Question

Discuss the significance of accounting systems in generating reliable accounting information (200 words)

Answer 1

An information system is a formal process for collecting data, processing the data into information, and distributing that information to users. The purpose of an 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. Although an AIS can be a 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 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 transactions 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 an AIS is to make sure controls are in place to accurately record and process data.

Parts of an Accounting Information System

An accounting information system 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 the information that goes into an AIS
4. Software consists of computer programs used for processing data
5. Information technology infrastructure includes all the hardware used to operate the AIS
6. Internal controls are the security measures used to protect data

   The Reliability of Accounting Information Systems

   Because an AIS stores and provides such valuable business information, reliability is vitally important. The American Institute of CPAs (AICPA) and Canadian Institute of Chartered Accountants (CICA) have identified five basic principles important to AIS reliability:

7. Security - Access to the system and its data is controlled and limited only to those authorized.
8. Confidentiality - The protection of sensitive information from unauthorized disclosure.
9. Privacy - The collection, use, and disclosure of personal information about customers is done in an appropriate manner.
10. Processing integrity - The accurate, complete, and timely processing of data done with proper authorization.
11. Availability - The system is available to meet operational and contractual obligations.