Disclaimer: This is an example of a student written essay.
Click here for sample essays written by our professional writers.

Any information contained within this essay is intended for educational purposes only. It should not be treated as authoritative or accurate when considering investments or other financial products.

Definition and purpose of computer accounting information system

Paper Type: Free Essay Subject: Accounting
Wordcount: 3310 words Published: 1st Jan 2015

Reference this

This literature review will begins with definitions and the purpose of (AIS) and discussion of the studies of general IT adoption and then reviews studies specifically focused on accounting software adoption. Then it will discuss the Uses,development and the step of AIS. The end of this literature review will discuss the effectiveness of accounting information system.

Get Help With Your Essay

If you need assistance with writing your essay, our professional essay writing service is here to help!

Essay Writing Service

Definition of computer accounting information system (AIS):

The computer accounting information system (AIS) was invented by professor Karen Osterheld, It was used as a system of records for business keeps to maintain its accounting system. This includes the purchase, sales, and other financial processes of the business. [1]The purpose of AIS is to accumulate data and provide decision makers (investors, creditors, and managers) with information to make decision, while this was previously a paper-based process, most modern businesses now use accounting software such as UBS, MYOB etc. [1]

IT Adoption Factors for computerized accounting: [2]

Several studies (Thong 1999; Harrison, Mykytyn and Riemenschneider 1997; Cragg and King 1993; Moore and Benbasat 1991; Treadgold 1990) of IT adoption have identified a variety of motivating factors. Thong (1999) attempted to consolidate the myriad of IT adoption research by developing an integrated model of information systems adoption. This model is a useful framework in reviewing the variables that impact on business owner’s decision to adopt IT.

Thong categorized the variables into four elements:

1. characteristics of the organizational decision makers:

2. characteristics of the technological innovation;

3. characteristics of the organization; and

4. characteristics of the environment in which the organization operates.

According to the literature all of the above characteristics influence, to varying degrees, the owner- manager’s decision to implement IT.

Characteristics of the Organizational Decision Makers

In large businesses teams are typically involved in the IT decision-making process. This is in contrast to small business where the owner-manager is usually the IT decision maker (Thong 1999). In small business, therefore, the characteristics of the owner-manager are critical in determining the organisation’s attitude to IT (Rizzoni 1991). The particular owner-manager characteristics important to IT adoption are: innovativeness, computer self-efficacy, level of IT knowledge, education, and IT training experience (Thong 1999). Compeau and Higgins (1995) defined computer self-efficacy as a “judgement of one’s capability to use a computer”. Small businesses that have CEOs (typically the owner) that have undertaken computer training and possess computer self-efficacy are more likely to implement IT (Delone 1988, Raymond 1988). Conversely, owner-managers can inhibit any worthwhile IT achievements through hostility or detachment toward IT (Thatcher and Perrewe 2002).

Characteristics of the Technological Innovation

The characteristics of the technological innovation itself are also an important determinant in the decision to adopt IT. Applying Roger’s (1983) theory to the adoption of accounting software as the innovation, the software must be perceived better than the predecessor system (most likely a manual accounting system); must be consistent with the needs of the adopter, such as capable of handling GST; must be easy to learn and use; the results must be apparent; and the accounting software should be available on a trial basis.

Over the past decade, the advent of powerful, low cost micro-computers coupled with user-friendly accounting software, have improved and lifted the barriers to IT innovation adoption. This has led to an increase in the adoption of IT by small business (Thong 1999).

Characteristics of the Organization

The characteristics of the organization are other variables that influences the decision whether to adopt IT. Organizational characteristics such as: business size, employee’s level of IT knowledge, industry sector, business location, and information-intensity has been analysed in previous research studies (See for examples: Fink 1999; Burgess 1998; Wenzler 1996; Attewell 1992; Yap 1990; and Delone 1988). Generally, the larger the number of employees, the greater the sales turnover, the more information-intensive the industry – the more likely a small business will adopt IT innovation.

Moreover, businesses tend to suffer resource poverty (Thong 1999) in terms of financial capacity, available time and IT skilled staff to facilitate innovation adoption.

Characteristics of the Environment

The characteristics of the environment in which the organisation operates relates to variables such as competition and external agents. For example, Link and Bozeman (2001) established that competition leads to innovative technology adoption. Treadgold’s (1990) study indicated that small businesses with high IT adoption rates had been influenced by external agents such as: trade associations, wholesalers, voluntary groups and franchisors. Wenzler (1996) found that small business customers were a significant reason for implementing IT, more so than the influence of competitors.

