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Accounting Information System Report
What issues do today’s organizations face in choosing systems that will meet their finance and accounting needs?
Table of Contents
Decision making is one of the most convoluted processes that require great knowledge, expertise and creativity in most organisations. Accountants are among key decision makers responsible for controlling, monitoring and reporting all cash flows and transaction hence keeping businesses afloat. ‘Accounting information is divided into two types: financial and managerial.’ (Warren, 2012) In order to be successful in any business, ‘selecting the best accounting software is one of the most critical business decision you face.’ (Sage Software, 2005) In organisations accounting systems are chosen to help financial accountants to prepare financial information that is used to for external decision-making process e.g. by investors and stakeholders; and also help managerial accountants to prepare and report financial information that used to for internal decision-making process e.g. by strategic leaders and managers. Depending on the size and the nature of organisations, different accounting systems are chosen in accordance with whether they can help the organisations meet their finance and accounting needs. This is thought of initially by thinking in terms of how the systems carry out processes such as inputs and output of data and information, the overall use associated with the systems, identifying people who will be able to use the systems, how user-friendly the systems are, and the systems’ efficiency and effectiveness. Other decisive issues include how the systems are implemented, integrated, how secure and flexible they are and if they come with training programmes. This report entails discussing the issues faced by organisations when choosing accounting systems that will meet their financial and accounting needs. Initially, it will identify different systems currently available and contrast them. Then the importance of information systems towards efficient accounting, how new technologies are changing accounting and contrasting different types of accounting systems. It will then discuss the issues encountered by organisations while using these systems and what decision makers look for in order to choose the right system they need. Lastly, the report will summarise the discussion by highlighting key points discussed.
Three of the current accounting systems that are readily available on the market at the moment include clever accounts and cashbook complete usually used by small and medium organisations and ERP (Enterprise Resource Planning) type systems usually used by large enterprises and organisations.
Both small/medium range and larger accounting systems are used to perform several accounting functions in organisations. However, there are differences existing between them.
These include clever accounts and cashbook complete. Cashbook complete is software that organisations or individuals can download and install in computers to be used for accountancy, bookkeeping, payroll and taxing services. Clever accounts on the other hand, are online accounting software that allows users to communicate via e-mail and phone. Both of these systems are usually used by small and medium enterprises or businesses such as new businesses, self-employed individuals, small sized contractors etc. Despite being used by a similar target group, in differ in the respect that clever accounts use additional payroll to manage PAYE processes and National Insurance calculations while cashbook complete uses ACE or IMS Payroll to manage employee wages and also stock control to manage organisations’ inventory.
In large organisations, using clever accounts an cashbook complete would lead to confusion and not ideal due to the presence of numerous processes that can be too cumbersome to control, monitor and report using the small/medium range system. The answer to that is ERP (enterprise resource planning). ERP systems (e.g. SAP) differ from their small/medium range counterparts in the sense that they integrate all areas and process of an organisation like a central processing unit. They are ‘used to manage product planning, parts purchasing, and inventories, interacting with suppliers, providing customer service, and tracking orders.’ (SAP, 2007). ERP systems are different from clever accounts and cashbook complete because they use a single database which can be accessed across different servers.
Information systems if properly implemented are very useful to induce effective accounting. The availability of information systems help to produce a snapshot of a business’s reports that can be interpreted and used for long-term strategic planning. The also assist to induce an improve cash flow as it is relatively easier to manage integrated billings, accounts payable and receivable as well as inventory hence helping in keeping accounting effective. This leads to the availability of more accurate information generated from accounting which is used to provide real-time access to a business’s financial information. Information systems also provide a basis that allows the addition of users and possibilities of integrated new accounting systems used to produce a wide range of reports. Hence information systems help to provide businesses with the tools that help them to meet reporting mandates, take a quick and clear snapshot of businesses’ financial position as well as manage internal and external business operations and partnerships (The Resource Group, 2014)
‘The way accountants work has been overhauled by the proliferation of new technology.’ (Evans, 2014) Since the discovery of accounting, technologies have influenced how accountants carry out accounting practices. Currently, with the availability of the internet and high speed computers, information technology is now very permeating. This allows the exchange of information to be much easier and data to manage quicker, more accurate and easily processed. New technologies are now allowing accountants to easily drill down and extract the data that is needed to be process into information and compiled as reports. New technologies are also allowing accountants (managerial and financial accountants) to manage businesses’ finance. Moreover, accountants are benefiting from new technologies in the sense that they can perform most processes electronically e.g. journal entries, making end-of period adjustments. They also make it easier for accountants to simply log into the already running projects and amend any existing errors. In addition, new technologies help accountants to perform coding processes with relative ease. This is so because they aid in data capture, entry and analysis. New technologies also allow the compartmentalisation of data items that allows accountants to translate the data into meaningful and intuitive information. An example of a new technology that is changing the work of accountants is the Cloud Technology. The presence of accounting applications like Kashoo and Xero have encouraged many business to employ the use of cloud-based technologies hence helping accounting and bookkeeping activities become more streamlined (Paquin, 2013).
