Write an essay on AIS (Accounting Information System).
The AIS (Accounting Information System) is defined as a specific structure, which every organization can use to manage, report, store, retrieves and collect the finance based information. It has been found that the accountants, consultants, business analysts, tax agencies, managers and auditors generally use this specific financial information. The primary objective of the accounting information system is to prepare various procedures with the aim to make effortless access to the financial information to the individual who really need its accessibility. By implementing the accounting information system, both the organization and its accountant get helped as it stores various data intact, safely and securely. The information technology infrastructure, internal controls, methodologies, instructions people and software are the main elements of the AIS. The accounting information system is a simpler system that indicates the people and the accountants of a company are the experts or professionals using the particular system. This system is also implemented by the consultants, business analysts, the chief financial officers and the auditors. This system provides guidance to different divisions of an organization with the aim to work together as by implementing well organization and well developed system of accounting, it provides support to each individual of the company to get access to the general data and information by the system. The accounting information system’s instructions and procedures are the procedures, which are used for retrieving, processing, storing and gathering information. Nevertheless, this stated information can be gathered from external sources and internal sources. The internal sources include the staffs and employees of a company; on the other hand, the external sources include the online orders of the customers. All the instructions and methodologies are represented in form of coded figures in the AIS software. Therefore, this coded form is constantly followed in order to become effective. The information and data that are available in the AIS software are all related to the business practices. Thus, various types of financial information are available in the AIS system. The primary data are dependent on the business’ nature. The most common data that are available in AIS software system include – data regarding sales orders, vendor invoices, inventory data, consumer billing statements, report regarding sales analysis and purchase requisites. This information helps to prepare the business reports on accounting statements and accounting. Currently, most of the organizations use the AIS software. Therefore, in every organization all information and data are kept and stored accurately and systematically. This gives proper guidance to the business to execute all the functions correctly. The hardware is considered as the infrastructure of information technology, which is implemented to operate the AIS. Therefore, the chosen hardware should be compatible with software. The security is measured by internal controls in order to secure the sensitive information. The AIS software stores several confidential matters about the organization, its staffs and customers. For instance, the organization WorldCom’s auditors implemented the AIS software within the company in order to find the ongoing fraudulent activities within the firm. By implementing this software, the accountants of the particular firm found that about $4 billion amount was spending in the purpose of fraudulent. Thus, it can be said that the internal auditors saved the company from undergoing bankruptcy and also terminated the CFO and new legislation of the organization.
All these goals can only be fulfilled when the AIS will possess particular characteristics, which are structured as per the qualitative characteristics of the information of accounting. Primarily, AIS helps in making decision. As per SFAC 1, the objective of reporting information about financial matter is to provide comprehensive information to its experts.
The qualitative characteristics of accounting information are of two types – primary and secondary qualities. The later one is composed of comparability and consistency and primary quality is composed of relevance and reliability. Relevance has three parts – feedback value, predictive value and timeliness and reliability is composed of faithfulness, neutrality and verifiability.
The capability of predicting an important factor as the investors depends upon this prediction. The investors invest depending upon this capability as the gain probability depends on this. On the other hand, feedback value is considered as the key element as it is used to find out the differentiation among the various procedures of decision making.
In reliability, both representational faithfulness and neutrality are counted as important factors. The agreement between the phenomenon measurement and design phenomenon are made to represent them and the representational faithfulness is counted. For instance, inventory is used in balance sheet that implies the products intended to sell. But, if an accountant includes the machines producing the products within inventory calculation, then it can be said that the accountant has lack of representational faithfulness. For example, in an organization named FedEx Corporation, the receivable less allowances was calculated $172 million in 2012 and it was accounted $168 million in 2013.
The neutrality is associated with the betterment of the accounting standards. Thus, the change in the accounting standards directly put impact on the economic consequences, investors, creditors and other interest groups adversely. Opined to Boateng (2013), it has been found that the board FASB has to suffer a lot for various complexities during the period of making balance between the economic consequences and neutrality. The FASB tried hard to convince the entire financial community about the fact that standard of accounting is not the objective that is used to set the accounting standard. According to Scott (2011), it has been noted that one of the members of the board FASB stated that this particular board mainly put importance to the neutrality for standard setting. In addition to this, it has been noticed that the qualities of the reliability and the qualities of the relevance often gets collided. For instance, in most of the organizations, the managers earn their incentives based on the profit represented by them in the profit and loss account, income statement and balance sheet. Therefore, it is a common factor that the managers might set the policy in such a way that they will look after their own benefit and will not concern about the benefit of the operation of the company.
