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Effects Of Accounting Information System On Organizational

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Question:

Write a Report on Effects of Accounting Information System on Organizational Effectiveness.
 
 

Answer:

Introduction

Accounting information system has greatly influenced the performance in that the organization has cut down on cost. The system has also improved accuracy to close perfection in record keeping. The system, however, has come to its challenges to both the business and the market. In the business context, the system can be hacked leading to manipulation of figures to the economy the system has rendered much jobless as the system takes over their jobs. The study is aimed at assessing the performance of organization because of adopting the accounting information system.

Background information

The rationale to adopt accounting information system was based on the cost challenges facing organizations as they strive to maintain their existence in the competitive market. Initially, the accounting information system focused on record keeping, data maintenance and cost as primary drivers but now enterprises acknowledged the adoption of accounting information system in some business areas to gain efficiency and enhance the ability to act promptly as accounting information system is slowly changing into a strategic tool. Aghazadeh, (2011), says accounting information system evolved as a result of over diversification that happened in the 1970s and has led many enterprises to review their accounting activities and concentrate on them.

Problem statement

Following the identified problems such as poor financial recording inaccuracy and delayed financial reporting, as well as costs and overall poor organization performance, organization, action has been implemented to identify the way for forward for the problems by bringing an efficient and better accounting information system to  provide the accounting services. Despite the efforts made, the contribution of accounting information system to organizational performance is insignificant. This study aims to find the root performance of the low performance of accounting information system.

Objective of the study

  1. The study aims at analyzing the impact of accounting information system on organizational performance.
  2. To determine challenges in accounting information system
  3. Make recommendations regarding a successful way in accounting information system

Research questions

  1. How is accounting information system implemented?
  2. How is Accounting Information System beneficial to an organization?
  3. What are the challenges encountered in carrying out accounting information system?

The concept of Accounting Information System  

Several researchers have aimed at creating a theoretical framework for Accounting Information System (Cromie, & Zott, 2015). For instance, Chakravarty, Grewal, and Sarker, (2014), introduced a model that is based on the transaction cost-based perspective, which considers accounting information system as a way by which firms implement latest accounting concepts to reduce internal transaction and production costs.

Cunningham, (2012), says that many companies lately are going for the accounting information system, where we get to notice that functions such as data entry, payment of salary and suppliers are done electronically. This provides the organization with adequate time to perform their duties to the company’s expectations thus improving the performance of the organizational. Enlow, and Ertel, (2015), defined accounting information system as a decision to automate the accounting activities such that they replace accounting duties that were performed by the human. Usually, organizations look for the best accounting system software that can be tailored to suit the organization’s needs. This provides a chance for accurate performance of accounting functions with minimal supervision. This provides the workers in the organization enough time to deliver quality work, which leads to good quality work and good company reputation. Guevara, Margolies, and Shapanka, (2013), state that accounting information system is the strategic use of technology to tackle duties that were previously handled by internal staff and resources.

However, accounting information system can lead to complications and risk the accounting process in an event that all the necessary areas are not adequately addressed. This means apart from cost considerations the organization should also factor in other outcomes of accounting information system implementation.  

Haugen, Musser, and Lovelace, (2009), explain that a lot of economic factors that contribute to the decision to adopt the accounting information system involves the factor of cost reduction. It has been found that it is most economical to implement the information system instead of continuing to performing accounting activities manually, if the organization aims to make profits in business. Irving, & Harrison, (2016), argues  that accounting information system is a popular concept to managers, since they believe that accounting information system performance is the inherently more efficient due lack of human error. The accounting information system benefits the organization by getting the accounting functions performed at a reduced cost since calculation are done by the computer, thus providing the best quality.

 

Theories of Accounting Information System  

Strategic Theories:

Game theory explains the conduct of a player or agents (e.g. organizations) in specific in a simulated situation of a game.  The production function of an organization, in this simulation consists of the surrounding, and the available information. The assumption is that all players work under the same environment and make reasonable and informed choices for purpose of profit maximization. What determines the decision of the player is how the player is the expected reaction from the rest of the players. A game may have a 2-player game or N-player game. The initial mathematical game theory work under the assumption of complete information, however, the modern dynamic game theory accommodates incomplete information assumption into its analytic models (Levery, 2010).

Resource-Based View

This theory provides an answer to the question–Why does the performance of firms in the same industry vary systematically as time goes. According to RBV (resource based review), it is due to the reason that a competitive advantage is provided due to the resources provide and internal capabilities. The theory consists of two assumptions on firm immobility and heterogeneity of firm resource.