Source: http://www.ledgerdocs.com/features [accessed 27/03/2014]
Accountants using applications such as LedgerDocs, are able to simply create an electronic version of any important information that can be compiled into a report. The availability these technologies allow accountants to easily send and receive important documents. This is done using computers and/or smart mobile phones. The technologies also enable accountants to easily collaborate with clients e.g. financial accounts are able compiled reports and interact with external stakeholder and investors hence allowing a more streamlined decision-making process. Using new technologies, accountants are also able to manage and store critical financial documents both online (e.g. using LedgerDocs) and also on hard disk drives, company servers or USB drives which can be accessed any time hence eliminating time wastage.
The types of Accounting Information Systems include:
These are among some of the most modern systems that support the simultaneous accessibility by multiple users. These systems are nearly always supported by the use of information technology. Events accounting operates on a huge scale and usually in big enterprises. Examples include ERP systems such as SAP ERP 6.0.
These differ from functional approach, as they use modular architecture to control and manage relational database technology. For instance, an ERP acts like a hub or central processing unit connecting all business activities.
This uses a series of connections leading to a common root (like a tree) these are used to connect several terminals or clients to one server. They usually have three layers; the presentation, application and data layer. These are commonly used in universities to allow students to access client computer which are restricted, administrators and computer engineers have more control.
These are usually traditional AIS that use a single way of viewing data. They are usually used on a small scale e.g. only available to be used by users accessing accounting data to create generalised outputs like financial statements. They characteristically do not have a core or single database hence data is store in multiple place. Sometimes they also do not incorporate information technology.
These systems involve the integration of resources and event to formulate a system to assist in bookkeeping and accounting. REA systems can also be used in ERPs capture all relevant data in order to generate the conceptual design of AIS e.g. an ERP. These are different from event driven systems because they incorporate the activities associated with business processes, the people carrying out those activities and the assets used in the events.
Implementing event-driven systems gets harder the bigger the organisation is. This is so because these systems focus on functional objectives rather than process objectives. This is called the silo effect referred to as ‘the lack of communication and cross-departmental support often found in large companies.’ (Greenstreet, 2007)
These systems are usually not flexible as functions and processes are pre-set by the system and users are not able to modify them hence they are called turn-key systems.
There is usually poor control of the systems as it hard to maintain the status quo which leads to poor project management. These systems also make it hard to match organisational processes with the software as the system is automated.
Most of these systems do not come with training programmes hence it becomes hard for the organisation to properly train new employee to use the system.
It is harder to create multiple relationships between entities. This may cause confusion among cardinality and optionality (documenting direct relationships among the elements of the system)
Unlike event-driven systems, REA allows the occurrence of attributes of entities to be identified uniquely hence giving the user more details about the entities.
The REA model is more secure and easier to control as it makes it easier to identify and control attributes e.g. primary (PK) keys and foreign keys (FK)
In order for companies to find suitable systems, accountants should be consulted in choosing the right systems as they make most knowledge of the accounting cycle. As discussed in the subheading above, decision makers need to consider the following when choosing the right systems-
The ability for a system to integrate all business processes
The ability for a system to allow users to access detailed information about processes
How secure the system is (e.g. privacy settings) and how users can control the system (e.g. hierarchical control i.e. user level, administrator level etc.)
- The availability of training programmes associated with the system
- Size and nature of the organisation
The bigger the organisation, decision makers need to acquire a bigger system (e.g. ERP)
In summary, accounting information systems come in two types – small/medium range (e.g. cashbook complete and clever accounts) and larger one (Enterprise Resource Planning abbr. ERP) these are large electronic systems used by big organisations to improve efficiency and better financial management. The difference between the two types is that the former primarily focuses on managing small scale accounting while the latter involves the integration of all the businesses’ activities. The issues organisation’s face when choosing the right systems to meet their financial and accounting needs include determining how they will help the accountants collect and process data in order to produce information used in decision making.
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Greenstreet, K., 2007. Passion For Business. [Online] Available at: http://www.passionforbusiness.com/articles/silo-effect.htm [Accessed 31 03 2014].
Paquin, D., 2013. LedgerDocs. [Online] Available at: http://www.ledgerdocs.com/blog/how-cloud-technologies-are-changing-the-accounting-industry [Accessed 26 03 2013].
Sage Software, 2005. How to Choose an Accounting System, Irvine: Sage.
SAP, S., 2007. ERP (Enterprise Reseource Planning). [Online] Available at: http://searchsap.techtarget.com/definition/ERP [Accessed 26 03 2014].
Sorter, G., 1969. An “Events” approach to basic accounting theory. The Accounting Review, pp. 12-19.
The Resource Group, 2014. Effective Accounting Information Systems. [Online] Available at: http://www.resgroup.com/effective-accounting-information-systems [Accessed 26 03 2014].
Warren, C. R. J. &. D. J., 2012. Managerial Accounting. 12 ed. New York: Cengage Learning.