Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

CHAPTER- 01 INTRODUCTION

1.1An overview about Insurance business in Bangladesh. 1.1.1 Information System of Insurance Business. 1.1.2 Important control features for insurance business include. 1.1.3 Approaches to Topics. 1.2 Objectives of the study. 1.3 Methodology of the study. 1.4 Scope of the study. 1.5 Limitations of the study.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

1.1 An overview about Insurance business in Bangladesh Insurance is a mechanism of transferring risk. Insurance should be treated as a basic human need in terms of wide range of human activities and situations. The insurance industry of Bangladesh now consists of 44 General Insurance Companies (non-life) including state owned Sadharan Bima Corporation and 18 Life Insurance Companies including state owned Jiban Bima Corporation. The sector is playing a vital role in the economy of the country. 1.1.1 Information System of Insurance Business The insurance business accounting information system must not only aid the insurance companies in achieving its basic objective but also incorporate those features necessary to comply with regulatory requirements. The insurance business accounting information system includes following areas: 1 2 3 4

Organization Unique accounting practices Management information requirements Accounting controls

1.1.1.1 Organization: The organization of an insurance business depends upon its functions and services. Most insurance companies are divided into a marketing division, underwriting division, re-insurance division, claims division and financial division. If the insurance company offers trust services a trust division is often established. 1.1.1.2 Unique accounting practice: Insurance companies must comply with certain regulatory requirements and reporting practices. 1.1.1.3 Management Information requirements: Insurance business management needs a variety of reports and information for both external and internal purposes. Financial statements are often required by stockholders, the SEC and other regulatory agencies. For internal purpose, management needs a variety of reports should include a variety of information reports on marketing activity, underwriting activity, re-insurance activity, claim activity and financial activities. 1.1.1.4. Accounting controls: Many aspects of insurance accounting are unique. Almost every piece of paper utilized by insurance company becomes a sources document for the accounting entry. Such papers include Money Receipts, checks, deposit slips, debit and credit vouchers. Insurance company process hundreds of source documents each day. As consequence, it is imperative that insurance companies make posting their books each day. Assets of insurance companies including cheques, cash. One of the most important accounting controls is the safeguarding of these assets. Primary objectives of insurance company‟s internal control should be to promote dual control over

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh such cash and cash equivalent assets and to fix responsibilities for recording transactions and maintaining assets.

1.1.2 Important control features for insurance business include:  Segregating duties among personnel handling assets, recording transactions and supervision.  Rotating duties among employees.  Requiring that every officer and employee of the employee take full uninterrupted vacations so that transactions under the control of any one individual may clear.  Exercising dual control over cash and cash equivalent assets by requiring the authorization, approval or action of two individuals to complete a transaction.  Establishing a strong, independent internal audit department.

1.1.3 Approaches to the Topic Insurance should be treated as a basic human need over a very wide range of human activities and situations. Insurance companies need an efficient Accounting Information System that enables the company to administer and present Insurance services and products effectively. Insurance companies must maintain an IT based Accounting Information System to survive in the competitive Insurance market.

During the last twenty years, insurance industry in the developed world has undergone tremendous change, Deregulation, technological innovation and competition contributed largely to the developments that took place during the decades. As a result, insurance information is very much important for the economy. To provide relevant information in time the insurance sector should have a unified accounting information system. Effective AIS is essential for data collection, data management, data maintenance, and data control and information generation of the insurance business. But the information handing units of the insurance business have not been properly organized. Rules and procedures have not been properly developed to guide information handling departments. In this situation this thesis tries to find out the original image of the overall AIS of insurance business of Bangladesh.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

1.2 Objectives of the Study There are two objective of this paper they are: 1.2.1 Board objectives: The Board objectives of the report are to analyze the concept of Accounting Information Systems.  To know about the system mainly the insurance companies follow for their Insurance business operation: manual, computerized and combination of manual and computerized.  To know about the methods of accounting system they follow in their Insurances: accrual and combination of accrual and cash.  To know about their overall data control or internal control system: weak, sound or totally sound.  To know how they provide information to their internal management and external decision makers.  To know about the satisfaction of the insurance companies about their AIS and problems of AIS. 1.2.1 Specific objectives: The Specific objectives are:  To analyze the existing Accounting Information System  To identify the problems of implementing existing system.  To find out the strengths and weaknesses of the process and also the problems usually face to implement Accounting Information System.  To find out proper solution for the problems of existing AIS.

1.3 Methodology of the study The study has been conducted through review of the relevant provisions of the applicable laws, Accounting software, Accounting manual, Reports, Publications etc., Survey, discussion and interview have also been made. Primary Data: The various methods which will be used to collect primary data these are: 1. Direct personal investigations. 2. Oral conversions and interviews. 3. Information from colleagues. 4. Survey.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh Secondary Data: The various methods of collecting secondary data will be as follows: 1. Published text books, Journals, Research papers, articles, etc. 2. Annual reports of Insurance companies. 3. Insurance Act, Insurance Rules, Securities and Exchanges Commission Rules, Income Tax ordinance, Accounting manual, Software. 4. Internet.

1.4 Scope of the study The scope is restricted with AIS of insurance business guided by the relevant laws, regulations and warranties of the insurance Act 1938, the Insurance Rules 1958, the Companies Act, 1994, the Securities and Exchange Commission (SEC) Rules 1987, Bangladesh Accounting Standards (BAS) and other applicable laws and regulations and prevailing practices.

1.5 Limitations of the study I had secondary data available; I had to face some limitations while doing this study. These include:  Time constraints  Misinterpretations  Non accessibility of the company management

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

CHAPTER- 02 HISTORY OF INSURANCE INDUSTRY 2.1 Introduction. 2.2 History and Development of Insurance. 2.2.1 Marine Insurance. 2.2.2 Fire Insurance. 2.2.3 Life Insurance. 2.3 Development of Insurance in Bangladesh.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

2.1 Introduction Insurance is a system of spreading the risk of one onto the shoulders of many. Whilst it becomes somewhat impossible for a man to bear of himself 100% loss to his own property or interest arising out of an unforeseen contingency, insurance is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose.

2.2 History & Development of Insurance The origin of insurance is lost in antiquity. However, there is no evidence that insurance in its present form was practiced prior to the twelfth century. A brief chronological historical development of the various branches of insurance is given below 2.2.1 Marine Insurance Marine is the oldest form of insurance and came first in the list. This type of insurance probably began in northern Italy sometime during the 12th& 13th century and gradually the concept was rather transferred to or taken over by the United Kingdom. During the 13th / 14th century the Italian merchants went to UK and along with the merchandise carried with them the trading customs including the concept of marine insurance. Marine insurance as such was not being practiced as a separate specialized entity during that time since it were the merchants who used to transact marine insurance business side by side with their general trading activities. 2.2.2 Fire Insurance: After marine insurance fire insurance develop in present form. It had been observed in Anglo-section Guild form for the first time where the victims of the fire hazards were given personal assistance by providing necessaries of life. It 15 had been originated in Germany in the beginning of sixteenth century. The fire insurance got momentum in England after the great fire in 1666 when the fire losses were tremendous.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 2.2.3 Life Insurance: The third in the list of development is the life insurance business. The earliest policy of which there is a record dates back to 1583. During this period only short term polices were used be issued meaning that only at the death of the life assured during the term period the money was to be paid. On survival nothing was payable. In 1693 Halley introduced the mortality table giving a definite value to risk of death. In 1974, the life Assurance Act was passed in the British parliament requiring the presence of insurable interest before one could affect a life policy on the life of another. All these gradually gave life assurance a sound, systematic and scientific basis as we see in the present day.

