Accounting Information System (AIS)

INTRODUCTION TO AIS
An Accounting Information System (AIS) is a set of software, hardware, procedures, and people that
are designed to collect, record, process, store, and report financial data.

What is the purpose of AIS?

The purpose of an AIS is to provide accurate and timely financial information to internal and external
stakeholders to support decision-making

AIS are used by businesses of all sizes to automate financial processes, reduce the risk of errors,
and provide accurate and timely financial information to stakeholders. The information provided by an
AIS is used for decision-making, financial analysis, and compliance with legal and regulatory
requirements.

An AIS can be customized to meet the specific needs of a business and can be integrated with other
systems, such as Enterprise Resource Planning (ERP) systems, to provide a comprehensive view of
the organization’s financial data.

PRIMARY COMPONENTS OF AIS:

1. INDIVIDUALS OR PEOPLE

Also called as “AIS People”, they are considered as the system user. Various professionals in an
organization can make use of an AIS including:

• Accountants, Auditors and Bookkeepers

• Consultants and Specialists
• CFO (Chief Financial Officer)
• Business Analysts and Project Coordinators
• Managers

2. PROCEDURE AND INSTRUCTIONS

This includes all the methods used for collecting, storing, retrieving and processing data. The
procedures and instructions will be coded into the AIS software and a series of documentation and
proper training will be "embedded" into employees.

The procedures and instructions must be followed consistently in order to be effective.

• Manual Vs. Automated

• Internal Vs. External

3. DATA

An AIS must have a database structure to store information, an example for this is called an SQL or a
structured query language.
An SQL is a computer language commonly used for databases which allows the data that is in the
AIS to be manipulated and retrieved for reporting purposes.

The data contained in an AIS is all of the financial information pertinent to the organization’s business
practices. Any business data that impacts the company’s finances should go into an AIS. Depending
on the nature of the business, the following data can be included in an AIS:

• Sales analysis reports (including Sales orders and Customer billing statements)
• Purchase Requisitions
• Vendor Invoices
• Check registers
• General Ledgers
• Inventory Data
• Payroll information (including timekeeping)
• Tax information

Are there any form of data that can not be found/included in an AIS?

Yes, there is. A few examples can include memos, correspondence, presentation and company
manuals. These documents might have a tangential relationships to the company’s finances, but,
excluding the standard footnotes, they are not really part of the company’s financial record-keeping.

4. SOFTWARE

Before the existence of computers and how this industry has evolved, an AIS was manual and a
paper-based system, but today, with the developments made, most companies are using computer
software as the basis of the Accounting Information System.

The software components of an AIS is the computer programs used to store, retrieve, process, and
analyze the company’s financial data.

Examples of AIS Software used by different organizations:

• Intuit’s Quickbooks
• Sage’s Sage 50 Accounting
• SAP Business One
• Microsoft Dynamics GP
• Oracle’s PeopleSoft

5. INFORMATION TECHNOLOGY INFRASTRUCTURE

Known as the hardware used to operate the accounting information system including:

• Computers
• Mobile Devices
• Servers and Routers
• Printers
• Storage Media
• Back-up power supply
Factors need to consider: Speed, Storage Capability, Upgrading And Expansion

A good AIS should also include a plan for maintaining, servicing, replacing, and upgrading
components of the hardware system, as well as a plan for the disposal of broken and outdated
hardware, so that sensitive data is completely destroyed.

6. INTERNAL CONTROLS

Internal controls are the mechanisms, rules and procedures implemented by a company to ensure the
integrity of financial and accounting information, promote accountability and prevent fraud.

The internal controls of an AIS are the security measures it contains to protect sensitive data.
Why is there a need for the presence of an Internal Control?

