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Accounting Information System Replacement

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A publicly traded company needs to replace its accounting information system (AIS) within the next 18 months. The company has funding and resources to handle the replacement, so cost is not a concern. The company has several choices:

a. Purchase an off-the shelf accounting system from Oracle (PeopleSoft Enterprise Financial Management). Oracle will assist with the installation, configuration, and testing of the solution. Once the system is operational, the company's information systems group will maintain it.

b. Modify the existing AIS application (which is an in-house system developed and maintained by the company's information system group). It will have the same functions and features as the Oracle solution. The information system group will rely on consultants to assist in the development, configuration, and testing of the system. Once the system is operational, the company's information systems group will maintain it.

c. Hire an outside company (Oracle) to handle the installation, configuration, and maintenance of the AIS application (PeopleSoft Enterprise Financial Management). The solution will be outsourced completely. Users will be able to access the system which will be housed at a secured Oracle location. Little to no work will be required by the company's information systems group.

You have been asked by the company's CEO to make a recommendation as to which approach to take. In considering your recommendation, cost is not a concern. For each option, it is anticipated that it will take no more than 15 months to complete the work.

1. Analyze the need for changing to a new system and the potential benefits and risks associated with this change.

2. Identify three (3) advantages and three (3) disadvantages for each of the following choices:

a) Purchase the AIS from Oracle and have it maintained by the company's information systems group;

b) Modify the company's current AIS application and have it maintained by the company's information systems group; and

c) Outsource the AIS to Oracle and have Oracle maintain the system.

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Introduction:

Accounting Information Systems (AIS) have a critical role to play in the financial management and decision making in any organization. The degree of value and how usable an AIS is depends on the quality and timeliness of the information system (Butkevicius, 2009). In effect therefore, long used and underperforming AIS often need to be replace or upgraded so that they can be able to perform effectively. As the company intends to replace its current AIS, it has various choices through which it can do this, and it is important that the most strategic and effective choice that is beneficial to the company be effected. This paper analyses the need for changing to a new system and the potential benefits and risks associated with this change and the advantages and disadvantages of the options available to a company.

The need for changing to a new system and the potential benefits and risks associated with this change:

With technologies that change rapidly making existing one less useful or obsolete, and with increasing competitive advantages that companies derive from effective information systems, the need for changing a system that outdated or not performing well is imperative. It is therefore important to change the old system since business processes that are driven by inflexible and old systems tend to be constrictive, and also makes information retrieval hectic taking a lot of effort, time and energy. In addition, a system that is old and outdated may make integration of systems and processes in the company difficult thereby leading to loss of strategic technological advantages enjoyed by the company (Microsoft Dynamics, 2012).

The potential benefits of changing the AIS is that the information processing, retrieval and storage will be much faster providing the organization with strategic technology advantages. In addition the company will be able to keep with the changing accounting technology so as not to lose its competitive advantages and will also enable easy integration of the system in the organization with other systems making business process more flexible and integrated. A change will also increase the capabilities of the software in the company enabling easy adoption and integration of changing accounting policies and requirements into the systems. Some of the risks in the change are that some crucial data may get lost in the processing of upgrading or changing the systems. In addition, the ...

Solution Summary

Accounting information system replacement is examined.

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Accounting Information Systems: Example Problems

Alden, Inc. has hired you to review its internal controls for the purchase, receipt, storage, and issuance of raw materials. You observed the following:

Raw materials, which consist mainly of high-cost electronic components, are kept in a locked storeroom. Storeroom personnel include a supervisor and four clerks. All are well trained, competent, and adequately bonded. Raw materials are removed from the storeroom only upon written or oral authorization by a production supervisor.

No perpetual inventory records are kept; hence, the storeroom clerks do not keep records for goods received or issued. To compensate, the storeroom clerks perform a physical inventory count each month.

After the physical count, the storeroom supervisor matches the quantities on hand against a predetermined reorder level. If the count is below the reorder level, the supervisor enters the part number on a materials requisition list that is sent to the accounts payable clerk. The accounts payable clerk prepares a purchase order for each item on the list and mails it to the supplier from whom the part was last purchased.

The storeroom clerks receive the ordered materials upon their arrival. The clerks count all items and verify that the counts agree with the quantities on the bill of lading. The bill of lading is then initialed, dated, and filed in the storeroom to serve as a receiving report.

a. Describe the weaknesses that exist in Aldens expenditure cycle.
b. Suggest control procedures to overcome the weaknesses noted in part a.
c. Discuss how those control procedures would be best implemented in an integrated ERP system using the latest developments in IT.
(CPA Examination, adapted)

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