H6304 Design & Delivery of Information Services and Products

Accounting has long been a bread-and-butter function in all institutions. At the dawn of automation, computerization and exploration of information technology, Accounting Information Systems(AIS) are built to play a central role to support organizations’ daily operations and strategic moves.

For instance, a typical AIS for a retail company covers various transaction cycles representing different area of business activities (Cushing, B. & Romney, M., 1996), as illustrated in the following table:

AIS for larger enterprises with diversified business are even more complicated when multi-site, multi-platform applications are employed for different functions.

Various studies on AIS are reviewed as an attempt to identify the shortcomings of present systems and their contributing factors. Subjects in these studies covered from US Federal institutions, public accountants in Australia, sub-units in Korean companies to businesses in area of Virginia in the US. Views from local implementation of AIS are also drawn to discuss the implications for designing AIS with users’ needs in mind and expanding it to Accounting/Management Information Systems(A/MIS).

Geiger(1995), applies Gordon and Miller(1976) contingency model, demonstrates variables that influence accounting information systems development, in particular motivating development of cost management accounting systems in selected US federal institutions. Findings of three sites are elaborated: The Department of Agriculture’s Federal Grain Inspection Service (FGIS), the Department of Defense’s Watervliet Arsenal, and the Health and Human Services Department’s Primate Research Unit.

By definition, cost accounting provides a measurement of resource consumed in an accomplishing a specific purpose regardless of the source of funding.

Questionnaires and interviews are conducted with 58 participants of GAO(Government Accounting Office) survey. Driven by Anti-Deficiency Act which prohibits federal managers from overspending their authorized budget, sets strong and uncompromising limits and lays foundation for control systems, three categories of influencing factors are identified to impact on the AIS:

0. environment: funding environment, its alternatives and complex funding mechanism

0. organization: decentralization, differentiation, integration, bureaucratization and level of resources

0. management style: cost consciousness

FGIS is a multi-site, multi-product cost system accumulating financial and non-financial data.

It provides mandatory and elective inspection services to private sectors, and the AIS supports fee setting process: a cost recovery function, determining inspection rates, quantity discounts and overtime premiums. The major problem is the numerous local rates varying between 32 field offices, being unnecessarily complex, make an unacceptable administrative burden and vulnerable to rate challenges.

Watervliet Arsenal forges, machines and assembles cannon for the Department of Defense. Its AIS provides cost detail, performance to standard and variance reports and on-line capability to determine actual cost per piece at any time or stage of manufacturing, it also permits comparison of cost forecasts to actual results during the order’s life cycle. The management needs to review abundance of cost details essential in meeting fund requirements of break-even budgets.

Primate Research Unit supplies veterinary services to research labs of Health and Human Services Department. Their AIS supports demanding requirements of revolving funding with detailed invoicing transactions, cost and revenue projections and profit and loss statements. It also provides monthly spending data and comparisons to budgets for reviewing results and answering to unexpected financial performance.

Cost discovery and cost recovery drives the development of cost management accounting systems in response to environmental contingencies. In contrast, national costing policies lead to counterproductive systems that only stimulate or focus on the internally relevant information needs of management, simply increasing workload and burden mangers by imposing another set of external reporting requirements. As a Department of Defense management stated "we don’t use it; we try to comply with it and for all the trouble it causes us we sure hope somebody uses it".

It has been assumed in this research that the observed federal cost accounting systems were motivated by fundamental contingencies of environment, organization and management style. These contingency variables have been constructed as funding source, decentralized accountability, and cost consciousness, where external environment factors such as availability of alternative competitive outsourcing services are not considered. This study cover only 5 sites with details of 3 sites published with similar funding environments and deeply decentralized accountability. It is advisable to extend the scope of survey to other federal institutions to acquire a comprehensive picture, and study of association of risks in funding environment posing a threats to organizations which in turn may drastically impact its cost accounting systems.

Institute of Chartered Accountants in Australia(ICAA) has conducted a survey of public accountants on contemporary user practices and design features of small/medium accounting software packages. (Fink, D. & Stevens, K., 1995).

Altogether 417 questionnaires are mailed, 135 returned of which 112 are valid, and nearly half came from New South Wales. The major respondent groups are management consultants, business advisory, auditing, and accounting services.

The main purpose is to study level of satisfaction on user practices, design features and installation documentation. Questions on user practices cover areas of acquisition, processing and reporting, security, reconciliation, installation and understanding where for design features the focus is on accounting principles, processing and reporting, audit trail, access control and data control.

Results show that outside qualified support is required due to the complexity of packages. While adequate access control like password and access levels are provided, the same security level does not apply to audit trail. It is important that user should have adequate knowledge and skills to participate in the evaluation and selection of packages and adequacy of user training should be conducted before packages are installed. Documentation to support effective use and installation of packages and explanatory error messages prompting for corrective actions are also perceived to be important features to which vendors and developers should pay attention.

