Do Firms use the Database Accounting Approach in the Design of their AIS?

Do Firms Use the Database Accounting Approach In The Design of Their AIS?
Siew H. Chan
Department of Accountancy Haworth College of Business Western Michigan University Mail Stop 5457 1903 West Michigan Avenue Kalamazoo, MI 49008-5457, USA Email: Siew.Chan@umb.edu

Lee J. Yao
Department of Accounting and Management School of Business La Trobe University Edwards Road, Bendigo, Victoria 3552, Australia

John R. Carlson
Department of Information Systems Hankamer School of Business Baylor University Waco, TX 76798-8005, USA

Abstract This paper examines current progress toward a dynamic database accounting system. Further advances in database technology and interactive communication media, coupled with improvements in financial reporting practices, are encouraging more organizations to adopt some form of database-driven accounting system. This paper presents a typology that categorizes accounting systems based on both the accounting and technological approaches used. A dynamic database accounting system allows for passive information retrieval as well as interactive

queries and dynamic, real-time information presentation. The ability of users to access current accounting information and to configure its contents and format for their particular needs is essential for good decision-making. The typology provides the underlying foundation for the formulation of three propositions. A field study was conducted to provide some insight into the propositions. The data obtained from eight firms are discussed. Key Words: Dynamic Database Accounting System, Database Approach, Events Theory, Double-entry Accounting Theory, Accounting Information System

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I. Introduction Accounting information is acquired, stored, processed, and disseminated in order to meet the unique needs of a variety of organizational stakeholders. These stakeholders include investors, creditors, government agencies, management, and employees. Under the traditional accounting system, financial accounting information refers explicitly either to the audited or unaudited financial statements; that is, the income statement, balance sheet, statement of retained earnings, and statement of cash flows. The central use of this information by these stakeholders (users) is to support decision making both within and outside the organization. However, the pre-determined rigidity found in the traditional approach may be failing to always supply all users with the best information possible. The traditional annual reports prepared by accountants may also preclude users from making timely investment decisions. Thus, use of such reports to communicate accounting information to users may not represent an optimal media choice (e.g., Daft, Lengel, and Trevino, 1987). Technological and accounting-theory advances are coming together to make an alternative, dynamic database accounting system possible. Under such a dynamic database accounting system, financial accounting information refers to the traditional reports noted above plus other additional reports (financial and/or nonfinancial) generated by the users using the underlying accounting data in the database. Implementation of Sorters (1969) events theory requires a database approach to support dissemination of corporate accounting information to dispersed users who have access to the database technology. Indeed, the dynamic database accounting system has become feasible with advances in database technology. In addition to passively communicating information, the

dynamic database accounting system can be used to provide interactive decision support to users. For example, in the case where interactive media are used as a platform for communicating accounting information to users, through the use of client side applications (e.g., Java applets) and/or server side programs (e.g., Java servlets), users can be presented with interactive, browser-based applications that support information retrieval, analysis, report-generation, and more. Such systems are simply not possible in the traditional text-based system. This paper presents a typology for understanding the variety of approaches an organization may pursue in implementing such an accounting system. Modern approaches such as balanced scorecard or management cockpit are not discussed here because this paper emphasis on accounting database systems that are mostly built on more traditional technologies. The next section describes the characteristics of the traditional accounting and the dynamic database accounting systems. The third section explains the technological and accounting approaches for communicating accounting information to users. The research model and propositions are presented in the next two sections. Finally, data collected from a field study are discussed, implications of the paper are reviewed, and concluding remarks are offered. II. Characteristics of Accounting Systems

The characteristics of the traditional accounting system and the dynamic database accounting system are summarized in Table 1. These include: accounting theory, data storage, information access, security, auditing, and update schedule.

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Do Firms use the Database Accounting Approach in the Design of their AIS?

