Accounting Information Systems - Essay Example

1. Although originally devised only for recording the financial information, accounting has become a powerful data source to support operation management of modern businesses. Accounting systems are used in a modern business environment not only as a standartisation tool for the financial data, but more importantly, as an information source for decision-making processes. Obviously, this new function of accounting emerged in the second half of the 20th century has required new approaches to be developed. Eventually, the analysis of financial data has become more sophisticated, development of IT industry has allowed more complex techniques to be used and the variety of management/accounting information systems (M/AIS) has become so great that accountants themselves have lost their tracks in the growing complexity of automated solutions developed for their use. Nowadays companies have to follow certain principles, called implementation strategy, when choosing the approach they need for information management. First of all, the need for new information system has to be based on the real need caused by a real problem a company is facing. Naturally, the transition of a company from one M/AIS to another is a difficult process that requires time and money, so the motives for the planned changes should be reasonable. For instance, current IS may provide insufficient or inaccurate data for stakeholders, may be to costly and excessive to use, or lack security. Thus, the first important step on the path of implementation new M/AIS is the realisation of the need for its change. Since the M/AIS is a "system of collecting and processing the transaction data and disseminating the financial information to the interested parties" (Kieso et al, 2004, p.68), several questions should be answered, such as: how and what data should be collected and processed, and what are the interested parties. Answers for these questions are provided during the second step of M/AIS implementation: planning. During this stage the outlines of the future IS appear in the minds of developers. According to the classification provided by Brecht and Martin (1996, pp. 18-21) M/AIS can be classified into the following types, regarding of their main focus: strategic, management and task/operational. The main function of a strategic M/AIS is the support of long-term decision-making of executive management. Management system is concerned with operations management: focusing, motivating, controlling and supporting business performance. Taskoperational is the lowest level, providing data for some operating functions (e.g. tracking purchases, cost control, production and inventories monitoring, and payroll processing). Of course, the size of the company also affects the requirements to M/AIS: small firms may require only the task/operational information system, while larger companies will need every level of focus. Once the planning is complete the installation phase begins. At the beginning of this phase all the main choices of the future IS have been made and the time comes for practical solutions: e.g. what equipment suits better to the needs of data gathering, processing and output. Although, decisions have already been made this stage is the most important since it relates to real-life implementation of the planned M/AIS. The final phase of implementation process is the analysis of the transition; it is performed to realise to what extent the initial goals have been achieved, what mistakes have been made during implementation and how to avoid them in future. Thus, managers of ABC Ltd. should start the transition project from: 1) assigning the development team, 2) identifying goals of transition and the main stakeholders, 3) forming the experts team from them, 4) choosing the solutions, which suit best to goals set, 5) think of their practical implementation, 6) organise the process of implementation and 7) further analysis of it. 2. The development of M/AIS requires the effective participation of different stakeholders. Freeman (1984) first identified stakeholders as "any group or individual who can affect or is affected by the achievement of the organization's objectives" (Freeman, 1984, p. 46). Since the stakeholders are direct participants of the transition, each group of stakeholders and the information they require should be identified, along with the ways of presenting them the needed data. In the case of ABC Ltd. the following stakeholder groups were identified: the board of trustees, executive managers, accountants, development team, charities and donors, which may be united into a single group of external stakeholders. Different groups of stakeholders have their own view of quality of the future M/AIS, so let us examine each group separately. The first group identified is the Board of Trustees. They were the first to admit that the transition to new information system may be one of the companies top priorities. Since they plan to expand the company in future, they need a scalable M/AIS, ensuring a stable data flow regardless of the company's size. The Board of Trustees is the top management of a company, which is occupied with global strategic planning and long-term decision making. Therefore, this stakeholder group will likely expect that the new information system will be helpful to their work. Finally, the