chapter no. iii:accounting information systems 3.1...

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Chapter No. III:Accounting Information Systems

3.1 Information System:

3-1-1 Introduction

Experiments showed various departments need information systems of all

kinds, which provide appropriate information in order to assist these departments in

the performance of its various functions, including decision-making function and thus

achieve its goals effectively and efficiently.

The system as: group (two or more) of interrelated components which interact

with each in order to achieve a particular goal, often composed systems of subsystems

smaller lead each important function specific and supportive of the regime most that

are part of it. (Romney & Steinbart, 2010, p.26).

Information systems as a set of interrelated elements that work together, to

collect, retrieve, process, store and disseminate information to support decision-

making, coordination and control, analysis and observation of the organization. At the

same time, a group of individuals, equipment, software and communications,

databases, operated manually or mechanically or automatically, to gather information,

stored and processed and then transmitted to the beneficiary.(Loudon& Loudon,2008,

p. 13)

Information systems is the use of advanced information technology,according

to the use of modern information systems and advanced technology, is adopted in the

banking sector, new working methods rely on these systems to its unique ability to

provide accurate information and the organization and the value of helping the

financial management industry financial decisions, and to meet the needs of their

customers the best possible way, and to facilitate the process of change and

continuous updating(Carrado & Bradforal, 2002, p. 2).

From the above definitions it is clear that the set of system elements and

components associated with each other mutual relations and interactive in order to

perform the functions and activities aimed at achieving the desired results.As long as

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the system is to perform the function or set of functions it each target system specific

works to achieve regime production consists of elements (raw materials, machinery,

equipment, workers) connected with each other within the particular relationships

(rules and regulations) aims to produce good.

Usually system consists of subsystems for example that economic unit

includes a set of subsystems of production and marketing, personnel and other

seeking jointly to achieve a particular goal as well as the subsystems contain

subsystems internal where for example the marketing system contains subsystems as a

sales, advertising, and shipping, packaging.

In light of this concept, aimed at generating information systems and produce

information in order to provide decision-making positions in the economic unity to

achieve the planned objectives, through what was displayed, note that the system

concept based on a set basic ideas:(Shaheen,2012, p. 78)

1-The system consists of a set of parts, components and elements that interact and

integrate with each other to accomplish the planned goals

2-Parts, components, and components of the operating system to count them

according to specific rules.

3- All of the elements of the system components and subsystems have reciprocal ties

and common goals and objectives.

Figure (3.1): The relationship between information systems

(Eldahrawi,2003, p. 47)

Information System

Marketing

information system

Information system

productivity

Accounting

information system

Information System

Engineering

System

budgets

Financial

accounting system Cost accounting

system Wage system System materials and

stores

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3-1-2 Value of Information:

The role of information in reducing uncertainty when the beneficiary, and thus

supposedly make it able to make a decision less harmful or more beneficial, that is,

they will lead to increased profits or minimize losses resulting from the decision

making process and is found in Decision Theory way to measure the benefit of

information is the increase in the expected profit: What is meant by profit here is

interest (benefit) resulting from the resolution as a result provides information,

additional increase in profit representation value of the information produced this

increase, usually measured profits (or benefits) resulting from the decision units cash

that comes to mind is, how can we measure the value of quantitative.For quantifiable

value of information, is the distinction between the situation to make sure the full and

if you are not sure.

In the case of absolutely certain any full when providing information

measured by the value of the information through the comparison between the benefit

and the costs of obtaining information on such information, and because the full

information that allows optimal decision is made every time they arise need to make a

decision.

In the case of complete uncertainty, any failure to provide full information, the

role of information is to reduce the uncertainty, and therefore risk must be taken into

account when calculating the value of the information.

The degree of risk benefits resulting from alternative multiplied by the

probability check this alternative.Become benefits that give information systems

operations and activities in a clear and help them to achieve the desired goals in the

survival, growth and profitability.(Sturat, 2000, p. 301)

3-1-3 Events (elements) information systems

Any information system consists of a set of parts and performed by actors so

that he can bring out the appropriate information through the group stages of going

through the system :

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3-1-3-1 Inputs

They are all resources that are brought into the system to turn it into useful

information, any supply system with its needs of raw materials and energy and efforts

human and material or data relating to operations Economic Unity and the rest of the

events gathering and intervention into the system in order processing subsequent

documents that depict the financial operations between the unit economic and the

surrounding environment are inputs to the accounting system.(Horngern, 2012)

3-1-3-2 Processing

They are represent the technical side of the system, a set of operational processes

and comparison, summarization, classification and sorting that takes place on the

entered data to be converted to provide information to internal and external parties

related to the work of economic unity.

3-1-3-3 The Output

The consequences of the final after processing the data and be in accordance with

multiple formats Monthly reports, tables, lists, and graphs and such information called

information system outputs.

3-1-3-4 Feedback

A process measured reaction to the work order or as defined by (Hall,2004,p.16) It

outputs that are sent to the system again as sources of information and can be

feedback from inside or outside the Economic Unity describes how the system

responds to the requirements of the environment surrounding any updates any

measuring the quality of output and modify.