This paper extended the external agent influence to the role of accountants in the decision to adopt accounting software. Many small businesses are impeded by resource poverty, consequently the owner-manager does not have the available time or funds to source, analyze, review and implement software applications. Public Practice Accountants are in a unique position to provide systems analysis, design, implementation and support advice to their clients, thereby spreading the cost of acquiring this expertise among multiple customers. The accountant, therefore, could generally provide this service more efficiently and effectively, than if the small business owner performed the function himself or herself.

Furthermore, at the time of this study, the introduction of the Goods and Services Tax (GST) was an external influence on small business owner-managers’ decisions to adopt a CAS (see for example Lief 2000).

Motivating factors for the adoption of Accounting software [2]

The advent of powerful, low cost microcomputers, together with user-friendly accounting software, has allowed a greater number of business to implement IT in recent years (Raymond and Bergeron 1992). The need to facilitate financial management is another motivating factor for adopting accounting software (McMahon and Holmes 1991; Gorton 1999). Moreover, some researchers have identified a link between the use of CAS and enhanced business performance (see Gorton 1999; Smith 1999; and Reid and Smith 2002). An alternative view is that a growing SME faces increased financial

challenges and consequently there is a greater need for careful attention to financial management and financial reporting (McMahon 2001).

The major benefits of implementing a CAS are to increase business efficiency and to facilitate timely information (Burgess 1997). The impediments to implementing a CAS are lack of time (Proudlock et al. 1999), owner-manager’s view that the CAS is costly (Head 2000), perception that the technology is not suited to the nature of the business (ABS 2000), and lack of IT expertise (ABS 2000; Burgess 1997).

Accounting information systems Technology: [3]

Input The input devices that needed win Accounting information systems include:

standard personal computers or workstations running applications;

scanning devices for standardized data entry;

electronic communication devices for electronic data interchange (EDI) and


Process Basic processing is achieved through computer systems in the personal computers to large-scale enterprise servers. However, processing model is still the ”double-entry” accounting system .

Output Output devices used include

computer displays,

impact and nonimpact printers,

electronic communication devices for EDI and e-commerce.

The output can be financial reports from budgets and tax reports to multinational financial statements.

Uses of AIS [3]

AISs cover all business functions from backbone accounting transaction processing systems to sophisticated financial management planning and processing systems.

Financial reporting starts by capture important business transactions such as normal production, purchasing, and selling activities then these transactions are classified and summarized for internal decision making and for external financial reporting.

Cost accounting systems are used in manufacturing and service company. This accounting system will help these organizations to track (measure) the costs for the production of goods and/or performance of services. In addition,it can provide advanced analyses tracking the cost of product or service.

Management accounting systems are used for planning, monitoring, and control for a variety of activities . This allows managerial-level employees to have access to advanced reporting and statistical analysis. The systems can be used to gather information, to develop various scenarios, and to choose an optimal answer among alternative scenarios

Development [3]

The development of AIS includes five basic phases the time period associated with each of these phases can be as short as a few weeks or as long as several years. This five phases include:

Phase 1 planning : In this phase the entails determination of the scope and objectives of the project, the definition of project responsibilities, control requirements, project phases, project budgets, and project deliverables.

Phase 2 analysis :This phase is used to both determine and document the accounting and business processes used by the organization. It include three type of analysis which are:

Data analysis is a thorough review of the accounting information that is currently being collected by an organization. Current data are then compared to the data that the organization should be using for managerial purposes.

Decision analysis is a thorough review of the decisions a manager is responsible for making. Then models are created to support the manager in gathering financial and related information to develop and design alternatives, and to make actionable choices.

Process analysis is a thorough review of the organization’s business processes. These processes can then be modified or reengineered to improve the organization’s operations in terms of lowering cost, improving service, improving quality, or improving management information.

Phase 3: design: The design phase takes the conceptual results of the analysis phase then develops and involves the detailed design of all inputs, processing, storage, and outputs of the proposed accounting system.

Inputs may be defined using screen layout tools and application generators.

Processing can be shown through the use of flowcharts or business process maps that define the system logic, operations, and work flow.

Logical data storage designs are identified by modeling the relationships among the organization’s resources, events, and agents through diagrams.

Output designs are documented through the use of a variety of reporting tools such as report writers, data extraction tools, query tools, and on-line analytical processing tools.

Phase 4 Implementation:The implementation phase consists of two primary parts: construction and delivery.

Construction includes the selection of hardware, software and vendors for the implementation;building and testing the network communication systems; building and testing the databases; writing and testing the new program modifications; and installing and testing the total system from a technical standpoint.

Delivery is the process of conducting final system and user acceptance testing; preparing the conversion plan; installing the production database; training the users; and converting all operations to the new system.

Phase 5 support: This phase has two objectives.

The first is to update and maintain the AIS. This includes fixing problems and updating the system for business and environmental changes. For example, changes in generally accepted accounting principles (GAAP) or tax laws might necessitate changes to conversion or reference tables used for financial reporting.