2.3 Development of Insurance in Bangladesh Insurance is not a new idea or proposition to the people of Bangladesh. About half a century back, during the British rule in the then India, some insurance companies started transacting insurance business, particularly life in this part of the world. Since 1947 until 1971 insurance business gained momentum in this part of what was then known as East Pakistan. There were about 49 companies transacting both life and general insurance business. These companies were of various origins, Viz, British, Australian, Indian, West Pakistani and East Pakistani. Except a few companies these were mostly limited liability companies acting under a free competitive economy. With the emergence of the People‟s Republic of Bangladesh, the government in order to make available the fruit of liberation to the general mass, nationalized the insurance industry in 1972 by presidential order no 95 more specially known as the Bangladesh insurance (Nationalization) order1972. By virtue of the order, save and except postal life insurance and foreign life insurance companies (other than the Pakistani companies), all companies and organization transacting all types of insurance business in this country came under this nationalization. Five insurance corporations were basically established, Viz. i) Jatiya Bima Corporation ii) Teesta Bima Corporation iii) Karnaphuli Bima Corporation iv) Rupsa Jibon Bima Corporation 8

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh v) Surma Jiban Bima Corporation The Jatiya Bima Corporation was not an under writing corporation, actually, it was a central corporation to supervise and control the activities of the remaining four subsidiary corporations. As per this order Teesta and Karnaphuli were made responsible for general insurance business and Rupsa and Surma was made responsible for life insurance business. All the existing 49 companies were merged with this 4corporation whilst life companies or the life portion of a composite company joined the Rupsa and Surma, the general companies or the general portion of a composite company joined the Teesta and Karnaphuli. Formation of two corporations Although the basic idea behind creating 2 corporations in each main branch was to encourage competition even under a nationalized system, it was observed soon that the unnecessary administration expenses for maintaining these two corporations in each front and are apex institution. Therefore, on 14th May, 1973 the structural arrangement under nationalization was changed vide act VI 1973. The previous 5 corporation were abolished and instead 2corporations were established, Viz. i) Sadharan Bima Corporation for transacting general insurance business only. The two general insurance corporations were merged under it. ii) Jibon Bima Corporation For transacting the life insurance is business only. The two life insurance corporations were merged under it. In the sector, postal life insurance business and corporation of life business by foreign companies (other than Pakistan) are still permitted as before. This is the present structure under which the insurance business in transacted in this country. Insurance is not altogether a new idea in this country, but somehow it could not flourish much. Now however, there is enough provision for tapping the untapped resource and potentialities. During the Pakistan or Pre-Pakistan period this market was basically a production market dealing only in limited conventional types of insurance business both in life and general. Consideration used to be missing as to what type of policy would suit best the requirement of the people. Hence, even though there was tremendous growth prospect, it never gained momentum in the past. Lake of proper technical know-how of the insurance personnel and the general ignorance of the public as to the importance of insurance business were also partly responsible for extremely slow growth of insurance activities in the past.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh Also partly responsible extremely slow growth is insurance activities in past. It should be remembered by the students that the insurance industry had to pass through a number of difficult during the initial stages after nationalization. However, the handicaps were kept under constant review by the government on the management of the industry and remedies are gradually being implements to accelerate the growth and progress. Year

Establishment / Act

Authority

1 March, 1972

P.O. 19/1972 Adoption of Insurance Act in Bangladesh

Ministry of Commerce Bangladesh

8 March, 1972

P.O. 95/1972 Bangladesh Insurance (nationalization ) order 1972

16 March, 1972

P.O. 95/1972 Bangladesh Insurance (nationalization ) order 1972

26 March, 1972

P.O. 30/1972 Bangladesh Insurance (Emergency provision ) order 1972

1 November, 1972

P.O. 30/1972 Bangladesh Insurance (nationalization & Amendment ) order 1972

30 December,1972

P.O. 30/1972 Bangladesh Insurance corporation (Dissolution ) order 1972

14 May, 1972

Ordinance 7/73/ Insurance Corporation Ordinance 1973

November, 1973

Bangladesh Insurance Academy

1984

Private Insurance Company Act

After 2008

Govt. Life Insurance in one & private life Insurance Company is 19.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

CHAPTER- 03 THEORETICAL ASPECTS OF ACCOUNTING INFORMATION SYSTEM

3.1 Implement an Accounting Information System. 3.2 Interaction with External and Internal Parties. 3.3 Compare Between Data and Information. 3.4 Roles of Accountants with Respect to AIS. 3.5 Enterprise Resource Planning (ERP). 3.6 Development of AIS. 3.7 Classes of Systems. 3.8 File Classifications. 3.9 Record Key. 3.10 Flags. 3.11 File Oriented Approaches. 3.12 Flowchart.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Theoretical Aspects of Accounting Information System 3.1 Implemention an Accounting Information System 3.1.1 Accounting It is the principal way of organizing and reporting financial information. It has been called the “language of business.” Accounting and information systems comprise the functional area of business responsible for providing information to the other areas to enable them to do their jobs and for reporting the results to interested parties. To that end, an accounting system is used to identify, analyze, measure, record, summarize, and communicate relevant economic information to interested parties. 3.1.2 Information Information is intelligence that is meaningful and useful to persons for whom it is indented. 3.1.3 System A System is an entity consisting of interacting parts that are coordinated to achieve one or more common objectives. Systems must possess. Organization: Transactions-Journals-Ledgers-Financial Statements Interrelationships: The relationship between Subsidiary ledgers and the General Ledger Integration: Individual transactions to Financial Statements Central Objectives: Financial Reports, Budgets, Management Reports

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Organization

Environment Of the Firm

Information System

Busi

AIAISSness Firm

Operational

Organizations Functions

AIS TransactionCycles

Business Events from Operations

System

Fig: The business firm as a system

So, a system is a set of two or more interrelated components that interact to achieve a goal.

3.1.4 Information System An Information system is a framework in which data is collected, processed, controlled and managed through stages in order to provide information to users. It evolves over time and becomes more formalized as a firm grows and becomes more complex. It can be a manual or computerized system. Firms depend on information systems in order to survive and stay competitive.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Hardware

Data

Information

Software

Fig: Information system

3.1.5 Accounting information system An accounting information system (AIS) is a unified structure within an entity such as business firm that employs physical resources and other components to transform electronic data into accounting information, with purpose of satisfying the information needs of variety users.

Input

Financial events or transactions

Processing Output

Through several accounting functions

Information through financial statements

Fig: Accounting information system

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

3.2 Interaction with external and internal parties The AIS interacts with external parties, such as customers, vendors, creditors, and governmental agencies. The AIS also interacts with internal parties such as employees and management. The interaction is typically two ways, in that the AIS sends information to and receives information from these parties.

External Internal

AIS Parties

Parties

Fig: AIS Interaction 3.2.1 Components of AIS AIS consist of five components: 1. The people who operate the system and perform various functions. 2. The procedures both manual and automated, involved collecting, processing, and storing data about the organization‟s activities. 3. The data about the organization‟s business process. 4. The software used to process the organization‟s data. 5. The information technology infrastructure, including computers, peripheral devices, and network communications devices. Together these five components enable AIS to fulfill three important functions in any organization: (A) Collecting and storing data about the activities performed by the organization. (B) Transforming data into information that is useful for making decisions that enable management to plan, execute, and control activities. (C) Providing adequate control to safeguard the organization‟s assets including its data, to ensure that the data are available when needed and accurate and reliable.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

3.3 Compare between Data and Information 3.3.1 Data Data refers to any and all kind of the facts that are collected, stored, and processed to produce information by an information system. 3.3.2 Information Information is data that have been processed and are meaningful and useful to users. The terms “meaningful” and “useful” are value-laden terms and usually subsume other qualities such as timeliness, relevance, reliability, consistency, comparability, etc. 3.3.3 Functional Steps in Transforming Data into Information  Data collection - capturing, recording, validating and editing data for completeness and accuracy.  Data Maintenance/Processing - classifying, sorting, and calculating data.  Data Management - storing, maintaining and retrieving data.  Data Control - safeguarding and securing data and ensuring the accuracy and completeness of the same.  Information