Feedback can lead to responses and uses several of them change goals the search for

alternative means, change the methods of decision-making, forecasting, change

operation.

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3-1-3-5 Control

In this stage, the system aims to compare the output of the system planned actual

results that have been obtained after the introduction of the actual data and conduct all

processing operations.

control

Environment

Users

feedback

Figure (3.2): The effectiveness of the information system

Qasim,2004,P. 16)(

3-1-4 Data and Information

3-1-4-1 Data

Several kinds of data need to be collected in businesses, such as:

1- Facts about the activities that take place.

2-The resources affected by the activities.

3-The people who participate in the activity.

The data define on it, "figures and numbers unexplained or analyzed or processed or

being figures to be addressed by the system" . (Romney & Steinbart, 2010 ,p.26)

It is clear from previous definitions that data is the raw material is analyzed

and that has not been addressed is in the form of numbers or words or facts are

collected from various sources internal and external to be converted to useful

information to help departments in the performance of its functions.

3-1-4-2 Information

Data is that have been organized and processed to provide meaning to a user

need information to make decisions or to improve the decision making process as a

general rule users can make better decisions as the quantity and quality of information

increase.

outputs processing inputs

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However there are limits to the amount of information the human mind can

effectively absorb and process. Information overioad occurs when those limits are

passed information overload is costly, because decision-making quality declines while

the costs of providing that information incease.

Information is the "facts or implications or comments or anything else

describes knowledge" .

1- The information is output after analyzing the information system and the order of

the data provided to decision makers for guidance and reliable in the selection of a

suitable alternative.

2-Whenever the information is accurate and reflects the fact that financial operations

helped the completion of economic unity and achieve the desired goals.

3-1-5 Importance of information:

Information is more important because it considered economic resources value

is determined by its value by its relevance in terms of quantity and quality, and timing

in the business environment that is characterized by rapidly change and constant

development in the goals and alternatives and means must be flow permanent

information can decision makers planning and control of the business in addition to

determining the outcome of Activity and measuring the financial position of any

economic unit.( Kieso & et al.,2001, p.78)

The information helps with useful features economic units in the departments

increase their knowledge and determine the best alternative and information used in

the following activities.

1-Study the problem and develop guidelines to be solved by identifying the elements

of the problem.

2- Preparation of plans for the future and make decisions.

3- Develop methods of follow-up and control of events and activities.

4- Directed by matching results of the practical reality.

5- Considering the information resource investment must be made available to all

levels of management.

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3-1-6The characteristics of the information:

Several other accounting specialists tried to determine what the characteristics

and quality of information, and the best results that have been reached by the

Financial Accounting Standards Board U.S. (FASB) and when issued the accounting

concept (qualitative characteristics of accounting information). "Conception IAS (2)

came to bridge the gap between concept number (1) and other concepts subsequent,

which coveres a comprehensive mechanism recognition and measurement and

disclosure of elements of financial statements. Trying to answer the following

question: What are the characteristics that should be enjoyed by accounting

information to become effective:

1- Relevant:Information is relevant if it reduces uncertainty improves decision

makers ability to makw predictions or confirms or corrects their prior expectations.

2-Reliable:lnformation is reliable if it is free from error or bias and accurately

represents the events or activities of the organization.

3-Complete: Information is complete if it does not omit important aspects of the

underlying events or activities that is measures.

4-Timely : Information is timely if it is provided in time for decision makers to make

decisions.The importance of timing, in the presence and availability of information

to the decision maker at the right time and when you need it, and before they lose

their importance in influencing the decision-making process.( Kam,1990,p.516)

5- Understandable : Information is understandable if it is presented in a useful and

intelligible format.

6- Verifiable : Information is verifiable if two knowledgeable people acting

independently would each prouduce the same information.

7-Accessible : Information is accessible if it is available to users when they need it

and in a format they can use and adds some researchers some other qualities.

8- Accuracy: means to obtain more precise information of the total information

during a specific period of time.

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9- Flexibility: That the information has the ability to meet all the needs of users and

cover all aspects of the problem to be solved so that the decision-maker to take the

right decision in a timely manner.(Hendriksen Eldon S, and Micheal,2004, p.53)

Accounting information systems are an integral part of the administrative organization

known where we can say that the accounting information systems components of a

Management Information System MIS.Which means the provision of data and

information that affect the activities of the bank as a whole, and all the appropriate

information and objectivity in order to take correct decisions will help the bank to

achieve the goals. And the following figure illustrates this relationship.

Figure (3.3): The characteristics of the information

(Hendriksen , 1992, P 132)

3-1-7 Sources of information:

Decision-makers

Cost> benefit

understand the

information

Interest in the

decision-making

Relevant Reliable

Neutrality Verification feedback Capability Timely

Complete

Believe

Expression

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The most important with regard to Automatic Processing and the nature of

their work is the possibility of obtaining information from several sources, but we

verify the sources of information we have of the importance of even not problems

One of the most important sources:

- Internal sources: It is divided into two parts:-

1- Primary sources

It is a gathering of data for scientific research purposes, such as:

*Note.

