Why Do Accounting Information Systems Fail?

by Osmond Vitez; Updated September 26, 2017

Accounting information systems (AIS) have revolutionized the way business is done on a global perspective. Once financial information is entered into the AIS, financial reports and statements can be generated at multiple business levels to ensure profitability.

In order for AIS software to present accurate financial reports and statements, the accounting information must be entered into the AIS correctly and efficiently.

The Facts

Accounting information systems (AIS) are only as good as the information entered into the system. While computerized AIS software has greatly reduced the man-hours needed to record and tabulate accounting information, the software must still be scrutinized and maintained daily for recording financial transactions.

All financial transactions have three main requirements to ensure proper accounting of business operations: timeliness, accuracy, and validity. If financial transactions fail to meet these guidelines, information entered into the AIS software will led to improperly prepared financial statements and AIS failure.

Timeliness

All financial transaction should be timely; revenues and related expenses occur in the same period, invoices are recorded in the month they are received, and monthly closeout entries are made prior to closing the accounting period in the AIS.

Allowing financial information to be entered into the AIS in different accounting periods or calendar months will distort the financial reports produced by the AIS. It will also create financial statements that do not properly reflect the revenue and expenses that occurred during the accounting period.

Accuracy

Once financial transactions are received in a timely fashion, they must be inspected for accuracy. Job cost reports, cash disbursements, and cash receipts all need to be reviewed to ensure the amounts listed on the paperwork are accurate. Reviewing financial transactions can lead to a review of other accounting functions if consistent errors are made.

If inaccurate information is posted into the AIS, account reconciliations will need to be performed to find errors with the financial transactions.

Validity

Measuring financial transactions for validity is an important step when recording information in the AIS. Validity requirements are satisfied once a transaction is determined to be precise, reliable, and relevant to the business operations. Audits from outside accounting firms usually focus on the validity of financial information entered into the AIS; recording invalid information is a critical error and will be listed as an accounting deficiency on audit reports.

Accounting Workflow

Financial information must follow the proper steps in order to meet the requirements of timeliness, accuracy, and validity. Every accounting office should have a workflow to ensure that all financial transaction can be entered into the AIS and financial reports run before the accounting period ends. Efficient workflows will also have each document handled only once during each process, eliminating increased work by over-handling financial transactions.

Willful Fraud

Although financial transactions may meet the accounting requirements of timeliness, accuracy, and validity, some businesses engage in willful fraud to promote the financial health of their company. AIS software was meant as a computerized record that is difficult to manipulate, but it can still be done. Using special accounts that hide transactions, creating separate entities to hide debt, and using former auditors to design a company AIS are all ways to create fraudulent information with an AIS.