Generation

-

interpreting,

reporting,

and

communicating

information. Storage Information

Processing

Input

Consumers Output Exchange Events Internal Events Environmental Events

}

Data

Fig: The Universal Data Processing Model

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 3.3.4 Characteristics that make information useful  Relevance: Information is relevant if it reduces uncertainty, improves decision makers‟ ability to make predictions, or confirm or corrects their prior expectations.  Reliability: Information is reliable if it is free from error or bias and accurately represents the events or activities of the organization.  Completeness: Information is complete if it does not omit important aspects of the underlying events or activities that it measures.  Timeliness: Information is timely if it is provided in time to enable decision makers to use it to make decisions.  Understandability: Information is understandable if it is presented in a useful and intelligible format.  Verifiability: Information is verifiable if two knowledgeable people acting independently would each produce the same information.  Comparability: Information is comparable if it is presented in a way that can be compared with that of information of others. 3. 3.5 The AIS and corporate strategy Strategies and Strategic positions Michael Porter, world-renowned professor of business at Harvard, argues that there are basic business strategies that companies can follow. 1. A product differentiation strategy entails adding some features or services to the product that are not provided by competitors. 2. A low-cost strategy entails striving to be the most efficient producer of a product or service. Porter argues that the fundamental choice companies must make involves selecting a specific strategic position they wish to adopt. He describes three basic strategic positions: 1. A variety-based strategic position involves producing or providing a subset of the industry‟s product or services. 2. A need-based strategic position involves trying to serve most or all of the needs of a particular group of customers. 3. An access-based strategic position involves serving a subset of customers who differ from other customers in terms of factors such as geographic location or size, which creates different requirements for serving those customers. 3.3.6 Factors influencing design of the AIS AIS design is affected by  Information technology  Organization‟s strategy  Organization‟s culture 17

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Organizational Culture

Strategy

AIS

Information Technology

Fig: Factors influencing design of the AIS Through the development of information technology, AIS makes information easily accessible and widely available for users. Information technology affects the company‟s business strategy. The value of IT depends upon how it is used strategically to improve the organization. AIS aids to develop business strategies implement those strategies and modify those strategies through new developments in IT. AIS function should be designed in such a way so that it reflects the value of organizational culture. Figure shows that the arrow between organizational culture and the AIS is bidirectional i.e. organization‟s culture influence the design of AIS and the design of AIS also influence organization‟s culture by controlling the flow of information within the organization.

3.3.4 Value chain The ultimate goal f any business is to provide value to its customers. A business will be profitable if the value it creates is greater than the cost of producing its products or services. Value is provided by performing a series of activities referred to as the value chain. These include: (A) Primary activities (B) Support activities An organization‟s value chain consists of five primary activities that directly provide value to its customers: 1. Inbound logistics consists of receiving, storing, and distributing the materials that are inputs used by the organization to create the services and products that it sells. 2. Operational activities transform inputs into final products or services. 3. Outbound logistics are the activities involved in distributing finished products or services to customers. 18

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4. Marketing and sales refers to the activities involved in helping customers to buy the organization‟s products or services. 5. Service activities provide post-sale support to customer.

SUPPORT ACTIVITIES  Firm Infrastructure  Human Resources  Technology Development  Purchasing

1. Inbound logisticsreceiving and Storing Materials

2. OperationsManufacturing Repackaging

3. Outbound logisticsDistribution Shipping

4. Marketing and salesAdvertising Selling

5. ServiceRepair Maintenance

PRIMARY ACTIVITIES Fig: Value chain Support activities are sometimes referred to as “line” and “staff” activities respectively. Support activities include: 1. Firm infrastructure refers to the accounting, finance, legal support, and general administration activities that are necessary for any organization to function. The AIS ia part of the firm infrastructure. 2. Human resources Involves recruiting and hiring new employees, training employees, Paying employees, and handling employee benefits. 3. Technology refers to activities to improve the products or services (e.g., R&D, Web Site development). 4. Purchasing buying the resources (e.g., materials, inventory and fixed assets) needed to Carry out the entity‟s primary activities. 19

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

3.4 Roles of Accountants With Respect to AIS  Financial accountants- prepare financial information for external decision-making in accordance with GAAP  Managerial accountants- prepare financial information for internal decision-making  Auditors - evaluate controls and attest to the fairness of the financial statements.  Accounting managers - control all accounting activities of a firm.  Tax specialists - develop information that reflects tax obligations of the firm.  Consultants - devise specifications for the AIS

3.5Enterprise Resource Planning (ERP) ERP systems are large-scale information systems that impact an organization's AIS. These systems permeate all aspects of the organization and require technologies such as client/server and relational databases. Other system types that currently impact AISs are supply chain management (SCM) and customer relationship management (CRM). Traditional AISs recorded financial information and produced financial statements on a periodic basis according to GAAP pronouncements. Modern ERP systems provide a broader view of organizational information, enabling the use of advanced accounting techniques, such as activity-based costing (ABC) and improved managerial reporting using a variety of analytical techniques.

3.6 Development of AIS

The development of AIS includes five basic phases: planning, analysis, design, implementation, and support. The time period associated with each of these phases can be as short as a few weeks or as long as several years. 3.6.1 Planning Planning refers to project management objectives and techniques. The first phase of systems development is the planning of the project. This entails determination of the scope and objectives of the project, the definition of project responsibilities, control requirements, project phases, project budgets, and project deliverables. 3.6.2. Analysis The analysis phase is used to both determine and document the accounting and business processes used by the organization. Such processes are redesigned to take advantage of best practices or of the operating characteristics of modern system solutions. There are three types of Analysis. These are:

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

(A)Data analysis is a thorough review of the accounting information that is currently being collected by an organization. Current data are then compared to the data that the organization should be using for managerial purposes. This method is used primarily when designing accounting transaction processing systems.

(B) Decision analysis is a thorough review of the decisions a manager is responsible for making. The primary decisions that managers are responsible for are identified on an individual basis. Then models are created to support the manager in gathering financial and related information to develop and design alternatives, and to make actionable choices. This method is valuable when decision support is the system's primary objective.

(C)Process analysis is a thorough review of the organization's business processes. Organizational processes are identified and segmented into a series of events that either add or change data. These processes can then be modified or reengineered to improve the organization's operations in terms of lowering cost, improving service, improving quality, or improving management information. This method is appropriate when automation or reengineering is the system's primary objective. 3.6.3 Design The design phase takes the conceptual results of the analysis phase and develops detailed, specific designs that can be implemented in subsequent phases. It involves the detailed design of all inputs, processing, storage, and outputs of the proposed accounting system. Inputs may be defined using screen layout tools and application generators. Processing can be shown through the use of flowcharts or business process maps that define the system logic, operations, and work flow. Logical data storage designs are identified by modeling the relationships among the organization's resources, events, and agents through diagrams. Also, entity relationship diagram (ERD) modeling is used to document large-scale database relationships. Output designs are documented through the use of a variety of reporting tools such as report writers, data extraction tools, query tools, and on-line analytical processing tools. In addition, all aspects of the design phase can be performed with software tool sets provided by specific software manufacturers. Reporting is the driving force behind an AIS development. If the system analysis and design are successful, the reporting process provides the information that helps drive management decision making. Accounting systems make use of a variety of scheduled and on-demand reports. The reports can be tabular, showing data in a table or tables; graphic, using images to convey information in a picture format; or matrices, to show complex relationships in multiple dimensions. There are numerous characteristics to consider when defining reporting requirements. The reports must be accessible through the system's interface. They should convey 21