*Experiments.

*Field Research.

*Appreciation Profile.

2- SecondarySources: data is collected for a specific purpose, such as scientific

Journals, university artical ,statistical studies and scientific research.

- External source: Information issued by individuals and economic universities

outside the unitwhich is also issued by the Information Systems community

Supreme such asauthorities and bodies of publications and government agencies

publications.

3-1-8 Stages of the production of information

1-The data collection stage: Recording and monitoring until you reach the stage of

processing.(Slight Steve, 2000, p.64)

2-Processing stage and operating: At this stage raw materials are converted the

datainto useful information, and then are stored in the system memory to take

advantage of them in a timely fashion, and this stage containSub-stages.

3- Verifying:Data is checked and make sure of the validity and accuracy of registration.

4-Classifying:It Tab data until us when you use it.

5-Arranging:They arrange and sequence data sequentially and logically.

6- Summarizing: Here are the collection of data disaggregated and ranked prepared

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before treatment and operation.

7-Analyzing: At this stage operation is carried out and the data processing.

8- Storing: At this stage are stored in the system memory of a good time.

9-Retrieving : In this stage retrieve data that is stored to benefit.

10-Communication: At this stage information is delivered to their beneficiaries,

whether they are within the economic unit such as administration or economic

unity creditor official .

3.2 Accounting information system:

3.2.1 Introduction:

The accounting information system is the major subsystems of the administrative

system of the facility , to produce information in the form of reports and lists of

crossing them financially , and that you need internal and external parties of the

facility as a result of processing the input of data and economic events , accounting

information systems is considered the backbone that helps the various administrative

levels in achieving. (Boockholdt,1999,p.48)

Therefore the management accounting is part of the senior management itself,

as part of all , is collaborating with everyone towards achieving the goals , even

though this part ( management accounting ) is one of the most important parts that

provide the levels of management an integrated information system , and plays the

information system of accounting role effective by the outputs of the system of

accounting reports and the content of the quantitative information and financial help

in the formulation of policies and plans , and these reports require the availability of

an organizational structure defined by the lines of authority and responsibility for each

part of the organization , and its role in achieving the objectives and reciprocal

relationships between them , so all towards achieving the overall objectives , and

reflected in the stages of contact , Reports and lists the display occur some sort of

integration and interdependence parts of the system in the early stages of

implementation and control.

Factors : )3.4(igure F

Accounting has multiple manifestations it an information system employs

economic unit processes to generate adequate information

a clear and explicit:

1- Registration economic data (data collection

2- Maintaining data storage

3-Preparing quantitative information and financial information generation

The following figure

activitiesIt is clear that accounting is the language of business that provide meanings

of events for the realization of economic unity in a clear and precise and Summary for

example, that the accounting system reflects the results of financial operations during

the accounting periods and the status of assets and property as the internal and

external users use the information for various purposes. (Jazrawi

But today as a result of economic developments and technical and

administrative influenced the nature of the work of banks has become required

accounting information systems that provide in additio

previous set of reports operating, regulatory and planning therefore to symptoms

service beneficiaries within banks such as administration and these reports contain in

addition to financial data standards cash quantitative data, su

so it must be designed accounting systems in line with these new jobs were through

one book about this development, saying I was an accountant in the past a person

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9/e, Romney/Steinbart (,Design of the AISInfluencingFactors


economic unit processes to generate adequate information among those operations:

Registration economic data (data collection

Maintaining data storage

Preparing quantitative information and financial information generation

The following figure shows this group of processes within the accounting


lization of economic unity in a clear and precise and Summary for



e information for various purposes. (Jazrawi,2010, P.



accounting information systems that provide in addition to financial reporting



addition to financial data standards cash quantitative data, such as time and quantity



)9/e, Romney/Steinbart


mong those operations:

Preparing quantitative information and financial information generation.

this group of processes within the accounting


lization of economic unity in a clear and precise and Summary for



. 25)



n to financial reporting



ch as time and quantity



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sitting in the back of the ship registers events taking place during the flight, while the

accountant today a person sitting in the bow predict informed future trip.

(Kaplan , R., & Norton , D.,2000, p.36)

There are various definitions of AIS. AIS is seen as a subsystem of a management

information systems, and its major function is to process financial transaction, as well

as non-financial transactions that directly affect the processing of financial

transactions (Siegel & Shim; Hall 1998). An AIS comprises four major sub-systems

that are relevant to this research:

The transaction processing system, which supports daily business operations

with numerous documents and messages for users throughout the

organisation;

• The general ledger/financial reporting system, which produces the traditional

financial statements, such as income statements, balance sheets, statements of

cash flows, tax returns, and other reports required by law;

• The fixed asset system, which processes transactions pertaining to the

acquisition, maintenance, and disposal of fixed assets.

