Intrduction

The American Accounting Association (AAA) defines accounting as "the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information."

According to American Institute of Certified Public Accountants (AICPA) it is defined as "the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character and interpreting the result thereof."

The accounting function is critical in the successful operation of today’s businesses. This function provides individuals and groups both within and outside a company with relevant information for decision making. The process of accounting platform for recording and tabulating the distribution of financial data, and these data restrict the historical aspect, where most attitudes Created are for transactions and arranged so that the accounting occupied a unique position in the organizations as a source of data information.

In 1970, the Accounting Principles Board of The American Institute of certified Public Accountants emphasized that the function of accounting is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions. Accounting is often called the Language of Business. It is the common language used to communicate financial information to individuals, organizations, and government agencies about various aspects of business such as financial position, operating results and cash flows. Users, both inside and outside the business, have to make decisions concerning the allocation of limited economic resources. In order to ensure that resources are allocated in an efficient and effective manner, users require financial information for the purpose of making decision.

Accounting provides information that is useful in making business and economic decisions. It is the primary means of communicating financial information to owners, lenders, managers, Government and its regulatory agencies and others who have interest in an enterprise. It helps the users in taking better decisions by providing relevant, reliable and timely information on the financial and operational position of an enterprise. With the development of the use of accounting information systems and expand the application of quantitative methods in addressing the problems of organizations has become decisions makers more dependent on accounting as a result of favorable data generated by the IT for the purposes of decision-making and planning activities and which is characterized to be associated with the future.

To provide these needs specialists headed toward the application of methods and concepts appropriate in all branches of knowledge in the treatment of the input data. Not only that, but that most accounting systems become based on the use of computers in electronic data processing. Characterized the last decades of the twentieth century the emergence of major developments in the world of information and communication led to the expansion in the use of computers and information technology applications in the completion of various works as refer it in the last chapter. Thus, Accounting as an information system is necessitated by great complexity of modern business organizations.

Defining Accounting as a Information System

Accounting information systems defines as systems that operate functions of data gathering, processing, categorizing and reporting financial events with the aim of providing relevant information for the purpose of score keeping, attention directing and decision making. Accounting information system is a specialized subsystem of the information system that collects, processes, and reports information related to the financial aspects of business events. Accounting information system is a computer-based system that increases the control and enhances the corporation inside the organization.

Accounting Information System maintain and produce the data used by organizations to plan, evaluate, and diagnose the dynamics of operations and financial circumstances

An accounting information system (AIS) is a system that first collects and stores data and then processes it into information used by decision makers (investors, creditors, and managers).

This information generated from an AIS can ultimately help decision makers manage organizations more efficiently and strategically. . Accounting information system is a system that process financial information and supports decision tasks in the context of coordination and control of organizational activities.

Accounting information systems are composed of six main components:

1. People

The people in AIS are simply the system users. Professionals who may need to use an organization's AIS include accountants, consultants, business analysts, managers, chief financial officers, and auditors. AIS help the different departments within a company work together.

For example, management can establish sales goals for which staff can then order the appropriate amount of inventory. The inventory order notifies the accounting department of a new payable. When sales are made, salespeople can enter customer orders, accounting can invoice customers, the warehouse can assemble the order, the shipping department can send it off, and the accounting department gets notified of a new receivable. The customer service department can then track customer shipments and the system can create sales reports for management. Managers can also see inventory costs, shipping costs, manufacturing costs and so on.

With well-designed AIS, everyone within an organization who is authorized to do so can access the same system and get the same information. AIS also simplify getting information to people outside of the organization, when necessary. For example, consultants might use the information in AIS to analyze the effectiveness of the company's pricing structure by looking at cost data, sales data, and revenue. Also, auditors can use the data to assess a company's internal controls, financial condition and compliance with the Sarbanes-Oxley Act (SOX).

The AIS should be designed to meet the needs of the people who will be using it.

The system should also be easy to use and should improve, not hinder efficiency.

2. Procedures and Instructions

The procedure and instructions of AIS are the methods it uses for collecting, storing, retrieving and processing data. These methods are both manual and automated. The data can come from both internal sources (e.g., employees) and external sources (e.g., customers' online orders). Procedures and instructions will be coded into AIS software—they should also be "coded" into employees through documentation and training. To be effective, procedures and instructions must be followed consistently.

3. Data

To store information, AIS must have a database structure such as structured query language (SQL), a computer language commonly used for databases. The AIS will also need various input screens for the different types of system users and data entry, as well as different output formats to meet the needs of different users and various types of information.

The data contained in an AIS is all the financial information pertinent to the organization's business practices. Any business data that impact the company's finances should go into an AIS.

