Accounting Information Systems
A blog by my students Jenny Dayao, Carol Vergara and Dondon Dy
Information Technology and the Overarching Themes of this Course
The world today is primarily powered by information technology. Supercomputers, multifunctional gadgets, and the internet are concrete manifestations. It is a super gateway of information, transferring and receiving data in a blink of an eye. We ourselves are witnesses to this as we daily visit Facebook, tweet our thoughts on the web, and check our mails every now and then.
Information technology will continue to be with us as we become accountants of different companies. And as we become executive officers, it will always be a main consideration for us to take advantage of. Companies nowadays use IT to gain competitive advantage. It is used for better monitoring of operations to aid in making wiser and more useful decisions. However, we always have to keep in mind that IT, if not properly managed, can also lead to serious problems and threats to us.
Thus in this semester, as we use information technology to create our own accounting information systems, we are to be guided by the following overarching themes:
1. Internal Control
2. Risk Management
3. Corporate Governance and Business Ethics
The Committee of Sponsoring Organizations of the Commission on Fraudulent Financial Reporting defines internal control as a process designed to provide reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. It can be thought of as monitoring the company’s operations and its compliance with laws, regulations and standards. Several famous internal control procedures are separation of the recording and custodian function (as such in the case of a controller and a treasurer), and verification of transactions by authorized personnel.
Strategic Thought Group defines Risk Management as a process which provides assurance that objectives are more likely to be achieved, damaging things will not happen or are less likely to happen, and that beneficial things will be or are more likely to be achieved. An example of which is assessing the expected outcome of a decision after considering the probability of the occurrence of several events.
Corporate Governance is simply referred to by the University of Iowa Center for International Finance and Development as the governance of corporations. It is simply an articulation of the sentiment “conduct business with integrity.” It is a way for management to be very careful on the decisions they make as their actions are monitored by the company’s stakeholders. On the other hand, business ethics is defined by Wisegeek.com as the behavior that a business adheres to in its daily dealings with the world. Ethics is of utmost importance to us, especially when we are faced with decisions considering money and integrity.
These are 3 overarching themes we should always bear in mind as we pursue this course. Accounting information systems are useless no matter how sophisticated they are if they can’t properly monitor the company’s operations; provide the company with the necessary information for managing risk; and if it will not be founded on ethical decisions and principles.
Effectiveness vs. Efficiency
Talking about information systems, systems as always said must be both effective and efficient. But what do effectiveness and efficiency exactly mean?
In simple word combinations, effectiveness is “Doing the RIGHT THINGS” and efficiency is “Doing THINGS RIGHT.”
Above all, objectives should be met and actions taken must always be steps toward attaining these objectives. For example, a system set to monitor all inventory transactions should be able to monitor all inventory transactions. Nevertheless, as objectives are met, costs and resources should be considered as well. The costs of our decisions should not outweigh the benefits to us as it will also be useless to meet our objectives after having exhausted all what we have.
An efficient and effective system will all be put to waste if such systems are unsecured. Almost all systems are haunted by security issues which is more aggravated by the inventiveness of the world wide web. The internet is a rapidly changing space, with technology evolving at a pace which is often hard to keep up with. That one gadget you bought today might be obsolescent by the end of the month. Similarly, security risks and dangers are also changing rapidly, with new and clever methods to try and rob you of your money, or your very identity. But what can Internet users like us do to minimize the chances of these happening?
An ounce of protection is worth a pound of cure. Thus, let’s all make sure our computers are bulletproof. Install an anti-virus program, set up some form of anti-spyware and top it off with a firewall. Remember that the process does not end with software installation alone. We have to update and run it frequently as well. After we have softwared up, the last and most important security tip is to use our common sense.
Passwords. The goal is to make it really hard to guess. We can include a great mix of upper and lowercase letters and numbers to form our killer password. Once we have picked our killer password, we should always, always remember the golden rule—keep it secret. And don’t write it down.