• The management reporting system, which provides internal management with

special purpose financial reports and information needed for decision making,

such as budgets, variance reports, and responsibility reports.

The effieciency Accounting Information System including (Documents,

Records, Charts of Accounts, Reports and Financial Statements, Basic Terminology,

Events, Transactions, Real & Nominal Accounts, Ledger, Journal, Trial Balance,

Adjusting Entries, Closing Entries, Debits & Credits, Basic Equation.

( Kieso& et al.,2001, p.78)

3.2.2 Importance ofAccounting Information Systems In Banks:

The importance of accounting information systems through the concept of number

(2) of the Financial Accounting under which we know Accounting Standards

Committee (FASB) Accounting as an information system, and the main objective of

accounting is to provide useful information to decision makers so the Commission

modified the curriculum accounting recommended that curriculum accounting must to

emphasize that accounting is the process of determining (characterization) of

information, configured, measured and delivered had assumed that the accounting

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curriculum should be designed to provide recipients with the following basic

concepts:

1-The use of information in the decision-making process.

2-The nature of the design, use, implementation of accounting information systems

(building system).

3-The process of preparing (inform) reports financial information.

3.2.3The Characteristics Of The Information System Of Accounting:

1-Should check the accounting information systems with a very high degree of

accuracy and speed in processing financial statements when they are converted to

accounting information.

2-To provide management with the necessary accounting information in the

appropriate time to make a decision to choose the alternatives available to

management.

3-To be simple , clear and the flow of data from sources in an orderly fashion , and to

avoid a repeat data that are run , and the statement of the flow of information

between the various decision-making positions.

4-To provide management with the necessary information to help them function in the

job a short planning the medium-and long -term future of the work of the

organization.

5-To be acceptable to the employees in the organization, which offers a reasonable

degree of importance of persuasion and usefulness

6-To provide management with the information necessary to achieve the monitoring

and evaluation of the economic activities of the organization.

7-To be linked with other information systems in the facility , in order to achieve

integration among themselves to serve functions of planning , implementation and

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control , and to provide all that is needed from the decision-maker.

8-To be quick and accurate in the information retrieval and quantitative descriptive

stored and when you need it them.

9- Flexible enough when it comes to updating and developed to fit with the changes

emergency organization.(Hanfawi,2001)

3.2.4 Features accounting information systems in banks

1-The basic theme of the banking activity which is targeted money in itself , whether

from outside or from within the bank which requires a high degree of reserve and

caution when dealing with others , and a high degree of internal control

performance career within the bank.

2-The basic material which is dealing with the bank which is money and money does

not belong to him for the most part , and that the Bank deals primarily with funds

of depositors , which requires more than good planning and discipline sufficient

for decision on receiving these funds.

3- Banking activity is characterized by a high degree of sensitivity to economic

conditions , but the interface is economic conditions in any society , and the

vulnerability of this activity, interactions and even rumors economic which

requires more wisdom on the level of management of this activity is to absorb and

contain and overcome such effects.

4-The space of the impact of the banking activity as a result of the breadth and

overlap of movement in all economic activities practiced by society at large

through a combination of credit facilities and other banking services.

5-Inclusion of banking activity in the commercial banks on a variety of activities are

performed and implemented with a high degree of skill and craftsmanship.

6-Component super speed that must be characterized by rational decision-making

process in a timely and appropriate manner.(Alamrsi,2005, p .42-44)

3.2.5 The role AIS on the value chain

The objective of most organizations is to p

requires performing anumber of different activities figure shows that those activities

can be conceptualized as forming a value chain an organization value

of five primary activities that directly provide value to its customers

1- Inbound logistics consists of receiving storing and distributing the materials an

organization uses to create the services and products it sells for example receivi

handling and storing steel glass and rubber are some of the inbound logistics

activities of an automobile manufacturer

2-Operations activities transform inputs into final products or services for example

into a finished car.

3-Outbound logistics activities distribute finished products or services to customers

for example shipping automobiles to car dealers is an outbound logistics activity

4-Marketing and sales activities help customers buy the organization products or

services advertising is an

5-Service activities provide post

maintenance services.

Figure

(Accounting Information Systems, 9/e, Romney/Steinbart

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on the value chain

The objective of most organizations is to provide value to their customers


can be conceptualized as forming a value chain an organization value chain consists

of five primary activities that directly provide value to its customers:

logistics consists of receiving storing and distributing the materials an

organization uses to create the services and products it sells for example receivi


activities of an automobile manufacturer.

perations activities transform inputs into final products or services for example

activities distribute finished products or services to customers

for example shipping automobiles to car dealers is an outbound logistics activity

arketing and sales activities help customers buy the organization products or

services advertising is an example of a marketing and sales activity.

