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- Chapter 2 CF2for more information.

Chapter 2: Accounting information system Section

1: Basics of SIC
1.1. Information requirements and management activities: input methods (mechanisms
by which information is entered into the system)
All organisations need information in order to make effective decisions. In addition, all
organisations have certain business processes in which they are continually engaged. A
business process is a set of related, coordinated and structured activities and tasks that are
carried out by a person, computer or machine, and that help to achieve a specific
organisational objective.
To make effective decisions, organisations need to decide what decisions to make, what
information they need to make those decisions, and how to collect and process the data
needed to produce the information. This data collection and processing is often linked to
an organisation's business needs and processes.
❑ Information needs
It is important to understand how the business operates, before you can effectively
identify the information you need to manage it efficiently. Next, the types of data that
need to be collected and produced are determined. The following table summarises the
analysis of core business processes, some of the necessary decisions that need to be made
for each process and the information needed to make such decisions.
Table 1: Focus on operational processes, decisions and information needs
Business processes Key decisions Information needs
Capital fro How many? Cash flow forecasts
acquisition m Find from investors or Pro forma financial statements
borrow funds
If you borrow, how Table depreciation of
get the best terms? loans
Acquisition of of Equipment size Capacity requirements
buildings and a Amount of equipment Cost of buildings an
equipment n equipment d
d Buy or rent Market research
How to write off Rates tax rate an
depreciation d
regulations
Hire Experience requirements Job description
an How to assess the integrity and History employment
d history and
candidates' skills?
train employees candidate's skills
How do you train employees?
Advertisi an Which media? Cost analysis
ng d What content? Market coverage
Marketing
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Sale of fro What price optimal for eachCosts of costs,

merchandis m product? margin
e desired
How to customise products Requirements and
for customers? preferences of
consumers
How to deliver Preferences fromdelivery
products? from
customer
Which credit cards do you accept? Customer solvency status
Collection fro If you offer credit, which Customer account status
customer m are the conditions?
payments fro How to manage Report on seniority of
m effectively the customer accounts
receipts?
Paying employees Amount payable Sales (for commissions)
Deductions and deductions at Time of working
source (for the
hourly-paid employees)
Payment of tax Payment requirements Regulations
tax government
Tax requirements Total payroll costs
sale
Payment fro Who do you have to pay? Supplier invoices
suppliers m When do you have to pay? Files of
accounts
creditors
How much do I have to pay? Terms of payment

This list is not exhaustive, but it does provide a good overview of the company and how it
operates. On the other hand, it should be recognised that not all the information needs
listed in the last column are met internally. For example, information about payment
terms for the purchase of goods will be produced by suppliers. Consequently, it is
necessary t o integrate external data with internally generated data in order to benefit
from both types of information.
Such a company will need to establish interaction between a number of external
stakeholders such as customers, suppliers and government agencies, and internal players
such as top management and employees. The following figure provides a better
understanding of the most important interactions with these stakeholders.

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Figure 1: Interactions between the company's SIC and its internal and external stakeholders.

Source :

❑ Business or operational processes

The business processes listed above can be reorganised into groups of related transactions.
A transaction is an agreement between two entities to exchange goods or services, or any
other object that can be measured economically by an organisation.
Example:
The operation that begins with the entry of transaction data and ends with the production
of information, such as financial statements, is called transaction processing.
Several activities represent event peers involved in give-get exchanges. Most
organisations engage in a small number of give-get exchanges, but each type of exchange
occurs several times, on a regular basis.
For example: the company will make thousands of product sales each year in exchange
for cash, or it will continually buy goods from suppliers in exchange for cash.
These exchanges can be grouped into five (05) operational processes or transaction
cycles. The following figure defines the essential activities in each transaction cycle:

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Figure 2: The SIC and its sub-systems

Financing cycle

Donate Get
Funds cash cash

Funds Funds

Payroll cycleExpense cycle

Obtaini
Give Getting Give the ng
the cash the job cash goods
and PM

Data Good
Data Data s
purcha
sed

Accounting Informatio
information system n for
(General ledger and internal
reporting)
and
Data external
users