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh information in a proactive manner. They must be relevant. Accuracy must be maintained. Lastly, reports must meet the information processing (cognitive) style of the audience they are to inform. Reports are of three basic types: A filter report that separates select data from a database, such as a monthly check register; a responsibility report to meet the needs of a specific user, such as a weekly sales report for a regional sales manager; a comparative report to show period differences, percentage breakdowns and variances between actual and budgeted expenditures. An example would be the financial statement analytics showing the expenses from the current year and prior year as a percentage of sales. Screen designs and system interfaces are the primary data capture devices of AISs and are developed through a variety of tools. Storage is achieved through the use of normalized databases that assure functionality and flexibility. Business process maps and flowcharts are used to document the operations of the systems. Modern AISs use specialized databases and processing designed specifically for accounting operations. This means that much of the base processing capabilities come delivered with the accounting or enterprise software. 3.6.4. Implementation The implementation phase consists of two primary parts: construction and delivery. Construction includes the selection of hardware, software and vendors for the implementation; building and testing the network communication systems; building and testing the databases; writing and testing the new program modifications; and installing and testing the total system from a technical standpoint. Delivery is the process of conducting final system and user acceptance testing; preparing the conversion plan; installing the production database; training the users; and converting all operations to the new system. Tool sets are a variety of application development aids that are vendor-specific and used for customization of delivered systems. They allow the addition of fields and tables to the database, along with ability to create screen and other interfaces for data capture. In addition, they help set accessibility and security levels for adequate internal control within the accounting applications. 3.6.5 Internal controls and security measures Security exists in several forms. Physical security of the system must be addressed. In typical AISs the equipment is located in a locked room with access granted only to technicians. Software access controls are set at several levels, depending on the size of the AIS. The first level of security occurs at the network level, which protects the organization's communication systems. Next is the operating system level security, which protects the computing environment. Then, database security is enabled to protect organizational data 22

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh from theft, corruption, or other forms of damage. Lastly, application security is used to keep unauthorized persons from performing operations within the AIS. Testing is performed at four levels. Stub or unit testing is used to insure the proper operation of individual modifications. Program testing involves the interaction between the individual modification and the program it enhances. System testing is used to determine that the program modifications work within the AIS as a whole. Acceptance testing ensures that the modifications meet user expectations and that the entire AIS perform as designed. Conversion entails the method used to change from old AIS to a new AIS. There are several methods for achieving this goal. One is to run the new and old systems in parallel for a specified period. A second method is to directly cut over to the new system at a specified point. A third is to phase in the system, either by location or system function. A fourth is to pilot the new system at a specific site before converting the rest of the organization. 3.6.6 Support The support phase has two objectives. The first is to update and maintain the AIS. This includes fixing problems and updating the system for business and environmental changes. For example, changes in generally accepted accounting principles (GAAP) or tax laws might necessitate changes to conversion or reference tables used for financial reporting. The second objective of support is to continue development by continuously improving the business through adjustments to the AIS caused by business and environmental changes. These changes might result in future problems, new opportunities, or management or governmental directives requiring additional system modifications.

3.7 classes of systems There are two broad classes of system, to describe below:  Batch systems  Real-time systems 3.7.1 Batch Processing In batch processing, transaction data are stored in a transaction file until a master-file update is performed. The storing of transaction data in a transaction file may occur either through off-line or on-line entry of data. 3.7.2 Real-Time Systems  Process transactions individually at the moment the economic event occurs.  Have no time lag between the economic event and the processing.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh  Generally require greater resources than batch processing since they require dedicated processing capacity; however, these cost differentials are decreasing.  Oftentimes have longer systems development time. 3.7.3 Importance of IT and Computer Networks to Accountants  To use, evaluate, and develop modern AIS, accountants must be familiar with IT.  Computers enable accountants to perform their duties more quickly, accurately, and consistently than by manual methods.  Software such as electronic spreadsheets aid accountants in analyzing financial statements and in developing budgets. 3.7.4       

Gains from IT for Accountants Faster processing of transactions and other data. Greater accuracy in computations of and comparisons with data Lower cost of processing each transaction. More timely preparation of reports and other outputs. More concise storage of data, with greater accessibility when needed. Wider range of choices for entering data and providing outputs. Higher productivity for employees and managers, who learn to use computers effectively in their routine and decision-making responsibilities

3.7.5 Types of Network Architectures (A) Wide-Area Network (WAN): A WAN is a network that is dispersed over a wider geographic area than a LAN. It typically requires the use of:  Gateways to connect different types of LANs  ridges to connect same-type LANs WANs may use common carrier facilities, such as telephone lines, or they may use a Value Added Network (VAN). (B) Local-Area Networks (LAN): A type of distributed network created when two or more linked computers are grouped within a limited geographical area. LAN can be configured in one of three basic ways: i) Star configuration: A star configuration is a LAN configured as a star; each device is directly connected on the central server.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Host Computer or Server

Fig: The STAR configuration

ii) Ring Configuration: In a LAN configured as ring, each node is directly linked to other nodes.

Central Files

Local Local Files Files

Local Files

Local Files

Fig: The RING configuration

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh iii) Bus Configurations: In a LAN configured as bus, each device is connected to the main channel, or bus.

Bus channel Host Computer or Server

Fig: The BUS configuration

3.7.6 The Network Operating System  In peer-to-peer networks, the Network Operating Software (NOS) is installed in each user workstation.  In a server network, most of the NOS are installed in the file server and a portion also resides in each workstation.  To run centralized LAN applications, the NOS installed in the file server interacts with the NOS and the local operating system installed in the workstation. The client workstation NOS initiates a request to the file server NOS to load files and programs into the client workstation‟s RAM.  In a peer-to-peer network, a client NOS initiates a request to another client NOS, which also functions as a server, to load the requested files and/or programs into RAM 3.7.7 Enterprise-wide Processing and Data Systems  Enterprise-wide on-line transaction processing systems collect and process missioncritical accounting and operational applications.  Enterprise Resource Planning Systems (ERP) such as SAP R/3 overcomes the limitations of legacy applications.  Firms typically develop two types of On-line Analytical Processing (OLAP) systems that supplement ERP or legacy systems.

26

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh  A firm can model the relevant aspects of business events contained within the business processes allowing for the use of relational database-related query language commands.  Firms can create a data mart or data warehouse to generate predefined reports for executives and other managers. 3.7.8 Data Marts and Data Warehouses  Both Data Marts and Data Warehouses organize and store copies of “informational” or decision support data.  A Data Mart stores copies of decision support data in a data base for a portion of a company.  A Data Warehouse stores copies of decision support data in an integrated data base for an entire enterprise.  As opposed to applications-oriented data in legacy systems, data in a data mart or warehouse are stored by subject areas (e.g., customers).  Data may be stored in either summarized or “raw” form.  Both have “drill down” and “data mining” features.

3.8 File Classifications 3.8.1 Master files These contain (semi) permanent data (records) pertaining to entities (people, places, and things). Accounting related examples include:        

General and Subsidiary ledgers. General ledger master file. Customer/Accounts Receivable master file. Vendor/Accounts Payable master file. Inventory master file. Employee/Payroll master file. Open WIP master file. Standard cost master file.

3.8.2 Transaction files These contain records pertaining to events currently being processed, such as sales, receipts of goods, etc. 

Transaction files capture detailed transaction data. They are counterparts to general and special journals in manual systems.



Transaction data are periodically posted to related master file(s) and are then either purged or archived. 27

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh Accounting related transaction files include:  General/Special journal file (General ledger).  Sales/Cash receipts file (Accounts receivable).  Receiving/Purchases file, Cash disbursements file (Inventory, Accounts payable).  Inventory issuance file/shipment file/sales file/adjustments file (Inventory).  Payroll/Cash disbursements 3.8.3 Reference files These contain tables or lists of data needed for making calculations or for checking the accuracy of input data. e.g., product price tables, customer lists, etc. 3.8.4 History files These are also called archive files since they contain records pertaining to completed transactions such as past sales. 3.8.5 Open files These files record incomplete transactions. Whereas transaction files are purged or archived at the end of a given period, open files remain indefinitely open. Only individual records from Open files get purged as the transaction actually occurs or does not. 3.8.6 Report files These are derived from records within master or transaction files. e.g., data may be periodically extracted from the Accounts Receivable master file to construct an aging schedule. 3.8.7 Backup file This is a copy of a current file generated so that the original file can be recreated from it. 3.8.8 Suspense file This is a collection of those records of a transaction file that appear to contain erroneous or questionable data.

