Accounting as a Financial Information System | Commerce & Accountancy Optional Notes for UPSC PDF Download

Introduction

• A financial information system (FIS) systematically gathers and organizes data in a computerized manner. It is designed to evaluate and analyze both past financial performance and current operational aspects, providing insights for future financial steps for the organization.
• This structured accounting system efficiently manages data and provides recommendations for optimal utilization and improved strategies for the organization's growth. The data analysis encompasses financial modeling, precise trend analysis, and ratio calculations. This analysis relies on accounting records, working capital details, operational and capital budgets, as well as cash flow forecasts. FIS is utilized by e-commerce businesses of all sizes to achieve the highest possible financial outcomes.

Features of FIS in Accounts

Financial information systems in accounting possess components and features that instill trust among both large and small organizations.
The key characteristics of FIS include:

• Precision: FIS ensures that financial data is meticulously accumulated and verified for accuracy, establishing trustworthiness.
• Presentability: The data generated by FIS is well-structured and presented in a way that attracts potential investors, fostering confidence in the information.
• Applicability: FIS is applicable in decision-making processes, helping to alleviate confusion. For instance, before making investment decisions or embarking on new ventures, FIS aids in addressing questions and relieving uncertainties associated with financial data.
• Security: FIS provides a secure environment for organizations, assuring the delivery of accurate data. This security allows organizations to make informed decisions without hesitation.
• Clarity and Transparency: Financial information presented by FIS is easily understandable and transparent. This clarity ensures that shareholders and investors can grasp the organization's position with ease.
• Accessibility: FIS enables individuals with minimal financial knowledge to assess and invest in an organization confidently, promoting inclusivity in financial decision-making.
• Efficient Data Presentation: FIS efficiently and effectively presents data in an accessible manner, fostering user engagement and contributing to the overall growth of organizations.

Components of FIS

Components of a financial information system (FIS) encompass various elements:

• Data: The primary function of the financial information system is to gather commercial and financial data, encompassing any transactions involving cash inflow or outflow. FIS is responsible for analyzing and validating the correctness of data, which may include invoices, bills, ledgers, etc.
• Software: FIS utilizes software that facilitates the import, processing, analysis, organization, and retrieval of an organization's accounting data. Various software programs, both standardized and customized, are available, featuring financial calculators, formulas, storage capabilities, and audit options.
• Procedure: Each organization follows a unique set of procedures within the financial information system when processing and organizing data. For instance, a hospital might input patient details, treatment information, duration, bills, insurance coverage, and contacts into the system, which then operates accordingly.
• Information Technology Infrastructure (ITI): ITI in FIS refers to the hardware components, including computers, software, printers, scanners, laptops, servers, etc. The hardware should effectively serve the purpose of gathering and interpreting data, irrespective of its specific type.
• People: Individuals involved in the financial information system include investors, shareholders, auditors, taxation departments, external authorities, and advisors. The FIS should be user-friendly, ensuring that even those with limited economic knowledge can comprehend it.
• Internal Command: Security is a crucial component for data confidentiality in FIS. Organizations often employ complex passwords and security measures, such as biometric locks. To safeguard against potential threats, security apps and private networks are commonly utilized. Implementing departmental divisions and restricting access to specific individuals contribute to securing an organization's FIS data.

Advantages of Financial Information System

Advantages of integrating financial information systems in accounting can be summarized as follows:

• Enhanced Clarity and Uniformity: The FIS process enhances the comprehensibility of accounting and benefits the organization by establishing a consistent approach to organizing data. Large organizations leverage FIS for a comprehensive understanding and strategic planning for the future.
• Facilitates Financial Reporting: FIS promotes financial reporting, encompassing an overview of historical performance, current status, and future projections. It enables divisional oversight through the assignment of supervisors, ensuring effective monitoring of budget utilization.
• Technical Monitoring of Budget and Resources: Technical monitoring of budgets and resources by FIS instills reliability and stability in accounts, ensuring effective management of financial resources.
• Sector-Specific Systems: Specialized financial information systems tailored to different sectors simplify data recording, offering unique functions and features. For instance, multinational companies utilize FIS to manage balance sheet data, shares, debentures, market trends, project details, deadlines, and budget utilization.
• Efficient Fund Tracking: FIS tracks the usage of current funds and monitors the entry of new investors, providing a comprehensive overview of financial inflows and outflows.
• Clear Financial Image and Fund Organization: FIS presents a clear financial image and facilitates the generation and organization of funds, offering insights into optimal fund utilization and identifying any instances of fund wastage within the organization.
• Optimized Fund Utilization: FIS offers recommendations for the optimal use of funds, helping prevent wastage and ensuring efficient fund utilization.
• Divisional Limit Setting: In accounting, FIS allows operators to set limits for each division, providing a structured approach to financial management.
• Performance Monitoring and Safeguarding: The ultimate financial information system detects both excessive and low performance, serving as a safeguard by highlighting potential issues and allowing for timely corrective actions.

Conclusion

This article provides a concise overview of financial information systems in accounting, covering their features, components, and advantages. The six integral components—data, procedure, information technology infrastructure, software, internal commands, and people—are briefly elucidated. The article outlines five key features of FIS in the realm of accounting and enumerates the benefits it offers. Notably, FIS is adaptable for use by both large and small organizations, enriching the understanding of financial data and restructuring the organizational framework. Emphasizing its role as a concurrent system, the financial information system serves as the cornerstone for establishing identity and charting a path for growth through data stability and reliability.