Because firms’ resources are different and immobile, firms can generate competitive advantage. If a resource helps the firm to manage competitive threats, gives the same firm an opportunity to exploit the market and develop strategies then the resource is viewed as valuable and can enhance efficiency and effectiveness. If the number of firms in any competitive field that have a particular resource are much less compared to the number of firms required to develop a competition then the resource is termed as rare . Imperfectly imitable resource depends on unique historical conditions, causal ambiguity, social complexity, and a function of observation. A non-substitutable resource is a resource that firms cannot build or obtain an imitation or its strategic equivalent (Linder, 2014).

Resource Dependency Theory 

The theory states that companies do not possess all that they require, due to this; firms have to rely on their external surrounding for some resources. Surprisingly, "Resource dependence was initially established to give a substitute understanding of economic theories of board interlocks and mergers, and to understand precisely the type of factors that have played such a large role in recent ‘market failure (Mol, & Brewster, 2014).

Economic Theories:

Transaction Cost Economic is the most well known due to the role that was taken in this theory. Initially, the theory tries to answer the question of why firms exist. How can firms increase profits through strategies? What should firms make? In addition, what should organizations purchase? The theory is interested on the specific aspects at which organizations adopt new systems and how the systems aid the organization in achieving its goal

Key factors necessary for Accounting Information System 

Accuracy

Linder, Cole, & Jacobson, (2012), say that organizations should direct their attention on main activities and leave the support accounting activities to be performed by an automated system that emphasizes on accuracy and cost.

Management support

Mol, & Brewster, (2014), suggests that when it comes to accounting information system, all departments of the organization should support it. This helps to obtain the best of the Accounting Information System in the organization. To gain progress, the management has to work together and share ideas regarding the automation of the accounting systems for better performance of the organization organizational.

Drivers of Accounting Information System 

Accuracy actual capacity

Linder, Cole, & Jacobson, (2012), explain that, it is pointless to comply with present demand, at the expense of long-term sustainability in accuracy motive should be considered as the main goal while adopting accounting information system.

Finance

The company, which has inadequate financial capabilities, ought to use them for activities, which have a high rate of return, and are long-term investments such as accounting information system that cuts down on cost and ensure efficiency of the organization.

Core business

Fundamental business activity is what makes the business generate revenue.  The accounting functions are the support activities that require being performed at the most minimal cost as possible.

The Benefits of Accounting Information System  

Cost saving

This is cutting down on the overall cost of the service to the business. The new accounting system reduces the cost as the amount of salary paid to employees is reduced to significant levels.

 

Specialization

Linder, Cole, & Jacobson, (2012), say that accounting information system allows an organization to focus business areas that offer competitive advantage.

The effectiveness of accounting information system

A research study conducted by Nzombo Samuel (2011) on the impact of accounting information system on the performance of automobile companies, obtained the following information. Note that the numbers in the columns indicate the number of respondents during the research.

 

Trade name

Dose AIS play an important role in planning the firms strategies

Yes

No

Toyota

9

0

CMC

8

0

General Motors

9

0

Simba Colt Motors Ltd

10

0

Bavana Auto Ltd

0

12

Total count

36

12

Total %

75.0%

25.0%

Table; 1.1

 How is the AIS rated in regard to organization effectiveness

Trade Name

How would you  rate  your AIS towards organization effectiveness

Very unimportant

unimportant

Neutral

Important

Very important

Toyota

0

0

0

5

4

CMC

0

0

0

6

2

GM

0

0

0

2

7

Simba Colt Motors Ltd

0

0

0

7

3

Bavana Auto Ltd

7

2

3

0

0

Total count

7

2

3

20

16

Total %

14.6%

4.2%

6.3%

41.7%

33.3%

 Table; 1-2

 Information on whether the companies have been reporting increased profits

Trade Name

the company has been reporting increased profits

 

Strongly disagree

Disagree

Neutral

Agree

Strongly agree

Toyota

0

0

0

5

4

CMC

0

0

0

6

2

GM

0

0

0

4

5

Simba Coolt Motors

0

0

3

7

0

Bavana Auto Ltd

7

2

3

0

0

Total

7

2

6

22

11

Total-%

14.6%

4.2%

12,5%

45.8%

22.9%

Table 1.3

Table 1.1 shows the importance of accounting information system in the organization. According to the data collected, all the targeted companies have incorporated the AIS into their strategies apart from Bavana Auto Ltd.

