The emerging scenario of global economics can be characterized by several factors like rapid changes in the process of production, advancement in the sector of information technology, increased market competition, and unethical skimming by organizations to compete within the industry (Watty, McKay, and Ngo, 2016). Information technology, among any other factor, is making a competitive advantage (Soto-Acosta, Popa, and Palacios-Marques, 2016). In this report a complete analysis of how organizations are using the Accounting Information System to enhance their Information system to take a competitive advantage. Also, the report discusses two different example of an accounting information system that is used by most of the organizations.
AIS is a system that organizations use to collect and process the data information from the different source, in order to seek some help in making the right decisions. In starting this system was operated manually, but today in a world that is technically advanced organizations use the computer-based system for the same purpose (Schaltegger, Etxeberria, and Ortas, 2017). Using both the systems AIS can be done by several methods like; single entry system, double entry system, manual system and computerized system (Prasad, and Green, 2015). There are different environmental factors that affect the system internally as well as externally. There are different examples of using accounting information system such as: single entry system, double entry system, manual system, and computerized system.
This type of accounting system contains some pertinent accounting rules which have to be followed by the system. This manual accounting is internally developed by the organization itself for a specific use within the organization only. This specific system design may include a list of positions and departments, specific instructions for maintaining transaction records, list of specific accounts and other rules must be followed by the accounting staff throughout the organization’s accounting system. Such manual accounting system contains an outline of all the rules, procedures, guidelines defined for the organization. For example, a company called XYZ Pvt. Ltd. manufactures and sells electronic widgets. This organization has an accounting system which keeps a track record of its all the transaction made for the maintaining the manufacturing process, inventory of warehouse, and record of distribution and selling operations.
A computerized accounting system is one that is consists of some software designed to deal with all the accounting operations of the organization. The main goal of such accounting information system is to produce financial output to prepare monthly as well as yearly account statements, tax return information, and other accounting figures to analyze the organization’s efficiency, operations, and profitability as well.
The accounting system is a process of collecting and analyzing financial data to be used for making the decision for an organization. In this process, different methods or types of accounting are used. Every accounting system has its challenges and benefits for an organization depending upon some internal as well as an external factor. These factors may vary from organization to organization and department to department as well (De-Gorostiza, et al, 2018). There are some internal factors like organizational factors, management factors, and some individual factors of organization people. Along with these, there are some external factors like the market, social, economic, industry, technological, and political or policy factors (Otley, 2016). These internal and external factors impact on the organization success in terms of innovations in the accounting system.
Accounting information system has some internal factors which have to be considered for the implementation of a suitable accounting system for the organization such as:
Apart from this broadly categorized elements of internal environment affecting an accounting information system are as organizational, management, and individual factors (Ismail, and King, 2014).
Organizational factors include information technology infrastructure of an organization that affects the most in the process of implementation of an accounting system. A well-developed IT infrastructure of an organization can make it very easy to implement a new and innovative accounting information system. With the help of such a well-designed accounting system, everyone working in the accounting system can have an access to the system and can improve it in every possible way suitable to the situation and can make its best use for the organization.
Management of an organization also affects the implementation and innovation in the accounting system. Innovation comes from the idea that people working in the organization have. These ideas that people got in the organization must be taken into consideration for an innovative design of new accounting system that the organization can implement. Such factors may affect the working culture of the organization but in the long-run, they might be beneficial for the organization in terms of business profitability. Management factors include effectiveness and strategy planning of the management. Such elements of the management system can make the accounting system innovative with the help of making the right strategies to implement the best suitable accounting system for the organization.
Since people are the only vital source of an organization individual factors affect the accounting information system the most (Aziz, Salleh, and Musstafa, 2012). Implementation of accounting information system in terms of information technology or information system is likewise much affected by different factors of an individual person such as education level, training level, skill level, individual attitude, and professional level that individuals possess. A lack of training and skill development of people working for an organization has been reported as a failure to the implementation of innovative accounting information system in every industry (Tambovcevs, 2010). On the other hand lack of competent personals to plan a strategic implementation of projects has been recognized as one of the major factors for failure of a project.
Along with internal factors affecting an accounting system, there are some external environmental factors as well which make an impact on the accounting information system of the organizations. Some of the external environmental factors making an impact on AIS are such as political, economic, social, technological, legal, environmental, market, and industry. Roberts et al. (2005) stated that among all these factors particularly political and economic system, taxation system, the legal system, and accounting profession are the most important factors which affect an accounting system of the organization (Catalfo, and Wulf, 2016). For the innovation of accounting system, some of these factors affecting the system most are:
For innovation in accounting information system, there must be a good relationship between the government and business organization. Such relationships affect the economy and business of the organization that indirectly affects the system that the organization is using for the financial accounting. In terms of manual accounting system organization has to follow all the rules set by the local government for accounting system in the county. Whereas for computerized accounting system organization must have to take permission for particular software to be used by the organization. For innovation in computerized accounting system organization must have healthy political relations with the government.