28

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

3.9 Record-Key These are data elements within records that serve as sort keys. e.g. Customer-account number. Two types of keys often used in master and transaction file records are a primary key and one or more secondary keys.  A Primary key (also called a record key) is the attribute that uniquely identifies a specific record. They are usually of numeric or alphanumeric modes, e.g. customer number.  A Secondary key is an attribute other than the primary key and represents an alternative way to sort or access records in a file, e.g. customer last name.

3.10 Flags  

Flags that are symbols or characters used for control purposes, e.g. end-of-batch flag. Flags are not visible to the end-user. It is a system-managed field that is transparent to the user.

3.11 File-Oriented Approach 3.11.1 File-Oriented Approach to Data Storage  In the file-oriented approach to data storage computer applications maintain their own set of files.  This traditional approach focuses on individual applications, each of which has a limited number of users, who view the data as being “owned” by them. 3.11.2 Deficiencies of the File-Oriented Approach  Files and data elements used in more than one application must be duplicated, which results in data redundancy.  As a result of redundancy, the characteristics of data elements and their values are likely to be inconsistent.  Outputs usually consist of preprogrammed reports instead of ad-hoc queries provided upon request. This results in inaccessibility of data.  Changes to current file-oriented applications cannot be made easily, nor can new developments be quickly realized, which results in inflexibility.  It is difficult to represent complex objects using file processing systems.

3.11.3 The Database Approach to Data Storage  A database is a set of computer files that minimizes data redundancy and is accessed by one or more application programs for data processing.  The database approach to data storage applies whenever a database is established to serve two or more applications, organizational units, or types of users.

29

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh  A database management system (DBMS) is a computer program that enables users to create, modify, and utilize database information efficiently. 3.11.4 Data Dictionary  A data dictionary is a computer file that maintains descriptive information about the items in a database.  Each computer record of the data dictionary contains information about a single data item used in AIS.  Examples of information that might be stored in a data dictionary are source document(s) used to create the data item, programs that update the data item and classification information about the item’s length and data type 3.11.5   

Advantages of the Database Approach Efficient use of computerized storage space. Each subsystem has access to the other‟s information. All application programs utilize the same computer file, thereby simplifying operations.  Fewer backup files for security purposes.  Relieves some users from data-gathering responsibilities in situations where these users previously gathered their own data. 3.11.6 Disadvantages of the Database Approach  Databases can be expensive to implement because of hardware and software costs  Additional software, storage, and network resources must be used.  A DBMS can only run in certain operating environments, which makes some unsuitable for certain alternate hardware/operating system configurations.  Because it is radically different from the file-oriented approach, the database approach may cause initial inertia, or complications and resistant. 3.11.6 Data-Flow Diagrams A data-flow diagram shows the physical and logical flows of data through a transaction processing system without regard to the time period when each occurs.

3.12 Flowcharts Flowcharts include three types:  Document flowcharts describe the flow of documents and information between departments or units.  System flowcharts describe the relationship between inputs, processing, and outputs for a system.  Program flowcharts describe the sequence of logical operations performed in a computer program.

30

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

CHAPTER- 04 ANALYSIS OF ACCOUNTING INFORMATION SYSTEM OF INSURANCE INDUSTRY IN BANGLADEH

4.1 Jiban bima Corporation 4.2 American Life Insurance Company 4.3 Pragati Life Insurance Ltd 4.4 Popular Life Insurance Company 4.5 National Life Insurance Company 4.6 Comparative analysis among the insurance company

31

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.1 Jiban Bima Corporation Accounting Information Systems (AIS) of Jiban Bima Corporation: Jiban Bimacorporation uses foreign company software for execute their all operation & use tally software for their regular data. They made an agreement with an American company toprovide service their customer effectively and efficiently. This graph shows very good result for this company it indicate that this company is perfectly operatingtheir operation.

JIBAN BIMA COR POR ATION QUALITY DATA Over all data Quality

Accuracy

Timeliness

Completeness

Consistency

6 5 4

3 2 1 0 Over all data Quality

Accuracy

Timeliness

Completeness

Consistency

4.1.1 Top & middle Management Commitment to AIS: A long-standing question for both IT research and management practice has been: how can IT be used in organizations to increase firm performance? Top & middle Management have provided many capabilities that impact business and financial performance, including enterprise architecture, IT governance, IT metrics, top management engagement, IT-business alignment, and business and IT unit capabilities. Top & middle Management propose that a limited number of enterprise commitments are key to maximizing business value from IT. We demonstrate, via a survey of 5 respondents in publicly traded firms, that these commitments are positively correlated to Business Impact from IT, which in turn correlates with higher financial performance.

32

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Top & middle Management Commitment to AIS 7 6 5 4 3 2 1 0

Top management recognize the importance

Middle management commitment to AIS Importance

Education and training

DQ controls

Performance

4.1.2 Team work Businesses often ask employees to complete projects that require they work as a team. Working together has many benefits, including the possibility to create new friendships, a sense of group accomplishment and distribution of responsibilities. Conversely, teamwork also may cause tension and anxiety among employees because of poor communication. Effective communication can eliminate much of the stress and negative feelings sometimes associated with working closely as a team. Business owners should encourage their employees to communicate with one another clearly when working together. This is especially important for smaller companies, whose employees often must work closely with one another.

33

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Team work 6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Between different departments and within departments Importance

34

Between different professionals, such as, accounting and IT Performance

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.1.3 Nature of the Accounting Information Systems Accounting Information Systems of Jiban Bima Corporation is Intuitive and easy to us. All users can use the features very easily. Automatically performs as much validation of data as possible (based on business rules etc). The system of Jiban Bima Corporation is Adequate& sufficient documentation for people to follow & uses the system. It‟s user friendly. Ease of modification / upgrade. But the system is not mature it is now in beta stage. Last three years they operate this system. The system is up-to-date (adopt new technology): regular. Level of the integration and system Interpretability is high. Jiban Bima Corporation has Effective data management approach, such as, centralized database, and data warehouse.

Nature of the Accounting Information Systems 7 6 5 4 3 2 1 0

Importance

Performance

4.1.4 Understanding of the systems and Data Quality All the employee of jiban bima Corporation is understand importance of data quality management. They are always prepared & active to improve the overall data quality appropriate DQ controls, approaches, and adequate processes.

35

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Understanding of the systems and DQ 7 6 5 4 3 2 1 0

Understand how the systems work Understand the importance of DQ (technical competence) Importance

Understand the usefulness and usage of information

Performance

4.1.5 Miscellaneous Activity: Jiban Bima Corporation records all the financial and non-financial data about the organization‟s activities via the existing system. And they don't use any another subsystems are used for collecting non-financial data. they use ERP system. JBC have Transactional web sites for checking balances, transferring funds, applying for credit cards etc. Exist in the organization. The organization is involved with on-line commerce science 2011. Accounting Software is used for the entire activities. Name of the Software (tally) .this the Accounting Software satisfying all the users. If any malfunction arises then the existing software is supportive. JBC use networking System only in internal activities. There is a back-up computer system for their internal activities

36

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

4.2 American Life Insurance Company Accounting Information Systems (AIS) of American Life Insurance Company (Met life Alico): American Life Insurance Company also known as Met life Alico is the world best and biggest Life insurance company. Alico use their own customize software to keep their all clients account record. They have huge number of highly talented employee, they collect & maintained high quality data.