An AIS contains confidential information belonging not just to the company but also to its employees
and customers such as:

• Social Security numbers

• Salary and Personnel Information
• Banking and Credit Card information
• Customer-related Data
• Company Financial Reports
• Financial information of supplier and vendors

ACCOUNTING INFORMATION SYSTEM FUNCTIONS:

1. Collect and process information

a. This phase involves accumulation of data from areas such as cash sales, cash
purchases, receivables, payables, payroll, invoices and more. (dr and cr) d.i…
2. Generate reports for Management
a. Decision making procedures of the individuals from the management such as sales and
production managers, financial analyst and other department heads make use of
generate reports from an AIS to arrive at a final settlement.
3. Interconnect multiple departments
a. An AIS can create a common dashboard for multiple departments that are interrelated.
For example, the sales department can upload their sales budget for the inventory
team. Then they can take steps to stock products or purchase materials. Then the
respective department will create invoices. This information will be available to any
department that needs it.
4. Have control over the circulation of data
a. An AIS helps an organization define who gets how much access to the company’s
financial data. Hence, getting a complete internal control over the data available across
the AIS.
5. Detect fraudulent activities
a. Since an AIS keeps track of all the financial transactions of a company, you can easily
detect any unauthorized and unnatural flow of money. This allows businesses to
investigate any discrepancy before it’s too late. You can save millions of dollars by
investing in a quality accounting information system.
ADVANTAGES OF ACCOUNTING INFORMATION SYSTEM

1. Automated and streamlined work process

2. Efficient collection and storage of financial information
3. Intelligible data to be used in decision-making
4. Internal control over all accounting information
5. Better communication among interconnected teams
6. Improved customer experience
7. Prevention of loss of sensitive information
LIMITATIONS AND DISADVANTAGES OF ACCOUNTING INFORMATION SYSTEM:

1. Cost of installment and training

2. Obsoletion
3. Manual Intervention
4. Confidentiality
5. Virus Attack

AIS ARCHITECTURE AND INFRASTRUCTURE

AIS ARCHITECTURE

AIS architecture refers to the structure and arrangement of components within an Accounting
Information System (AIS), which includes data input, processing, storage, and output mechanisms
designed to support financial data management and reporting within an organization.

Components of AIS Architecture

1. Data Input is the process of capturing and entering transactional data into the AIS.
2. Data Storage involves storing transactional data in databases or other storage systems.
3. Data Processing encompasses various operations performed on transactional data to generate
meaningful information.
4. Information Output involves presenting processed data in a meaningful format for decision-
making purposes.
DATA INPUT

It involves various methods such as manual data entry, barcode scanning, electronic data
interchange (EDI), and automatic identification technologies (e.g., RFID).

Data validation and verification procedures are often implemented to ensure the accuracy and
integrity of input data.

Examples:

Point-of-Sale (POS) Systems: Retail businesses use POS systems to record sales transactions,
capturing data such as items sold, quantities, prices, and payment methods.

Online Forms: Websites and e-commerce platforms collect customer information through online
forms, including orders, registrations, inquiries, and feedback.
Barcode Scanners: Warehouses and distribution centers use barcode scanners to input data quickly
and accurately by scanning barcodes on products or inventory items.

DATA STORAGE

Relational databases are commonly used for storing structured data, while data warehouses may be
used for storing and analyzing large volumes of historical data.

Data storage solutions must provide security, scalability, and efficient retrieval mechanisms to support
the needs of the AIS.

Examples:
Relational Databases: Organizations use relational database management systems (RDBMS) like
MySQL, PostgreSQL, or Oracle to store structured transactional data in tables with predefined
schemas.
Data Warehouses: Companies aggregate and store large volumes of historical transactional data in
data warehouses for analysis, reporting, and decision-making purposes.

NoSQL Databases: Some AIS architectures leverage NoSQL databases like MongoDB or Cassandra
to store unstructured or semi-structured transactional data, such as log files or social media
interactions.

DATA PROCESSING

This includes data manipulation, calculation of financial metrics, aggregation, summarization, and
generation of reports.

Data processing may be performed in real-time or in batches, depending on the requirements of the
organization.

Examples:

Financial Calculations: AIS systems process transactional data to calculate financial metrics such as
revenue, expenses, profits, and cash flows.

Inventory Management: AIS systems update inventory levels, track stock movements, and generate
reports on stock levels, reorder points, and stockouts.

Customer Relationship Management (CRM): AIS systems analyze customer transaction data to
identify patterns, preferences, and trends, enabling personalized marketing campaigns, targeted
promotions, and customer segmentation.

