Functions of an Accounting Information System
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Accounting Information System is, a formal system for collecting data, processing the data into information, and distributing that information to users. The main purpose of accounting information system (AIS) is to collect, store, and process financial and accounting data and produce informational reports that managers or other interested parties can use to make business decisions (Meymandi, Roosta, Rajabdoory). Although an accounting system can be manual system, today most accounting information systems are computer-based.
Functions of an Accounting Information System
Accounting information systems have three basic functions:
1. The first function of an accounting information system (AIS) is the efficient and effective collection and storage of data concerning an organization’s financial activities, including getting the transaction data from source documents, recording the transaction in journals, and posting data from journals to ledgers.
2. The Second function of an AIS is to supply information useful for making decisions, including producing managerial reports and financial statements.
3. The third function of AIS is to make sure controls are in place to accurately record and process data.
Accounting Information System has typically has six basic parts:
1. People who use the system , including accountants, managers and business analysts.
2. Procedure and instructions are the ways that data are collected, stored, retrieved, and processed.
3.Data including all information that goes into an AIS
4. Software consists of computer programs used for processing data
5. Information technologies infrastructure includes all hardware used to operate the AIS
6. Internal controls are the security measures used to protect data.
Ethics and AIS
The evolution of information Technology and Accounting Information Systems has brought new opportunities for ethical misconduct and fraud. A cornerstone of ethical behavior is an understanding of how one’s personal behavior and actions impact the welfare of the other individuals. Ethical guidelines can help individuals avoid harming others and to act in ways that have the potential to help or aid others. Some government regulations are designed to minimize some forms of unethical behavior and also enact laws to deter illegal behavior.
Accounting and Ethics
In the accounting discipline, professional standards have been created to inhibit accountants from engaging in unethical behavior. Such standards play an important role in accounting because, accounting processes aid management in decision-making processes that impact a wide range of other individuals and the organization as a whole. It is vital for accountants to understand Accounting Information Systems from an ethical perspective because they have the professional responsibility to protect and safeguard assets and financial information. In accounting, standards of ethic are defined as implied or expected norms of accountant conduct (Chunhui, Lee, Nan). Ethical guidelines are viewed as equally applicable to each individual within the profession.(Mastracchio Jr, Jimenez-Angueira, Toth 2015).
The International Federation of Accountant (IFAC) is a worldwide organization that serves as an umbrella organization for many national accounting organizations including the American Institute of Certified Public Accountants (AICPA) and the National Association of State Board of Accountancy.
IFAC seeks to synchronize the quality of accountants’ works with the intent and ethical standards on which it is based. This stipulation encourages member organizations to develop codes of conduct that exceed those set by the ”parent organization”. (Clements, Neil, Stovall).
AIS and the protection of confidential information and integrity: Because Accounting Information Systems are integral components of business computing platforms organization, controlling the risk of unauthorized access to sensitive information is important. Failure to control access to important information can result in the information being altered or being seen by employees or outsiders who have no business seeing the information. (Zhensheng, 2014) Accountant and AIS auditors could use the AIS to violate other individuals’ privacy and rights by collecting, selling and using their data or information for personal gain.
In some cases , employees have gained access to other workers’ confidential information, which could be used for blackmail or identity theft. In other cases, workers have obtained financial information from AIS to tip off outsiders whom may or may not have a stake in the company. Such behavioral act is not just unethical, it is a also form of fraudulent behavior.
Purpose of Accounting Information Systems:
Reporting in the Accounting Information Systems- A primary purpose of AIS is to serve as a systematic and comprehensive system that records and reports financial transaction, which are integral to business operations.(Antonio Trigo, Fernando Belfo, Raquel Pe’rez Estebanez, 2014). Reporting can be defined as the process of analyzing and summarizing the organization’s transactions in order to provide information that is utilized in decision making(Antonio Trigo, Fernando Belfo, Raquel Pe’rez Estebanez, 2014). Reporting has traditionally been conducted on periodic basis, whether it daily, weekly, monthly, quarterly or annually. In the reporting process financial information is summarized and given to stakeholders of the company, be it government officials, suppliers, investors, managers, auditors , etc. Reports illustrate the organization’s financial position. Reports are used by auditors to assess the integrity of the company’s accounting processes.
Accounting Information Security (Accounting Information Systems and Access Controls)
In many organizations, Accounting Information Systems have a multitude of users who can simultaneously access a database that contains a vast amount of data. This is especially true in an organizations that have Enterprise Resources Planning (ERP) systems as their primary transactional computing systems. One of the attractions of ERP systems as a business -computing platform is its single, comprehensive data that holds both transactional data and master data about suppliers, customers, materials , products, etc. In order to minimize concerns about the security of data information in AIS database, it is pertinent to ensure that appropriate user access controls are in place (Zhensheng, 2014). In a business environment, it is vital to have a database that ensures adequate security for both internal and external stakeholders. When the AIS database is vast in size and depth, there is increased risk of data and information being inaccurate or misappropriated.