Quality Data American Life Insurance Company 6.2 6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Over all data Quality

Accuracy

Timeliness

Completeness

American Life Insurance Company

37

Consistency

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.2.1 Top & middle Management Commitment to AIS: Management of Alico is committed to establish good accounting information system, to run their business. They regular train-up their employee. Try to better performance provide for customers satisfaction.

Management Commitment to AIS 6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Top management recognize the importance

Middle management commitment to AIS Importance

Education and training

Performance

DQ controls

Column2

4.2.2 Team Work Team work is very important for an organization. Like other organization Alico has that facility their employee can work together via using software but employee must have the authority or have permission to do team work. They even do work between different departments and within departments or between different professionals, such as, accounting and IT.

38

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Team Work

(Communication):

6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Between different departments and within departments

Between different professionals, such as, accounting and IT

Importance

Performance

4.2.3 Nature of the Accounting Information Systems Accounting Information Systems of American Life Insurance Company (Met life Alico) is Intuitive and easy to us. All users can use the features very easily. Automatically performs as much validation of data as possible (based on business rules etc.). The system of Alico is Adequate & sufficient documentation for people to follow & uses the system. It‟s very user friendly. Ease of modification / upgrade. The system is not mature enough. The system is upto-date (adopt new technology): regular. Level of the integration and system Interpretability is high. Alico has Effective data management approach, such as, centralized database, and data warehouse. 4.2.4 Understanding of the systems and Data Quality All the employees of American Life Insurance Company (Met life Alico) are understanding importance of data quality management. They are always prepared & active to improve the overall data quality appropriate DQ controls, approaches, and adequate processes. They are highly trained to bring or maintained Quality data.

39

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Understanding of the systems and Data Quality 7 6 5 4 3 2 1 0

Understand how the systems work Understand the importance of DQ (technical competence) Importance

Understand the usefulness and usage of information

Performance

4.2.5 Miscellaneous Activity: American Life Insurance Company (Met life Alico) records all the financial and nonfinancial data about the organization‟s activities via the existing system. And they don't use any another subsystems are used for collecting non-financial data. they use ERP system. Alico have Transactional web sites for checking balances, transferring funds, applying for credit cards etc. Exist in the organization. The organization is involved with on-line commerce science 2011. Accounting Software is used for the entire activities. .this the Accounting Software satisfying all the users. If any malfunction arises then the existing software is supportive. Alico is used networking System only in internal activities. There is a back-up computer system for their internal activities

40

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

41

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

4.3 Pragati Life Insurance Ltd. Accounting Information Systems (AIS) of Pragati Life Insurance Ltd: Pragati Life Insurance is the rewound Life insurance company. Pragati Life Insurance Ltd use their own customize software by a Bangladeshi software company to keep their all clients account record. They recorded high quality data form their client.

Quality Data

Pragati Life Insurance Ltd

6.2 6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Over all data Quality

Accuracy

Timeliness

Completeness

Consistency

Pragati Life Insurance Ltd

4.3.1 Top & middle Management Commitment to AIS: Management of Pragati Life Insurance is committed to establish good accounting information system, to run their business. They regular train-up their employee. To provide the better performance for the customers satisfaction. They organize regular training for their employee to bring better output form them.

42

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Management Commitment to AIS 6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Top management recognize the importance

Middle management commitment to AIS Importance

Education and training

Performance

DQ controls

Column2

4.3.2 Team Work Like other organization Pragati Life Insurance has that facility their employee can work together via using software but employee must have the authority or have permission to do team work. They even do work between different departments and within departments or between different professionals, such as, accounting and IT. They must have permission because of security reason.

Team Work

(Communication):

6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Between different departments and within departments

Between different professionals, such as, accounting and IT

Importance

43

Performance

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.3.3 Nature of the Accounting Information Systems Accounting Information Systems of Pragati Life Insurance is Intuitive and easy to use Pragati Life Insurance pursues this form a local software firm. All employees can use the features very easily. Automatically performs as much validation of data as possible (based on business rules etc). The system of Pragati Life Insurance is Adequate & sufficient documentation for employee to follow & uses the system. It‟s very user friendly. Ease of modification / upgrade. The system is not mature enough. The system is up-to-date (adopt new technology): regular. Level of the integration and system Interpretability is high. Pragati Life Insurance has Effective data management approach, such as, centralized database, and data warehouse.

Nature of the Accounting Information Systems 6.2 6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Importance

Performance

4.3.4 Understanding of the systems and Data Quality

All the employees of Pragati Life Insurance are understanding importance of data quality management. They are always prepared & active to improve the overall data quality appropriate DQ controls, approaches, and adequate processes. They are highly trained to bring or maintained Quality data.

44

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Understanding of the systems and Data Quality 7 6 5 4 3 2 1 0

Understand how the systems work Understand the importance of DQ (technical competence) Importance

Understand the usefulness and usage of information

Performance

4.3.5 Miscellaneous Activity: Pragati Life Insurance records all the financial and non-financial data about the organization‟s activities via the existing system. And they don't use any another subsystems are used for collecting non-financial data. they use ERP system. This the Accounting Software satisfying all the users. If any malfunction arises then the existing software is supportive. Pragati Life Insurance is using networking System only in internal activities. There is a back-up computer system for their internal activities

45

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

4.4 Popular Life Insurance Company Accounting Information Systems (AIS) of Popular Life Insurance Company: Popular Life Insurance Company‟s the rewound Life insurance company.Popular Life Insurance use their own customize software by a Bangladeshi software company to keep their all clients account record. They recorded high quality data form their client.

46

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Quality Data

Pragati Life Insurance Ltd

7 6 5 4 3

2 1 0

Over all data Quality

Accuracy

Timeliness

Completeness

Consistency

Popular Life Insurance

4.4.1 Top & middle Management Commitment to AIS: Management of Popular Life Insurance is committed to establish good accounting information system, to run their business. They regular train-up their employee. They organize regular training for their employee to bring better output form them.

Management Commitment to AIS 6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Top management recognize the importance

Middle management commitment to AIS Importance

47

Education and training Performance

DQ controls

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.4.2 Team Work Popular Life Insurance has that facility their employee can work together via using software but employee must have the authority or have permission to do team work and it is for limited. They even do work between different departments and within departments or between different professionals, such as; accounting and IT. They must have permission because of security reason.

Team Work

(Communication):

6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Between different departments and within departments Importance

Between different professionals, such as, accounting and IT Performance

4.4.3 Nature of the Accounting Information Systems Accounting Information Systems of Popular Life Insurance is Intuitive and easy to use Popular Life Insurance pursues this form a local software firm. All employees can use the features very easily. Automatically performs as much validation of data as possible (based on business rules etc). The system of Popular Life Insurance is Adequate & sufficient documentation for employee to follow & uses the system. It‟s very user friendly. Ease of modification / upgrade. The system is not mature enough. The system is up-to-date (adopt new technology): regular. Level of the integration and system Interpretability is high. Popular Life Insurance has Effective data management approach, such as, centralized database, and data warehouse. 48

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Nature of the Accounting Information Systems 7 6 5 4 3 2 1 0

Importance

Performance

4.4.4 Understanding of the systems and Data Quality Popular Life Insurance companies all employee of are understand importance of data quality management. They are always prepared & active to improve the overall data quality appropriate DQ controls, approaches, and adequate processes. They are highly trained to bring or maintained Quality data.

Understanding of the systems and Data Quality 7 6 5 4 3 2 1 0

Understand how the systems work Understand the importance of DQ (technical competence) Importance

49

Performance

Understand the usefulness and usage of information

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

4.4.5 Miscellaneous Activity: Popular Life Insurance records all the financial and non-financial data about the organization‟s activities via the existing system. And they don't use any another subsystems are used for collecting non-financial data. They use ERP system. This the Accounting Software satisfying all the users. If any malfunction arises then the existing software is supportive. Popular Life Insurance used networking System only in internal activities. There is a back-up computer system for their internal activities.

