ACCOUNTING INFORMATION SYSTEM NOTES:

- system that collects and processes transaction

data and disseminates financial information
to interested parties
- includes the documents that provide evidence of
the transactions and events, and the records, trial
balances, worksheets and financial statements
For the accounting information system to be efficient
and effective it must have:
1. Cost Effectiveness – dapat ma outweigh ni benefits
si cost.
2. Usefulness – information will only be useful if it
has the ff characteristics:
a. Relevance
b. Faithful Representation
c. Comparable
d. Verifiable
e. Timely and Understandable
f. Satisfy the test of materiality
NOTE: Consider the needs & knowledge sa users
3. Flexibility – able dapat ang system to
adapt/accommodate the changes that will prolly
happen in the future. These changes could be:
a. Government regulations and
deregulations
b. Organizational growth
c. Technology advances
d. Increased competition
e. Changing accounting principles
Good accounting systems are carefully PLANNED,
DESIGNED, INSTALLED, MANAGED and REFINED.
FOUR DEVELOPMENT PHASES OF ACCOUNTING
SYSTEM:
1. ANALYSIS. To determine the information needs of
internal and external users.
- identifies the sources of the needed information
and the records and procedures for collecting and
reporting the data.
- its strengths and weaknesses must be identified.
2. DESIGN. Must be built from the ground up —
forms and documents designed, methods and
procedures selected, job descriptions prepared,
controls integrated, reports formatted, and
equipment selected.
- Redesigning an existing system may involve only
minor changes or a complete overhaul.
 3. IMPLEMENTATION. Implementation of new or NOTES:
revised systems requires that documents,
procedures and processing equipment be installed
and made operational.
- Personnel must be trained and closely
supervised throughout a start-up period.
4. FOLLOW-UP. It must be monitored for
weaknesses or breakdowns.
- Its effectiveness must be compared with design
and organizational objectives. Changes in design
or implementation may be necessary.

ACCOUNTING SYSTEM MUST HAVE ADEQUATE

CONTROLS (Internal Control System):
- mechanisms which will protect and safeguard the
assets of the business
- ensure that the information provided by the system
is faithfully represented, relevant and timely so
that it meets the decision-making needs of both
management and external users.
INTERNAL CONTROL - an essential part of risk
management
- reduce the likelihood or severity of potential
losses.
- processes used by management and staff to
provide effective and efficient operations, and
compliance with laws, regulations and internal
policies.
- safeguard its assets from employee theft, robbery
and unauthorized use
- enhance the completeness, accuracy and reliability
of its accounting records by reducing the risk of
errors (unintentional mistakes) and irregularities
(intentional mistakes and misrepresentations) in
the accounting process, and permit the timely
preparation of financial information.

TWO ASPECTS OF INTERNAL CONTROL

1. Administrative controls - provide operational
efficiency and adherence to policies and
procedures which have been prepared by the
management of the business.
ex. Documents that identify purchasing and sales
procedures, or policies that are required to be
followed when hiring employees.
2. Accounting controls - methods and procedures
used to protect assets and to ensure that the
accounting records are reliable.
Ex. procedures for ensuring transactions are
recorded as necessary and ensuring that the record
keeping for assets is kept separate from those who
have physical custody of the assets.
MANAGEMENT’S RESPONSIBILITY FOR NOTES:
INTERNAL CONTROL

Corporate Governance - framework of rules,

relationships, systems and processes within and by
which authority is exercised and controlled within
corporations.
- the system by which entities are directed or
controlled, managed and administered.
- Includes every aspect of management from action
plans and internal controls to performance
measurement and
corporate disclosure.
- influences how the objectives of the company are
set and achieved, how risk is monitored and assessed,
and how performance of the company is optimized.

