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Use of Accounting Information Systems (AIS) to Detect Fraudulent Activities

Updated: Aug 25


Accounting Information System


Abstract Accounting Information Systems are the innovative software that helps in the collection, recording, storing and reporting of the financial data in a consistent format. This information is used by auditors and other key users for assessing risks, thefts and threats to the company and its data. It helps in the assessment of financial health of the company and any fraudulent activity being run by any internal or external user of the company. One such software is used by PwC, one of the biggest advisory firms in the world. Aura is the accounting auditing software which is web-based and driven by innovative technology, providing risk assessment at every stage and streamlining the work globally with consistency and compliance.


Keywords: Security, Accuracy, Data, Financial Reports, Auditors, Accounting Information Systems

Use of Accounting Information Systems – An Introduction


Accounting reports and data are the most useful as well as important resource for the company. Accounting information provides data related to the cost, profits, capital employed, net worth, shareholder’s value, long term liabilities and total assets of the company (Hansen & Mowen, 2009). Such information is very critical for the business in order to take further decisions like expansions, acquisitions, long term investments and dissolution.


Any incorrect information, mal report, misuse and leak of data would affect the investment decisions and may put the company at high risks or losses (O'Brien, 1996). Quality recording (Gelinas, Dull & Wheeler, 2012) of the data and keeping it safe, away from threats and frauds is the need of an hour. Accounting standards does not determine the quality of the financial statements; it is the support, dedication and commitment of the management and related parties that determines the quality of financial statements (Healy & Palepu, 1993).


Accounting Information Systems (AIS) are the technology induced systems that collect, store and manage the data while reporting financial statements to the concerned parties in a legitimate manner with high security towards its access and usage (Romney & Steinbart, 2009). These systems are used by the auditors to check and keep a track on the fraudulent activities done at the business place.


Accounting Information System – An Overview


Accounting Information System (AIS) is an essential part for an organization that works for internal access and control of all systems that work in an integrated manner. These are the accounting reporting software’s that caters to the collection, storage, monitoring and converting the financial data into financial reports for the use of internal control as well as making investment decisions.


How Accounting Information System works?


There are six different components on the basis of which Accounting Information System (AIS) works. Following are the six components of accounting information system (Saedi, Prasad & Saremi, 2015):


Figure 1. Author

People are the users of the system who inputs data as well as use the output data to make inferences where required. These are the management of the company like CEO’s, CFO’s, officers, accountants, auditors, consultants or any other personnel who have business interest in such information. The external parties like external auditors or consultants can also have access to the information system so as to have a qualified reporting, price structuring and information at place.


Procedures and Instructions are the techniques used for collecting, storing, managing and reporting financial data in qualified terms. The data can flow in through internal, external, offline and online sources, whether manually or automatically. The input of data in the system is facilitated through coding into the software by employees who are well trained.


Data is stored in the system with the help of SQL (Query language) and a computer language in a well-structured format. Any key financial information is stored in the software. There should be various screens for inputting data for system users in addition to output screens and formats for various types of information that are needed by different users.


Software is the automated format of managing accounting information. It is the computer based system that needs an input data, which is automatically converted into useful financial reports in order to be served to various users. There are much software for accounting information system like Sage Peachtree Accounting, SAP, Intuit’s QuickBooks, Microsoft’s Dynamics GP and many more.


Information Technology infrastructure are the hardware used for the accounting information system like computers, servers, routers, mobile devices, storage media, surge protectors and back up etc.


Internal controls are the protection in the form of biometrics, passwords and face recognition that are employed by the organization to limit the access of data, check fraudulent activities and secure its data from being leaked.


Functions / Need of Accounting Information Systems (AIS)

Accounting Information Systems are needed for managing the financial data and protecting it from fraudulent activities. It has various functions that illustrate its need to the organizations. Figure 2 defines the basic functions and uses of AIS:


Figure 2. Bruwer, J. (2015). Accounting Information Systems – A Value-Adding Phenomenon or a Mere Trend? The Situation in Small and Medium Financial Service Organizations in the Cape Metropolis. Expert Journal Of Business And Management, 3(1), 38-52. Retrieved from http://business.expertjournals.com/23446781-305/


Collection and Storage of Data is the first and foremost function of AIS. These information systems collect the accounting data and store it in the system in order to process the data into useful information.


Supply of information is the processing function of AIS where all the data being processed is converted into useful financial statements and reports, which are accessed by the users for relevant decision making and for other business aspects.


Internal control is the function through which the accounting data is being monitored against fraud, thefts and deviation in work by the users so as to integrate internal processes and implicate high level security to the key financial information of the business.


Uses of Accounting Information System (AIS)

In this fast growing economy, technological advancement has led to the increase in the usage of automated software’s in the business vicinity. The most commonly used business software’s are Accounting Information System (AIS), Entrepreneur Resource planning (ERP) and Customer Relationship Management (CRM). AIS allow the time advantage of recording and processing financial information with great efficiency in the manner of reduced manual errors and defects. Following are the high end uses of Accounting Information System (AIS):


Increase in globalization and foreign investments, have led to the installation of a system that maintains proper records and add value to the resources (Ponisciakova, Gogolova & Ivankova, 2015). AIS is thus, used by the foreign investors to secure themselves of the high investments that they are ought to make on the business in context with financial situation of the business and availability of the data.