INFORMATION OUTPUT

Reports, dashboards, and data visualizations are common output formats used to communicate
financial and operational information to stakeholders.
Information output should be timely, accurate, and relevant to support effective decision- making.

Examples:
Financial Statements: AIS systems generate financial reports such as balance sheets, income
statements, and cash flow statements to provide insights into an organization’s financial performance.

Management Dashboards: Executives and managers use dashboards to visualize key performance
indicators (KPIs), trends, and metrics related to sales, operations, finance, and other areas.

Alerts and Notifications: AIS systems send alerts and notifications to stakeholders for critical events,
exceptions, or threshold breaches, enabling timely responses and corrective actions.

DBMS IN AIS (Database Management System in Accounting Information System)

DEFINITION AND PURPOSE:

A Database Management System (DBMS) is a software that enables users to create, manage, and
manipulate databases.

In the context of AIS, DBMS serves as the foundation for storing and managing transactional data
related to business processes.

DBMS provides features such as data storage, retrieval, manipulation, security, and concurrency
control to ensure the integrity and consistency of the data.

DATA MODELING AND DESIGN:

• DBMS facilitates the creation of logical and physical data models that define the structure and
relationships of the data stored in the database.
• Data modeling techniques such as Entity-Relationship (ER) modeling and normalization are
used to design efficient and scalable databases.
• DBMS supports the implementation of database schemas, tables, indexes, and constraints
based on the data model.
• ERM Entity Relationship Modeling A Method to visually represent the relationship between
entities and a database system
• Normalization This involves braking down a database in to smaller manageable tables, and
structuring them in a way that reduces duplication and ensures data integrity

DATA STORAGE AND RETRIEVAL:

• DBMS stores transactional data in tables organized into rows and columns, following the
database schema.
• Users can query the database using Structured Query Language (SQL) to retrieve specific
data based on predefined criteria.
 • Indexes and optimization techniques are employed to enhance the performance of data
retrieval operations.

SECURITY AND ACCESS CONTROL:

• A DBMS implements security measures to protect sensitive data from unauthorized access,
modification, or disclosure.
• Role-based access control, authentication mechanisms, encryption, and auditing are common
security features of DBMS.
• DBMS ensures data integrity by enforcing constraints, validation rules, and transaction
management mechanisms.
• Role based access control A method restricting system to access authorize users base on their
role within an organization

DEFINITION, PURPOSE AND SIGNIFICANCE OF DBMS

DBMS is a software application that allows users to efficiently create, manage, and access
databases.

In the realm of Accounting Information Systems (AIS), DBMS plays a critical role in storing,
organizing, and manipulating financial and transactional data

DBMS provides a structured framework for storing data, ensuring data integrity, and facilitating
efficient retrieval and manipulation of information.

For AIS, accurate and reliable data management is crucial for generating financial reports, conducting
analysis, and supporting decision-making processes.

NOTABLE DATES AND INDIVIDUALS

1960’s-1970’s

Edgar F. Codd, an English computer scientist, introduced the relational model for database
management in his landmark paper “A Relational Model of Data for Large Shared Data Banks”
published in 1970.

1970’s-1980’s

The development of Structured Query Language (SQL) as a standard language for interacting with
relational databases.

1980’s-1990s”

Oracle Corporation, founded by Larry Ellison, Bob Miner, and Ed Oates in 1977, grew to become a
dominant player in the database market with its Oracle Database product.
1990’s-2000’s
The rise of enterprise resource planning (ERP) systems led to increased demand for robust and
scalable database solutions to support integrated business processes.

2000’s-Present

The ongoing development of Al and machine learning technologies is driving innovation in database
management systems, with a focus on predictive analytics, real-time processing, and automation.

ERP (ENTERPRISE RESOURCE PLANNING)

DEFINITION AND SCOPE:

Enterprise Resource Planning (ERP) systems are integrated software solutions designed to
streamline and automate core business processes across departments and functions within an
organization.

ERP systems typically cover areas such as finance, accounting, human resources, supply chain
management, manufacturing, and customer relationship management.

KEY FEATURES AND MODULES:

o ERP systems offer a suite of modules or applications that address specific functional areas of
the organization.
o Common ERP modules include financial management, procurement, inventory management,
production planning, sales and distribution, and customer relationship management (CRM).
o Integration among modules enables seamless data flow and process automation across the
organization.