Data
Work Materials
first

Production cycle

Donne Get
r finished
Travai product
l et s
MP

Products
finishes
Recipe cycle

Donate
Get
goods cash
and
services

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ACCOUNTING INFORMATION SYSTEM - Chapter 2 CF2

- The expenditure cycle: the company buys goods for resale or raw materials for the
production of goods in exchange for cash or a promise of payment.
- The production or transformation cycle: raw materials are transformed into
finished products.
- The payroll or human resources cycle: employees are hired and trained,
paid, assessed, promoted and dismissed.
- Financing cycle: the company sells shares and borrows money, investors receive
dividends and interest is paid on the loans taken out.
- The revenue cycle: goods and services are sold for cash or on the promise of
payment.
In many accounting software packages, transaction cycles are run in separate modules,
especially as not all organisations need to implement all modules. For example, small
retailers will not have a production cycle and therefore it will not be implemented. In
addition, some organisations, such as financial institutions, have unique requirements
such as deposit and loan cycles that relate t o transactions involving customer accounts.
What's more, the nature of a given transaction cycle differs from one type of organisation
to another (depending o n business lines and management styles).
For example, the expenditure cycle of a service company, such as a law firm, does not
normally involve the processing of transactions relating to the purchase, receipt and
payment of goods that will be resold to clients. Each transaction cycle includes a number
of different activities or business processes and each of these can be relatively simple or
complex.

1.2. Types of accounting information system (showing the transition from manual to
computerised systems)
Today, when we talk about an accounting information system (AIS), we usually mean a
computerised accounting system, because the computers and computer software that help
us process accounting transactions have become relatively inexpensive. The benefits of
using a computerised accounting system outweigh the costs of purchasing such a system,
and almost all businesses, even the smallest, can afford and actually use a computerised
accounting system. This is not to say that paper-based or manual accounting systems and
processes have disappeared. Most businesses have some form of non-computerised and
computerised systems.

❑ Reminders
We noted earlier that an accounting information system (AIS) is a set of rules, procedures,
methods and techniques designed to organise, manage and control the production of
accounting, tax, financial and social information. The purpose of an AIS is to meet the
many obligations of companies, but also to

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set up the management tools needed to steer and strategically manage companies.
The procedure applicable to the organisation of a SIC is based on the General Chart of
Accounts (PCG). The PCG stipulates that documentation describing the organisation and
accounting procedures must be drawn up to ensure that the system is understood and
controlled.
The procedures manual is a document (paper or digital) that sets out how the company is
organised, how accounting information is processed, how data is updated and the system's
control mechanisms. The accounting procedures and organisation books must present the
organisation of the accounting function, the chart of accounts, the resources used and the
information produced.

❑ Manual configuration of a SIC

In a manual system :
- Each commercial transaction is recorded as an entry in an accounting document
(e.g. the journal), using pen and paper: this is an accounting entry;
- The accounting entries are then recorded in a general ledger;
- Balances are calculated manually or using an adding machine or calculator for
each ledger account;
- A trial balance is prepared;
- Adjusting accounting entries are prepared;
- Finally, the financial statements are prepared, all by hand.

Manual configuration therefore follows a classic, well-known pattern that can be summarised as
follows:
- Analysis of accounting transactions
- Examination of accounts through debit and credit procedures, shareholder relations
and expansion of the basic equation;
- The stages in the recording process, looking in turn at the journal, the general
ledger, t h e chart of accounts and the display
- The trial balance.

Data storage is a crucial stage in any information system. It is one of the four key
functions of an information system. Data can be stored by a CIS in paper form, digitally
or in the cloud. Before computers were widely used, financial data was stored on paper,
such as journals and l e d g e r s .
In manual mode, the SIC can be represented as follows:

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Figure 3: Hardware configuration of a manual SIC

❑ Computerised configuration of a CIS: system management using an ERP (see

the IPSO Biz brochure)
Accounting information systems are increasingly powerful and automated, thanks to the
use of integrated management software packages. Working from a server equipped with a
single database linked to multiple interconnected modules means that t h e system's
information can be used in all areas of business management.
The following diagrams show the importance of this interconnection between the different
facets of accounting and management from the perspective of new information and
communication technologies (NICT).
The advantage of an integrated management system is that it facilitates the integration and
standardisation of processes, resulting in greater coherence, consistency and irrigation of
information to the various users. For the company, the objective is also to improve the
circulation process and the quality of information, which are sources of productivity and
value c r e a t i o n .

