accounting information systems:

  • It leads to better decision making by managers
  • It leads to more effective internal control systems
  • It enhances the quality of financial reports
  • It improves performance measures
  • It facilitates financial transaction processes

Collecting data from companies listed on the Tehran Stock exchange, Nejad, Sajady et al found that accounting information system do lead to better decision making, effective internal control, enhanced quality of financial reports and facilitating financial transaction process but no evidence was found to suggest that it lead to improved performance measures. This shows that accounting information systems are beneficial for not only the finance department, which would use it for financial reporting and transaction processing, but also for the organization as a whole for it helps in better decision making and internal control which in turn improves the company's performance.

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