Service activities provide post-sale support to customers.Examples include repair

Figure (3.5): The Value Chain Primary Activities

Accounting Information Systems, 9/e, Romney/Steinbart)

rovide value to their customers this


chain consists

logistics consists of receiving storing and distributing the materials an

organization uses to create the services and products it sells for example receiving


perations activities transform inputs into final products or services for example

activities distribute finished products or services to customers

for example shipping automobiles to car dealers is an outbound logistics activity.

arketing and sales activities help customers buy the organization products or

sale support to customers.Examples include repair

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3.2.6 The functions of accounting information systems in banks

1- Collection and storage of data relating to the activities and operations of the bank

efficiently and effectively by original documents.

2-Data processing by sorting and classification, summarization (processing).

3-To generate useful information for decision-making and provide to the beneficiarie.

3.2.7 The efficiency of accounting information systems:

Efficiency as a concept can be defined as "the optimal use of resources to

achieve the desired results.

The importance of determining the efficiency of the system mentioned and

represented by the following points:

1-Efficiency is tangible evidence and scientific evidence and the real test to ensure the

appropriateness of the systemand safety planning.

2-The guarantee for the implementation of the system on what is planned and wanted

to accomplish.

3- Can follow the method of administration and the appropriate means which provide

an appropriate environment for the successful operation of the system.

4-Serves to detect obstacles that may hinder the efficiency required in order to find

solutions to them and avoid them.

Efficiency refers to the optimal use of available resources in order to achieve added

value within the value-added chain in the Organization Value Chain(Avolio, 2001)

3.2.8Efficiency Indicators and Measurement

Accuracy1-

Means dealing with the availability of an appropriate degree of accuracy in

the information prepared for use with a high degree of confidence in the

administrative purposes such as planning, control and decision-making.

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2- Appropriate

Means that the match types and specifications of the data and information

need of users.

3- The appropriate time

What is meant here taking into account the time factor when providing data

and information appropriate size and quality, where The mere provision of data and

information in an era of dynamic does not mean anything as far as means to obtain

these data and timely information for the purposes of making the appropriate decision.

These are three indicators combined constitute the first party of balancing

efficiency , because the flaw in any Of these indicators will adversely affect the

benefits of the system, and these range between negative Influence the decisions taken

(due to the inaccuracy of the information ) to the value of the lack of this information .

4-Cost

This indicator represents the second party in terms of balancing efficiency

must provide the necessary information at cost appropriate , any benefits to be derived

from the information system must be equivalent to or greater than the costs .

The judgment on the accounting information system that was efficient,

effective or that it carries qualities together, it would require to identify the

characteristics of information system as directed by the important aspects in the

evaluation of efficiency.( Angell, 1991: p 94)

3.2.9Factors affecting the efficiency and effectiveness of banking

information systems:

The achievement of information systems in commercial banks for their goals

efficiently and effectively on a range of Factors and environmental variables that

surround the bank , known as environmental variables as " a group of variables that

surround commercial bank , which enables him to transform inputs into outputsand

contains several elements such as : the political system , the economic system,

technology and customers , that is, they represent all the factors that affect the success

of the activities that achieve goals assigned to them .

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The level of efficiency and effectiveness of information systems on two types

of factors:

Internal factors1-

The all possibilities and material resources , programming, and human resources

available in the system in addition to the available data and procedures used in the

operation of the system , which factors Characterized by the possibility of control and

control it as it produces about management decisions so called the decision variables.

External factors2-

Factors which are difficult or can not be controlled by the control and result

from the external environment that surrounds the system under which the exercise

activities and banking operations . In spite of the difficulty of draw, the line between

internal and external factors that affect the level of efficiency and effectiveness of

systems information , as it factors overlapping with each other in many areas.

(Nicolaou &Btiattaacharye,2006, p.45)

3.2.10 Banks as one of the applications of electronic information

systems in the field of banking business.

Electronic banks appeared on the internet since 1995, formally, and most of

those banks specializing in investment on the Internet, does not need to rely on more

than one point in transfer of funds in addition to the difficulty of managing capital by

traditional methods.Thus banks emerged strongly and increased global attention until

the number of users in the millions where all financial transactions on the Internet by

those banks , is also used banks or online (Electronic Banking) expression or the term

of electronic banking.

As an expression of a sophisticated and comprehensive concept of the modern

concepts of financial services remotely , (Internet Banking(Or domestic bank (Remote

Electronic Banking) Or financial services resume , (Online Banking) or bank on-line

(Home Banking).

All expressions related to the fact that customers manage their accounts and

completion , (Self-Service Banking)(their work related to the bank through the home,

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office or any other place and in time he wants Customer , and is expressed in other

words " financial service all the time and from anywhere .

The impact of accounting infrmation systems on the competitive position of

banks:

♦ Impact on the quality of the product,

♦ The impact on the financial performance,

♦ The impact on the control of the markets,

♦ The impact on innovation and development,

♦ The impact on the efficiency of operations,

♦ The impact on strategy of banks (Porter , ME, 2003)

3.2.11 The Role of Accounting Information Systems And Their Impact On

Management Functions.