BENEFITS OF ERP SYSTEMS:

o ERP systems help improve operational elficiency, visibility, and collaboration by providing a
unified platform for managing business processes.
o Benefits include streamlined workflows, reduced data redundancy, improved decision-making
through real-time insights, and enhanced customer satisfaction.
o ERP systems enable standardization of business processes and compliance with regulatory
requirements.

IMPLEMENTATION AND CONSIDERATIONS:

o ERP implementation is a complex undertaking that requires careful planning, stakeholder

engagement, and organizational change management.
o Key considerations include defining business requirements, selecting the right ERP vendor
and solution, data migration, customization, training, and ongoing support and maintenance.
 o Successful ERP implementation requires alignment with organizational goals, strong executive
sponsorship, and effective communication throughout the process.

AIS ETHICS AND PROFESSIONALISM

1. ETHICAL ISSUES IN AIS

What are “ethical issues”?

Ethical issues refer to situations or dilemmas that involve questions of right and wrong, moral
principles, or conflicting values. These issues often arise when individuals or organizations must
make decisions that impact others, and they involve considerations of fairness, honesty, integrity,
and respect for individuals’ rights and dignity.
How can this be applied in AIS?

Ethical issues in AIS refer to dilemmas or concerns related to moral principles, values, and
professional conduct that arise in the design, implementation, and use of Accounting Information
Systems. These issues involve questions of right and wrong, fairness, integrity, and the
appropriate use of information and resources within the context of accounting practices and
systems

“Ethical behavior is doing the righ thing when no one else is watching-even when doing the wrong
thing is legal.” -Aldo Leop

This section will covers the ethical dilemmas that arise in the design, implementation, and use of
Accounting Information Systems (AIS). It includes discussions on issues like manipulation of financial
data, misrepresentation of information, conflicts of interest, and the misuse of AIS for personal gain.

ISSUES IN AIS
1. MANIPULATION OF FINANCIAL DATA

This ethical dilemma involves the intentional alteration or manipulation of financial data within an AIS
for various purposes, such as inflating profits, hiding losses, or misleading stakeholders.

2. MISREPRESENTATION OF INFORMATION

Misrepresentation occurs when individuals or entities provide false or misleading information through
an AIS, leading stakeholders to make decisions based on inaccurate data.

3. CONFLICTS OF INTEREST

Conflicts of interest arise when individuals or organizations have competing interests that may
compromise their objectivity or integrity in making decisions related to AIS.
4. MISUSE OF AIS FOR PERSONAL GAIN

This ethical issue involves using AIS resources or information for personal benefit or gain, such as
embezzlement, insider trading, or unauthorized access to confidential data.
 1. Kenneth Lay and Jeffrey Skilling (2001)

Former CEOs of Enron, convicted of securities fraud and other charges related to the Enron scandal.

2. Bernie Ebbers (2002)

Former CEO of WorldCom, convicted of orchestrating the accounting fraud that led to WorldCom’s
collapse.

3. ARTHUR ANDERSEN (Involved in Enron scandals)

The accounting firm implicated in the Enron scandal, which was found guilty of obstruction of justice
for shredding documents related to Enron audits.
4. JEROME KERVIEL

Trader, engaged in unauthorized trading activities.

PRIVACY, CONFIDENTIALITY AND SECURITY

PRIVACY

DEFINITION:

Privacy in AIS pertains to safeguarding individuals’ personal information stored or processed within
the system. This includes data such as social security numbers, financial records, and other
personally identifiable information.

IMPORTANCE:

Protecting privacy is crucial for maintaining individuals rights and preventing unauthorized access or
misuse of sensitive personal data. It also helps organizations comply with regulations such as the
General Data Protection Regulation (GDPR) and the Health Insurance Portability and Accountability
Act (HIPAA).
EXAMPLES:

Implementing access controls to limit who can view or modify personal data, encrypting data during
transmission and storage, and regularly auditing systems to identify and address privacy risks.

notes: codebreaking and encryption, enigma machines, bug bounty hunters, bug bounty programs.