Access control are a first line of defense in protecting the integrity of AIS systems and their database. There are numerous types of access controls for AIS database, which include Discretionary Access Control, Role Based Access Control, and Mandatory Access Control. Role Based Access Control has been successfully implemented and integrated into AIS due to its flexibility and logical reasoning. With RBAC, users are delegated and assigned specific roles within the system that will only grant them access to things relevant to their assignments. With this method, it eases the transition of employee turnovers, in regards to security configurations, due to its central managerial control. Management does not have to reconfigure the system because it is assigned by position.(Uzun)
AIS and Fraudulent Behavior
Fraudulent behavior among AIS users is a perpetual accounting and auditing concern. Financial fraud is an activity that can affect more than one person or company and kit may have indirect effects on external entities. Employees that are authorized user may have the opportunity to misappropriate of AIS data and information. When authorized users are members of the organization’s accounting department the misappropriation of AIS data and information may be a form of occupational fraud, illegal action of converting or concealing information for personal gain. The Association of Certified Fraud Examiners defines occupational fraud as the misappropriation of assets (Glodstein). For example , an accounting employee with authorized access to the AIS database may be able to alter payroll, billing, or reimbursement data for personal gain. Fraudulent behavior by accounting employees can also involve the intentional manipulation of the content or the structure of financial reports.(Bressler, 2011). In the absence of appropriate controls, accountants can utilize ASI systems to access private or sensitive information about fellow employees and other organizational stakeholders including, suppliers, customers, or other business partners. This is an act of obtaining ,hoarding, private or sensitive information for personal gain. Proverbs 11:3-The integrity of upright guides them. Proverbs 10:9 -Whoever walks in integrity walks securely.
Preventative Measures for Addressing the potential for Fraudulent Behavior
Ethics Education-Instilling the importance of ethical behavior should not begin when a organization hires an employees , organization that are truly concerned with ethical behavior on the part of an employees and fraud deterrence should begin by hiring graduates from college and universities with a track records of producing ethically inclined students, Such Schools typically go beyond highlighting ethics and professional codes of conduct in textbooks used in their courses:
Ethics Focused onboarding and training- Ethics policies and guidelines should be in place in organizations to provides guidance to newly hired workers and accounting employees. These serves as guides for employees behavioral and professional action. The existence of ethics policies demonstrate to new hires that the organization takes ethics seriously. During the onboarding and training process, there should be a separate module or gram that emphasizes the ethics policies and how they should be applied to daily operations.
Information and Data control- Encryption is a process that converts data from its original to an indecipherable(scramble)form. Prior to transmission over a network, encryption can be used to scramble it so that if it is intercepted in transit it will be difficult or impossible to understand. Data in an AIS database can be stored in encrypted form to deter it unethical or fraudulent use. Government regulations, including HIPPA, require some forms of private or sensitive data to be transmitted in encrypted form. Database encryption is recommended but not required by HIPPA. The 2015 Anthem hack was enabled by data being stored in unencrypted form.
There are four main objectives for using encryption to transmit or store data, there are confidentiality, integrity, authentication, and nonrepudiation. In AIS database, there is personal information, which can be compromised in malicious ways(Marcella, 2014). Encryption helps to prevent the malicious used of AIS data by presenting it to unauthorized users in an indecipherable form. Encryption also helps to maintain data integrity by making it difficult to modify, Because only authorized users or recipients who hold the decryption key are able convert the indecipherable data into its original form, encryption provides a mechanism for confirming and authenticating their identity(Busta 2002). Data management is paramount in organization’s quest to protect data assets and information from unethical and fraudulent behavior. Companies should employ data management controls to ensure that users are accountable for their use of the database.
An accounting information systems is an integral computing component in many organization and the business processes that drive them. Accounting is a component of every business process and the AIS is an important aspect of business process integration. Due to the nature of transactional and master data in AIS database, it is important to establish controls and preventative measures to ensure the security and integrity of the data that they contain. In the overview of AIS and associate topic in previous discussion review, it is apparent that there are numerous risks. For future accountants and auditors, AIS risk management should be begin with ethics education and understanding of professional ethics in accounting ethics in accounting practices. Universities have been inconsistent in including ethics courses in their business and accounting curricula and it will be increasingly difficult for accounting professionals to address emerging AIS risks associated with information technology advancement without a firm grounding in professional ethics. Proverbs :28: 16- Better is a poor man who walks in his integrity.