Advantages and implications of AIS

A big advantage of computer-based accounting information systems is that they automate and streamline reporting. Reporting is major tool for organizations to accurately see summarized, timely information used for decision-making and financial reporting. The accounting information system 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 analyzed by business analysts, managers or other decision makers. These 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. Consolidation is one of the greatest hallmarks of reporting as people do not have to look through an enormous number of transactions. For instance, at the end of the month, a financial accountant consolidates all the paid vouchers by running a report on the system. The system’s application layer retrieves the data from the database and provides a report with the total amount paid to its vendors for that particular month. With large corporations that generate large volumes of transactional data, running reports with even an AIS can take days or even weeks.

After the wave of corporate scandals from large companies such as Tyco International, Enron and WorldCom, major emphasis was put on enforcing public companies to implement strong internal controls into their transaction-based systems. This was made into law with the passage of the Sarbanes Oxley Act of 2002 which stipulated that companies must generate an internal control report stating who is responsible for an organization’s internal control structure and outlines the overall effectiveness of these controls^. Since most of these scandals were rooted in the companies' accounting practices, much of the emphasis of Sarbanes Oxley was put on computer-based accounting information systems. Today, AIS vendors tout their governance, risk management, and compliance features to ensure business processes are robust and protected and the organization's assets (including data) are secured.

Software architecture of a modern AIS

A modern AIS typically follows a multitier architecture separating the presentation to the user, application processing and data management in distinct layers. The presentation layer manages how the information is displayed to and viewed by functional users of the system (through mobile devices, web browsers or client application). The entire system is backed by a centralized database that stores all of the data. This can include transactional data generated from the core business processes (purchasing, inventory, accounting) or static, master data that is referenced when processing data (employee and customer account records and configuration settings). As transaction occur, the data is collected from the business events and stored into the system’s database where it can be retrieved and processed into information that is useful for making decisions. The application layer retrieves the raw data held in the database layer, processes it based on the configured business logic and passes it onto the presentation layer to display to the users. For example, consider the accounts payable department when processing an invoice. With an accounting information system, an accounts payable clerk enters the invoice, provided by a vendor, into the system where it is then stored in the database. When goods from the vendor are received, a receipt is created and also entered into the AIS. Before the accounts payable department pays the vendor, the system’s application processing tier performs a three-way matching where it automatically matches the amounts on the invoice against the amounts on the receipt and the initial purchase order. Once the match is complete, an email is sent to an accounts payable manager for approval. From here a voucher can be created and the vendor can ultimately be paid.

History of Accounting Information Systems (AIS)

Initially, accounting information systems were predominantly developed “in-house” as legacy systems. Such solutions were difficult to develop and expensive to maintain. Today, accounting information systems are more commonly sold as prebuilt software packages from vendors such as Microsoft, Sage Group, SAP and Oracle where it is configured and customized to match the organization’s business processes. As the need for connectivity and consolidation between other business systems increased, accounting information systems were merged with larger, more centralized systems known as enterprise resource planning (ERP). Before, with separate applications to manage different business functions, organizations had to develop complex interfaces for the systems to communicate with each other. In ERP, a system such as accounting information system is built as a module integrated into a suite of applications that can include manufacturing, supply chain, human resources. These modules are integrated together and are able to access the same data and execute complex business processes. With the ubiquity of ERP for businesses, the term “accounting information system” has become much less about pure accounting (financial or managerial) and more about tracking processes across all domains of business.

Defination of Accounting Information Systems (AIS)

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

Investopedia Says:
An accounting information systems that combines traditional accounting practices such as the Generally Accepted Accounting Principles (GAAP) with modern information technology resources. Six elements compose the typical accounting information system:      

• People - the system users.
• Procedure and Instructions - methods for retrieving and processing data.
• Data - information pertinent to the organization's business practices.
     
• Software - computer programs used to process data.
      
• Information Technology Infrastructure - hardware used to operate the system.
• Internal Controls - security measures to protect sensitive data.

An accounting information system (AIS) is a system.

Accounting information systems are composed of six main components:^[1]

1. People: users who operate on the systems
2. Procedures and instructions: processes involved in collecting, managing and storing the data
3. Data: data that is related to the organization and its business processes
4. Software: application that processes the data
5. Information technology infrastructure: the actual physical devices and systems that allows the AIS to operate and perform its functions
6. Internal controls and security measures: what is implemented to safeguard the data

What Are the Characteristics of a Commercial Bank?

Commercial banks are financial entities that accept deposits and provide loans for individuals and businesses. The term "commercial bank" came into common usage as a way to distinguish this type of financial institution from an investment bank, which primarily manages securities for governments and corporations by underwriting their financial activities.

Run for Profit

·         Commercial banks are operated with the objective of making a profit. Their fee structure and interest rate is designed with the intention of making money for owners and shareholders. This characteristic of commercial banks contrasts with the primary function of credit unions, which are nonprofit community institutions that help individuals and businesses manage their money. Commercial banks make money by charging clients who use their services and borrow their funds. Credit unions charge for bank accounts and loans as well, but they charge less because their fee structure is designed to cover their costs, rather than also making a profit.

Privately Owned

·         Commercial banks are owned by private individuals or collections of private individuals acting as shareholders. They are regulated by government institutions and must follow all applicable laws, but they are not owned by the government. Except under unusual circumstances such as the 2008 financial bailout, the private individuals who run commercial banks are responsible for major policy decisions. Unlike credit unions, where depositors automatically become members and stakeholders by joining and making deposits, shareholders in commercial banks must invest money specifically in ownership by purchasing stock.

Primarily Interested in Working with Businesses

·         Commercial banks sometimes offer products and services to individuals, but their primary interest is in working with businesses; in fact, commercial banks are also sometimes known as "business banks." Banking services offered to individuals are sometimes referred to as "retail banking," because they are often small scale transactions. Business accounts tend to involve larger sums of money, and the fees and profits that commercial banks reap from them tend to be greater.