The scope of survey is only on SMEs (without figures on exact size of subject organizations) which utilize small packages for divisional accounting systems and dominated by business in the New South Wales. A broader study may be conducted to explore the capability of packages to interface with large systems in enterprises using mainframes and minicomputers. Besides, nature of business should be included in the study to differentiate perceptions by industries since nowadays AIS follows the trend to customized solutions.

Ouksel, A., Mihavics, K. & Chalos, P. (1997) believe that AIS plays a central role in organization learning. Their study focuses on information environment characteristics, information distribution and information coordination mechanisms like hierarchy, expert teams or majority voting teams.

Hypothesis are posted for testing using a simulation of organization structure and task decompositions by feeding bits of evidence to agents which leads up to decisions made by leader of hierarchies, expert teams or through majority vote.

Assumption of simulation as follows:

0. Organization faced with a continuous sequence of repetitive but not identical problems

0. Organizational tasks was subdivided between analysts

0. Analysts learned by basing their decisions on the relationship found between information available to them and organizational outcomes.

Resulting outputs are measured on speed and accuracy of learning and it supports that learning in flat organizations under uniform and dispersed information is more accurate than in hierarchical ones while learning in flat expert organizations under uniform and dispersed information is slower than hierarchies. Organizational learning under overlapping AIS is tested to be more accurate than learning under segregated ones with clustered information.

AIS are often designed to aggregate information in summary reports at each hierarchical level. For examples, sales goals are often determined at the top level and then translated to divisional and product line profitability objectives. This hierarchical information transmission functions well in centralized and relatively predictable environments, however also lead to information compression and time delays as information travels up the hierarchy, making it less responsive to match environmental uncertainty. The trend towards flatter organizational structures leads to less information compression, the differentiated clustered information across sub-units makes it difficult to recognize and integrate the diverse information, which are the frustration faced by those working in multinational enterprises.

Only one hierarchy is simulated and this is not sufficient to demonstrate hierarchy accuracy deteriorated with increasing levels. Simulation itself does not demonstrate the more dynamic and complex real life environment. Field studies, organizational surveys as in the first two studies should be conducted to prove and disprove these preliminary findings.

Choe, J. & Lee, J. (1993) explore factors affecting relationship between the contextual variables and the information characteristics of accounting information systems.

By contextual variables they refer to task difficulty(predictability of problems at work), task variability(how often exceptions are encountered at work), formalization(rules in organization) and centralization(distribution of power among social positions). Information characteristics of AIS are represented in two dimensions: information aggregation(focus, aggregation) and information(orientation, time horizon, financial/non-financial, quantitative/qualitative).

The influence factors studied are user participation in the development process, user training and education, capability of information systems personnel, top management support, and the existence of steering committee.

Hypothesis testing is performed based on study of subunit related to AIS use. A survey is conducted on a sample of 60 Korean organizations randomly selected from 300 firms with a mainframe computer, of which 52 responded to cooperate in the study covering 400 users of AIS in 82 subunits through questionnaires and interviews.

Two kinds of structured questionnaires are used:

• one distributed to managers of information systems department for measuring overall environment of organizational information systems,
• another distributed to users spreading from lower to upper levels in their subunit’s formal hierarchy for measuring users’ perception with relation to both the contextual variables and the AIS.

Measurement of information characteristics of AIS is based on a 5-point rating scale, subunit scores of each characteristics is obtained using a formula assigning equal weights to the questionnaire responses for each hierarchical position instead of simple average. Varimax rotated factor analysis used to illustrate factor loadings on 2 dimensions: information aggregation and information scope. The study measures the influencing factors on user participation in AIS development process by degree of involvement and user training and education by whether the training and education systems exist.

Reliability and validating tests are applied on task difficulty/variability and formalization/centralization respectively. Next, Pearson correlation analysis was employed to access the relationship between contextual variables and information characteristics.

The results shows that information scope and aggregation, user participation in development process, capability of information system personnel, top management support and existence of steering committee has a positive influence on degree of fit between the information characteristics and contextual variables. An interesting finding is that the effect of user training and education almost does not exist regardless of existence of user training and education systems.

Other contextual variables such as environmental uncertainty and user characteristics, effect on performance of AIS should be empirically studied, so as for relationship between the contextual variables using correlation or regression analysis. The cause of no-impact by training and education is also worth studying.

A study nature and security of AIS is conducted (Henry, L., 1997) at area of Hampton Roads in Virginia, the largest trading port in the US with 7,500 business capturing annual revenue of $US 1M or more.

Decline in price of information technology and increasing availability of off-the-shelf accounting software drives accounting automation. While the "user friendliness" of the accounting software requires little knowledge of accounting to put to effective use, it is doubtful these users would have direct knowledge of security issues in the AIS or made aware of potential security problems and solutions by professionals they would consult.

Basic functions of AIS are: to record an actual, valid transaction; to accurately classify the nature of transaction; to record the correct value of the transaction; to place the transaction in the proper accounting period; and to generate financial statements containing information about the transaction.

