Information Needs for the AIS
Accounting information system (AIS) is a computerized method of collecting, processing, storing, retrieving and distribution of accounting data to users in an organization. An information system makes it possible to collect and manipulate financial and accounting data in ways that it is usable to end users. The functions of an accounting information system can be put into three major categories: First, AIS ensures collection and proper storage of an organization’s financial data. Secondly, the system ensures that information is available to end users for decision making. Information may be supplied inform of financial statements or reports. Lastly, AIS ensures that controls are in place for proper processing and retrieval of information.
In many organizations, problems with the accounting information systems are encountered although seldom in established organizations. Corporate leaders are tasked with the responsibility of making critical decisions from the information they receive from AIS. Corporate leaders often make improper assumptions when handling accounting information systems and the related information. Common assumptions outlined by Ackoff (1999) include:
- Management needs more information
- Managers need the information they want
- Giving managers the information they need improves decision making
- Communication among corporate leaders can produce better performance in the organization.
- There is no need for corporate leaders to understand how the information system of the organization works, but only know how to use it.
According to Ackoff (1999), corporate leaders’ decision making potentials are hampered by the availability of so much irrelevant information as opposed to inadequacy of relevant information. As such there is need for a filtration mechanism to ensure that only the relevant information reaches the managers. The most negative impact of this assumption is lengthy decision making process in the organization. Organizations should develop mechanisms of ensuring that only the relevant information reaches the managers. This can improve the time needed to make decisions and the efficacy of such decisions. Corporate leaders spend a lot of time sifting for the right information from all the irrelevant information they receive. Thus the best information system is one that can enable corporate leaders to filter and condense information from the infinite store of information that exists in an organization.
The second assumption is that managers need the information they want (Ackoff, 1999). During the design phase of the AIS, IT experts often request the manager to table what he/she wants. In this case, the IT experts assume that managers are aware of the information they need. For the managers to know what information they need, they must have the knowledge of the type of decisions to make. This is impossible as managers do not know beforehand the type of decisions they need to make. The impact of this in organizations is reflected in irrelevant information overload. This is because when IT experts request the manager (who have less knowledge about the system) to explain the information he/she wants, managers often respond by requesting for all necessary information. In an effort to do this, the experts end up providing for relevant as well as irrelevant information in the system, leading to information overload.
The third assumption is that giving managers the information they need improves decision making (Ackoff, 1999). This may not be necessarily true because a manager’s success is not hinged on acquiring the information, but on their ability to utilize the information received. In other circumstances, managers may have the perfect information they need but the final decision will often depend on their judgment. Corporate leaders may experience information overload if they are given information they do not know how to use. This is a major consequence underlying this assumption. Corporate leaders need information that they can be able to use in making decisions. As such, an information system should be built in a way that it can be improved to enable the corporate leaders obtain the information they may need in decision making. For example, corporate leaders may be unable to make decision even when provided with sufficient information in a simple production problem requiring them to find the correct order to produce products.
The fourth assumption is that more communication among corporate leaders can produce better performance in the organization (Ackoff, 1999). Most information systems enable corporate leaders to keep abreast of the happenings in other units or branches. It is assumed that by learning about management practices in other units, corporate leaders may improve their performance. This is not necessarily so. Often, there is little cooperation between two competing organizations. Furthermore, it has been observed that the branches of an organization often engage in fierce and unethical practices in a bid to outdo each other. This is commonplace when units of an organization are engaged in conflicts following inappropriate performance measures. The most negative impact would be reduced performance among the units. For example, a departmental store with buying and selling units should not critical information such as changes in prices or quantities to be sold.
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The last assumption is that there is no need for corporate leaders to understand how the information system in their organization works, but just know how to use it (Ackoff, 1999). Most IT experts design systems that are easy to use for managers so as not to frighten them. They do this keeping in mind that managers need not understand how the system works, but should only know how to use it correctly. When such thing occurs, managers are unable to evaluate the information system so as not to expose their incompetence in handling the system. The control of the entire organization thus shifts to the IT experts who make decision on how the system will work, and who have no knowledge in management. The most negative potential impact of this is that corporate leaders may not be able to evaluate the information system for errors or to make improvements. For instance, they avoid asking questions so as not to look computer illiterate, which may later result in errors and wasted time trying to understand where the errors in the system come from.
There are a number of ways in which organizational performance may be improved when information is properly managed within a business system. To start with, it becomes easy for the management to implement new strategies (Dincer & Hacioglu, 2013). Strategy implementation solely depends on the information management system in the organization. The information system of an organization must be properly aligned with the set goals and objectives of the organization. New strategies in an organization often call for new data requirements within the organization. In addition, managers must be able to communicate the new strategy to all units of the organization in a timely manner. Proper information management thus enables an organization to implement strategies to achieve a competitive advantage (Dincer & Hacioglu, 2013).
Secondly, proper management of information within a business system enhances managers’ and employees’ decision making capabilities. When challenges arise in the organization, management and employees can be able to quickly assess relevant information that they can use to make appropriate decisions (Dincer & Hacioglu, 2013). When information is properly stored, managers and employees can be able to easily assess it. In addition, they can be able to assess vast amount of data worldwide which plays a critical role in decision making. However, in case information is not properly managed, employees and the management may spend too much time trying to assess it. This results to inefficiencies from time wastage (Dincer & Hacioglu, 2013).
A third way in which organization performance may be improved is through achieving better business operations and processes. For instance, when information is properly managed it becomes easy for the management to quickly make numerical calculations (Dincer & Hacioglu, 2013). It becomes easier to access the necessary information required to make various financial calculations such as ratios and budgets. This improves an organization’s performance.
According to the Data Protection Act, organizations should put in place necessary measures to ensure the integrity of their information is not compromised through incidences such as accidental loss, damage and unauthorized access (Yull, 2009). The level of system security to be put in place often depends on the nature of the information secured as well as the risks that may arise in case of data loss. Thus in order to know the level of security measures to put in place, corporate leaders should assess the information risk in automated systems. For instance in case the information system handles personal data, the manager should assess its sensitivity, how valuable the data is and most importantly the damage it may cause in case of a security breach.
Factors such as the probability of a security breach occurring and the chances of detecting the error are also important to consider in determining the level of security. Thus in automated systems which protect highly classified information, a high level of security should be put in place (Yull, 2009). This may be in a situation where there is a likelihood of a critical data loss occurring in case of a security breach. In addition, the expected impacts of the security breach are significantly high and may damage the reputation of the organization of cause a decline in profits. A medium level of security can be provided in systems that deal with less valuable information. For instance, information systems handling tax information may be provided with medium level of system security (Yull, 2009).
In conclusion, an accounting information system makes it possible to collect and manipulate financial and accounting data in ways that it is usable to end users. Nonetheless, there are a number of assumptions made by corporate leaders regarding accounting information systems which undermine the effectiveness of the information AIS. Corporate leaders should be keen to avoid making the assumptions as they have negative potential impacts on business operations. A proper information management system with the right security level can significantly improve an organization’s performance.
Ackoff, R. L. (1999). Re-creating the corporation: a design of organizations for the 21st century. New York, NY: Oxford University Press.
Dincer, H., & Hacioglu, U. (2013). Globalization of financial institutions: A competitive approach to finance and banking. New York, NY: Springer Science & Business Media.
Yull, S. (2009). BTEC National for IT Practitioners: Core Units. United Kingdom, UK: Routledge.