Table 1.2 contains data on how the Accounting Information System is effective to the organization. According to the data on the table, AIS is very important at a percentage total of 16% apart from Bavana Auto Ltd which has not adopted the system thus it has not realized its importance, hence the reason to be neutral or consider  it unimportant.  

Table 1.3 shows the data on the amount of profits the companies have been reporting. Apart from Bavana Auto Ltd the rest of the companies have embraced the AIS and have realized an increase in their profits.

Challenges of Accounting Information System  

Like any change in organization processes due to implementation of new system, there is a risk associated with accounting information system that the management is required to consider. The challenges may be the possibility of over dependence on the electronic system, which makes switching to the manual system a problem in the case. The accounting information system makes accountants complacent and lazy. The decline in employee morale due to fear of redundancy, confidentiality concerning company matters may be compromised, and in some instances, loss of sensitive information might be possible due to hacking. On the other hand, the accounting information trends increases the number of part-time employment as it affects employees through redundancy as their position is replaced with the accounting information system. The part time employment leads to employees receiving low payment, lack health and life (Leavy, 2014). The move leads to a system that is composed of more part-time freelance contractors compared to permanent employees (Kelley, 2015). Many of the studies explain that the benefits derived from accounting information system are at the expense of the internal organization resource (Irving, & Harrison, 2016).

Haugen, et al. (2009) viewed accounting information system, as bad change that aims to create a situation of dissatisfaction to employees, which may make them, leave their jobs.

The adoption of accounting information system continues, to make employees feel insignificant, and this lower their motivation and participation at work due to uncertainty on their job security. This leads to increased levels of mistrust and stress (Cromie, & Zott, 2015). Other researches have portrayed that workers who are dissatisfied because of the implementation of the accounting information system are likely to leave the organization.

 

Methodology

Research Design

The research design employed on this paper incorporated qualitative and quantitative designs. The study considered both of the studies to minimize the errors in obtaining the information from the study sample. This gives rom for thorough and detailed analysis of the sample. The two designs contribute immensely in collection of reliable data in the effort to describe the impact of accounting information system on the organization performance.

Population description

The study will involve all levels of management in the organization.

Instrumentation

The study will use questioners to collect data needed for the study. Questioners are commonly used to obtain important information about a population where each item is developed about specific objectives research questions or hypothesis of the study. It is very effective, efficient and easily administered when working with large population since the response will be made concurrently reducing the time administration.

Piloting

A preliminary survey or pilot study will be carried out. The pilot study will assist in identify problems that the respondent may encounter in the process and ensure the questions put across are clear to them. This will help to rectify difficulties that may occur. To ensure the reliability of the data collected the researcher pretested the questionnaire and supervised the data collection.

Validity

Validity is the accuracy and meaningfulness of the data based on the research result as well as the level to which the results obtained from analysis actuality represent the subject under study (Chakravarty, et al., 2014). Data validity was tested by good design, structure and the questions of the questionnaire. The data will be valid since it is collected from a primary source. The approval of the survey by other researchers will give more credibility to the research process, and ambiguities will be minimized.

 Reliability

The data will be obtained from secondary sources that are credible and from the organization past records together with the questioner to eliminate any error or doubt. 

Data Collection, Methods/Procedures

Data is obtained from selected samples through questioner and planned interviews. More data is collected from secondary sources such as magazines, organization records and textbooks, which are quoted in necessary occasions to draw a conclusion in line with the study.

Data processing and analysis

The data collected was evaluated and a bit of editing done to minimize the errors the data was then assigned codes and grouped to suit the study to simplify the analysis. The groped data is then analyzed using the statistic software. The results were tabulated in line with the research objective and reviewed to bring out the meaning of the data obtained.

 

Findings

From the information obtained in the research, study is quite clear that accounting information system is influencing the performance of the organization. In the literature review, the data collected on the automobile companies shows that those companies that adopted the AIS have increased their profits as well as found the system to be effective in running their daily operations Organizations have managed to save on the cost and hence contributed to the huge profit realized at the end of the year. Moreover, the system has proved to be 99.99% more accurate than human beings are. However, the system has also been found to replace a huge number of employees in every area that the system is adopted.

Discussion

Accounting information system seems to be the new trend as well as the future of accounting. Based on the findings it is correct to say that the Accounting Information System increases the performance of an organization. This is due to the efficiency accompanied by the system. In most business setups lately especially supermarkets, stock taking is being done through the system in that it keeps the records of what are sold and what is in stock and can generate the financial statements on real time basis as opposed to humans who have to take few days to compile the statements. The current software that supports the accounting information system includes the following, account mate, CYMA, Intact, redwing software and SAP.