50

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

4.5 National Life Insurance Company Accounting Information Systems (AIS) of National Life Insurance Company: National Life Insurance Company is the rewound Life insurance company. National Life Insurance use their own customize software by a foregin software company to keep their all clients account record.

Quality Data National

Life Insurance Ltd

7 6 5 4 3

2 1 0

Over all data Quality

Accuracy

Timeliness

Completeness

Consistency

National Life Insurance

4.5.1 Top & middle Management Commitment to AIS: Management of National Life Insurance is committed to establish good accounting information system, to run their business. They regular train-up their employee. They organize regular training for their employee.

51

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Management Commitment to AIS 6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Top management recognize the importance

Middle management commitment to AIS Importance

Education and training

DQ controls

Performance

4.5.2 Team Work National Life Insurance has that facility their employee can work together via using software but employee must have the authority or have permission to do team work and it is for limited user. They even do work between different departments and within departments or between different professionals, such as, accounting and IT. They must have permission because of security reason.

Team Work

(Communication):

6.2

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4

Between different departments and within departments Importance

52

Between different professionals, such as, accounting and IT Performance

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.5.3 Nature of the Accounting Information Systems Accounting Information Systems of National Life Insurance is easy to use.National Life Insurance purchases s this form a local software firm. All mployees can use the features very easily. Automatically performs as much validation of data as possible (based on business rules etc.). The system of National Life Insurance is Adequate & sufficient documentation for employee to follow & uses the system. It‟s very user friendly. NotEase of modification / upgrade. The system is not mature enough. The system is up-to-date (adopt new technology) regular. Level of the integration and system Interpretability is high. Popular Life Insurance has Effective data management approach, such as, centralized database, and data warehouse.

Nature of the Accounting Information Systems 7 6 5 4 3 2 1 0

Importance

Performance

4.5.4 Understanding of the systems and Data Quality National Life Insurance companies all employee of are understand importance of data quality management. They are always prepared & active to improve the overall data quality appropriate DQ controls, approaches, and adequate processes. They are highly trained to bring or maintained Quality data.

53

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Understanding of the systems and Data Quality 7 6 5 4 3 2 1 0

Understand how the systems work Understand the importance of DQ (technical competence) Importance

Understand the usefulness and usage of information

Performance

4.5.5 Miscellaneous Activity: National Life Insurance records all the financial and non-financial data about the organization‟s activities via the existing system. And they don't use any another subsystems are used for collecting non-financial data. They use ERP system. This the Accounting Software satisfying all the users. If any malfunction arises then the existing software is not supportive. National Life Insurance used networking System only in internal activities. There is a back-up computer system for their internal activities

54

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 7

CHART TITLE 6 5

5

5

5

5

5

5

5

5

5

5

5

5

4

3

2

1 0

0

0

0

0

0

0

0

0

0

0

0

0

-1

-2

malfunc ATM, computAccount network integrat subsyste Account tion subsyste encrypti credit er ing ing es both ms are ing arises card backupSoftwar System Transact Transact on ms for financial used for Softwarthen the collectin ional ional technolnetworksysteme is used used and collectin e existing web web ogy for s are for theirfor the only in g nonnong nonsatisfyinsoftwar financial sites sites accountused forinternal entire internal financial financial g the e is activitie data holderspaymenactivitieactivitie data data users supporti t s s s ve

service avaible

5

0

5

0

0

5

0

5

5

5

0

5

service not avaible

0

5

0

5

5

0

5

0

0

0

5

0

4.6 Comparative analysis among the insurance company Life Insurance Company & Jiban Bima Corporation is more effiecient But

National Life

Insurance Company Ltd, Popular Life Insurance Company Ltd and Pragati Life Insurance Ltd 4.6.1 Data quality Quality information is critical to organizations‟ success in today‟s highly competitive environment.

Accounting information systems (AIS) as a discipline within information

systems require high quality data

55

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh Traditionally, data quality has often been described from the perspective of accuracy. Nowadays, research and practice indicates that data quality should be defined beyond accuracy and is identified as encompassing multiple dimensions (Huang et al 1999). However, there is no single standard data quality definition that has been accepted in the field (Klein 1998). Before reviewing the literature, the core term of data quality needs to be clarified. By themselves, information and data are often different, for example, data is a collection of symbols which signify real world system states and are brought together because they are considered relevant to some purposeful activity. Information is an objective commodity carried by symbols and relates to who produced it, why and how it was produced and its relationship to the real world state it signifies (Shanks & Darke 1999). Although data and information are different concepts, data quality is often treated as the same as information quality in some literature and real-world practice. Therefore, in this research, data quality and information quality are synonymous. The general definition of data quality is „data that is fit for use by data consumers‟ (Huang et al 1999). Many data quality dimensions have been identified. Commonly identified data quality dimensions are: 

Accuracy: which occurs when the recorded value is in conformity with the actual value;

Timeliness: This occurs that when the recorded value is not out of date. 

Completeness: which occurs when all values for a certain variable are recorded, and



Consistency: which occurs when the representation of the data values, is the same in all cases (Ballou et al. 1982, 1985, 1987, 1993)

Four other data quality dimensions have been identified (Wang & Strong 1996) that are also widely accepted: •

Intrinsic dimensions define the quality of data in its own right;

•

Contextual dimensions define data quality within the context of the task at hand;

•

Accessibility dimensions emphasize the role of information systems in providing data, and

•

Re-presentational dimensions define data quality in terms of the presentation and delivery of data.

56

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh In our field survey we found that Accuracy, Completeness, Consistency, completness are avaiable. overall positon of insurance is good. below the graph or current figure of insurance industry.

OVER ALL QUALITY DATA FR OM AIS Jiban Bima Corporation

American Life Insurance Company

Popular Life Insurance Company Ltd

Pragati Life Insurance Ltd

National Life Insurance Company Ltd

6 5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5 4

4

4

4

4

4 3

3

2

1

0

Over all data Quality

Accuracy

Timeliness

Completeness

Consistency

This figure show that in all field Accuracy, Completeness, Consistency, completness American Life Insurance Company & Jiban Bima Corporation are more effiecient But National Life Insurance Company Ltd, Popular Life Insurance Company Ltd and Pragati Life Insurance Ltd

57

5

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.6.2 Top and Middle Management Commitment to AIS Top management is highly responsible for every decision. The future of an organization is on their hand. They are commitment to AIS to follow the AIS and take their company ahead.A long-standing question for both IT research and management practice has been: how can IT be used in organizations to increase firm performance? Top & middle Management have provided many capabilities that impact business and financial performance, including enterprise architecture, IT governance, IT metrics, top management engagement, IT-business alignment, and business and IT unit capabilities. Top & middle Management propose that a limited number of enterprise commitments are key to maximizing business value from IT. We demonstrate, via a survey of 5 respondents in publicly traded firms, that these commitments are positively correlated to Business Impact from IT, which in turn correlates with higher financial performance.

TOP & MI DDLE MA N A GEMEN T COMMI TMENT TO A I S

J I B A N B I MA C O R P O R AT I O N

5

5

5

4

5

Importance

5

5

5

4

5

perfomance

A M E R I C A N L I FE I N S U R A NC E C OMP ANY

N A T I O N A L L I FE I N S U R A NC E C OMP ANY L TD

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P O P U L A R L I FE I N S U R A NC E C OMP ANY L TD

P R A G A T I L I FE I N S U R A NC E L T D

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.6.3 Education and Trainig Providing by Company American Life Insurance Company and Jiban Bima Corporation, National Life Insurance Company Ltd, Popular Life Insurance Company Ltd and Pragati Life Insurance Ltd, all this insurance company are organize or give opportunity to take training inside or outside of the organization. Initially the trains up every single employee under training period.

