Accounting Information System

Accounting Information Systems

Accounting Information Systems (AISs) combine the study and practice of accounting with the design, implementation, and monitoring of information systems. Such systems use modern information technology resources together with traditional accounting controls and methods to provide users the financial information necessary to manage their organizations.

Ais Technology

Input The input devices commonly associated with AIS include: standard personal computers or workstations running applications; scanning devices for standardized data entry; electronic communication devices for electronic data interchange (EDI) and e-commerce. In addition, many financial systems come "Web-enabled" to allow devices to connect to the World Wide Web.

Process Basic processing is achieved through computer systems ranging from individual personal computers to large-scale enterprise servers. However, conceptually, the underlying processing model is still the "double-entry" accounting system initially introduced in the fifteenth century.

Output Output devices used include computer displays, impact and nonimpact printers, and electronic communication devices for EDI and e-commerce. The output content may encompass almost any type of financial reports from budgets and tax reports to multinational financial statements.

Management Information Systems (MIS)

MISs are interactive human/machine systems that support decision making for users both in and out of traditional organizational boundaries. These systems are used to support an organization's daily operational activities; current and future tactical decisions; and overall strategic direction. MISs are made up of several major applications including, but not limited to, the financial and human resources systems.

Financial applications make up the heart of an AIS in practice. Modules commonly implemented include: general ledger, payables, procurement/purchasing, receivables, billing, inventory, assets, projects, and budgeting.

Human resource applications make up another major part of modern information systems. Modules commonly integrated with the AIS include: human resources, benefits administration, pension administration, payroll, and time and labor reporting.

Ais—information Systems in Context

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

Financial reporting starts at the operational levels of the organization, where the transaction processing systems capture important business events such as normal production, purchasing, and selling activities. These events (transactions) are classified and summarized for internal decision making and for external financial reporting.

Cost accounting systems are used in manufacturing and service environments. These allow organizations to track the costs associated with the production of goods and/or performance of services. In addition, the AIS can provide advanced analyses for improved resource allocation and performance tracking.

Management accounting systems are used to allow organizational 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

The development of an AIS includes five basic phases: planning, analysis, design, implementation, and support. The time period associated with each of these phases can be as short as a few weeks or as long as several years.

Planning—project management objectives and techniques The first phase of systems development is the planning of the project. This entails determination of the scope and objectives of the project, the definition of project responsibilities, control requirements, project phases, project budgets, and project deliverables.

Analysis The analysis phase is used to both determine and document the accounting and business processes used by the organization. Such processes are redesigned to take advantage of best practices or of the operating characteristics of modern system solutions.

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. This method is used primarily when designing accounting transaction processing systems.

Decision analysis is a thorough review of the decisions a manager is responsible for making. The primary decisions that managers are responsible for are identified on an individual basis. Then models are created to support the manager in gathering financial and related information to develop and design alternatives, and to make actionable choices. This method is valuable when decision support is the system's primary objective.

Process analysis is a thorough review of the organization's business processes. Organizational processes are identified and segmented into a series of events that either add or change data. 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. This method is appropriate when automation or reengineering is the system's primary objective.

Design The design phase takes the conceptual results of the analysis phase and develops detailed, specific designs that can be implemented in subsequent phases. It 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. Also, entity relationship diagram (ERD) modeling is used to document large-scale database relationships. 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. In addition, all aspects of the design phase can be performed with software tool sets provided by specific software manufacturers.

Reporting is the driving force behind an AIS development. If the system analysis and design are successful, the reporting process provides the information that helps drive management decision making. Accounting systems make use of a variety of scheduled and on-demand reports. The reports can be tabular, showing data in a table or tables; graphic, using images to convey information in a picture format; or matrices, to show complex relationships in multiple dimensions.

There are numerous characteristics to consider when defining reporting requirements. The reports must be accessible through the system's interface. They should convey information in a proactive manner. They must be relevant. Accuracy must be maintained. Lastly, reports must meet the information processing (cognitive) style of the audience they are to inform.