Conclusion

According to the research, it is evident that accounting information system contributes to the performance of an organization that is to mean, it lowers the costs, increases the adoption of new strategies of accounting, and ensures accuracy at the same time speeds up performance increases profitability. This is to say that, the system revolutionizes the performance of an organization. However, implementing the accounting information system is not a smooth ride since it shows some appealing outcomes thus firms need to put clear Accounting Information System guidelines to experience the full usefulness.

Areas for further research 

Areas for extensive research on this subject have no limits since accounting information is fairly a new concept. The study examines Accounting Information System and its role on the performance of organizations. More studies need to be undertaken to evaluate the role of internal controls on effective Accounting Information System. 

 

References

Aghazadeh, S. (2011). The risks and benefits associated with global Accounting Information System . International Journal Of Services, Economics And Management, 3(2), 232. https://dx.doi.org/10.1504/ijsem.2011.039436

Chakravarty, A., Grewal, R., & Sarker, S. (2014). Choice of Geographical Location as Governance Strategy in Accounting Information System: Localized Accounting Information System , Global Accounting Information System , and Onshore Accounting Information System . Customer Needs And Solutions, 1(1), 11-22. https://dx.doi.org/10.1007/s40547-013-0004-6

Cromie, J., & Zott, L. (2015). Accounting Information System  (1st ed.).

Cunningham, S. (2012). Accounting Information System  (1st ed.). London: Euromoney Institutional Investor PLC.

Enlow, S., & Ertel, D. (2015). Achieving Accounting Information System  Success: Effective Relationship Management. Compensation & Benefits Review, 38(3), 50-55. https://dx.doi.org/10.1177/0886368706288216

Guevara, J., Margolies, B., & Shapanka, G. (2013). Rethinking your Accounting Information System  strategy (1st ed.). [Norwood, Mass.]: Books24x7.com.

Haugen, D., Musser, S., & Lovelace, K. (2009). Accounting Information System  (1st ed.). Detroit: Greenhaven Press.

Irving, R., & Harrison, P. (2016). Accounting Information System  (1st ed.). Corby: Institute of Management.

Kelley, B. (2015). TRENDS ACCOUNTING INFORMATION SYSTEM  MARCHES ON. Journal Of Business Strategy, 16(4), 39-49. https://dx.doi.org/10.1108/eb039711

Leavy, B. (2014). Accounting Information System  strategies: opportunities and risks. Strategy & Leadership, 32(6), 20-25. https://dx.doi.org/10.1108/10878570410568875

Levery, M. (2010). Accounting Information System  maintenance - a question of strategy. Engineering Management Journal, 8(1), 34. https://dx.doi.org/10.1049/em:19980111

Linder, J. (2014). Accounting Information System  as a strategy for driving transformation. Strategy & Leadership, 32(6), 26-31. https://dx.doi.org/10.1108/10878570410568884

Linder, J., Cole, M., & Jacobson, A. (2012). Business transformation through Accounting Information System . Strategy & Leadership, 30(4), 23-28. https://dx.doi.org/10.1108/10878570210435342

Mol, M., & Brewster, C. (2014). The Accounting Information System  Strategy of Local and Multinational Firms: A Supply Base Perspective. Global Strategy Journal, 4(1), 20-34. https://dx.doi.org/10.1111/j.2042-5805.2013.01070.x

Neiderer, P. (2011). Looking Outside to Meet Internal Challenges: The Benefits of Accounting Information System . AORN Journal, 93(1), 133-135. https://dx.doi.org/10.1016/j.aorn.2010.08.015

Oshri, I., Kotlarsky, J., & Willcocks, L. (2015). The handbook of global Accounting Information System  and offshoring (1st ed.). Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Rushton, A., & Walker, S. (2007). International logistics and supply chain Accounting Information System  (1st ed.). London: Kogan Page.

Shirur, S. (2009). Need for an Accounting Information System  Strategy. Paradigm, 3(2), 38-48. https://dx.doi.org/10.1177/0971890719990207

Vitasek, K., & Manrodt, K. (2012). Vested Accounting Information System : a flexible framework for collaborative Accounting Information System . Strategic Accounting Information System : An International Journal, 5(1), 4-14. https://dx.doi.org/10.1108/17538291211221924

Weinberger, T. (2008). Value Pricing the Accounting Information System  of Compensation Processes: The Indirect Return on Knowledge Baseline. Compensation & Benefits Review, 40(3), 23-31. https://dx.doi.org/10.1177/0886368708317547

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