ais college essay

ais Introduction The need for reliable and efficient accounting information systems (AIS) is central for organizations to stay competitive. Financial data collected from a firm�s business processes is translated into vital information that is communicated to a wide variety of decision-makers such as managers and investors. As decisions made by these people affect the overall interests of an organization, it is imperative that firms take adequate steps in ensuring that data is properly transmitted. One of the ways that this could be achieved is to appoint more qualified individuals in the board members� audit committee to oversee the firm�s internal control process. The roles and qualifications of an audit committee The roles and responsibilities of an audit committee have evolved throughout the years. A qualified audit committee in the past is usually charged with the overall responsibility of overseeing the internal control system of the organization namely; the oversight on the operations of the firm, its compliance with applicable laws and regulations and the quality of its financial reporting. Accounting expertise In order to fulfill these roles effectively, members of the audit committee should not only have more-than-passing familiarity with the organizational environment, but also possess a clear understanding in related accounting standards and practices. As institutional investors often require audit committees to examine balance sheet transactions as well as to decipher complicated footnotes, it is essential that individuals be experienced in evaluating financial statements. Besides that, members of the audit committee are also required to observe independence in their disposition. Although the main principles behind these requirements remain the same today, it is evident that the qualifications for an audit committee appear to be more extensive. Finance expertise One of the new requirements that audit committees need to uphold relates to the Sarbanes-Oxley act. The recent spate of global controversies that have plagued the accounting profession in the US has ignited the inception of the new act in 2002, which asserts that external auditors of all publicly listed company report to the board of directors� audit committee directly, rather than management. (Neal Harte, American Business Journals, 2003). The Sarbanes-Oxley act also purports that the audit committee of a firm require at least one member to be a � financial expert� By that, it means that candidates for the audit committee must now possess direct financial and industrial expertise related to the company whereby the member must not only be experienced in the preparation and auditing of financial statements that equal to the nature and complexity of the company�s own, but also possess a clear understanding of the company�s internal control systems. In Singapore, the Council of Corporate Disclosure and Governance (CCDG) also issued guidelines to companies to elect at least 2 members to the committee that have related financial management and accounting experience in order to be qualified in discharging their responsibilities. (cite) With these latest standards being enacted, it can be said that the composition of a qualified audit committee should no longer consist of merely � watchdogs� but that of individuals with the financial skills able to directly engage in , the firm�s internal control process. IT expertise Besides being financially savvy, individuals in the audit committee must also possess skills on information technology (IT). As cyber-terrorism becomes more prevalent in our contemporary society, qualified audit committees are now required to have clear understanding of IT and its capabilities. This knowledge is needed for assessing the associated risks of a firm that may be in the form of virus and hacker attacks. With AIS embracing the digital revolution, individuals must now possess not only proficiency in accounting practices, but also the related technological know-how in AIS in order to be qualified as part of an audit committee. Impact of a qualified audit committee on the firm�s AIS AIS within organizations are regularly exposed to threats. Undesirable events such as negligence or thefts are examples of threats that are destructive to the quality of data being transmitted within the system. When undetected, these threats can often cost companies millions of dollars in rectifying the problems. As such, it is important that companies elect qualified individuals in the audit committee to provide detective controls over these exposures. Reliability One of the benefits of having qualified individuals in the committee is their ability in better detecting white-collar-crimes within the AIS of an organization. By installing committee members of direct financial expertise in the industry, boards can rely on these individuals to detect any fictitious entries in the accounting system that might seem contradictory to the prevailing economic climate. Take for example a company that consistently hits its targets in an industry that is weathering rough times. Profits and assets that are inexplicably overstated during the industrial downturn may not be readily identified by an audit committee that comprises of individuals that do not possess relevant financial competence. Qualified members on the other hand will be able to challenge these figures by conducting ratio analysis and other appropriate industrial comparisons, making sure that entries made in the AIS are reliable and accurate. By doing so, these sophisticated watchdogs ensure that red flags are raised, and that management is alerted of the possible threats that may be present in the firm�s AIS. In 1993, KPMG Peat Marwick conducted a survey of 2000 of the largest companies in the United States (US) on this issue of fraud (Bodnar and Hopwood 2001) These companies were asked questions relating to perceptions of fraud in American businesses, its drivers and also the different procedures to prevent fraud. Out the 330 respondents that took the survey, more than 75% of them had experienced fraud during the past year with no less than 23% reporting losses of $1 million or more. The few most commonly reported types of fraud were misappropriation of funds (20%), check forgery (19%) and credit card frauds (15%). The survey also showed that 59% of the respondents cited internal controls to be the most effective reason these frauds are discovered with a further 56% identifying poor internal controls to be the main driver for the occurrence of fraud. From the information shown above, it is apparent that fraud