Spam E-mail. Spam is one of the most insidious side effects of the internet revolution and has only gotten worse over time. Best solution to this problem: common sense. If you’re not expecting an email, and it’s offering you a fabulous deal, well it isn’t. Add it to your spam filter. If you get an email from your bank or online service, and they’re asking for personal details, it’s NOT your bank or online service. Most of all, if it’s an email with an attachment from someone you don’t know, don’t open it. Your computer will thank you for this.
Social Networking Sites. According to a recent study on internet security trends for the first half of 2009, a stunning 95% of user-generated comments to blogs, chat rooms and message boards are either spyware or contain links to malicious programs. This depressing problem can be reduced by the combined power of our own hands, mind and fingers—and of course, common sense. Know what and what not to put in your status messages. If you’re rich, do not enter personal information into your tweets or updates, unless you want to be kidnapped. Our Facebook photos are a reflection of our soul. So we should always keep them nice and lovely. Remember we can always un-tag or report a photo if we thought of it as offensive or provocative, or if we think we don’t look good in it.
Extreme caution is the core of building security both in one’s own self and in all other systems in the world. This is what we define as prudence. As explained by the Lord in Matthew 10: 16, “I am sending you out like sheep among wolves. Therefore be as shrewd as snakes and as innocent as doves.” Stay alert. This is hazardous work I’m assigning you. You’re going to be like sheep running through a wolf pack, so don’t call attention to yourselves. Be as cunning as a snake, inoffensive as a dove.
Aristotelian Sense of Good
One of the many characteristics a good manager must possess is prudence. Aristotle’s ethics is an ethics of the good life. How does one achieve the good life? In order to answer this question, we must have some understanding of what is meant by “the good”. We begin with a description of “the good” as it is commonly understood by most of us. We speak of a good pen, a good computer, a good car, a lousy car, a lousy computer, and so forth. If we look very carefully, the good is directly linked to a thing’s operation. When a thing has a proper operation, the good of the thing and its well being consist in that operation. The proper operation of a pen is to write, and so a good pen writes well. The proper operation of a knife is to cut food, so a good knife will cut well.
Now, a thing operates according to its nature. We know that it is of the nature of a plant to grow, reproduce, and nourish itself. A good plant will be one that does this fully. Thus, it will look healthy and strong. An animal, on the contrary, is more than a plant. An animal has the powers of sense knowledge and the powers of sense appetite ,as well as the power of locomotion. So, it is not enough for an animal to be able to grow, reproduce, and eat. A good animal will be one that functions according to its nature. Hence, a good animal will sense well, be able to move well, have a healthy appetite, etc. A good dog has acute senses, runs and fetches sticks, eats well, and so on. Man, though, is much more than a brute animal. Man is specifically different than a brute in that he has the specific powers of intelligence (the ability to apprehend essences) and will (desiring not merely sensible goods, but intelligible goods, such as truth, life, beauty, leisure, friendships, integrity, religion, marriage). So, it is not enough that human beings sense well, run fast, and eat the right foods, etc. A good man is one who functions according to his nature, which is a rational nature. Hence, a good man is one who reasons well and chooses well.
In every large organization, there’s a hierarchy of management that keeps the whole operation running smoothly. Whether you’re a senior (upper level) manager, middle manager, or supervisor, you’re responsible for directing people so that the organization’s goals are accomplished. A good manager can motivate people, learn from previous mistakes, and gain respect from a team. So a manager, to be considered a good one at that, should be able to function according to his nature.
The Accounting Information System
Accounting Information System is literally accounting plus information technology. It makes use of IT in collecting data from within and outside the firm. The system will then transform this data into information for the company’s perusal. This information also serves as a feedback that is considered as data for the firm’s next period of data processing. All data and information are stored in the company’s database. Management Reporting is one system that makes use of AIS. Example of information generated by AIS and Transaction Processing Systems are financial statements generated for external users and for management purposes.
“In AIS, you wear both Accounting and IT Hat,” says Prof. Aliza Racelis. You have to know every nooks of IT in order to maximize its potential in designing your AIS. Not only that, you to have the knowledge and logic of an accountant in order to know what to actually design. This is especially true with internal controls. You have to design a system that will not be easily corroded by collusion or fraud.