The type of data included in an AIS will depend on the nature of the business, but it may consist of the following:

• Sales orders
• Customer billing statements
• Sales analysis reports
• Purchase requisitions
• Vendor invoices
• Check registers
• Genera ledger
• Inventory data
• Payroll informationAnchor
• Time keeping
• Tax information

This data can then be used to prepare accounting statements and reports, such as accounts receivable aging, depreciation/amortization schedules, trial balance, profit and loss, and so on. Having all this data in one place—in the AIS—facilitates a business's record-keeping, reporting, analysis, auditing, and decision-making activities. For the data to be useful, it must be complete, correct and relevant.

On the other hand, examples of data that would not go into an AIS include memos, correspondence, presentations, and manuals. These documents might have a tangential relationship to the company's finances, but, excluding the standard footnotes, they are not really part of the company's financial record-keeping.

4. Software

The software component of AIS is the computer programs used to store, retrieve, process, and analyze the company's financial data. Before there were computers, AIS was a manual, paper-based system, but today, most companies are using computer software as the basis of the AIS. Small businesses might use Intuit's Quick books or Sage's Sage 50 Accounting, but there are others.2 Small to mid-sized businesses might use SAP's Business One. Mid-sized and large businesses might use Microsoft's Dynamics GP, Sage Group's MAS 90 or MAS 200, Oracle's PeopleSoft or Epic or Financial Management.

Quality, reliability, and security are key components of effective AIS software. Managers rely on the information it outputs to make decisions for the company, and they need high-quality information to make sound decisions.

AIS software programs can be customized to meet the unique needs of different types of businesses. If an existing program does not meet a company's needs, the software can also be developed in-house with substantial input from end-users or can be developed by a third-party company specifically for the organization. The system could even be outsourced to a specialized company.

For publicly-traded companies, no matter what software program and customization options the business chooses, Sarbanes-Oxley regulations will dictate the structure of the AIS to some extent. This is because SOX regulations establish internal controls and auditing procedures with which public companies must comply.

5. IT Infrastructure

Information technology infrastructure is just a fancy name for the hardware used to operate the accounting information system. Most of these hardware items a business would need to have anyway, including computers, mobile devices, servers, printers, surge protectors, routers, storage media, and possibly back-up power supply. In addition to cost, factors to consider in selecting hardware include speed, storage capability and whether it can be expanded and upgraded.

Perhaps most importantly, the hardware selected for AIS must be compatible with the intended software. Ideally, it would be not just compatible, but optimal—a clunky system will be much less helpful than a speedy one. One way businesses can easily meet hardware and software compatibility requirements is by purchasing a turnkey system that includes both the hardware and the software that the business needs. Purchasing a turnkey system means, theoretically, that the business will get an optimal combination of hardware and software for its AIS.

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

The internal controls of an AIS are the security measures it contains to protect sensitive data. These can be as simple as passwords or as complex as biometric identification. An AIS must have internal controls to protect against unauthorized computer access and to limit access to authorized users, which includes some users inside the company. It must also prevent unauthorized file access by individuals who are allowed to access only select parts of the system.

An AIS contains confidential information belonging not just to the company but also to its employees and customers. This data may include Social Security numbers, salary information, credit card numbers, and so on. All of the data in an AIS should be encrypted, and access to the system should be logged and surveilled. System activity should be traceable as well.

An AIS also needs internal controls that protect it from computer viruses, hackers and other internal and external threats to network security. It must also be protected from natural disasters and power surges that can cause data loss.

How an AIS Works In Real Life

We've seen how well-designed AIS allow a business to run smoothly on a day-to-day basis or hinder its operation if the system is poorly designed. The third use for AIS is that, when a business is in trouble, the data in its AIS can be used to uncover the story of what went wrong.

The cases of WorldCom and Lehman Brothers provide two examples.

In 2002, WorldCom's internal auditors Eugene Morse and Cynthia Cooper used the company's AIS to uncover nearly $4 billion in fraudulent expense allocations and other accounting entries. Their investigation led to the termination of CFO Scott Sullivan, as well as new legislation — section 404 of the Sarbanes-Oxley Act, which regulates companies' internal financial controls and procedures.

When investigating the causes of Lehman's collapse, a review of its AIS and other data systems was a key component, along with document collection and review, plus witness interviews. The search for the causes of the company's failure "required an extensive investigation and review of Lehman's operating, trading, valuation, financial, accounting and other data systems," according to the 2,200-page, nine-volume examiner’s report.

Lehman's systems provide an example of how an AIS should not be structured.

Examiner Anton R. Salukis' report states, "At the time of its bankruptcy filing, Lehman maintained a patchwork of over 2,600 software systems and applications...

Many of Lehman's systems were arcane, outdated or non-standard."

The examiner decided to focus his efforts on the 96 systems that appeared most relevant. This examination required training, study, and trial and error just to learn how to use the systems.

Salukis' report also noted, "Lehman's systems were highly interdependent, but their relationships were difficult to decipher and not well-documented. It took extraordinary effort to untangle these systems to obtain the necessary information."

The six components of an AIS all work together to help key employees collect, store, manage, process, retrieve, and report their financial data. Having a well-developed and maintained accounting information system that is efficient and accurate is an indispensable component of a successful business