AIS are used in order to control the high costs and expenses incurred in the business. High costs and wastages in any processes and operations can be observed readily and controlled on time to avoid future losses as well as risks (Ponisciakova, Gogolova & Ivankova, 2015).


Secrecy of data and unauthorized use of data is protected via implementing internal control checks through biometrics and passwords in AIS. This may authorize valid parties or users to access the confidential data of the organization.


Use of AIS facilitates the companies to face the increasing competition (Ponisciakova, Gogolova & Ivankova, 2015) in the industry in context to continuous improvements in the business structure, costing, key decisions and sustainability.


Error free or minimal errors as compared to manual accounting have allowed greater availability of time and resources for other key productive areas. Hence it increases the productivity of the business with efficiency.


Communication and integration between the departments and units have improved in context to speed, accuracy and coordination. This has increased overall productivity and sustainability of the company against the challenges of globalization and sheer competitiveness.


Prevention of data loss and security


It is another key use of Accounting Information Systems. The AIS works on the Operating System that inputs and process data while transforming it into useful reports. Operating system security helps in the prevention of data loss and maintains its security in the following manner:


Operating system provides access to the content only after the input of valid User Id and Password by the users as its “Log on Procedure”. After the successful log on by the user, he/she has to put access token in the form of employee id and passwords.


Operating system also enables “access control lists” (Agung, 2015) for different users, once they log on successfully, which is assigned to the directories, programs, files and printers. It means user can only access the data which is contained in its own control list.


Operating system also enables ‘Discretionary access privilege’ that allows the user to provide access to data to another user either ‘Read only access’ or ‘editing access’ also. This is explained as if accounts manager provides read only access to the top management of the data which he/she inputs and process.


Passwords are set in two forms either ‘Reusable passwords or one time passwords. Reusable passwords are valid only for short duration like a month or fortnightly after which the password is changed. One time passwords are valid only for 5 to 10 minutes in order to put forth high security.


Malicious programs and viruses may pose threat to the organisation’s data and policy compliances. This is mitigated by purchasing software from reputed vendors, policy implications for illegal and pirated software usage, virus test with the antivirus software, banning the access to malicious sites and software’s, routine check-up as well as scanning of the operating system and implying protocols to invoke legitimate log on procedures by following a sequential key network (Agung, 2015).


The usage of the system and data could be captured in System audit trails in context with detailed logs and event oriented logs. Auditors may know that which user has logged on to the system at what time and for what event. This may also records the failed attempts of log in and other key details like time gap between the consecutive log in dates and events etc.


Biometric devices are used to capture the fingerprints of the user who is logging in to access the data and financial reports.


Advantages of AIS


Accounting Compliance and accuracy is provided by AIS by tagging and submitting the final accounts as per policies and with accuracy. It helps in avoiding fines and fees by identifying the non-paying client, bad debts and payments schedule. It reduces operational risks by identifying the deviations in the task, theft and unauthorized usage of the data and controlling the errors and security breach before time (Gelinas, Dull & Wheeler, 2012). All the departments and functions are monitored in context to employee work and compliance of guidelines.


Disadvantages of AIS


The cost of setting up the accounting information system is very high as compared to the manual systems. The information technology expert is required to be hired to initiate the installation process which takes time and is complex. There is a need of hardware like computers, networks, servers, mobile phones and software’s like operating system, languages, anti-virus etc., which is complex and time consuming (Romney & Steinbart, 2009). The users have to be provided with initial training which is costly and regular maintenance of the software and hardware is needed for effective working and least break downs.


Selection of AIS by companies

Companies select accounting systems based upon several factors as narrated below ("How to choose a perfect accounting software - 8 Tips", 2018):

Cost is one of the factors that companies consider. There are various software’s available in the market, some are highly priced and some are low priced. The cost depends upon the features and the usability of the software.


Now a days cloud based accounting software are available in the market that works online by a simple logging in process. These could be accessed at anytime and anywhere with an internet connection. Companies select on the basis of their need for an online or offline software.


If choosing online cloud based system, the risk factor is to be considered while making decision. The company has to seek a hosting service that allows the URL to start with https://, which is the safest protocol ensuring encrypted data transfer.


Companies would look on for the features that they require in software like creation of invoices, bills, recording journals, ledgers, preparation of final accounts, bank reconciliation statements, tracking expenses, managing inventory, managing taxes, listing out vendors, multi-currency functions and many other features.


Usability of the software is considered so that no user finds it difficult to access. This also lowers down the cost of training and errors in future.


The future expansion plans and growth is taken care of while selecting the software so that in future same software could be used for added functions and feature requirements.