Reports are of three basic types: A filter report that separates select data from a database, such as a monthly check register; a responsibility report to meet the needs of a specific user, such as a weekly sales report for a regional sales manager; a comparative report to show period differences, percentage breakdowns and variances between actual and budgeted expenditures. An example would be the financial statement analytics showing the expenses from the current year and prior year as a percentage of sales.

Screen designs and system interfaces are the primary data capture devices of AISs and are developed through a variety of tools. Storage is achieved through the use of normalized databases that assure functionality and flexibility.

Business process maps and flowcharts are used to document the operations of the systems. Modern AISs use specialized databases and processing designed specifically for accounting operations. This means that much of the base processing capabilities come delivered with the accounting or enterprise software.

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.

Tool sets are a variety of application development aids that are vendor-specific and used for customization of delivered systems. They allow the addition of fields and tables to the database, along with ability to create screen and other interfaces for data capture. In addition, they help set accessibility and security levels for adequate internal control within the accounting applications.

Security exists in several forms. Physical security of the system must be addressed. In typical AISs the equipment is located in a locked room with access granted only to technicians. Software access controls are set at several levels, depending on the size of the AIS. The first level of security occurs at the network level, which protects the organization's communication systems. Next is the operating system level security, which protects the computing environment. Then, database security is enabled to protect organizational data from theft, corruption, or other forms of damage. Lastly, application security is used to keep unauthorized persons from performing operations within the AIS.

Testing is performed at four levels. Stub or unit testing is used to insure the proper operation of individual modifications. Program testing involves the interaction between the individual modification and the program it enhances. System testing is used to determine that the program modifications work within the AIS as a whole. Acceptance testing ensures that the modifications meet user expectations and that the entire AIS performs as designed.

Conversion entails the method used to change from an old AIS to a new AIS. There are several methods for achieving this goal. One is to run the new and old systems in parallel for a specified period. A second method is to directly cut over to the new system at a specified point. A third is to phase in the system, either by location or system function. A fourth is to pilot the new system at a specific site before converting the rest of the organization.

Support The support 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.

Attestation

AISs change the way internal controls are implemented and the type of audit trails that exist within a modern organization. The lack of traditional forensic evidence, such as paper, necessitates the involvement of accounting professionals in the design of such systems. Periodic involvement of public auditing firms can be used to make sure the AIS is in compliance with current internal control and financial reporting standards.

After implementation, the focus of attestation is the review and verification of system operation. This requires adherence to standards such as ISO 9000-3 for software design and development as well as standards for control of information technology.

Periodic functional business reviews should be conducted to be sure the AIS remains in compliance with the intended business functions. Quality standards dictate that this review should be done according to a periodic schedule.

Enterprise Resource Planning (ERP)

ERP systems are large-scale information systems that impact an organization's AIS. These systems permeate all aspects of the organization and require technologies such as client/server and relational databases. Other system types that currently impact AISs are supply chain management (SCM) and customer relationship management (CRM).

Traditional AISs recorded financial information and produced financial statements on a periodic basis according to GAAP pronouncements. Modern ERP systems provide a broader view of organizational information, enabling the use of advanced accounting techniques, such as activity-based costing (ABC) and improved managerial reporting using a variety of analytical techniques.

Advertising Strategy

An advertising strategy is a campaign developed to communicate ideas about products and services to potential consumers in the hopes of convincing them to buy those products and services. This strategy, when built in a rational and intelligent manner, will reflect other business considerations (overall budget, brand recognition efforts) and objectives (public image enhancement, market share growth) as well. As Portable MBA in Marketing authors Alexander Hiam and Charles D. Schewe stated, a business's advertising strategy "determines the character of the company's public face." Even though a small business has limited capital and is unable to devote as much money to advertising as a large corporation, it can still develop a highly effective advertising campaign. The key is creative and flexible planning, based on an indepth knowledge of the target consumer and the avenues that can be utilized to reach that consumer. Today, most advertising strategies focus on achieving three general goals, as the Small Business Administration indicated in Advertising Your Business: 1) promote awareness of a business and its product or services; 2) stimulate sales directly and "attract competitors' customers"; and 3) establish or modify a business' image. In other words, advertising seeks to inform, persuade, and remind the consumer. With these aims in mind, most businesses follow a general process which ties advertising into the other promotional efforts and overall marketing objectives of the business.

