With many subsections of accounting there are hard and fast rules and regulations in terms of organization and what is and isn't allowed. This is not the case with Accounting Information Systems. There are simply too many opinions regarding what an AIS is and what it isn't. What distinguishes the AIS from other information systems are the legal and professional obligations imposed on a company's management and accountants.
One of the features of an AIS is the flow of information. It is illustrated here by the use of a pyramid with management on the top, middle management just below that, operations management below that, and operations personnel representing the base of the flow of information. Information concerning the performance of the company drifts upward to all levels of management through the personnel. The top management are responsible to the shareholders or owners of the company for the information they receive. Contributing to this information about the performance of the company are the customers and suppliers, with whom the operations personnel have day-to-day contact. With the use of this information the top management filters down information on the company's budget and instructions on how to change or improve the day-to-day interactions with the customers and suppliers. Information from suppliers and customers is known as external information flows. Those from personnel to management and management to personnel are known as internal information flows.
Another feature of the AIS is in the processing of transactions. An AIS processes two different types of transactions. The financial transaction, which is any transaction monetary in nature that affects the assets or equities of a business organization. The nonfinancial transaction is a decision that, while it is not measured monetarily, can affect the overall accounting health of the company. For example, if the company decides to change suppliers due to a substantial rise in prices from a current supplier, the immediate effect is not financial in nature until the first order is placed.
All transactions are entered into the Accounting Information System for the purpose of affecting the decision-making of the top management. If top management is aware of a coming increase in costs, taxes or a potential loss of clientele, decisions can be made to counter negative consequences of future events.
A typical model of an AIS illustrates these features and includes three different steps in handling information. First is the data collection. It is considered the most important of all three steps, as if errors go undetected the system may create unreliable output. The two main requirements of the data collection process is that the data used be both relevant and efficient. It is in the data collection stage that the relevance of the data should be weighed to filter out all irrelevant facts from the system. Efficiency involves collection of the same set of data only once. Failure to do so leads to redundant data. The second step is in the data processing, or the attempt to organize the data in such a way that management can make decisions in regard to the financial decisions of the company. One example would be in using sales data to forecast future sales expectations. Based on those expectations decisions can be made about staffing requirements. The third step is the actual generation of information that leads to decision-making. Whether the decision be based in financial or nonfinancial transactions, the decision can affect the day-to-day operations of the business and possibly the financial outlook of the company.