AIS used for Audits

There are various AIS available in the market that are used by the auditors to track the business operations, assess the financial situation and to identify risks in order to keep check on data loss, theft and security functions of the business. Such accounting software’s are ERP, SAP, Quickbooks, Aura, Gensuite, AD Audit plus, Freshbooks, Sage Intacct, Xero and many more.


AURA (Used by PwC) - Accounting Information Software

PwC is one of the top advisory and regulatory service firms in the world. For undergoing a technology driven accounting system, PwC has transformed its audit practices into data analytics through Aura. It is innovated software that ensures that all the audit practices are done consistently and in a right manner. In all PwC’s audits, Aura is used by more than 87000 auditors in a consistent and efficient manner ("Technology in the PwC Audit Driving innovation", 2018).


Detailed Features of AURA


It is global software, which is used by the auditors of PwC around the world with the help of embedded IP for industry. This results in consistency and synergy with an up gradation to the scale of business. It identifies risk in a business from all sectors around the world, being it a single stance for audits("Technology in the PwC Audit Driving innovation", 2018). It works on the work flow technology that allocates individual works to the respective user screens in order to ensure that all the work assigned is completed on time. It has a feature of sharing screens and work globally with multi location auditing so as to streamline the work with no added time and resource ("Technology in the PwC Audit Driving innovation", 2018). The top management, accountants and auditors can monitor the work and its progress round the clock at any point of time, at anywhere with the help of mobile devices and applications.


Aura has certain innovative and risk assessing features like benchmarking the client portfolio for assessing risk, enabling risk settings in context to risk levels and control points, building quality checkpoints and reduction of duplication, errors and omissions. The early warning system of Aura helps in assessing the real time data information on the progress, errors and quality. The progress could be assessed and the focus could be implemented on the key points in few minutes, by clicking few tabs ("Technology in the PwC Audit Driving innovation", 2018). This provides real time quality focus advantage to the auditors.


Aura is a web based accounting software that mimics the concept of Windows 8 ("Behance", 2018) as it provides a simple user interface to monitor different areas of concerns and engagements in context to the areas of interest and need. There are various tabs for different functions and enlarging one specific tab helps in gaining focus on key issue while allowing changes and modifications for adjustments. The main tab consists of various sub menus and action tool bar to implement necessary action at the point of concern ("Behance", 2018).


Aura helps in streamlining the organization’s work and audit process in the form of single software accepted worldwide, user interface, easy access, file and screen sharing and consistency in the work process along with round the clock quality checks and risk assessment.


Conclusion

In this fast growing competitive world, accounting software should be used for quick and correct assessment of financial situation and risk for the business. There are various accounting soft wares available in the market. Auditors choose the software which is cost effective, user friendly, has open scalability and is effective in risk controlling.

References

Hansen, D., & Mowen, M. (2009). Cost management. Estados Unidos: Thomson/South-Western.

Gelinas, U., Dull, R., & Wheeler, P. (2012). Accounting information systems. Mason, OH: South-Western/Cengage Learning.

O'Brien, J. (1996). Management information systems. Chicago, Ill: Irwin.

Healy, P., & Palepu, K. (1993). The effect of firms’ financial disclosure strategies on stock prices. Accounting Horizons, 7(1), 1-11.

Romney, M., & Steinbart, P. (2009). Accounting information systems. Upper Saddle River, N.J.: Pearson Prentice Hall.

Bruwer, J. (2015). Accounting Information Systems – A Value-Adding Phenomenon or a Mere Trend? The Situation in Small and Medium Financial Service Organizations in the Cape Metropolis. Expert Journal Of Business And Management, 3(1), 38-52. Retrieved from http://business.expertjournals.com/23446781-305/

Ponisciakova, O., Gogolova, M., & Ivankova, K. (2015). The Use of Accounting Information System for the Management of Business Costs. Procedia Economics And Finance, 26, 418-422. doi: 10.1016/s2212-5671(15)00822-9

Saedi, H., Prasad, G., & Saremi, H. (2015). The Role of Accountants in Relation to Accounting Information Systems and Difference between Users of AIS and Users of Accounting. Bulletin Of Environment, Pharmacology And Life Sciences, 4(11), 115-123. Retrieved from http://www.bepls.com

Agung, M. (2015). INTERNAL CONTROL PART OF FRAUD PREVENTION IN ACCOUNTING INFORMATION SYSTEM. International Journal Of Economics, Commerce And Management, 3(12), 724-735. Retrieved from http://ijecm.co.uk/

Behance. (2018). Retrieved from https://www.behance.net/gallery/7307315/Aura-60-Audit-Application-used-by-one-the-big-four

Technology in the PwC Audit Driving innovation. (2018). Retrieved from https://www.pwc.com/ca/en/audit-assurance/publications/pwc-technology-in-the-pwc-audit-digital-interactive.pdf

How to choose a perfect accounting software - 8 Tips. (2018). Retrieved from https://www.profitbooks.net/tips-and-in-depth-process-to-choose-best-accounting-software/

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