Board is interested in minimising both financial and time costs spent on the implementation. As a part of the company's management team, executives are also interested in cost reduction. However their focus of view is slightly different. This stakeholder group is busy with managing the routine operations of the company, so their motives for implementation root from the second, manager's level of M/AIS. Executives would like to receive a full information on costs, business performance of the company, internal integrity, data security, financial stability, and the attractiveness of the business from customers' perspective. As a direct users of the IS, executives are interested in the ease of use and clarity of the program n manager's level. The third stakeholder group consists of the accountants, which will likely be the most affected by the transition group. Their requirements to the IS then will relate to the ease of transition from one information system to another. Additionally, it will be crucial for accountants that the new M/AIS will allow financial reporting in full accordance with FSA and GAAP rules. They will also be interested in the ways of data collection and processing. Further on, the developers team will be responsible for the realisation of the information system. Their requirements to M/AIS will relate to its feasibility of installation, and further servicing. Finally the last group of stakeholders, external customers are interested in the efficiency of the company's main activities, so their main requirement is that new M/AIS will have to actually help the company to operate. As can be seen, each group of the stakeholders has its own interests. As the fulfillment of the expectations of relevant stakeholders is perceived as an integral part of IS development project success (Lyytinen and Hirschheim, 1987), it is essential to consider the needs of every stakeholder group during IS implementation. 3. a) The data acquired from accounting information system can be vital for successful company management. Controls set by IS will indicate the problem rising, which will allow its quick resolution. The usual benefits acquired from the use of strategic M/AIS indicated by Brynjolfsson and Hitt (2004) are as follows. Cost reduction. Improving operational performance with new technologies, like inventory management and supply chain integration system, will allow reducing financial expenditures, which were previously thought as inevitable for business running. For instance, the successful combination of information systems and supplier management practices will eventually lead to inventory reductions. Faster introduction of new products and services. System innovations may not necessarily lead to the creation of entirely new services, but they may enable a significant amount of similar services to be offered that suit individual customers' needs better than the original one. Obtaining and utilising better customer information. The ability to identify and serve customers who are not currently served or poorly served by competitors may be essential for expanding the business. The value created by IS innovations leads to a combination of increasing consumer value by better matching consumers with products/services that fit their needs best. b) Controls provided by the information systems refer to the ex-post type of controls. It is also reasonable to divide them financial and non-financial controls. The financial performance control is the data that shows the economic health of the company. Controls placed over assets, profits, cash flow, and balance will allow management to monitor the financial condition of their business. Another type of financial controls is the cost control. Due to advanced techniques, like activity-based costing, product life-cycle costing, or cost of quality, costs can be traced to their drivers, which provides the board with the information on the value-adding and non-value-adding operations within their company. Alternatively, M/AIS provide the information on non-financial performance measures. Controls of such non-financial qualitative indicators as customer satisfaction, product/service quality and cooperation will provide managers with the information on the external perspective of their company. Needless to say, sometimes these non-financial indicators prove to be far more important than the financial statements. However, in order to achieve a full control over ABC's operations I would suggest monitoring both financial and non-financial sides of the business. References Brecht, D. and Martin, M. (1996). "Accounting Information Systems: The Challenge of Extending their Scope to Business and Information Strategy." Accounting Horizons. Vol. 10, Iss. 4, pp. 16-23. Brynjolfsson, E. and Hitt, L.M. (2004). "Beyond Computation: Information Technology, Organizational Transformation and Business Performance." Journal of Economic Perspectives, Vol. 14, Iss. 4, pp. 23-48. Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman, Massachusetts. Kieso, D.E., Weygandt, J.J., and Warfield, T.D. (2004). Intermediate Accounting. 10th ed. John Wiley and Sons, New York. Lyytinen K., and Hirschheim, R. (1987). "Information Systems Failures- a Survey and Classification of the Empirical Literature". In Oxford Surveys of Information Technology, 4 (ed. P. Zorkoczy), Oxford University Press, Oxford, pp. 257-309 Read More