Table 1. Characteristics of accounting systems Dynamic database accounting system Events theory Database Interactive media with Boolean search Stringent security protocols Real-time attestation of internal controls Continuous Traditional accounting system Double-entry theory Combination of paper and database Linear Minimal security protocols Periodic attestation of financial records Periodic

Accounting Theory Data Storage Information Access Security Auditing Update Schedule

Accounting Theory While the traditional accounting system is based on the value theory, the events theory is the underlying theoretical foundation for the dynamic database accounting system. Value theory. At present, firms use the traditional double entry bookkeeping system to report accounting information. Sorter (1969) viewed the current accounting system as a value approach to accounting. This theory assumes that the users needs are known and sufficiently well-specified so that accounting theory can deductively arrive at and produce optimal input values for used and useful decision models (Sorter 1969, 12). The following criticisms of the value approach have been identified: (1) it is not feasible to specify input values that are optimal for a wide variety of uses because accounting data are used by different groups of users for different purposes; (2) neither economists nor accountants have been able to determine the theoretically correct decision models used by different users for each specified use; (3) the value approach is

viewed to be unnecessarily restrictive (for example, events such as contingencies or commitments are disclosed in the footnotes and are excluded from the main body of the financial statements if they do not have an impact on income or net asset values); and (4) the value theory could not explain many current developments in accounting (for example, the subcategories of sales and cost of sales in the income statement do not form the basis for the income theory) (Sorter 1969). Under the traditional accounting system, the accountant aggregates the firms accounting information and discloses the accounting methods used in the footnotes to the financial statements. However, valuable accounting information may be lost in the process of aggregation by the accountant. In addition, communication of accounting information to users via various business periodicals and annual reports may not be timely for decision-making. Therefore, it is envisioned that Sorter's events approach to accounting will be the future direction of accounting information disclosure.

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Events theory. Under the events theory, relevant economic events, rather than financial statements, are the primary units of corporate financial reporting. This theory asserts that the purpose of accounting is to provide information about relevant economic events that might be useful in a variety of possible decision models (Sorter 1969, 13). Proponents of the events theory view the accounting function as the provision of information about relevant economic events that permits individual users to specify their own input values for their own individual decision models (Sorter 1969, 13). They are also in favor of less aggregation of accounting information by accountants because they feel that the loss of information resulting from such aggregation and valuation is greater than the associated benefit (Sorter 1969). The theory proposes that users, rather than accountants, should be given the rights to aggregate and assign weights and values to the accounting data on the basis of their predictions or utility functions (Sorter 1969). Beaver and Rappaport (1984) proposed that the database approach to corporate accounting reporting has become technically and economically feasible with the spectacular growth in data processing and communication technology. The events theory is seen to provide a conceptual basis for implementation of the database accounting approach to corporate financial reporting (Cushing 1989). The dynamic database accounting system allows users to use their own discretion in aggregating the disaggregated data in ways that are appropriate for their decision-making. Current accounting reports contain many estimated figures; in contrast, a dynamic database accounting system would contain all relevant information related to the operating results and financial position of firms, thereby allowing users to determine appropriate ways for aggregating the disaggregated data in the database. As a

result, accountants do not have to make any estimates for expenses such as depreciation, bad debts, warranty obligations, and inventory obsolescence. Currently, very few accounting systems exist that implement an events-driven database approach. However, the Securities Exchange Commissions (SEC) Electronic Data Gathering Analysis and Retrieval (EDGAR) can be considered as the first step toward the eventual implementation of the database approach to corporate accounting reporting, although EDGAR does not follow the database approach to reporting accounting information as its database consists of traditional reports rather than event-based data. The primary purpose of EDGAR is to increase the efficiency and fairness of the securities market for the benefit of investors, corporations, and the economy by accelerating the receipt, acceptance, dissemination, and analysis of time-sensitive corporate information filed with the agency (see the SEC Web page, http://www.sec.gov). Some companies voluntarily submit their actual annual reports on EDGAR, although they are not required to do so. Firms under the SECs jurisdiction are required to file certain documents via the EDGAR database system; for example, firms are required to file their annual reports on Form 10-K or 10-KSB (see the SEC Web page, http://www.sec.gov). It is expected that the SEC may require firms to file an increasing amount of financial and nonfinancial accounting information via EDGAR. Data Storage The data stored in the traditional accounting system can be in the form of paper, database, or a combination of paper and database. Traditionally, source documents (such as invoices, turn around documents, purchase orders, etc.) are usually in paper form. The data in these documents

