Question

48. What is the term used in the AIS text for setting up the accounting function to be separate from other functions in an organization? (2 points) Why is it important to organizationally separate the accounting function from other functions of the organization? (3 points)

Answer 1

Ans (a) AIS text for setting up the accounting function to be separate from other function in an organisation:-

Accounting Information System is a software that a business uses in collecting, storing, and processing financial data that are used for decision-making It gives accurate data to the managers before making any significant decisions that will either make or break their business.

An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting financial reports can be used internally by management or externally by other interested parties including investors, creditors and tax authorities.

Accounting information systems are designed to support all accounting functions and activities including auditing, financial accounting & reporting, managerial/ management accounting and tax.

There are various types of information systems, few of them are listed below:

• Transaction processing system.
• Decision support system.
• executive information system.
• Management information system.
• Workflow system.
• Enterprise resource planning and.
• Expert systems.

The advantage of computer-based accounting information systems is that:-

• they automate and streamline reporting ,which  is major tool for organizations to accurately see summarized, timely information used for decision-making and financial reporting
• It pulls data from the centralized database, processes and transforms it and ultimately generates a summary of that data as information that can now be easily consumed and analysed by business analysts, managers or other decision makers.
• The  systems must ensure that the reports are timely so that decision-makers are not acting on old, irrelevant information and, rather, able to act quickly and effectively based on report results

(b) Why is it important to organizationally separate the accounting function from other functions of the organization because of the following reasons:-

The main purpose of accounting is to

• ascertain profit or loss of the accounting year and to show the financial condition of the business
• to provide financial information to the stakeholders of the business: management, investors and creditors.

.The accounting persons work on Accounting records and it restrict any interference from the other departments like purchase and sell, etc.,these should not be shared with all the employees of the company.

The Accounting division of a company provides all the record keeping services for all the operation and day to day activities of other departments which affects the financial position of the organization. So this records must be kept separate from any other division which has a control over such asset.

Thus all the confidential and important documents which are very crucial for the company must be kept separately in accounting division to avoid theft of information.