Page 43 - Accounting Information Systems

14 PART I Overview of Accounting Information Systems

TIMELINESS. The age of information is a critical factor in determining its usefulness. Information
must be no older than the time of the action it supports. For example, if a manager makes decisions daily
to purchase inventory from a supplier based on an inventory status report, then the information in the
report should be no more than a day old.

ACCURACY. Information must be free from material errors. However, materiality is a difficult concept
to quantify. It has no absolute value; it is a problem-specific concept. This means that, in some cases, in-
formation must be perfectly accurate. In other instances, the level of accuracy may be lower. Material
error exists when the amount of inaccuracy in information causes the user to make poor decisions or to
fail to make necessary decisions. We sometimes must sacrifice absolute accuracy to obtain timely infor-
mation. Often, perfect information is not available within the user’s decision time frame. Therefore, in
providing information, system designers seek a balance between information that is as accurate as possi-
ble, yet timely enough to be useful.

COMPLETENESS. No piece of information essential to a decision or task should be missing. For exam-
ple, a report should provide all necessary calculations and present its message clearly and unambiguously.

SUMMARIZATION. Information should be aggregated in accordance with the user’s needs. Lower-
level managers tend to need information that is highly detailed. As information flows upward through the
organization to top management, it becomes more summarized. We shall look more closely at the effects
that organizational structure and managerial level have on information reporting later in this chapter.

Feedback
Feedback is a form of output that is sent back to the system as a source of data. Feedback may be internal
or external and is used to initiate or alter a process. For example, an inventory status report signals the
inventory control clerk that items of inventory have fallen to, or below, their minimum allowable levels.
Internal feedback from this information will initiate the inventory ordering process to replenish the inven-
tories. Similarly, external feedback about the level of uncollected customer accounts can be used to adjust
the organization’s credit-granting policies.

Information System Objectives
Each organization must tailor its information system to the needs of its users. Therefore, specific informa-
tion system objectives may differ from firm to firm. Three fundamental objectives are, however, common
to all systems:
1. To support the stewardship function of management. Stewardship refers to management’s responsi-
bility to properly manage the resources of the firm. The information system provides information
about resource utilization to external users via traditional financial statements and other mandated
reports. Internally, management receives stewardship information from various responsibility
reports.
2. To support management decision making. The information system supplies managers with the infor-
mation they need to carry out their decision-making responsibilities.
3. To support the firm’s day-to-day operations. The information system provides information to opera-
tions personnel to assist them in the efficient and effective discharge of their daily tasks.

ACQUISITION OF INFORMATION SYSTEMS
We conclude this section with a brief discussion of how organizations obtain information systems. Usu-
ally, they do so in two ways: (1) they develop customized systems from scratch through in-house systems
development activities, and (2) they purchase preprogrammed commercial systems from software ven-
dors. Larger organizations with unique and frequently changing needs engage in in-house development.
The formal process by which this is accomplished is called the system development life cycle. Smaller