INTERNATIONAL ISLAMIC UNIVERSITY H-10, ISLAMABAD

FACULTY OF MANAGEMENT SCIENCES

PROJECT TOPIC:Accounting Information system

SUBMITTED TO:Sir M. Mazhar Manzoor

BBA 26 (5) APrepared by Group :

Group Members

Appearance

Communication skills

Presentation

Time Management

Total Marks

3666-FMS/BBA/F12. Ghawsodin Haidari3664-FMS/BBA/F12. Ziaudin3672-FMS/BBA/F12.

Ziarmal

Total Marks Obtained by Group

Contents

i. Acknowledgement ii. Abstract

iii. Introduction iv. Software architecture of modern AISv. Advantages and implications of AIS

vi. Different Types of Accounting Information Systemsvii. How to effectively implement AIS

a. The steps necessary to implement a successful accounting information system are as follows.

i. Detailed Requirements Analysisii. Systems Design (synthesis)

iii. Documentationiv. Testingv. Training

vi. Data Conversionvii. Launch

viii. Toolsix. Support

Viii. Career

Ix Data Models of Accounting Information Systems

X. Conclusion

Acknowledgement

I would like to express my deepest appreciation to all those who provided me the possibility to complete this report.  A special gratitude I give to our dear teacher Mr. Mazhar Manzoor, whose contribution in stimulating suggestions and encouragement, helped me to coordinate my project especially in writing this report.

Furthermore I would also like to acknowledge with much appreciation the crucial role of the department of BBA administration, who gave us the permission to use all required equipment and the necessary material to complete the task. A special thanks goes to my group members Mr.Ziaudin and Mr.Ziarmal who help me to assemble the parts and gave suggestion about the task.  Last but not least many thanks go to our group efforts. Who have invested their full efforts in completing the project and in achieving the goals. I have to appreciate the guidance given by other classmates as well as the panels especially in our project presentation that has improved our presentation skills thanks to their comment and advices.

Abstract

The aim of this study is to investigate usefulness of accounting information system (AIS) for effective organizational performance. AIS is the whole of the related components that are working together to collect, store and disseminate data for the purpose of planning, control, coordination, analysis and decision making. Therefore, impact of AIS on elements of organizational performance such as: performance management and financial performance is examined. The results of this study show that although AIS is very useful and have effect on organizational performance to listed companies. But there is no relationship between AIS and performance management.

Accounting information system

Introduction

An accounting information system (AIS) is a system of collection, storage and processing of financial and accounting data that is used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting statistical reports can be used internally by management or externally by other interested parties including investors, creditors and tax authorities. The actual physical devices and systems that allows the AIS to operate and perform its functions

1. Internal controls and security measures: what is implemented to safeguard the data

2. Model Base Management

Software architecture of modern AIS

Modern AIS typically follows a multitier architecture separating the presentation to the user, application processing and data management in distinct layers. The presentation layer manages how the information is displayed to and viewed by functional users of the system (through mobile devices, web browsers or client application). The entire system is backed by a centralized database that stores all of the data. This can include transactional data generated from the core business processes (purchasing, inventory, and accounting) or static, master data that is referenced when processing data (employee and customer account records and configuration settings). As transaction occurs, the data is collected from the business events and stored into the system’s database where it can be retrieved and processed into information that is useful for making decisions. The application layer retrieves the raw data held in the database layer, processes it based on the configured business logic and passes it onto the presentation layer to display to the users. For example, consider the accounts payable department when processing an invoice. With an accounting information system, an accounts payable clerk enters the invoice, provided by a vendor, into the system where it is then stored in the database. When goods from the vendor are received, a receipt is created and also entered into the AIS. Before the accounts payable department pays the vendor, the system’s application processing tier performs a three-way matching where it automatically matches the amounts on the invoice against the amounts on the receipt and the initial purchase order. Once the match is complete, an email is sent to an

accounts payable manager for approval. From here a voucher can be created and the vendor can ultimately be paid.

Advantages and implications of AIS

A big advantage of computer-based accounting information systems is that they automate and streamline reporting. Reporting is major tool for organizations to accurately see summarized, timely information used for decision-making and financial reporting. The accounting information system pulls data from the centralized database, processes and transforms it and ultimately generates a summary of that data as information that can now be easily consumed and analyzed by business analysts, managers or other decision makers. These systems must ensure that the reports are timely so that decision-makers are not acting on old, irrelevant information and, rather, able to act quickly and effectively based on report results. Consolidation is one of the hallmarks of reporting as people do not have to look through an enormous number of transactions. For instance, at the end of the month, a financial accountant consolidates all the paid vouchers by running a report on the system. The system’s application layer provides a report with the total amount paid to its vendors for that particular month. With large corporations that generate large volumes of transactional data, running reports with even AIS can take days or even weeks.

After the wave of corporate scandals from large companies such as Tyco International, Enron and WorldCom, major emphasis was put on enforcing public companies to implement strong internal controls into their transaction-based systems. This was made into law with the passage of the Sarbanes–Oxley Act of 2002 which stipulated that companies must generate an internal control report stating who is responsible for an organization’s internal control structure and outlines the overall effectiveness of these controls. Since most of these scandals were rooted in the companies' accounting practices, much of the emphasis of Sarbanes Oxley was put on computer-based accounting information systems. Today, AIS vendors tout their governance, risk management, and compliance features to ensure business processes are robust and protected and the organization's assets (including data) are secured.

Different Types of Accounting Information Systems

Small business owners will always be looking forward for best customized accounting information system that can best suit to their business accounting needs. Three types of such accounting systems are very famous among small businesses. These systems include paper based accounting information systems, spreadsheet accounting systems and the software based accounting systems. Every system is very unique with the level of information offered to their users with internal and external requirements. There are different companies working around the world out of which some are manufacturing firms, some are advertising, some are marketing and development firms and everybody has their own needs to meet the needs of their specific type of

business. When your reporting requirements become more and more complex, you need such a system which is more robust and can meet the accounting challenges of your organization type.

Accounting software is used in accounting information system to make the best track of financial activities being performed in your organization. This system will be developed with the necessary information about your customers, suppliers and vendors. Every company will be interested in having timely and accurate financial reporting without any delay of time with analysis and forecasting capabilities. Manager who are responsible for business accounting and reporting needs, they can identify the valuable trends in the business. For instance, in the sales reports, business managers will be interested in finding the information with accounting information systems which food item is making the great sales in the market. Manager can take the advantage of the current opportunities by examining the recent trends in the market on behalf of new trends witnessed in the sales reports by using this system of accounting to do the proper work in their future expansions. By using accounting information system, you can have necessary data about the expenses done and any cost that is incurred in the operating a business when the overall recurring expenditures are considered. The system can be updated on the basis of costs incurred in operating a business and making an impact on the overall profits of the organizations. You will become familiar in spotting the recent trends in the markets with important changes that can affect the bottom line of your business. You can proactively plan the necessary changes and then grow your business with latest considerations. So, when you are considering launching a new project, it will help you in predicting the growth trends in sales. You will rethink whether the changes in your project planning will enable you in maximizing your sales growths and then achieving your targeted profits. If your expenses are enhanced then you will not be able to meet your set goals of achieving targeted profit goals.

How to effectively implement AIS

As stated above, accounting information systems are composed of six main components: When an AIS is initially implemented or converted from an existing system, organizations sometimes make the mistake of not considering each of these components and treating them equally in the implementation. This results in a system being "built three times" rather than once because the initial system is not designed to meet the needs of the organization. The organization then tries to get the system to work. Ultimately, the organization begins again, following the appropriate process.

Following a proven process that works, as follows, results in optimal deployment time, the least amount of frustration, and overall success. Most organizations, even larger ones, hire outside

consultants, either from the software publisher or consultants who understand the organization and who work to help select and implement the ideal configuration, taking all components into consideration. Certified public accountants (CPAs) with careers dedicated to information systems work with companies to implement accounting information systems that follow a proven process. Many of these CPAs hold a certificate awarded by the American Institute of CPAs—the Certified Information Technology Professional (CITP). CITPs often serve as co-project managers with an organization's project manager representing the information technology (IT) department. In smaller organizations, a co-project manager may be an outsourced IT specialist who manages the implementation of the IT infrastructure.

The steps necessary to implement a successful accounting information system are as follows:

Detailed Requirements Analysis

Where all individuals involved in the system are interviewed. The current system is thoroughly understood, including problems and complete documentation of the system—transactions, reports, and questions that need to be answered are gathered. User needs that are not in the current system are outlined and documented. Users include everyone, from top management to data entry. The requirements analysis not only provides the developer with the specific needs, it also helps users accept the change. Users who have the opportunity to ask questions and provide input are much more confident and receptive of the change, than those who sit back and don't express their concerns.

Systems Design (synthesis)

The analysis is thoroughly reviewed and a new system is created. The system that surrounds the system is often the most important. What data needs to go into the system and how is this going to be handled? What information needs to come out of the system how is it going to be formatted? If we know what needs to come out, we know what we need to put into the system. The program we select will need to appropriately handle the process. The system is built with control files, sample master records, and the ability to perform processes on a test basis. The system is designed to include appropriate internal controls and to provide management with the information needed to make decisions. It is a goal of an accounting information system to provide information that is relevant, meaningful, reliable, useful, and current. To achieve this, the system is designed so that transactions are entered as they occur (either manually or electronically) and information is immediately available online for management.

Once the system is designed, an RFP is created detailing the requirements and fundamental

design. Vendors are asked to respond to the proposal, to provide demonstrations of the product, and to specifically respond to the needs of the organization. Ideally, the vendor will input control files, sample master records, and be able to show how transactions are processed that result in the

information that management needs to make decisions. An RFP for the information technology infrastructure follows the selection of the software product because the software product generally has specific requirements for infrastructure. Sometimes, the software and the infrastructure is selected from the same vendor. If not, the organization must ensure that vendors will work together without "pointing fingers" when there is an issue with either the software or the infrastructure.

Documentation

As the system is being designed, it is documented. The documentation includes vendor documentation of the system and, more importantly, the procedures or detailed instructions that help users handle each process specific to the organization. Most documentation and procedures are online and it is helpful if organizations can add to the help instructions provided by the software vendor. Documentation and procedures tend to be an afterthought but is the insurance policy and the tool used during testing and training before launch. The documentation is tested during the training so that when the system is launched, there is no question that it works and that the users are confident with the change.

Testing

Before launch, all processes are tested from input through output, using the documentation as a tool to ensure that all processes are thoroughly documented and that users can easily follow the procedures: They know it works and that the procedures will be followed consistently. The reports are reviewed and verified, so that there’s no garbage in-garbage out. This is done in a test system not yet fully populated with live data. Unfortunately, most organizations launch systems before thorough testing, adding to end-user frustration when processes don't work. The documentation and procedures may be modified during this process. All identified transactions must be tested during this step. All reports and online information must be verified and traced through the audit trail so that management is ensured that transactions will be handled consistently and that the information can be relied upon to make decisions.

Training

Before launch, all users need to be trained, with procedures. This means a trainer using the procedures to show each end user how to handle procedures. The procedures often need to be updated during training as users describe their unique circumstances and the "design" is modified with this additional information. The end user then performs the procedure with the trainer and the documentation. The end user then performs the procedure with the documentation alone. The end user is then on his or her own with the support, either in person or by phone, of the trainer or other support person. This is before data conversion.

Data Conversion

Tools are developed to convert the data from the current system (which was documented in the requirements analysis) to the new system. The data is mapped from one system to the other and data files are created that will work with the tools that are developed. The conversion is thoroughly tested and verified before final conversion. There’s a backup so it can be restarted, if necessary.

Launch

The system is implemented only after all of the above is completed. The entire organization is aware of the launch date. Ideally, the current system is retained and often run in "parallel" until the new system is in full operation and working properly. With the current mass-market software used by thousands of companies and fundamentally proven to work, the "parallel" run that is mandatory with software tailor-made to a company is generally not done. This is only true, however, when the above process is followed, the system is thoroughly documented and tested, and users are trained before launch.

Tools

Online resources are available to assist with strategic planning of accounting information systems. Information systems and financial forms aid in determining the specific needs of each organization, as well as assigning responsibility to principles involved.[5]

Support

The end users and managers have ongoing support available at all times. System upgrades follow a similar process and all users are thoroughly apprised of changes, upgraded in an efficient manner, and trained.

Many organizations chose to limit the time and money spent on the analysis, design, documentation, and training, and move right into software selection and implementation. If a detailed requirements analysis is performed with adequate time being spent on the analysis, the implementation and ongoing support will be minimal. Organizations that skip the steps to ensure the system meets their needs are often left with frustrated end users, costly support, and information that is not current or correct. Worse yet, these organizations build the system three times instead of once.

Career

AIS professionals work for consulting firms, large corporations, insurance companies, financial firms, government agencies and public accounting firms, among other types of companies. System Auditors is one of the top choices, they look at the controls, data processing, data integrity, general operation, maintenance, security and other aspects of all types of information systems used by businesses. A lot of the companies will deal with software and finding a

software that is right for the company, or maintaining a software for a company. If you are interested in the career, you might have the choice of working in the financial department of any type of business, or of working with a financially oriented company or a programming-oriented company that specializes in AIS. Some job titles in this field of work include financial manager, financial examiner and chief financial officer. You could also become a computer systems analyst, a computer information systems manager or a computer software engineer or programmer specializing in financial software.

If you are working with a financially oriented company, your job duties could range from analyzing an AIS for data integrity to managing the entire AIS. In a programming-oriented company, your focus may be directed towards developing new software in AIS or fixing bugs in AIS. In both cases, you may also have the option of consulting, which requires travelling to different companies to provide analysis and advice concerning the company's AIS.

There are certificates that you can get to increase your competitiveness in this field, such as CISA, AIS, CISSP, CIA, AFE, CFE, and CITP. You want to be able to choose a certificate that is right for your field of work as well you do not have to get these certificates but it is a bonus.

Different Types of Accounting Information Systems

Small business owners will always be looking forward for best customized accounting information system that can best suit to their business accounting needs. Three types of such accounting systems are very famous among small businesses. These systems include paper based accounting information systems, spreadsheet accounting systems and the software based accounting systems. Every system is very unique with the level of information offered to their users with internal and external requirements. There are different companies working around the world out of which some are manufacturing firms, some are advertising, some are marketing and development firms and everybody has their own needs to meet the needs of their specific type of business. When your reporting requirements become more and more complex, you need such a system which is more robust and can meet the accounting challenges of your organization type.

Accounting software is used in accounting information system to make the best track of financial activities being performed in your organization. This system will be developed with the necessary information about your customers, suppliers and vendors. Every company will be interested in having timely and accurate financial reporting without any delay of time with analysis and forecasting capabilities. Manager who are responsible for business accounting and reporting needs, they can identify the valuable trends in the business. For instance, in the sales reports, business managers will be interested in finding the information with accounting information systems which food item is making the great sales in the market. Manager can take the advantage of the current opportunities by examining the recent trends in the market on behalf of new trends witnessed in the sales reports by using this system of accounting to do the proper

work in their future expansions. By using accounting information system, you can have necessary data about the expenses done and any cost that is incurred in the operating a business when the overall recurring expenditures are considered. The system can be updated on the basis of costs incurred in operating a business and making an impact on the overall profits of the organizations. You will become familiar in spotting the recent trends in the markets with important changes that can affect the bottom line of your business. You can proactively plan the necessary changes and then grow your business with latest considerations. So, when you are considering launching a new project, it will help you in predicting the growth trends in sales. You will rethink whether the changes in your project planning will enable you in maximizing your sales growths and then achieving your targeted profits. If your expenses are enhanced then you will not be able to meet your set goals of achieving targeted profit goals.

Data Models of Accounting Information Systems

The purpose of a data model is to describe logic structure of the object system, as it is looked by his users. In Accounting Information Systems, the object is the economic entrepreneur and the information stored which is needed in a structural way so the data may be consistent and integrated.