4.6.4 Nature of the Accounting Information System: Nature Accounting Information Systems of Life Insurance companies is Intuitive and easy to use all Insurance purchases software form foreign or local software firm. all most every software feature can use every Employeee very easily. most software Automatically performs

Nature Of The Accounting Information System 5.1 5 4.9 4.8 4.7 4.6 4.5 4.4 4.3 4.2 4.1 4

5

5

5

5

5

5

4.68 4.585 4.4

Jiban Bima Corporation

4.37

American Life Na tiona l Life Popula r Life Ins urance CompanyIns ura nce Compa nyIns ura nce Compa ny Ltd Ltd Importance

Pra ga ti Life Ins ura nce Ltd

Performance

as much validation of data as possible (based on business rules etc.). The system of Life Insurance companies is Adequate & sufficient documentation for employee to follow & uses the system. those are very user friendly. Ease of modification / upgrade. all systems are not mature enough but its ok to use . all most all of them The system is up-to-date (adopt new technology): regular. Level of the integration and system Interpretability is high. every Insurance company has Effective data management approach, such as, centralized database, and data warehouse.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh 4.6.5 Team Work ( Communication ) Betweeen or within Department: All insurance American Life Insurance Company &JibanBima Corporation, National Life Insurance Company Ltd, Popular Life Insurance Company Ltd and Pragati Life Insurance Ltd use their own or purchases software & all morden software have limited of full access to doing work as a team. American Life Insurance Company has a great feature of their sotfware for doing team work.

Team work ( communication ) 5

5

5

5

5

5 4.58

4.16

JIBAN BIMA CORPORATION

4.58

4.16

AMERICAN LIFE INSURANCE COMPANY

NATIONAL LIFE INSURANCE COMPANY LTD Importance

POPULAR LIFE INSURANCE COMPANY LTD

PRAGATI LIFE INSURANCE LTD

Performance

4.6.6 Understanding of the systems and data quality: Success of an organization is deepened on how the employees understand their work & their working quality, ability & off course which element they use. if they use perfect data & understand the system then the work will be done with good output. all insurance company employee are same in Understanding of the systems and data quality.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

Understanding of the systems and data quality 6 5 4 3 2 1

0 Jiban Bima Corporation

American Life National Life Popular Life Pragati Life Insurance Insurance Company Insurance Company Insurance Company Ltd Ltd Ltd Importance

Performance

4.6.7 Miscellaneous Activity Financial data items are database objects that are used to store or calculate financial data values. There are two types of financial data items: 

Stored financial data items, which are used to store values



Formula financial data items, which are used to calculate values

Enterprise resource planning (ERP) systems integrate internal and external management of information across an entire organization—embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application. ERP facilitates information flow between all business functions inside the organization, and manages connections to outside stakeholders Enterprise resource planning (ERP) system is usedby every Insurance company. Online commerce :The buying and selling of products and services by businesses and consumers through an electronic medium, without using any paper documents. E-commerce is widely considered the buying and selling of products over the internet, but any transaction that is completed solely through electronic measures can be considered e-commerce. E61

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh commerce is subdivided into three categories: business to business or B2B (Cisco), business to consumer or B2C (Amazon), and consumer to consumer or C2C (eBay). Also called electronic commerce.except jibon bima corporateion or Alico all other insurance company all other insurance company not have online system. All insurance use software but not every single software are stable some of are in beta stage some of our purchases from in foreign company. Those software must have the mail ware protection but some company not perfect because are in trail or beta stage.

miscellaneous activity 14 12 10 8 6 4 2

0 Jiban Bima Corporation

American Life National Life Popular Life Insurance Company Insurance Company Insurance Company Ltd Ltd Service

Not available

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Pragati Life Insurance Ltd

Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

CHAPTER- 05 MAJOR FINDINGS & RECOMMENDATIONS 5.1 Major Findings 5.2 Recommendations

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

5.1 Major Findings Insurance companies mainly give emphasis on organizational control, other control likedocumentation control and data center controls are neglected. Increase of internal and external reporting has some lacking. In Bangladesh the most of insurance companies do not developed partial applications and IT based program system. AIS are most important part of the company to easily used data, records, etc. Insurance companies are not developed or growing up to AIS based or computerized. They still used a combination of manual way and computer system. The lacks of knowledge of AIS to insurance company‟s stuffs are that they couldn‟t use to proper program of the computer. Most of the stuffs aren‟t train up and not adequate. Do not update their official website, do not gather proper information by their website. Insurance industry sector are not developing between banking sector and others financial sectors. Don‟t develop to insurance company in rural site. Urban site is mostly developing. The lack of training problem in stuffs, inadequate educated etc.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

5.2Recommendations The Insurance companies should develop their overall AIS. Insurance companies in Bangladesh life or general have a partial application of IT based modern effective AIS. The companies are used foregin, local firms, and self or individual developed computer software mainly for operational purpose. But in fact the insurance companies have not yet developed unified AIS in their operating system. The operators of AIS of insurance sector have not yet gathered appropriate & adequate knowledge about the IT based AIS. They still use a combination of manual and computerized system., the functions of AIS are running on with little efforts and less satisfactory results particularly for data control and information generation. They should give more emphasis on internal control and information generation. The use of internet technology for sale of insurance products and providing swift & better service is now a well-established activity in many countries, but its use in the insurance sector of Bangladesh is very limited. Even some companies have no own website. The growth of insurance sector of Bangladesh mainly depends on aware of people about insurance products & services and it is possible only through an effective IT based AIS. AIS related professionals and staffs should be educated and properly trained. Existing AIS practice under the insurance Act 1938 and the Insurance Rules 1958 should be modernized. The management of Insurance Company‟s should development and implement a modern latest language base software through an established software developing firms for its IT based effective AIS. It should also recruit IT knowledge people to run the IT based AIS and provide sufficient training to the employees engaged in different levels of its operating system. Through the effective AIS, the company will be able to provide its services to the stakeholders in the better ways and be capable to achieve its main objects efficiently. According to the requirement of IT based AIS, the regulatory authorities and professional bodies of insurance sector of Bangladesh should give emphasis to develop the AIS of the sector immediately.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

CHAPTER- 06 CONCLUSION

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh The Accounting Information System (AIS) of the insurance sector of Bangladesh is in the primitive stage. The insurance companies are used a combined system of manual and computerized system. Accounting information system of the insurance companies‟ condition is good. All of the insurance companies are active and strong. Nature Accounting Information Systems of Life Insurance companies is Intuitive and easy to use all Insurance purchases software form foreign or local software firm. All most every software feature can use every Employee very easily. Most software automatically performs as much validation of data as possible (based on business rules etc). The system of Life Insurance companies is Adequate & sufficient documentation for employee to follow & uses the system. Those are very user friendly. Ease of modification / upgrade. All systems are not mature enough but it‟s ok to use. all most all of them The system is up-to-date (adopt new technology): regular. Level of the integration and system Interpretability is high. Every Insurance company has Effective data management approach, such as, centralized database, and data warehouse. Those insurance company use secure network for their own work but all of them don't have online facility, ecommerce. All insurance use software but not every single software are stable some of are in beta stage some of our purchases from in foreign company. Those software must have the malware protection but some company not perfect because are in trail or beta stage. Finally the insurance sector of Bangladesh should proceed with an effective and enrich AIS.

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

CHAPTER- 07 REFERENCES

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Thesis Paper on Implementation of Accounting Information System of Insurance Industry sector in Bangladesh

BOOK:  Romney/ Steinbart, 10th Edition, 2006, Accounting Information System.

INTERNET:  http://www.bangladesh-bank.org/fnansys/regulator.php (August 22, 2014 Time: 11:30 PM)  http://www.sbc.gov.bd/current_market.php (August 22, 2014 Time: 11: 45pm)  http://www.scribd.com/search?query=report+on+AIS+of+insurance+industry+sector +in+bangladesh (August23, 2014 Time: 12:00 Pm)

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