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can be entered into and stored in databases, and reports can be generated either periodically or on demand to facilitate the decision making process. However, the traditional accounting systems use of database technology is limited mostly to screening purposes and accessing aggregate information because: (1) the information is not timely, (2) the information is not comprehensive (for example, notes to the financial statements are usually not included in the databases and this makes it difficult to identify differences in accounting practices among firms), and (3) the adjustments made to the information in the databases may not be easily identifiable or understandable. Users may become more willing to use databases to facilitate their analytical work on specific firms if the information contained in these databases becomes more comprehensive, consistent, reliable, and comparable. Further advances on database technology and design, coupled with improvements in accounting reporting practices, may lead to an increase in the use of databases. The dynamic database accounting system uses a full-fledged database approach to create, store, disseminate, and communication information to users. This system provides users with ease of access to a considerable amount of accounting information. In addition, the system can be designed to provide users with access to current (real-time) data and/or periodically aggregated or delayed data, depending on the needs of the organization and the users. Information Access The suggested platform for implementation of the dynamic database accounting system is online, interactive media such as the World Wide Web (WWW). The characteristics (such as graphics, sound, animation, text, hyperlinks, and so on) inherent in such interactive media

allow for effective and efficient presentation of a much larger body of information relative to printed media (Landow 1990). In addition, database technology can be incorporated into interactive media systems to permit users to search for relevant information from massive amounts of data contained in databases, and to retrieve and store a variety of information, including graphics and sound. Users can either search for information in interactive media by means of navigating textual or graphic links, or by using the query mechanisms of the computer system to find specific information. Online presentations of definitions can be less disruptive than paper presentations because the computer can perform the definition search for the reader. The availability of Boolean search functions also makes finding the desired information within a given report (or set of reports) much faster. When properly designed, interactive media systems can be more effective than paper-based reports for conveying information to users (e.g., Carlson and Kacmar 1998). Security Although the manner in which data are aggregated and analyzed can be adapted to the needs of users through the use of interactive media, it is important that users access rights to the actual source data are finely defined and strictly enforced. Internet borne viruses and worms have the potential to damage online accounting information, however, this remains more of a theoretical concern than an actual threat. On the other hand, crackers (criminal hackers) may use viruses (or other means) to gain access to online systems. Even without such access, crackers have used Internet-based attacks (such as the distributed denial of service DDoS attack) to overload particular servers making it difficult for legitimate users to establish connections. DDoS attacks

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on popular web sites such as Yahoo, eBay, E*Trade, etc.caused a tremendous amount of concern among federal regulators and system administrators (http://www.zdnet.com). These security concerns and difficulties may be the most troublesome drawback of current online, interactive media technologies (including the WWW). In reality, however, it is not impossible to set up a secure Web server (successful sites such as eBay, Amazon, IBM, etc. should attest to that). Moreover, there are a variety of technologies that allow a firm to create a secure extranet with encrypted transmission of data, while still providing the rich content and interactive control users need. Examples include Virtual Private Networking (VPN) and secure hypertext transfer protocol (HTTPS), both of which allow aspects of the communication between the client and server to be strongly encrypted. Auditing The dynamic database accounting system provides users with quick and easy access to massive amounts of data stored in its databases. For example, users can query the databases to create reports as and when they deem fit and necessary, and at their convenience. The issue of the quality of the data that the users are accessing is of paramount importance. The dynamic database accounting system will not achieve wide users acceptance if the users could not rely on the reports generated from the data contained in the databases for decisionmaking. The traditional audit performed by independent auditors on firms provides a reasonable level of assurance to users of the firms financial statements. Similarly, in the context of the dynamic database accounting system, some form of auditing system must be in place to increase the users confidence in the quality of the data accessed. Thus, the continuous auditing approach is clearly needed to provide a reasonable level of