is indeed a serious problem faced by many companies in the US. The types of fraud identified in the above account were all products of companies that fail to provide adequate detective controls within the AIS, resulting in fictitious data being transmitted into the system. With losses being so extensive, it is no surprise that qualified individuals are needed to detect signs of any misconduct reported to them by the management. The relevant financial expertise that these individuals have allows them to make qualified reviews on the reliability of the data flowing from the firm�s AIS. Base on these reviews, companies are then able to take action in correcting these fraudulent entries that were made into the accounting system. These qualified personals can also implement reforms to the AIS, allowing companies to mitigate the risks of future misdemeanors from occurring. As such, it can be said that the presence of having qualified individuals in the audit committee serves to ensure integrity of information translated through the AIS. Timeliness However, not all AIS threats within internal sources are associated with acts of deceptive intent. In some cases, companies may be faced with issues pertaining to unpremeditated acts such as accidents and fundamental errors in financial reporting. These events caused by factors such as human carelessness and poorly trained staff, are AIS threats to the company that needs to be dealt with by the board. As the audit committees review the reports on the company�s operations prepared by the management, it is vital that the board appoints qualified individuals that are familiar with the inner workings of the organization. This is because members that understand the organizational structure of the firm are able to monitor potential trouble spots more closely, enabling them to propose plans in restructuring the internal processes such as inventory storage layouts, staff policies and integration of communication channels within the company. These changes in turn can help the company improve its recordkeeping system which provides a permanent resource that enables the management to locate critical client records in the future. As the process of tracking omitted data can be costly, it is thus essential that a qualified audit committee is installed in ensuring efficiency and timeliness in the accounting system. Security The impact of having a competent audit committee does not only extend to events within the in AIS. Very often, managements are faced with security threats in the AIS that origin from external sources. These threats come in the form of sabotage, in which the intent is to destroy the accounting systems and its capabilities. E-mail viruses and hacker attacks are just some of the security breaches that can arise from external sources that seek to impair the quality of data being transmitted in the AIS. Amid more frequent IT security beaches, boards are now increasingly anxious to address IT security issues to assure information in the accounting system is protected. However, managements often encounter difficulty in getting the audit committee to realize the importance of IT security issues. This is because individuals that sit on the audit committee often do not possess the necessary IT expertise in assessing the weight of the security breaches. In the wake of a security breach, they will tend to take a more reactive stand in solving the problem, often at a high cost. As such, it is important that audit committees address this issue early. By installing members that are highly proficient in IT, companies will be able to detect warning signs in IT security breaches. IT security specialists that work on these exposures are able to communicate effectively with the audit committee to ensure that management and auditors have taken adequate steps in mitigating the risks involved in these IT security breaches. The knowledge of IT within the audit committee also facilitates the assessment of existing controls such as the effectiveness of routers, firewalls, virus scanning, network logs and the incident response plans of the company. By taking a more proactive approach, audit committees are able to ensure the company that future exposures are be alleviated by advising the board on what the best practices are in handling these risks. Thus, the presence of IT savvy audit committees serves to protect the security of accounting systems. Conclusion The above account illustrates the impact a qualified audit committee has in averting the different forms of AIS threats found in an organization. The various industrial expertise that these individuals possess add valuable perspectives when assessing the corporate strategies used in improving the company�s accounting system. As it seems, a highly proficient audit committee serves to provide means of internal control necessary in maintaining reliable and accurate information used by decision-makers. However, the presence of internal control does not always guarantee that exposures are eliminated totally. Audit committees even when qualified, cannot alone be expected to understand the finer details of the financial and operating risks that are faced by the corporation,. They rely to a large extent on accurate information that is prepared by the management and independent auditors. Reforms to existing AIS implemented by the committee can only be effective if corporate officers first maintain a high level of integrity in their work ethics. As such, it is important that management and the audit committee foster an effective collaboration in preserving the quality of AIS within the firm. References David. G. Coderre (2001) CAATTS and other BEASTS for other auditors, United States of America: Prentice Hall Bodnar and Hopwood (2001) Accounting Information Systems, United States of America: Prentice Hall E.H.J Vaassen (2002) Accounting Information Systems, A Managerial Approach: United States of America: John Wiley and Sons Ltd Romney and Steinbart (2003) Accounting information Systems, United States of America: Prentice Hall Stephen A. Scarpati (2003) � CPAs as Audit Committee members: be part of the new vanguard in corporate governance� Available from the web: www.findarticles.com Lawrence Richter Quinn (2002) � Risky Business: Internal audit teams up with the audit committee to tackle IT security needs� Available from the web: www.findarticles.com Palakrishnan, S.C (2004) � Tinker, Tailor, Lawyer, Spy: Lessons from the Enron Et Al� Singapore Accountant: 33-42 Neal Harte (2002) � Audit committees must deal with new role and responsibility� Available from the web: www.biz journals.com