It has often been said that accounting is the language of business. If that is the case, then an accounting information system (AIS) is the intelligence—the information-providing vehicle—of that language.
In another way, An accounting information system (AIS) is a structure that a business uses to collect, store, manage, process, retrieve, and report its financial data so it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors, regulators, and tax agencies.
Specially trained accountants work in-depth with AIS to ensure the highest level of accuracy in a company’s financial transactions and record-keeping, as well as make financial data easily available to those who legitimately need access to it—all while keeping data intact and secure.
An accounting information system is a way of tracking all accounting and business activity for a company. Accounting information systems generally consist of six primary components: people, procedures and instructions, data, software, information technology infrastructure, and internal controls. Below is a breakdown of each component in detail.
Accounting is the systematic and comprehensive recording of an organization’s financial transactions. It also includes summarizing, analysing, and reporting these transactions to management, owners/investors, oversight agencies, and tax collection entities. That means accounting is a data identification, collection, and storage process as well as an information development, measurement, and communication process.
An AIS can be a paper-and-pencil manual system, a complex system using the latest in IT, or something in between. Regardless of the approach taken, the process is the same. The AIS must collect, enter, process, store, and report data and information. The paper and pencil or the computer hardware and software are merely the tools used to produce the information.
This text does not distinguish an AIS from other information systems. Instead, our viewpoint is that the AIS can and should be the organization’s primary information system and that it provides users with the information they need to perform their jobs.
There are six components of an AIS:
- The people who use the system.
- The procedures and instructions used to collect, process, and store data.
- The data about the organization and its business activities.
- The software used to process the data.
- The information technology infrastructure, including the computers, peripheral devices, and network communications devices used in the AIS.
- The internal controls and security measures that safeguard AIS data.
These six components enable an AIS to fulfil three important business functions:
- Collect and store data about organizational activities, resources, and personnel. Organizations have several business processes, such as making a sale or purchasing raw materials, which are repeated frequently.
- Transform data into information so management can plan, execute, control, and evaluate activities, resources, and personnel
- Provide adequate controls to safeguard the organization’s assets and data.
A well-designed AIS makes it possible for a company to operate normally on a daily basis, whereas a poorly designed AIS can make it more difficult. The third benefit of an AIS is that it can be used to find out what went wrong for a company when it is having problems. Lehman Brothers and WorldCom cases serve as two illustrations.