assurance of the reliability and currency of the data contained in the dynamic database accounting system. Continuous auditing is defined as a type of auditing that produces audit results simultaneously with, or a short period of time after, the occurrence of relevant events (Kogan, Sudit, and Vasarhelyi 1999, 88). The embedded audit modules approach proposed by Groomer and Murthy (1989) allows accounting information to be captured on an ongoing basis. This approach is perceived to continue to act as an essential architecture for continuous auditing (Kogan et al. 1999). Audit firms may be engaged to perform accounting services such as attestation of the quality of data in the dynamic database accounting systems of firms, accumulation and reporting of relevant data, and preparation of reports on accounting systems and controls. The current trend is toward more auditing based on internal controls, system reliability assurance, and real-time assurance on online databases (Elliott 1996). These auditing trends and capabilities are foundational for the dynamic database accounting system to be successful. Update Schedule The required business information should possess a set of attributes -- integrity, independence, timeliness, and responsiveness (Elliott 1996). However, since the data in the traditional accounting system are updated periodically (i.e., weekly, monthly, quarterly, or even yearly), these data are not current and may in fact impair the decision making process. As a result, the data in traditional accounting systems may lack integrity, independence, timeliness, and responsiveness; in fact, it may not make sense to even evaluate these attributes in light of the staleness of the data. A primary objective of the dynamic database accounting system is to ensure that users receive the highest quality business

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information in whatever form, place, or time. It is relatively easy for firms to update and correct any data in the dynamic database accounting system because the data are generated from a centralized data source. Thus, users of the dynamic database accounting system will obtain the most accurate and up-to-date information immediately after an update occurs. Users can use the dynamic database accounting system to obtain timely accounting information at any day and time. Time zones, weekends, and holidays do not interfere with database-driven reports. For example, EDGAR filings are posted to the Web site 24 hours after the date of filing by firms (see the SEC Web page, http://www.sec.gov).

III. Technological Approaches

And

Accounting

The events theory calls for a radically different method of communicating accounting information to users than is currently employed. Moreover, advances in information technology make it likely that a database approach could be implemented in the near future. However, no single technological or accounting approach is dictated in order to implement such a system, rather, a variety of approaches are possible (Table 2).

Table 2. Approaches for communicating accounting information to users Accounting Approach Traditional Database Current approach utilizing a User is provided with predefined set of paper or electronic version of the electronic reports. database and tools to query data to produce customized reports. User may download User may query database electronic versions of a set using on-line tools to of predefined reports; these produce customized reports reports are based on most based on most recent recent periodic (e.g., periodic data. quarterly) data. User may download User may query database electronic versions of a set using on-line tools to of predefined reports; these produce customized reports reports are based on current based on current data. data. database approach) and the technological approaches possible (either off-line, on-line with periodically updated data, or on-line with continuously updated data); such a descriptive typology is presented in Table 2.

Technological Approach Offline

Online Periodic

Online Current

The various approaches to reporting accounting information can be categorized by looking at both the applied accounting theory (either the traditional approach currently employed or the events-based

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Moreover, there is a progression along each dimension from less to more sophisticated. Therefore, the top-left cell (traditional, offline) represents the least sophisticated approach: users are provided with paper (or electronic) reports based on periodically aggregated data. These reports are based on traditional accounting formats and are both non-interactive and non-customizable. As a result, users are limited in their ability to derive a rich understanding of the problem situation, especially in cases where the users needs are novel and/or unanticipated by the traditional accounting reports. At the other extreme, the bottom-right cell (database, on-line current) represents the most sophisticated approach. Users are provided with access to both an up-to-date data set and tools to query the data to produce customized reports. This access could be provided through the interactive media system (e.g., an Intranet or Extranet) or via a proprietary network or system (e.g., Lotus Notes). In any case, users can be required to log-on to the system (with a password provided by the organization) and, once their identity and access rights are verified, can be provided with access privileges appropriate to their needs and congruent with the organization's security concerns. Finally, query and analysis tools can be provided via a number of client and server-side technologies, including: Common Gateway Interface (CGI), Java applets and/or servlets, active server pages (ASP), or Java server pages (JSP). In addition to the extremes represented by these two implementations, there are a variety of possible intermediate approaches described by the typology. In fact, these intermediate approaches may be viewed as stages in a possible progression from the traditional approach to a fully realized database approach. However, the typology does not suggest that there is any specific path (or ending point) by which these stages must be implemented which is universally

best for all firms; nor, in fact, does it suggest that all (or any) intermediate stages must be implemented. The typology is, however, meant to be both descriptive of the approaches available to organizations in designing an accounting reporting system and suggestive of possible progressions toward more sophisticated systems. For an organization that finds itself in any particular cell (bottom-right excluded), movement either down or right (or both) will lead to a more sophisticated reporting system which will provide greater benefit for its users. IV. Research Model