STAGES OF ADVERTISING STRATEGY
As a business begins, one of the major goals of advertising must be to generate awareness of the business and its products. Once the business' reputation is established and its products are positioned within the market, the amount of resources used for advertising will decrease as the consumer develops a kind of loyalty to the product. Ideally, this established and ever-growing consumer base will eventually aid the company in its efforts to carry their advertising message out into the market, both through its purchasing actions and its testimonials on behalf of the product or service. Essential to this rather abstract process is the development of a "positioning statement," as defined by Gerald E. Hills in "Marketing Option and Marketing" in The Portable MBA in Entrepreneurship: "A 'positioning statement' explains how a company's product (or service) is differentiated from those of key competitors." With this statement, the business owner turns intellectual objectives into concrete plans. In addition, this statement acts as the foundation for the development of a selling proposal, which is composed of the elements that will make up the advertising message's "copy platform." This platform delineates the images, copy, and art work that the business owner believes will sell the product. With these concrete objectives, the following elements of the advertising strategy need to be considered: target audience, product concept, communication media, and advertising message. These elements are at the core of an advertising strategy, and are often referred to as the "creative mix." Again, what most advertisers stress from the beginning is clear planning and flexibility. And key to these aims is creativity, and the ability to adapt to new market trends. A rigid advertising strategy often leads to a loss of market share. Therefore, the core elements of the advertising strategy need to mix in a way that allows the message to envelope the target consumer, providing ample opportunity for this consumer to become acquainted with the advertising message.

TARGET CONSUMER
The target consumer is a complex combination of persons. It includes the person who ultimately buys the product, as well as those who decide what product will be bought (but don't physically buy it), and those who influence product purchases, such as children, spouse, and friends. In order to identify the target consumer, and the forces acting upon any purchasing decision, it is important to define three general criteria in relation to that consumer, as discussed by the Small Business Administration:
1. Demographics—Age, gender, job, income, ethnicity, and hobbies.
2. Behaviors—When considering the consumers' behavior an advertiser needs to examine the consumers' awareness of the business and its competition, the type of vendors and services the consumer currently uses, and the types of appeals that are likely to convince the consumer to give the advertiser's product or service a chance.
3. Needs and Desires—Here an advertiser must determine the consumer needs—both in practical terms and in terms of self-image, etc.—and the kind of pitch/message that will convince the consumer that the advertiser's services or products can fulfill those needs.

PRODUCT CONCEPT
The product concept grows out of the guidelines established in the "positioning statement." How the product is positioned within the market will dictate the kind of values the product represents, and thus how the target consumer will receive that product. Therefore, it is important to remember that no product is just itself, but, as Courtland L. Bovee and William F. Arens stated in Contemporary Advertising, a "bundle of values" that the consumer needs to be able to identify with. Whether couched in presentations that emphasize sex, humor, romance, science, masculinity, or femininity, the consumer must be able to believe in the product's representation.

COMMUNICATION MEDIA
The communication media is the means by which the advertising message is transmitted to the consumer. In addition to marketing objectives and budgetary restraints, the characteristics of the target consumer need to be considered as an advertiser decides what media to use. The types of media categories from which advertisers can choose include the following:
• Print—Primarily newspapers (both weekly and daily) and magazines.
• Audio—FM and AM radio.
• Video—Promotional videos, infomercials.
• World Wide Web.
• Direct mail.
• Outdoor advertising—Billboards, advertisements on public transportation (cabs, buses).
After deciding on the medium that is 1) financially in reach, and 2) most likely to reach the target audience, an advertiser needs to schedule the broadcasting of that advertising. The media schedule, as defined by Hills, is "the combination of specific times (for example, by day, week, month) when advertisements are inserted into media vehicles and delivered to target audiences."