Accounting information systems are used in almost every industry of manufacturing or service. Depending upon industry maximum innovation in accounting information system can be seen in the finance industry. This is because in other industries it is used as a support system but the finance industry is composed only of accounting systems. Therefore, depending upon the use of accounting system, finance industry in the best suitable for innovation in accounting information systems.
Social dimension influencing the innovation in accounting system are the different factors of a society in this the organization is doing business like customs, values and demographic characteristics. While innovating an accounting system managers have to study these social factors to introduce any innovation in the accounting system.
Technology is the best innovation for accounting systems. Technology introduces new possibilities in making accounting more accurate and easy in terms of operations and accuracy. Investments decision in new technology must be very accurate to make the innovation cost effective or profitable for the business. in this process, managers have to be very specific for the change that the organization requires in terms of innovation through new technology in this organization is going to invest.
Accounting system also affects the environment not directly but in an indirect way through the use of essential like paper an all for the accounting purpose. In computerized accounting, there is electronic waste generation harming the environment. In order to consider all these environmental factors organizations must follow environmental rules set by the government. Such rules are meant to be followed so that a new innovative system can be used as being an environmentally friendly system.
In the process of innovation of accounting system market plays a very important role for the design. Different market trends and most importantly market demands affect the innovation. Managers have to study the market trends and analyze the market demand to take a competitive advantage with the help of innovation in the accounting system.
Different accounting systems have their own challenges and benefits for the organization (Parida, Kumar, Galar, and Stenstrom, 2015). Different accounting systems have different operations and procedures to be followed to make the financial accounting effective in their own ways (Fatemi, Marquis, and Wasan, 2015). Some of the key challenges and benefits of manual and computerized accounting information system are discussed in the table given below:
|
Challenges |
Benefits |
|
|
Manual Accounting |
Time-consuming: manual accounting system generally uses paper work which is quite more time consuming Subject to Errors: In manual accounting errors are more frequent to the accounting system. Although new accounting systems also have such challenges, in case of manual accounting there is no internal checks and balance to be made by the system. Lack of Security: In manual accounting, all the data is accessible to all the employees as they can check it from any documentation that the company has made for confidential use only. |
Error Correction: Different manual accounting systems like double entry system, provides an alternative way to correct mistakes made by human errors. System error and file corruption: Manual accounting system is easy to understand by management people and there is no risk of losing data through file corruption or any other activity like this. All-time accessibility: Such data can be accessed at any time organization people want to access. In this practice factors like power and internet outages cannot prevent organization to access the data. |
|
Computerised Accounting |
Simplicity: There is a wide range of computer software for a computerized accounting system that can make the whole process of accounting simple and easy. Cost-effectiveness: Keeping manual records safe and accessible make the accounting system whereas computerized systems also require a bookkeeper for the operation but in long run, this system becomes cost-effective. Collaborative ability: Computerised accounting information systems are liable to collaborate with other firms or use to protect and keep the data. |
Potential Fraud: More data stored in cloud storages has more risk of data leaking by hackers. Technical issues: dealing with computers may cause technical issues some time that can make an impact on organization business significantly. Inaccurate data: Sometime bookkeeper may enter wrong data in the wrong file that may lead to the generation of incorrect information. |
Organizations, in today’s emerging world, are seeking for a competitive advantage within the industry. Some of them are taking this advantage in terms of their product quality and some of them are taking the same advantage through an innovative and effective accounting system than can make profitable financial statements for the organization. If profitability is the concern of an organization then it must go with the computerized accounting system being accosted effective information system for the organization. Being cost-effective as well as more accurate computerized accounting information system is highly recommended for large firms. Today organizations are seeking the competitive advantage along with a profitability of the business. For such requirements, computerized accounting is the best solution for organizations as this system is easy and quick responding to the organization requirements. Also, there is a liability of making collaboration with other security agencies or business partner organization with easy sharing of accounting data. Comparing the advantages and disadvantages of both the accounting systems discussed above it is clear that both the systems have their own benefits and challenges. An analysis of these factors it is clear that computerized accounting is more quick, accurate and easy as well. Although manual accounting has its own benefits, in the new globalizing world computerized accounting information system will suit best for an organization operating internationally as well as small and medium enterprises. This study also recommends that manual accounting is cost-effectively as well as efficient only for small business that is excluding from SMEs. Therefore, for large firms, computerized accounting systems are highly recommended and for very small businesses manual accounting systems are recommended.
Conclusion
Accounting information systems are playing a key role in making organizations profitable. Organizations are looking for innovation in the accounting system to take a competitive advantage within the industry. Today this trend of taking a competitive advantage with the help of innovative accounting system has become an essential element for large organizations to showcase their accounting management system. Organizations are switching from the manual accounting system to computerized systems but still, there are some challenges with both the accounting systems. Based on an analysis of their own challenges and benefits an organization can select the best suitable accounting system for their use.
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