( Planning_ control_decision-making)

Since the beginning of this century , the researchers focused on the importance

of planning, control and decision-making in the project . It can not conceive of a plan

without effective control capable of detecting glitches and correct , and there is no

real control without a prior plan target.(Moscov,2002)

3.2.11.1 The Role of Accounting Information Systems In Planning:-

Planning creates awareness among management and highlights its sights on

the future, enabling it to determineproblem areas and take appropriate decisions on

them in a timely manner, planning is needed to study the conditions of the future and

this study put the administration in a better position when dealing with opportunities

available and reduces the likelihood of surprises .( Arab Society,2001,p. 98)

The future study and pass through five stages in a row and interconnected with

each other, and accounting information plays an important role at every stage of the

six stages of the following :

-The role of accounting in the process of identifying targets.

-The role of accounting in the process of gathering data and information.

-The role in the accounting phase of the pooling of resources.

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-The role of accounting standards in the preparation stage.

-The role of accounting in the process of preparing plans and labor policies.

-The information necessary for long-term planning and short-term.

3.2.11.2 The Role Of Accounting Information In Control

Control begins directly when developing plans into actual implementation and

continue with it because you can not imagine having a good layout without oversight

tools capable of detecting deviations and corrected as it does not exist to control real

what were not preceded by a plan and a clear show the desired objectives and the

formation of the foundation , which is evaluated actual results analyze and address the

distractions , so linked to the functions of planning and control each other strongly

linked and intertwined to the extent that it makes it difficult to draw clear lines

between them .

The report of the Basel Committee in 2000 and who regard the banks and the

banks where recommended in this report Principle # 11 on him that he must adhere to

the banks and the establishment of the internal audit function effective and efficient

and which enjoys independence and neutrality, which is characterized by employees

with adequate training and appropriate, as well as the unit can raise the internal audit

report to the board of directors or senior management.

3.2.11.3 The role of accounting information systems in decision making:

Decision-making is core function and most of the management functions , and

the decision represents a selection of the alternatives available to solve the problem ,

and the more varied alternatives to the resolution the greater the need for accounting

information and the need presented in a logical framework and model systems helps

to achieve efficient and effective decisions. (Arab Society, 2001,p.1)

The administrative decision well when its reliance on logic and the available data

and the study of possible alternatives, even if they did not reach good results , and it

remains the administrative decision bad for a non- reliance on logic and the use of

available information and analysis of alternatives expected though to reach acceptable

results due to luck..( Jackson and sawyers,2001:41)

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(Adair, 2007,p. 23)

Figure (3.6): Stages Decision-making

(Adair, 2007,p. 23) Administrative decision art and science , to be adopted on the skill and ability

of the decision maker in the trade-off Among multiple alternatives in addition to the

use of quantitative methods and mathematical models of modern evaluate the various

alternatives.If the administrative decisions depends directly on the accounting

information it is essential to define the role of this information and its impact on

managerial decision-making in the various stages and circumstances.

( Hetjr.1992 , 220)

3.3 Risk Management And Banking Types :

3.3.1 Risk Management In Indian Banks

The art and science of Risk management in Indian banks is a relatively newer

practice, but has already shown to increase efficiency in governing of these banks as

such procedures tend to increase the corporate governance of a financial institution. In

times of volatility and fluctuations in the market, financial institutions need to prove

their mettle by withstanding the market variations and achieve sustainability in terms

of growth as well as have a stable share value. Hence, an essential component of risk

management framework would be to mitigate all the risks and rewards of the products

goal and problem step 1. determine

Step 2. The collection of information

Step 3. Generating choices

Step 4. Decision-making

Step 5. Implementation and evaluation

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and service offered by the bank. Thus the need for an efficient risk management

framework is paramount in order to factor in internal and external risks.

The researchers acknowledge the risk management process and evaluate and

deal with it is considered very important for the success and continuation of the bank,

but the debate is about the appropriate means and mechanisms for it, especially the

process of measuring these risks.(Kinney, Jr,2004: P 134)

The financial sector in various economies like that of India are undergoing a

monumental change factoring into account world events such as the ongoing Banking

Crisis across the globe. The recession in the United States has highlighted the need for

banks to incorporate the concept of Risk Management into their regular procedures.

The various aspects of increasing global competition to Indian Banks by Foreign

banks, increasing Deregulation, introduction of innovative products, and financial

instruments as well as innovation in delivery channels have highlighted the need for

Indian Banks to be prepared in terms of risk management.Indian Banks have been

making great advancements in terms of technology, quality, as well as stability such

that they have started to expand and diversify at a rapid rate.However, such expansion

brings these banks into the context of risk especially at the onset of increasing

Globalization and Liberalization. In banks and other financial institutions, risk plays a

major part in the earnings of a bank. The higher the risk, the higher the return, hence,

it is essential to maintain a parity between risk and return. Hence, management of

financial risk incorporating a set systematic and professional methods especially those

defined by the Basel II becomes an essential requirement of banks. The more risk

averse a bank is, the safer is their capital base.

Finard, JB1996 refersthat financial risk management has become essential for

the continuation of the company in light of contemporary global competition, and

financial risk management facility is seeking to have three main objectives:

1-Prevent Negative Earnings

2- Maximize Earnings stability

3- Minimize the Cost of Managing Financial Exposures.