SECURITY

DEFINITION:

Security in AIS encompasses measures and controls implemented to protect the integrity, availability,
and confidentiality of information. It involves safeguarding against threats such as unauthorized
access, data breaches, malware, and cyberattacks.
IMPORTANCE

Ensuring security is critical for preventing data breaches, financial fraud, reputational damage, and
regulatory non-compliance.

EXAMPLES:

Implementing firewalls, intrusion detection systems, and antivirus software to detect and prevent
unauthorized access and malicious activities, conducting regular security assessments and
vulnerability scans to identify and remediate security weaknesses, and providing ongoing security
awareness training to educate users about security best practices.

PROFESSIONAL STANDARDS AND CODE OF CONDUCT

What you need to know:

➢ Professional Standards

Guidelines set by professional bodies to regulate behavior and practices in fields like accounting //
Professional standards are guidelines and criterial established by professional organizations to
regulate the behavior, practices, and responsibilities of individuals within a particular profession. In
the field of accounting, professional standards provide frameworks for conducting audits, preparing
financial statements, and maintaining ethical conduct.

Eg. International Financial Reporting Standards (IFRS)

Philippine Institute of Certified Public Accountants (PICPA)

Control Objectives for Information and Related Technologies (COBIT)

Information Technology Infrastructure Library (ITIL)

➢ Principles of Professionalism

Cure values ensuring honesty impartiality, competency. Confidentiality, and ethical behavior in
professional endeavors //

• Confidentiality

Respecting the confidentiality of client information and refraining from disclosing sensitive or
proprietary data without proper authorization.

• Integrity:

Acting with honesty, fairness, and transparency in all professional and business dealings.

• Objectivity

Remaining impartial and free from bias, conflicts of interest, or undue influence in decision-making
processes.

• Professional Competence
Maintaining the knowledge, skills, and expertise necessary to perform professional duties effectively
and ethically.

• Professional Behavior

Upholding ethical standards and professional conduct in interactions with clients, colleagues, and the
public.

➢ Code of Conduct

Ethical principles guiding professional behavior and interactions within a specific profession. // A code
of conduct outlines the ethical principles, values, and behavioral expectations. That individuals within
a profession are expected to adhere to. It provides guidance on appropriate conduct, integrity,
objectivity, confidentiality, and professional behavior.

➢ Application to AIS

Upholding professional standards and using accounting information systems t ensure accuracy
reliability, confidentiality and security of financial information and data // Professionals working with
AIS are expected to apply these standards and principles to their activities involving the design,
implementation, and use of accounting information systems. This includes ensuring the accuracy,
reliability, and integrity of financial information, protecting the confidentiality and security of data, and
making ethical decisions that align with professional standards and codes of conduct.

Professionals must also consider the potential ethical implications of their actions within AIS, such as
data manipulation, unauthorized access, or conflicts of interest, and apply ethical reasoning to
address these issues appropriately.

FUTURE TRENDS AND CAREER OPPORTUNITIES IN AIS

Emerging Trends and Advancements

• Al
• Blockchain
• Data Analytics
- OPTIONAL CHARACTER RECOGNITION
- IMMUTABLE LEDGER AND SMART CONTRACT

IMPACT OF TECHNOLOGY

Technologies like Al, blockchain, and data analytics are revolutionizing AIS by automating routine
tasks, enhancing data security and integrity, and providing valuable insights for decision-making.
Exploring the potential benefits and challenges of implementing these technologies is crucial.

CAREER OPPORTUNITIES
There are various career paths available in AIS, including roles in auditing, consulting, forensic
accounting, and systems implementation. Each role offers unique opportunities for specialization and
advancement within the field.

SKILLS AND COMPETENCIES FOR SUCCESS

Success in AIS-related careers requires a combination of technical skills, such as proficiency in

accounting software and data analysis tools, as well as soft skills like communication, problem-
solving, and critical thinking. Professionals should also possess a strong understanding of accounting
principles, regulations, and ethical standards.
EVOLVING LANDSCAPE IN AIS

The field of AIS is constantly evolving in response to technological advancements, regulatory

changes, and shifting business landscapes. Professionals need to stay updated on industry trends,
best practices, and emerging issues to remain relevant in their careers.