It has been found that there are certain types of business and industries that are used in order to follow some ordinary procedures of accounting. The new business person in the particular industry also accepts the same procedure according to the trend of the particular industry. Thus, these accounting methods become the generally accepted procedure for some specific types of industries and businesses.
On the contrary, there are some procedures of accounting that are used broadly for providing services to certain purposes. The industries or the organizations that are associated with any of such particular purpose, this is used to retain the books under the general procedure (Deegan and Unerman 2011).
The positive accounting theory is most modern accounting theory that generally describes the causes for using the specific method of accounting by a particular industry or firm. This helps in predicting the particular organization or industry to select a particular method of accounting. The remaining theories of accounting recommend that the nature of the procedures of accounting and the scope of the application of the accounting procedures. This does not give the acceptability level of the procedures. On the other hand, the Profit after Tax (PAT) value provides the tendency of using any procedure and it also proclaims the particular reason for the popularity of any particular procedure in any particular kind of organization or/ and industry. Therefore, it has become much easy for the new business houses to select the most common methodology that is also used in the related industry (Scott 2011). The present organizations might also use this positive accounting theory for the alteration of the present methodologies with a popular one as per the trend of the particular industry or even as per the related common objectives.
For instance, it has been noted that several entities mainly use this positive accounting theory in order to maintain two different kinds of depreciation models. These organizations primarily use the straight line method of depreciation for the business purposes and on the other hand, these industries use the accelerated method or model of depreciation for the purpose of taxation. There are also various accounting theories that provide merits and demerits of these two particular methodologies. However, this cannot explain the reason for this peculiar trend of market. As per the concept of profit after tax, this particular trend is trailed by the accelerated method of depreciation, where the depreciation is charged for the first few years only, after buying any asset. This is considered as the very high and therefore, it declines the total amount of profit. for the evaluation of the normal profit, these industries or organizations internally follow the straight line method. Therefore, by the help of the PAT, the accountants of these industries or firms can get the significance of these trends based on the financial information available. The positive accounting theory is mainly structured based on two perspectives. These are – efficiency perspective and opportunistic perspective. Several firms favor some accounting procedures based on the efficiency level of these procedures. Some of the accounting procedures are used to work the system more effectively and efficiently in some nature of business or even for serving certain objectives. The efficiency perspective helps the accountants of the firm to provide more accurate financial information in comparison to other methods (Glautier, Morris and Underdown 2011). Therefore, this perspective has become the most common procedure for particular industries. For example, the comparatively smaller entities that generally rely much on the cash transactions prefer the cash based system of accounting in comparison to the accrual based system of accounting.
On the contrary, in case of opportunistic perspective, it is referred as perspective that is based on certain objective or aim. These types of perspectives are associated with self-interest of managers and owners. The manager and the owner might grab the opportunity of using this procedure as this encourages them to select a perfect kind of procedure for the company. The factors that help in determining the selective criteria are as follows:
As per the Zimmerman and Watts, the real flaw of this theory is the absence of guidance for selection of the methods of accounting. This gives the trend of general market about the selection of methods of accounting. It might also happen that a particular theory becomes popular within the industry but it is unable to serve actual purpose. Thus, it can be said that positive accounting theory has failed to explain the guidance whether a particular firm should follow a common practice or it should change its existing method for the betterment of the organization.
Therefore, it can be said that the positive accounting theory can be counted as an ‘abrogation’ of the duty of the academics.
References
Boateng, P. (2013). Principles of accounting theory. [Place of publication not identified]: Dog Ear Publishing, Llc.
Deegan, C. and Unerman, J. (2011). Financial accounting theory. Maidenhead, Berkshire: McGraw Hill Education.
Glautier, M., Morris, D. and Underdown, B. (2011). Accounting. Harlow, England: Financial Times/Prentice Hall/Pearson.
Scott, W. (2011). Financial accounting theory. Toronto, Ont.: Pearson Canada.
Wolk, H., Dodd, J. and Rozycki, J. (2013). Accounting theory. Thousand Oaks: SAGE Publications.
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