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3.3.2 TYPES OF RISKS

The term Risk and the types associated to it would refer to financial risk or

uncertainty of financial loss. The Reserve Bank of India guidelines issued in Oct.

1999 has identified and categorized the majority of risk into three major categories

assumed to be encountered by banks. These belong to the clusters:

(Crouhy, Michel, Dan Galai, and Robert Mark,2001, p.41-55)

1. Operational Risk

2. Market Risk

3. Credit Risk

The type of risks can be fundamentally subdivided in primarily of two types, i.e.

Financial and Non-Financial Risk. Financial risks would involve all those aspects

which deal mainly with financial aspects of the bank. These can be further subdivided

into Credit Risk and Market Risk. Both Credit and Market Risk may be further

subdivided.

Non-Financial risks would entail all the risk faced by the bank in its regular workings,

i.e. Operational Risk, Strategic Risk, Funding Risk, Political Risk, and Legal Risk.

3.3.2.1 OPERATIONAL RISK:

Operational risk is that which is incurred by the banks’ internal activities. A

widely used definition of operational risk is the one contained in the Basel II

regulations. This definition states that operational risk is the risk of loss resulting from

inadequate or failed internal processes, people and systems, or from external events.

Operational risk is the broad discipline focusing on the risks arising from the

people, systems and processes through which a company operates. It can also include

other classes of risk, such as fraud, legal risks, physical or environmental risks.

Operational risk management differs from other types of risk, because it is not

used to generate profit (e.g. credit risk is exploited by lending institutions to create

profit, market risk is exploited by traders and fund managers, and insurance risk is

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exploited by insurers). They all however manage operational risk to keep losses

within their risk appetite - the amount of risk they are prepared to accept in pursuit of

their objectives. What this means in practical terms is that organisations accept that

their people, processes and systems are imperfect, and that losses will arise from

errors and ineffective operations. The size of the loss they are prepared to accept,

because the cost of correcting the errors or improving the systems is disproportionate

to the benefit they will receive, determines their appetite for operational risk.

3.3.2.2. Operational risk mitigation

Basel II and various Supervisory bodies of the countries have prescribed

various soundness standards for Operational Risk Management for Banks and similar

Financial Institutions. To complement these standards, Basel II has given guidance to

3 broad methods of Capital calculation for Operational Risk. 1) Basic Indicator

Approach - based on annual revenue of the Financial Institution. 2) Standardized

Approach - based on annual revenue of each of the broad business lines of the

Financial Institution. 3) Advanced Measurement Approaches - based on the internally

developed risk measurement framework of the bank adhering to the standards

prescribed (methods include IMA, LDA, Scenario-based, Scorecard etc.). The

Operational Risk Management framework should include mitigation frameworks for

Operational Risk that is identification, measurement, monitoring, reporting, control .

3.3.3 Market Risk:

Market risk is the risk of losses in positions arising from movements in

market prices. Some market risks include: Equity risk, Interest rate risk, Currency risk

and Commodity risk which may not be directly related to banking business.

3.3.3.1 Evaluation of market risk

Like other types of risk, the potential loss amount due to market risk may be

measured in a number of ways or conventions. Traditionally, one convention is to use

Value at Risk. The conventions of using Value at risk is well established and accepted

in the short-term risk management practice.

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However, it contains a number of limiting assumptions that constrain its

accuracy. The first assumption is that the composition of the portfolio measured

remains unchanged over the specified period. Over short time horizons, this limiting

assumption is often regarded as reasonable. However, over longer time horizons,

many of the positions in the portfolio may have been changed. The Value at Risk of

the unchanged portfolio is no longer relevant.

The Variance Covariance and Historical Simulation approach to calculating

Value at Risk also assumes that historical correlations are stable and will not change

in the future or breakdown under times of market stress.

In addition, care has to be taken regarding the intervening cash flow,

embedded options, changes in floating rate interest rates of the financial positions in

the portfolio. They cannot be ignored if their impact can be large.

3.3.4CREDIT RISK:

Credit risk refers to the risk that a borrower will default on any type of debt by

failing to make payments which it is obligated to do. The risk is primarily that of the

lender and include lost principal and interest, disruption to cash flows, and increased

collection costs. The loss may be complete or partial and can arise in a number of

circumstances. For example:

• A consumer may fail to make a payment due on a mortgage loan, credit card,

line of credit, or other loan

• A company is unable to repay amounts secured by a fixed or floating charge

over the assets of the company

• A business or consumer does not pay a trade invoice when due

• A business does not pay an employee's earned wages when due

• A business or government bond issuer does not make a payment on a coupon

or principal payment when due

• An insolvent insurance company does not pay a policy obligation

• An insolvent bank won't return funds to a depositor

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• A government grants bankruptcy protection to an insolvent consumer or

business

To reduce the lender's credit risk, the lender may perform a credit check on the

prospective borrower, may require the borrower to take out appropriate insurance,

such as mortgage insurance or seek security or guarantees of third parties, besides

other possible strategies. In general, the higher the risk, the higher will be the interest

rate that the debtor will be asked to pay on the debt.