ADVERTISING MESSAGE
An advertising message is guided by the "advertising or copy platform," which is a combination of the marketing objectives, copy, art, and production values. This combination is best realized after the target consumer has been analyzed, the product concept has been established, and the media and vehicles have been chosen. At this point, the advertising message can be directed at a very concrete audience to achieve very specific goals. Hiam and Schewe listed three major areas that an advertiser should consider when endeavoring to develop an effective "advertising platform":
• What are the product's unique features?
• How do consumers evaluate the product? What is likely to persuade them to purchase the product?
• How do competitors rank in the eyes of the consumer? Are there any weaknesses in their positions? What are their strengths?
Most business consultants recommend employing an advertising agency to create the art work and write the copy. However, many small businesses don't have the up-front capital to hire such an agency, and therefore need to create their own advertising pieces. When doing this a business owner needs to follow a few important guidelines.

COPY
When composing advertising copy it is crucial to remember that the primary aim is to communicate information about the business and its products and services. The "selling proposal" can act as a blueprint here, ensuring that the advertising fits the overall marketing objectives. Many companies utilize a theme or a slogan as the centerpiece of such efforts, emphasizing major attributes of the business's products or services in the process. But as Hiam and Schewe caution, while "something must be used to animate the theme …care must be taken not to lose the underlying message in the pursuit of memorable advertising."
When writing the copy, direct language (saying exactly what you mean in a positive, rather than negative manner) has been shown to be the most effective. The theory here is that the less the audience has to interpret, or unravel the message, the easier the message will be to read, understand, and act upon. As Jerry Fisher observed in Entrepreneur, "Two-syllable phrases like 'free book,' 'fast help,' and 'lose weight' are the kind of advertising messages that don't need to be read to be effective. By that I mean they are so easy for the brain to interpret as a whole thought that they're 'read' in an eye blink rather than as linear verbiage. So for an advertiser trying to get attention in a world awash in advertising images, it makes sense to try this message-in-an-eye-blink route to the public consciousness—be it for a sales slogan or even a product name."
The copy content needs to be clearly written, following conventional grammatical guidelines. Of course, effective headings allow the reader to get a sense of the advertisement's central theme without having to read much of the copy. An advertisement that has "50% Off" in bold black letters is not just easy to read, but it is also easy to understand.

ART WORK AND LAYOUT
Small business owners also need to consider the visual rhetoric of the advertisement, which simply means that the entire advertisement, including blank space, should have meaning and logic. Most industry experts recommend that advertisers use short paragraphs, lists, and catchy illustrations and graphics to break up and supplement the text and make the document both visually inviting and easy to understand. Remember, an advertisement has to capture the reader's attention quickly.

ADVERTISING BUDGET
The advertising budget can be written before or after a business owner has developed the advertising strategy. When to make a budget decision depends on the importance of advertising and the resources available to the business. If, for instance, a business knows that they only have a certain amount of money for advertising then the budget will tend to dictate what advertising is developed and what the overall marketing objectives will be. On the other hand, if a business has the resources available, the advertising strategy can be developed to meet predetermined marketing objectives. For small businesses, it is usually best to put together an advertising budget early in the advertising process.
The following approaches are the most common methods of developing an effective budget. All the methods listed are progressive ones that look to perpetuate growth:
• Percentage of future or past sales
• Competitive approach
• Market share
• All available funds
• The task or objective approach
The easiest approach—and thus the one that is most often used—is the percentage of future or past sales method. Most industry experts recommend basing spending on anticipated sales, in order to ensure growth. But for a small business, where survival may be a bigger concern than growth, basing the advertising budget on past sales is often a more sensible approach to take.

METHODS OF ADVERTISING
Small business owners can choose from two opposite philosophies when preparing their advertising strategy. The first of these, sometimes called the push method, is a stance wherein an advertiser targets retail establishments in order to establish or broaden a market presence. The second option, sometimes called the pull method, targets end-users (consumers), who are expected to ask retailers for the product and thus help "pull" it through the channel of distribution. Of course, many businesses employ some hybrid of the two when putting together their advertising strategy.

PUSH METHOD
The aim of the push method is to convince retailers, salespersons, or dealers to carry and promote the advertiser's product. This relationship is achieved by offering inducements, such as providing advertising kits to help the retailer sell the product, offering incentives to carry stock, and developing trade promotions.

PULL METHOD
The aim of the pull method is to convince the target consumer to try, purchase, and ultimately repurchase the product. This process is achieved by directly appealing to the target consumer with coupons, in-store displays, and sweepstakes.

ANALYZING ADVERTISING RESULTS
Many small businesses are distressingly lax in taking steps to monitor whether their advertising efforts are having the desired effect. Instead, they simply throw a campaign out there and hope for the best, relying on a general sense of company health when determining whether to continue, terminate, or make adjustments to advertising campaigns. These small business owners do not seem to recognize that myriad factors can influence a business's fortunes (regional economic straits, arrival of new competition, seasonal buying fluctuations, etc.). The small business owner who does not bother to adequately analyze his or her advertising efforts runs the danger of throwing away a perfectly good advertising strategy (or retaining a dreadful one) if he or she is unable to determine whether business upturns or downturns are due to advertising or some other factor. The only way to know with any accuracy how your advertising strategy is working is to ask the consumer, the opinions of whom can be gathered in several ways. Although many of the tracking alternatives are quite specialized, requiring either a large budget or extensive advertising research expertise, even small businesses can take steps to measure the effectiveness of their advertising strategies. The direct response survey is one of the most accurate means of measuring the effectiveness of a company's advertising for the simple reason that it measures actual responses to a business's advertisements. Other inexpensive options, such as use of redeemable coupons, can also prove helpful in determining the effectiveness of an advertising campaign.

ADVERTISING AGENCIES
The decision whether or not to use an advertising agency depends both on a company's advertising strategy and its financial resources. An agency has professionals who can organize, create, and place advertising so that it will meet established objectives better than most small businesses can do on their own, but of course the expense associated with soliciting such talent is often prohibitive for smaller companies. Still, some small- and mid-sized businesses have found that agencies can be helpful in shaping and monitoring advertising strategies. Because of their resources and expertise, agencies are useful when a business is planning a broad advertising campaign that will require a large amount of resources. An advertising agency can also help track and analyze the effectiveness of the advertising. Some criteria to consider when choosing an agency include size of the agency, size of their clients (small companies should avoid allying themselves with agencies with a large stable of big corporate clients so that they are not treated as afterthoughts), length of time that the principals have been with the agency, the agency's general advertising philosophy, and the primary nature of the agency's accounts (are they familiar with your industry and the challenges involved in differentiating your company's products or services from others in that industry?).

ADVERTISING LAWS
The Federal Trade Commission (FTC) protects consumers from deceptive or misleading advertising. Small business owners should be familiar with the following laws, which pertain to marketing and advertising and are enforced by the Commission:
• Consumer Product Safety Act—Outlines required safety guidelines and prohibits the sale of harmful products.
• Child Protection and Toy Safety Act—Prohibits the sale of toys known to be dangerous.
• Fair Packaging and Labeling Act—Requires that all packaged products contain a label disclosing all ingredients.
• Antitrust Laws—Protects trade and commerce from unlawful restraints, price deception, price fixing, and monopolies.
Many complaints against advertisers center on allegedly deceptive advertisements, so small business consultants urge entrepreneurs and business owners to heed the following general rules of thumb:
1. Avoid writing ads that make false claims or exaggerate the availability of the product or the savings the consumer will enjoy.
2. Avoid running out of advertised sale items. If this does happen, businesses should consider offering "rain-checks" so that the consumer can purchase the item later at the same reduced price.
3. Avoid calling a product "free" if it has cost closely associated with it. If there are costs associated with the free item they need to be clearly disclosed in the ad.
Since advertising is a complex process, and business law undergoes continual change, business owners should consult an attorney before distributing any advertising.