Reality modeling of the components around the economic unit is very important for building an efficient system which stores the information about the economic unit.

Traditional Model

Beginning from the years 1975 until the beginning of 80 a number of changes happened in the field of data modeling in general and in the modeling of data in Accounting Information Systems.

Resource , Events, and Agents (REA) Model

In 1979 William E. McCarthy on his thesis “An entity-Relationship View of Accounting Models” introduced a model which is now implemented in the most famous AIS and ERP. His suppose was based on the postulate. A AIS may be naturally simulated on an relational database which contains real world entity and relations between these entities. Importance can be given to the financial information system (e.g. ERP) which doesn’t have anything from traditional system.

The procedure which is recommended to be taken while building an AIS model is:

Identification of classified entities in Agents, Events and Resources. The building of an E-R diagram which will expose the meaning of these entities and

relations between them.

Definition of entities characteristics and of the relationships between them, classified by the demands of the different level users.

Organization of results from the previous steps in the tables and identification of their unique characteristics (Keys).

Information Identification and protection in this model is done by following these steps:

Event Sources which are consumed or added by this event Internal Agents External Agents

The main rules of REA Model are:

Every Event is connected to at least one Source from which it differs. Every Event is connected to at least one other Event. Every Event is connected to at least two Agents (The economic duality principle.

Item, Agents, and Cash Model

This section describes a model with an alternate accounting data structure that radically eliminates the most pervasive and potentially inconsistent redundancies of the traditional administrative-accounting model.

The name IAC comes from the initials of Items, Agents, and Cash.

The IAC classification is a more normalized data structure that eliminates many of the redundancies present in the traditional model.

The IAC model consolidates customers, suppliers, employees, and stockholders into one entity: Agents.

The entity Item consolidates fixed assets, inventory, and all the goods and services that the company buys or sells including shares (stock).

The entity Cash consolidates bank accounts, petty cash, and any other account that reflects the flow of money.

Administrative and accounting systems register the economic activity of a company. The Agent entity responds to the question of “Who” (surrenders or receives the goods or services);

Item responds to the question of “What” (goods or services); and Cash to the “How much” (money it is given or received in exchange for the goods or services).

Three IAC Entities:

This way the three IAC entities cover all the entities involved in economic activity and therefore consolidates all of the accounts of an administrative or accounting system.

The Fundamental Accounting Equation under IAC The Fundamental Equation of Accounting Assets = Liabilities + Capital

It may be transformed into a new one, which is equivalent with the first one.

Account of Goods (Items) = Accounts of People (Agents) + Accounts of Money (Cash).

Why REA is still the best data model?

REA is a data model that everyone may use; it’s not “proprietary”.

REA Data Model may cover administration of multiple companies.

REA Data Model predicts all types of activities and relations between them in a uniform way.

REA Data Model manages all the sources: -products, money, work, and enginery – in a consistent way.

REA Data Model can be built in an incremental way letting the modifications of the system and his expansion.

The IAC model is a model generally more advanced than REA, but his implementation is difficult for two reasons:

IAC is a proprietary model.

Lack of the detailed information – there exists only one published document from Prof. Carlos Ferran - Penn State University.

The chances are that in some years IAC will be more efficient and more reliable.

Conclusion

As long as computers and money continue to play a major role in every business's functioning, there should be no shortage of the management accounting information systems. Accounting information systems must be accurate, reliable and efficient to keep businesses running smoothly and profitably. If you can make these things happen, you will be an indispensable part of any company.

References

https://www.google.com.pk

http://www.investopedia.com

http://en.wikipedia.org/wiki

http://bizfinance.about.com/od/accountingandcash/f/what-are-accounting-information-systems.htm

http://www.slideshare.net/wiweck/accounting-information-system-18527651

http://www.businessdictionary.com/definition/accounting-information-system-AIS.html

http://www.investorwords.com/16179/accounting_information_system_AIS.html

http://www.pearsonhighered.com/educator/course/Accounting-Information-Systems/91089195.page