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Figure 4: Integrated management plan for the SCI

Storage systems have evolved with technology: from floppy disks to CDs, USB sticks and
the cloud. Your computer's hard drive is a data storage device, just like an external hard
drive that you can buy. The data stored must b e retrievable if necessary.
Depending on the deployment structure chosen, storage can be on physical media or via
the cloud. The figure illustrates a CIS in which the storage function is computerised.

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Figure 5: Hardware configuration of a computerised CIS

❑ Stages in the computerised processing of accounting documents

Computerised processing of accounting systems is becoming widespread in all
organisations. There are several stages involved in opening and processing a file using a
software package, due to the need for accounting documents to comply with current
standards and regulations. The processing can be presented as follows:

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Figure 6: Steps in processing accounting data using an ERP system

Access to the ability to capture data, manage processes or extract data requires adequate
controls to prevent fraud or unauthorised access and requires the implementation of data
security measures. These aspects are addressed in the second part.

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Section 2: The contribution of technological solutions and the importance of CIS

2.1. Accounting challenges and IT responses

Figure 7: The challenges facing accounting and its main IT responses

2.2. Importance of SICs and ethical considerations (need for codes of ethics, sources
and nature of accounting fraud)
Anyone pursuing a career in accounting needs to study and understand accounting
information systems (AIS) and related concepts. Any career in accounting will involve
the use o f an accounting information s y s t e m in some way.
Importance of the SIC
Accountants have several possible roles related to accounting information systems: they
may be users of the AIS, part of t h e AIS design or implementation team, and/or auditors
of an AIS.
❑ SIC users
Accountants in any organisation must use the accounting information system to perform
the functions of accounting, producing and using accounting reports. For example, the
controller of an organisation must supervise a team of accountants who record all the
accounting transactions, perform the closing of the accounts and prepare the financial
statements.

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monthly accounting records and generate the necessary reports for management and
external users.
The accounting information system is the mechanism that enables accounting staff to
perform these functions. Accountants therefore need to understand the concepts of the
AIS in order to perform these accounting tasks.
❑ Design or implementation team
Accountants are usually part of a multi-disciplinary team that designs and/or implements
accounting information systems. When an organisation is considering changes to its AIS,
accountants need to be involved in decisions on issues such as the evaluation of software
to be purchased, the design of software or systems and the implementation of software or
systems.
❑ SIC auditors
Auditors provide assurance services such as financial audits. To carry out an audit, the
auditor must gather evidence and make judgements about the completeness and accuracy
of accounting information.
The auditor cannot make the informed decisions necessary to perform the audit without an
understanding of the accounting information system. The auditor cannot judge the
reliability of the accounting data without understanding how the data is entered, processed
and reported in the accounting information s y s t e m .

Relationship between ethics and accounting information systems

Unfortunately, there are many opportunities for unethical or fraudulent behaviour linked
to accounting information systems. Accounting information systems can be misused to
help commit or conceal unethical acts. In other words, the AIS is often the tool used to
commit or conceal unethical behaviour.
This is just one example of how an accounting information system can be misused to
commit unethical acts. Other examples of potentially unethical behaviour, to name but a
few, include the following:
• Fraudulent financial reports
• Income inflation
• Fraud on expense accounts
• Inflating hours worked for payroll purposes
• Computer fraud
•Hacking
• Consultation of confidential data

There are many reasons why accountants need to be aware of potentially unethical
behaviour. Some of these reasons are that accountants :

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- Assist in the development and implementation of internal control structures that

should reduce the risk of unethical actions. People in this role need to understand
the nature of different types of unethical actions before they can design a system to
reduce the risks.
- Accountants are often under pressure to assist or conceal unethical actions.
Consequently, accountants need to understand which actions are ethical and which
are unethical in order to avoid being coerced into unethical actions.
- They deal with assets or records that could easily tempt the user into unethical
behaviour. For example, someone who handles money on a daily basis may be
tempted to steal some of it. Having a better understanding of what actions are
unethical can help them resist the temptation to commit unethical acts.

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