The Impact of Accounting Information System on the Audit Process - Essay Example

Introduction Accounting has been defined as the set of idea and method wherein the financial information is being based upon, while auditing is the examination on the correctness of the financial information of a company (Principles of Accounting.com, n.d.). Companies are experiencing changes in its operation that had been alarming nowadays. Surviving and succeeding had been a great challenge for companies on how to effectively and efficiently respond to these changes. Advancement of information technology towards industry transformation is the good response (Banker, et al., 2002, p.209). In the field of accounting and auditing, the performance of functions has a great role in which auditors and accountants should expand their knowledge to adapt to these changes. Accounting information system (AIS) is the new way of preparing and analyzing financial statements in relation to technology advancement (Orwel, n.d.). This newly acquired system does not only end up to the preparation but also it extends up to the auditing process. The aim of this paper is to investigate the impact of accounting information system (AIS) on the audit process. It is important to know how AIS is affecting the audit process and on the work of the auditors and accountants. The focus is to give an overview, objectives and motivations, and some proposals of the implementation. Overview According to Orwel (n.d.), “accounting information system (AIS) is a system of records, usually computer based, which combines accounting principles and concepts with the benefits of an information system...” Making the accounting activities with the use of computer makes it easier and time safe, but threats in data collection and data processing should not be ignored for it comes from variety of sources (Beard & Wen, 2010). Decision makers should have a control on the system so that threats can be avoided. Enormous amount is needed in the implementation of AIS, it is quite expensive for those small enterprises but the benefits can surpass the amount of investment (Salehi, et al., 2010, p.188). On the other hand, the appropriateness of financial information produced by an accountant is being examined by an auditor, either by operational, internal or compliance. It is the role of auditing to objectively evaluate the entries based on established criteria before the results are given to the interested users (Kelechi, 2007, p.14). The information subject for audit process is now computerized that is why auditors are disturbed whether the information in the system is reliable for report (INTOSAI Working Group on IT Audit, n.d., p.1). On the survey, about 81% of those that are having concerned with financial statements agreed that there should be an adequate security enforced in the current system technology (Davis, 1997). The impact on the adaptation of AIS on the audit process commence when transaction processing has been computerized on the field of accounting (Dull & Tegarden, n.d., p.1). See for example, goods are verified with the use of scanners for bar codes in making inventory that subsequently increases the volume of production, but along with the benefits are confusion on the part of the audit process. To be fair to auditing process, an automated enterprise system can be adopted so that the benefits will not end up to the transaction only. Auditors also take part on the success of the organization by assuring that the released financial information is not detrimental. The impact is positive towards the junior and senior auditors because they see that transactions in computer application reduces error (Banker, et al., 2002, pp.212-213). Also, the processing time is being reduced that certainly gives more focus on complicated tasks. Objectives and Motivations The main objectives of AIS is to make certain that the collection and recording of data in financial report is true in value, free from failures and gives an economic impact on the stakeholders of the organization (Salehi, et al., 2010, p.186). It also applies to the objectives of auditing that talk about true and fair view of reflected information based on the expressed independent opinion (Kumar & Sharma, 2005, p.6). The expressed opinion should be fair in nature for it will apply in the examination of presented financial statements. It should also conform to the generally accepted accounting principles (GAAP) before auditor expresses the independent opinion. If the auditor believes that the financial statement is unable to arrive at the appropriate presentation and the evidences are insufficient, the auditor is liable to give notice. Motivation comes in when the improvised system is being adopted on the audit process. Auditors are being motivated with continuous audit because they are confident that the secured information is highly credible and free from biases. Related Literature Review Information technology today has been a part of financial information processing and it plays a vital role as a key resource in the field of producing financial information. As a review, AIS constitute the word accounting that simply refers to the language of business; information that is a valuable data used in making decisions, and a system that focuses on objectives (Sori, 2009, pp.36-37). These are the words that convert data into valuable information that outlined certain organization. Accounting function such as providing quantitative information to users has been realized through AIS (Salehi, et al., 2010, p.187). Whether the information is computerized or entered manually, it does not matter because the emphases are on the reliability and accuracy of information in the financial statements (Investment Accountants, 2010). The system also needs modification to become widely applicable in capturing, processing, storing and distributing information as well as to meet extensive and different demands that occur nowadays (Mitchell, et al., 1997; Xu, n.d., p.2). The identity of information technology has been widely accepted, and AIS as a system that uses the said application is broadly acknowledged in the field of accounting itself, auditing and reporting (Alles, et al., 2008, p.203). According to Sajady, et al. (2008, p.50) and Salehi, et al. (2010, p.187), AIS is one of the oldest subsystem of management information system (MIS) wherein management and information are highly inseparable concepts. It does not matter whether the information being provided is financial or non-financial transactions, being the subsystem of MIS, processing is giving more emphasis (Joia, 2003, p.280). According to Hall (2008, p.8), MIS constitutes three major subsystems with different functions: 1) the transaction process system (TPS), 2) the general ledger/financial reporting system (GL/FRS), and 3) the management reporting system (MRS). Many organizations highly considered AIS as an essential mechanism in coming up with a more effective and more efficient decisions. Davis (1997) and Smith (2008) have both agreed that updated financial information has been produced by AIS with the help of computers. The system typically has an input, process and output that are interconnected and performs a function with the help of the World Wide Web (Henson, 2006). The use of the web had counterpart on the performance of the system that basically changes business practices in its business transactions (Rezaee, et al., 2001, p.150). When an accountant has already finished the preparation of financial statements, an auditor comes into the picture to examine the preparation (Kumar & Sharma, 2005, p.4). The examination comes right after accounting and it is a part of auditing process wherein it handles accounting and financial information as part of the procedure (Lockman & Minsky, 1984, p.150). All too often, dispute occurs in the process typically because of failures in the presentation and it could be settled when appropriate accounting rules are being applied (Awadallah, 2007, p.24). Auditing process has also been influenced by the widespread usage of information technology as it replaces its traditional way by a modern way of recording (Coe, 2006, p.105). Audit process centers its foundation through its qualities like competency, but the introduction of information technology in the process makes it a big challenge. Thus, to maintain the qualities, there should be an adequate security that will guard necessary problems in the information (Vroom & Solms, n.d., p.4). Gone are the days of traditional way as automated general ledgers are replacing in the auditing process. Proposal Methodology Methodologies are important to assist auditors in creating a continuous auditing capable of implementing true and correct financial information. It is necessary that in auditing process the gap between the high-level concepts and the low-level should be narrowed so that a continuous auditing will be attained (Li, et al., 2007, p.3). There should be an improvement in the development of asset management and opportunities in the application of audit process. Asset management audit application should be optimized so that it will give a positive contribution on the profitability of the business. To determine whether AIS objective towards the audit process has been achieved, there should be an assessment on the application of the system. Methodologies such as direct substantive testing and systems based audit are among the approaches that will ensure that the impact of information system is positive for the process (INTOSAI Working Group on IT Audit, n.d., p.4). As auditing process continues to undergone several changes from the traditional to the most current system, as methodology, it can employ both quantitative and qualitative approaches in making a survey and in determining if the system is effective and efficient (Butod, 2010.). Before the organization implement the changes in accounting and auditing it should take a look on the awareness that will likely be affected. Survey questionnaires and other means of assessment should be employed as a method of testing. Conclusion In general, the speedy development of the use of information technology in the field of accounting had also sped up to audit process wherein many concern should be given attention. The system with the aid of computers has increases the level of transactions but accuracy is being questioned. Furthermore, it should ensure that the objectives have been attained and the impact is positive towards any organization. Adequate security should also be more available to make certain that the computerized data are highly credible. Reference Lists Alles, G.M. Kogan, A. & Vasarhelyi, M.A., 2008. Exploiting comparative advantage: a paradigm for value added research in accounting information systems. International Journal of Accounting Information Systems, [Online] (9), pp. 202-215. Available at: http://raw.rutgers.edu/MiklosVasarhelyi/Resume%20Articles/MAJOR%20REFEREED%20ARTICLES/M46.