The second objective of support is to continue development by continuously improving the business through adjustments to the AIS caused by business and environmental changes. These changes might result in future problems, new opportunities, or management or governmental directives requiring additional system modifications.

The Accounting information systems is very useful for companies and businesses in order to make the accounting process easier by spacial computer program or other system . Accounting software, make it easier to accumulate financial data for use in taxes, payroll, and other bookkeeping requirements.

The step of the accounting system: [4]

Step1: Recording ( recording expenses and profits that are very important to keep on file).

Step2: Information processed for use (when processed, it is filed in the areas where it is most important).

Sep3: Communication phase (common communications of this data will be used for payroll and tax purposes).

In the first step all the data recorded in the accounting system in daily basis or minute by minute as sales, profits, expenses, and many other items will be used for future use in financial reports. Much of this data has to be kept on file for a number of years for example tax purpose.

The next step that is taken is processing. In this stage most accounting software or programs, have different files and categories where records can be stored this filing or storage can be done manually by the individual or group of people who work on it and can also be set to do this automatically as information is entered into the system. Certain criteria can be set up in the program to allow the program to place files and data in the places or areas where it is supposed to go.

Find Out How UKEssays.com Can Help You!

Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.

View our services

The final step is the process of communicating the data in the area in which it should be communicated. First, and most importantly, tax records that are recorded and processed can be communicated at the time that filing taxes is done. Most corporations communicate there financial information on quarterly basis, other companies especially smaller businesses on an annual basis. In large corporations, like major retailers, there are often several smaller stores or branches of the company that must share information through accounting software or systems This information can help the company forecast sales, profits, loss, and a variety of other things. Many corporations share this information on a daily, weekly, or quarterly basis. The process of communication is probably the most important stage of accounting information systems because this is the point where results are known and records will be put to use.

Most of the businesses and corporations now use the accounting system and become big part of them. Using resources available through accounting information systems allows major corporations and small businesses to record transactions and other financial information for use in the future. Moreover that the use of the accounting system by this company can make:

the process much smoother,

save money for the business,

and save a great deal of time.

easy to file and send documents to the IRS or other interested individuals.

no need to take paperwork or other materials to an accountant for tax and payroll purposes.

Taking advantage of this type of system can provide many great benefits to a large or small business. Accounting is a very important part of running and maintaining a business and the success of a company will often heavily rely on the practices and procedures that are used in the bookkeeping efforts of the company.

The effectiveness of the computerized accounting [5]

(Markus- 1983) shown that successful implementation of accounting systems requires a fit between three factors [17]. A fit must be achieved with dominant view in the organization or perception of the situation. Second, the accounting system must fit when

problems are normally solved, i.e. the technology of the organization. Finally, the accounting system must fit with the culture, i.e. Systems will be useful when information provided by them is used effectively in decision-making process by users.

(Otley-1980)[20] argues that Accounting Systems are important parts of the fabric of organizational life and need to be evaluated in their wider managerial, organizational and environmental context. Therefore, the effectiveness of accounting information systems not only depends on the purposes of such systems but also depends on contingency factors of each organization.

(Ives-1983)Accounting information systems are said to be effective when the information provided by them serves widely the requirements of the system users. Effective systems should systematically provide information which has potential effects on decision-making process [12].

Accounting information usually is categorized under two groups:

information that influences decision-making and mainly used for the purpose controlling the organization and

information that facilitates decision

(Huber-1990) [11] argues that, integration of accounting information systems leads to coordination in organization which, in turn, increases the quality of the decisions. (Cameron-1986 / Delone-1992) show that the effectiveness of accounting information systems depend upon the quality of the output of the information system that can satisfy the users’ needs [3,8].

Generally, accounting information systems; 1) provide financial reports on a daily and weekly basis and; 2) provide useful information for monitoring decision-making process and performance of the organization. (Simon-1987) [22] in his study used the first part of the above statement as measure of control for management and the second part for evaluating the effectiveness of the accounting information systems via continuous monitoring.

Accounting information system is a computer-based system that (Nicoloau-2000) [19] defines as a system that increases the control and enhances the corporation inside the organization. Management is engaged with different types of activities which require good quality and reliable information. They also need non-financial information such as production statistics, quality of production and so on. However,( Essex and Magal -1998 ) said that quality of information generated from AIS is very important for management [10].

(Kim-1989) [13] argues that usage of AIS depends on the perception of the quality of information by the users. Generally the quality of information depends on reliability, form of reporting, timeliness and relevance to the decisions.

(Doll and Torkzadeh-1988) [9] for studying the satisfaction of users use some concepts to measure the effectiveness of the accounting information systems. These concepts are information content, accuracy, format, ease of use and timeliness.


Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: