Bappy Mahmud

AIS 18-19

AIS Chapter 1

Accounting
According to the American Accounting Association (AAA) is:
“Accounting refers to the process of identifying, measuring and communicating
economic information to permit informed judgments and decisions by users of the
information.”
Definition of information
Information in accounting is the data that is used to record, analyze, summarize, and
interpret the financial transactions and activities of a business entity. Accounting
information is useful for various stakeholders of the business, such as managers,
owners, investors, creditors, employees, government, etc.
Systems
A system is a group of things or parts that work together to achieve a certain goal or
function. There are many types of systems in the world, such as natural systems,
physical systems, biological systems, social systems, information systems, etc.
AIS
An accounting information system (AIS) involves the collection, storage, and processing
of financial and accounting data used by internal users to report information to
investors, creditors, and tax authorities. It is generally a computer-based method for
tracking accounting activity.
Different quality of information
Information quality is a multi-attribute concept. If the attributes that define quality of
information are of good quality or of high value then the information is said to have good
quality. The attributes of quality of information are:
1. Timeliness- The speed at which the information is received. Normally, faster the
information better is its quality.
2. Appropriateness- is the suitability matching of the receiver and the information,
more the suitability of the information to the receiver, better its quality.
3. Reliability – the reliability of information is a key attribute of quality. Only if the
information is reliable is it of any use. The understanding of reliability comes from
past experience, the standing/reliability of the source, the methodology adopted
to acquire and process the information and the channel of delivery.
4. Accuracy – is the correctness of the information. Normally, the higher the
accuracy of the information, the better is its quality.
5. Completeness – is the measure of comprehensiveness. It is required to ensure
that the information provided gives the complete picture of reality and not a part
of the picture.

Features of AIS
1. Relevance: The information should be relevant in order to influence the
economic decisions taken by users.
2. Reliability: Accounting information should be reliable. Reliability relates to the
confidence in the accounting information in the sense that the information
faithfully represents what it intends to present.
3. Comparability: Information should be presented in a manner that allows users
to compare it with other information, either from the same entity over different
periods or with information from other entities.
4. Understandability: The information should be presented in a clear and concise
manner, making it easily understandable to users who have a reasonable
knowledge of business and economic activities.
5. Timeliness: Timely information is crucial for decision-making. Delays in providing
information can reduce its relevance.
6. Verifiability: Others should be able to verify the information. This characteristic
ensures that there is evidence to support the information presented.
Importance of AIS
• Cost-Effectiveness – In the era of digitalization and artificial intelligence, each
organization is moving towards cost-cutting using artificial intelligence. AIS has
helped reduce manual efforts and can perform the same operation more cost-
effectively.
• Time Effectiveness – AIS has assisted business organizations in reducing the
amount of time involved in recording, classifying, and reporting any financial
information.
• Easy Access(Portability) – Data stored in AIS can be retrieved via an
information system connected to the internet anywhere and at any time.
• Accuracy – With the involvement of AIS, the reliability of data is increased.
Limitations of AIS
• Manual Intervention – Although we discussed that AIS reduces manual
intervention, the same cannot be eliminated. AIS needs manual intervention at a
certain point, which may bring inefficiency to the system.
• Cost: Implementation and maintenance costs can be significant, particularly for
small and medium-sized businesses.
• Complexity: AIS can be complex, and understanding and managing such
systems might require specialized knowledge.
• Security Concerns: As financial data is digitized and stored electronically, there
is an increased risk of security breaches, hacking, and unauthorized access.
• Limited Scope: Some AIS may have a narrow focus, primarily addressing
financial accounting needs.
Discuss the internal and external information follow
Internal Information:
Internal information refers to data and knowledge that is generated, processed, and
used within an organization. This includes information about its operations, finances,
employees, and other aspects directly related to its functioning.
External Information:
External information encompasses data and knowledge that originates outside the
organization. This can include market trends, industry reports, customer feedback,
regulatory changes, and information about competitors.
General mode of Accounting information systems / Functional steps in the
forming data into information
1. Data Resources: These are data consisting of financial transactions coming
into the system from both internal and external resources.
2. Data Collecting: Data collecting is the first operational stage of information
system. Data must be eliminated from their substantial errors before entering
the process. This stage is the most important ones from many aspects because
there is a risk of producing incorrect information not eliminated from its
substantial errors.
3. Data Processing: The collected data need to be processed for information.
Mathematical algorithms used for planning production, statistical techniques
for prediction of sale.
4. Database Management: The database of organizations is physical financial data
storage. This storage area can be a file cupboard or computer disc. Whatever
they are, all data can be represented on data base in a logical hierarchy.
5. Information production: Information production is the process of arranging,
formatting and presenting information to the users.
6. Feedback: Feedback is the way the information is sent to the system, which is
the resource of data. Feedback is divided into two as internal feedback and
external feedback. Internal feedback will restart the process of order for
renewing the stocks, while external feedback will result in making a new
arrangement on uncollected customer account.
Characteristics of Accounting Information Systems
Accounting Information Systems (AIS) play a crucial role in modern businesses by
facilitating the collection, processing, storage, and dissemination of financial
information. Here are some key characteristics of Accounting Information Systems:
1. Automation: AIS automates routine accounting processes, reducing manual
effort and minimizing the risk of errors in data entry and calculations.
2. Accuracy and Reliability: AIS is designed to provide accurate and reliable
financial information. It includes internal controls and validation checks to identify
and correct errors promptly.
3. Data Security: AIS incorporates robust security measures to protect sensitive
financial information from unauthorized access, alterations, or data breaches.
4. Timeliness: AIS provides timely financial information, enabling management to
make informed decisions promptly.
5. Cost-Effectiveness: AIS contributes to cost-effectiveness by reducing manual
labor, minimizing errors, and streamlining accounting processes.
Data vs Information
Data Information
Data is a collection of facts. Information puts data facts into context.
data is raw and unorganized information is organized.
Data does not depend on information information depends on data.
Data isn’t sufficient for decision-making you can make decisions based on
information.
data typically includes numbers, figures, information typically includes language,
graphs, statistics or numerate symbols words, ideas, images or thoughts.
It is low-level knowledge. It is the second level of knowledge.
Example of data is student test score. Example of information is average score
of class that is derived from given data.