%20exploiting%20comparative.pdf [Accessed 13 July 2010]. Awadallah, E., 2007. Explicating the interactions between the auditors and client management during the audit process: implications for corporate governance. International Review of Business Research Paper, [Online] Oct., 3 (4), pp. 23-30. Available at: http://www.bizresearchpapers.com/Awadallah.pdf [Accessed 12 July 2010]. Banker, R.D. Chang, H. & Kao, Y., 2002. Impact of information technology on public accountin firm productivity. Journal of Information Systems, [Online] 16 (2), pp. 209-222. Available at: http://astro.temple.edu/~banker/Accounting/07%20The%20Impact%20of%20Information%20Technology%20Investments.pdf [Accessed 12 July 2010]. Beard, W. & Wen, J., 2010. Reducing the threat levels for accounting information system. [Online] Available at: http://www.nysscpa.org/cpajournal/2007/507/essentials/p34.htm [Accessed 12 July 2010]. Butod, M., 2010. Research proposal on traditional accounting measure. [Online] Available at: http://ivythesis.typepad.com/term_paper_topics/2010/04/research-proposal-on-traditional-accounting-measure.html [Accessed 13 July 2010]. Coe, M.J., 2006. Integrating IT audit into the AIS course. The Review of Business Information Systems, [Online] 10 (1), pp. 105-120. Available at: http://www.cluteinstitute-onlinejournals.com/PDFs/2006188.pdf [Accessed 12 July 2010]. Davis, C.E., 1997. An assessment of accounting information security. The CPA Journal, 67 (3), pp. 28+. Dull, R.B. & Tegarden, D.P., n.d. Inclusion of the audit process in a re-engineered enterprise system. [Online] pp. 1-5. Abstract only. Available at: http://www.diku.dk/hjemmesider/ansatte/henglein/3gERP-workshop-2007/dull-tegarden.pdf [Accessed 12 July 2010]. Hall, J.A., 2008. Accounting information system. 6th ed. USA: Rob Dewey. Henson, W., 2006. Accounting information system. [Online] Available at: http://e-articles.info/e/a/title/ACCOUNTING-INFORMATION-SYSTEMS/ [Accessed 12 July 2010]. INTOSAI Working Group on IT Audit, n.d. Information technology audit. [Online] pp. 1-26. Available at: http://www.intosaiitaudit.org/India_GeneralPrinciples.pdf [Accessed 13 July 2010]. Investment Accountants, 2010. Accounting information system; what it is and what it is not, [Online] Available at: http://www.accountantnextdoor.com/accounting-information-system-what-it-is-and-what-it-is-not/ [Accessed 13 July 2010]. Joai, L.A., 2003. IT- based management challenges and solutions. UK: Idea Group Publishing. Kelechi, N.J., 2007. The impact of ERP system on the audit process. [Online] p. 14. Available at: http://www.pafis.shh.fi/graduates/josnwa05.pdf [Accessed 12 July 2010]. Kumar, R. & Sharma, V., 2005. Auditing: principles and practice. New Delhi: Prentice-Hall of India Private Ltd. Li, S.H. Huang, S.M. & Lin, Y.C., 2007. Developing a continuous auditing assistance system based on information process models. Journal of Computer Information Systems, [Online] pp. 2-13. Available at: http://www.iacis.org/jcis/pdf/Li_Huang_Lin_48_1.pdf [Accessed 12 July 2010]. Lockman, A. & Minsky, N., 1984. Designing financial information systems for auditability. Journal of Management Information Systems, [Online] 1 (1), pp. 150-158. Available at: http://www.jstor.org/pss/40384525 [Accessed 13 July 2010]. Mitchell, F. Reid, G.C. & Terry, N.G., 1997. Venture capital supply and accounting information system development. Entrepreneurship: Theory and Practice, 21 (4), pp. 45+. Orwel, A., n.d. What is accounting information system? [Online] Available at: http://ezinearticles.com/?What-is-Accounting-Information-System?&id=2340050 [Accessed 12 July 2010]. Principles of Accounting.com, n.d. Chapter 1: Welcome to the world of accounting. [Online] Available at: http://www.principlesofaccounting.com/chapter%201.htm [Accessed 13 July 2010]. Rezaee, Z. Elam, R. & Sharbatoghlie, A., 2001. Continuous auditing: the audit of the future. Managerial Auditing Journal, [Online] 16 (3), pp. 150-158. Available at: http://www.isqa.unomaha.edu/dkhazanchi/Teaching/ISQA4590-8596/Readings/Supplemental%20Readings/week%2012/article-1.pdf [Accessed 13 July 2010]. Sajady, H. Dastgir, M. & Nejad, H.H., 2008. Evaluation of the effectiveness of accounting information systems. International Journal of Information Science & Technology, [Online] 6 (2), pp. 49-59. Available at: http://www.srlst.com/ijist/ijism-Vol6No2/ijism62-49-59.pdf [Accessed 12 July 2010]. Salehi, M. Rostami, V. & Mogadam, A., 2010. Usefulness of accounting information system in emerging economy: empirical evidence of Iran. International Journal of Economics and Finance, [Online] May, 2 (2), pp. 186-195. Available at: http://ccsenet.org/journal/index.php/ijef/article/viewFile/5906/4685 [Accessed 12 July 2010]. Smith, R., 2008. Accounting Information System. [Online] Available at: http://www.articlealley.com/article_544132_11.html [Accessed 13 July 2010]. Sori, Z.M., 2009. Accounting information systems (AIS) and knowledge management: a case study. American Journal of Scientific Research, [Online] (4), pp. 38-40. Available at: http://www.eurojournals.com/ajsr_4_04.pdf [Accessed 12 July 2010]. Vroom, C. & Solms, R.V., n.d. Auditing the employee in the work environment with regard to information security, [Online] pp. 1-11. Available at: http://icsa.cs.up.ac.za/issa/2002/proceedings/A010.pdf [Accessed 13 July 2010]. Xu, H., n.d. Data quality issues for accounting information system’s implementation: systems, stakeholders, and organizational factors. Journal of Technology Research, [Online] pp. 1-11. Available at: http://www.aabri.com/manuscripts/09189.pdf [Accessed 13 July 2010]. Read More