Controls are required to prevent and detect errors or accidental and incidental loss of assets and information. While manual processes established like segregation of duties, comparison of documents and repeated checking of totals are adapted in AIS in the automated environment, the distribution of ownership of information and processing to all possible users give rise to a variety of exposure to loss of accounting information like software malfunction, hardware malfunction or loss, destructive natural forces, human error, computer virus, etc.

One thousand businesses are chosen from 1995 Corporate America CD Rom database and the yellow pages of the Bell Atlantic telephone book, of which 261 respondents answered the questionnaires comprising sections on basic business demographics, nature of processing of accounting transactions, hardware used by the AIS, and basic security measures used in the AIS.

Univariate analysis of results shows that 50% of business have they AIS fully automated with applications covering revenue cycle, procurement cycle, production cycle, personnel cycle, and financial/general ledger cycle. An interesting finding is that 15.8% capture total quality information or customer satisfaction within AIS, too.

Examples of security measures deployed are physical security of assets like computers are placed in locked buildings and rooms, monitored by video cameras or motion detectors in some cases; limiting logic access to data and programs using passwords in all systems. Some security software provides access control matrix to control different levels of authorized access like read, change or delete data. Encryption on confidential data and antivirus software(80%) to combat computer virus are also applied. However, none shows 100% backup of data against accidental loss.

Increased usage of basic security by larger revenue organizations, smaller ones do not yet fully appreciate the need for security and benefits against information loss over their automated AIS. Users of online real-time systems are more aware of threat of virus than of batch processing systems and users of unmodified software packages are less knowledgeable about security features available. It seems that some users in smaller companies are indifferent to security need until data loss.

This study focuses on security aspect of AIS using univariate analysis. While the questionnaire also gathers data on type and platform of AIS of respondents, it is advisable to apply other statistical tools(as in the third and fourth study) to bring insights on the relationship between different security methods and nature of business and users characteristics.

In today’s rapidly changing environment, both accuracy and speed are vital for AIS design. Users from assistant accountant to upper management rely on AIS in performing routine reporting to complex decisions such as capital investment, value chain analysis of a product line or outsourcing decisions.

As the saying goes, "Financial systems are not only moving away from churning out of miles of reports, they are becoming the organization’s watchdog." Traditional AIS are insufficient for generating more effective information for managerial decision making and competitive advantage. Expanding AIS into accounting/management information systems (A/MIS) to meet business information needs is the right direction.

A/MIS should be designed with business focus as a strategic system for future organization changes, a management system to manage operations, motivate, control and support performance, and a task/operational system to integrate operations or to use database to provide operational information. These are highlighted by the findings in the third and fourth study of AIS in organization learning and information characteristics respectively.

Several other design characteristics should also be included are planning horizon to support long-term strategic decisions covering many periods and also short-term operations as demonstrated in the first study on US federal institutions.

While both internal and external sources are required to support executive decisions, flexibility to join data from different functions like linkages among database is a must to, especially in multi-national enterprise, where "off-the-shelf" packages in the second study would substantial enhancement and professional support.

To keep up with changing information needs, AIS should go beyond traditional emphasis on flow, timing and control of financial transactions. It has to leverage on information across business and market environments to achieve a variety of business, strategic and competitive objectives, yet without compromising on reliability, availability, integrity and security measures mentioned in the fifth study.

Companies deploying SAP, Oracle financial systems as their AIS in Singapore learn their lessons (Tan, A., 1998). They advise AIS teams to get the business and end-users involved with the project from Day One and spend more time laying out and designing the systems in great details, taking into account situations that happen once a year.

The Financial Chasm, a survey in UK to investigate the flow of information and relationship between the Finance Department and the businesses based on interviews with more an 2000 finance and marketing mangers. It paints a picture of frustration with computer systems and poor or late financial information hampering decision making and costing money. Understanding the company is a pre-requisite to design of AIS according to users’ needs.

Recognizing the increasing role of the Internet and the reporting issues it raises, AIS designers should focus on quality(breadth, depth, frequency and timeliness of information) and ease of access(some bury financial data deep in websites while others place direct links at company homepages). Furthermore, they should try their best in meeting user needs by empowering "electronic possession" of wide range of quantitative/qualitative information in formats they required, from allowing download of income statement as a spreadsheet to listening to speeches or comments by senior management.

With organization understanding and users’ needs in mind, it is not impossible to build a good AIS.

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Fink, D. & Stevens, K. (1995). Package perceptions. Charter : journal of the Institute of Chartered Accountants in Australia. 66(8), 30. Sydney: Institute of Chartered Accountants in Australia.

Ouksel, A., Mihavics, K. & Chalos, P. (1997). Accounting information systems and organization learning: A simulation. Accounting, Management and Information Technologies. 7(1), 1-19. New York: Pergamon Press.

Choe, J. & Lee, J. (1993). Factors affecting relationships between contextual variables and the information characteristics of accounting information systems. Information processing & management. 29(4), 471-486. Elmsford, N.Y. : Pergamon Press.

Henry, L. (1997). A study of the nature and security of accounting information systems: The case of Hampton Roads, Virginia. The Mid - Atlantic Journal of Business. 33(3), 171-189. South Orange.

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