3.3.4.1 Types of credit risk

Credit risk can be classified as:

• Credit default risk - The risk of loss arising from a debtor being unlikely to

pay its loan obligations in full or the debtor is more than 90 days past due on

any material credit obligation; default risk may impact all credit-sensitive

transactions, including loans, securities and derivatives.

• Concentration risk - The risk associated with any single exposure or group of

exposures with the potential to produce large enough losses to threaten a

bank's core operations. It may arise in the form of single name concentration

or industry concentration.

• Country risk - The risk of loss arising from a sovereign state freezing foreign

currency payments (transfer/conversion risk) or when it defaults on its

obligations (sovereign risk).(Beckers, Stan ,1999, p.67)

3.3.4.2 Evaluation of credit risk

When completed, the process of risk analysis, it is necessary to make a

comparison between risk assessment and risk measures that had been prepared by the

institution, risk measures may include revenue and related costs, and legal

requirementsand social and economic factors, environmental, and stakeholder

interests; Therefore, risk assessment is used to make decisions about the risks of

importance to the institution, and whether the risk must be accepted and processed.

(The Institute of Risk Management, 2004, P.9)

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Significant resources and sophisticated programs are used to analyze and

manage risk. Some companies run a credit risk department whose job is to assess the

financial health of their customers, and extend credit (or not) accordingly. They may

use in house programs to advise on avoiding, reducing and transferring risk. They also

use third party provided intelligence. Companies like Standard & Poor's, Moody's,

Fitch Ratings, and Dun and Bradstreet provide such information for a fee.

Most lenders employ their own models (credit scorecards) to rank potential

and existing customers according to risk, and then apply appropriate strategies. With

products such as unsecured personal loans or mortgages, lenders charge a higher price

for higher risk customers and vice versa. With revolving products such as credit cards

and overdrafts, risk is controlled through the setting of credit limits. Some products

also require security, most commonly in the form of property.( Gupta, PK, 2011,p.87)

Credit scoring models also form part of the framework used by banks or

lending institutions grant credit to clients. For corporate and commercial borrowers,

these models generally have qualitative and quantitative sections outlining various

aspects of the risk including, but not limited to, operating experience, management

expertise, asset quality, and leverage and liquidity ratios, respectively. Once this

information has been fully reviewed by credit officers and credit committees, the

lender provides the funds subject to the terms and conditions presented within the

contract.

3.3.4.3. Control of credit risk

Lenders mitigate credit risk using several methods:

• Risk-based pricing: Lenders generally charge a higher interest rate to

borrowers who are more likely to default, a practice called risk-based

pricing. Lenders consider factors relating to the loan such as loan purpose,

credit rating, and loan-to-value ratio and estimates the effect on yield (credit

spread).

• Covenants: Lenders may write stipulations on the borrower, called

covenants, into loan agreements:

o Periodically report its financial condition

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o Refrain from paying dividends, repurchasing shares, borrowing further,

or other specific, voluntary actions that negatively affect the company's

financial position

o Repay the loan in full, at the lender's request, in certain events such as

changes in the borrower's debt-to-equity ratio or interest coverage ratio

• Credit insurance and credit derivatives: Lenders and bond holders may

hedge their credit risk by purchasing credit insurance or credit derivatives.

These contracts transfer the risk from the lender to the seller (insurer) in

exchange for payment. The most common credit derivative is the credit

default swap.

• Tightening: Lenders can reduce credit risk by reducing the amount of credit

extended, either in total or to certain borrowers. For example, a distributor

selling its products to a troubled retailer may attempt to lessen credit risk by

reducing payment terms from net 30 to net 15.

• Diversification: Lenders to a small number of borrowers (or kinds of

borrower) face a high degree of unsystematic credit risk, called concentration

risk. Lenders reduce this risk by diversifying the borrower pool.

• Deposit insurance: Many governments establish deposit insurance to

guarantee bank deposits of insolvent banks. Such protection discourages

consumers from withdrawing money when a bank is becoming insolvent, to

avoid a bank run, and encourages consumers to hold their savings in the

banking system instead of in cash.(RSM, 2008)

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Conclusion : This chapter is dedicated to review the theoretical aspects of the concepts of

accounting information system and its relationship to on the efficiency to improve the

performance of banks, as well as its tools and methods and its historical development

and its approaches or the dimensions, as well as the concepts of (AIS), its

development, objectives and functions and its role in achieving competitive advantage

for Banks.

In our opinion, The accounting information system the major subsystems of

the management system of the bank, is to produce information in the form of reports

and lists expressed financially. This is required by the internal and external parties of

the organization as a result address input of data and economic events. AIS is the

essential foundation which helps the various administrative levels in achieving their

objectives, and therefore the management accounting is part of the senior

management itself, as part of all, collaborating with everyone towards achieving the

goals.