**The board of directors plays a key role in effective

corporate governance as the board is ultimately
responsible for making sure that management carries
out
the policies and procedures as previously set. **
**Better quality accounting information can be
provided to shareholders if entities adopt good
corporate governance principles. **

Para matabangan si board sa pag monitor og pag

oversee unsa ang ginabuhat sa management, they
created committees:
1. Audit Committee – responsible for the
oversight of financial reporting and disclosure
and also assesses management processes that
support the preparation of the external reports.
- assesses the performance and independence of
the external auditors and is responsible for
maintaining communication with both the
external and internal auditors.
o Internal Auditors - evaluate on a
continuous basis the effectiveness of the
system of internal control.
o They periodically review the activities of
departments and individuals to determine
whether prescribed internal controls are
being followed.
2. Risk Committee - to oversee and manage
the risks that organizations face.
NOTE: **Good corporate governance promotes investor
confidence, so complying with these principles is good for
investors. **
PRINCIPLES OF INTERNAL CONTROL television monitors and garment sensors to
deter theft, computer facilities w/
- To safeguard assets and enhance the accuracy and
password access, & time clocks for
reliability of its accounting records
recording time worked.

NOTES:
1. ESTABLISHMENT OF RESPONSIBILITY – dapat
one person per responsibility so that dali lang ma
trace kinsa ang nakabuhat og mali para dali ra
makabuhat og corrective action. Kay lisod if duha
kabuok person sa isa ka responsibility.
2. SEGREGATION OF DUTIES – necessary sa
internal control. Has two principles:
a. The responsibility for related activities should
be assigned to different individuals both in
selling and purchasing.
o Mas dako ang risk of irregularities if
isa ra ka tao ang mubuhat sa pag
purchase/sell, pag invoice, and etc.
Mas prone to bribery.
b. The responsibility for keeping the records for
an asset should be separate from the physical
custody of that asset. This is an example of an
accounting control.
o Wala dapat access ang naga gunit sa
accounting records sa physical nga
asset such as cash, and vice versa.
3. DOCUMENTATION PROCEDURE – kailangan
og documents that will prove nga kana nga
transaction kay nahitabo. Procedure is the ff:
a. Documents should be prenumbered
accounted
for - to prevent a transaction from being
recorded more than once or from not being
recorded.
- facilitates an audit trail (evidence
of transactions and how they are
recorded)
b. Source documents for accounting entries
should be promptly forwarded to the
accounting department to help ensure
timely recording of the transaction and
event.
4. PHYSICAL, MECHANICAL, AND
ELECTRONIC CONTROL
a. Physical controls - to safeguard assets.
ex. Safes, vaults, and safety deposit boxes
for cash and business papers & locked
warehouses and storage cabinets for
inventories and records.
b. Mechanical and electronic controls – to
safeguard assets and enhance the accuracy
and reliability of the accounting records.
Ex. Alarms to prevent break-ins,
 5. INDEPENDENT INTERNAL
VERIFICATION (IIV)- involves the
review, comparison and reconciliation of data
prepared by employees.
FOUR COMMON FORMS:
1. Checking procedures facilitated by
segregation of duties – ex. Ginacheck siya
if tama ba ang amount nga na receive sa
girecord na amount sa laing employee sa
iyang pag purchase.
2. Checking procedures facilitated by
segregation of duties.
3. Verification by an internal auditor
4. Rotation of duties - regularly reassigning
staff from one task to another.
a. it makes it difficult for employees
to permanently conceal any
improper actions, and allows staff
to be trained in a number of
different jobs to prevent boredom
and to cover for employees who are
ill or away on extended leave.
THREE MEASURES TO OBTAIN MAXIMUM
BENEFIT FROM IIV
1. The verification should be made both routinely
and on a surprise basis.
2. The verification should be done by an employee
who is independent of the personnel responsible
for the information.
3. Discrepancies and exceptions should be reported
to a management level that can take appropriate
corrective action.

**Note: Reviewing the auditor’s report,

therefore, is an important step in the decision-
making process for shareholders. Internal
reports from the internal auditors are an
important source of information for senior
management of the business as they may
highlight the need for improvement in all or one
of the internal control measures.**
6. LIMITATIONS OF INTERNAL CONTROL -
establishing control procedures should not exceed their
expected benefit.
- A good system can become ineffective as a
result of employee fatigue, carelessness or indifference.
- Collusion can significantly impair the
effectiveness of a system because it eliminates the
protection anticipated from segregation of duties.