The research model is presented in Figure 1. The degree of innovativeness of a firms accounting information system (AIS), operationalized via the firms technological and accounting approach, is influenced by drivers of innovativeness of the AIS; namely, revenues and information technology (IT) expenditure. The technological approach can be offline, online periodic, and online continuous. The accounting approach can be traditional, database, or a hybrid of the traditional and database approach. The degree of AIS innovation mediates the users perceptions of sophistication of a firms AIS and technological approach. This relationship is moderated by user characteristics (i.e., ability, knowledge, and experience in a given task and technology) and task characteristics (i.e., complexity, difficulty, ambiguity, structure, and novelty). Since it is difficult to examine the effects of task and user characteristics in the current setting, this study assumes that user and task characteristics are constant. Finally, the users perceptions of the AIS have an impact on their user satisfaction and interest in use of the AIS.

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Task Characteristics Complexity Difficulty Ambiguity Structure Novelty

Drivers of AIS Innovation Revenues IT expenditure

Degree of AIS Innovation Accounting approach (traditional, database, hybrid) Technological approach (offline, online periodic, online continuous)

User Perceptions Sophistication of AIS Sophistication of technological approach

Outcomes Interest in AIS User satisfaction

User Characteristics Ability Knowledge Experience

Figure 1. Research model

V.

Propositions

The present study is exploratory in nature. One of this papers objectives is to provide some insight into the relationships among the core constructs (i.e., drivers of AIS innovation, degree of AIS innovation, user perceptions, and outcome measures) stipulated in the research model presented in Figure 1. Development of the three propositions is discussed below. Revenues1 and IT expenditure are identified in the research model as drivers of AIS innovation. These innovation-enabling factors are posited to act independently or interactively to have an impact on the type of AIS implemented by a firm. Firms that are larger in size and have larger IT expenditure are predicted to have the necessary economic and technological resources for
1

implementing more innovative AISs (that resemble more closely the dynamic database accounting systems) compared to firms that are smaller in size and have smaller IT expenditure. This leads to the first proposition: Proposition 1: Firms with more innovation enabling factors2 will implement more innovative AISs (i.e., systems that resemble more closely the dynamic database accounting systems) than firms with fewer innovation enabling factors. Users perceptions of the AIS are expected to change in response to a change in the degree of AIS innovation. When the degree of AIS innovation is viewed as a continuum, firms that use the traditional
Include innovativeness of staff, management skills and stages of technology advent etc.
2

Revenue denotes size of firms.

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accounting and offline technological approach are deemed to be at the lowest end of innovativeness while firms that use the database accounting and online continuous technological approach are considered to be at the highest end of innovativeness. The two components of user perceptions include sophistication of a firms AIS and technological approach. Therefore, the second proposition suggests that: Proposition 2: Users will perceive a firms AIS and technological approach to be more sophisticated when the degree of AIS innovation is high, assuming user and task characteristics are constant. A number of studies (Gibson 1994; Hunton 1996; Ramarapu, Frolik, Wilkes, and Wetherbe 1997; Szajna and Scamell 1993; Yuthas and Eining 1995) have attempted to examine the outcome measure of user satisfaction in the AIS context. This research signifies the importance of the role of this factor as a measure of the success of an AIS. Further, tremendous amount of resources are being committed to the development and implementation of systems and lack of system use not only leads to wastage of resources but also defeats the purpose of the best systems possible. As a result, it is important to understand how user perceptions of the AIS might influence their satisfaction with the use of the AIS. In addition, research attention should be directed at another important outcome measure; that is, the users interest in use of the AIS. Specifically, the users level of interest in use of the AIS will increase if they perceive the AIS to be interesting to use. Support for this contention is provided by Chan (2001) who found that users were more motivated to use a decision aid and performed better when the aid was perceived to be fun or interesting to use. Finally, the third proposition states that:

Proposition 3: Users who perceive a firms AIS and technological approach to be more sophisticated will be more satisfied with the AIS and will experience increased interest in use of the AIS. VI. Data Analysis This section discusses the data collected on eight firms that participated in a field study conducted by graduate students at a university located in the east coast. The field study was completed as part of the requirement for a graduate accounting information systems course. The students wrote and presented their reports to the class on the last day of the semester. They also completed a questionnaire (Appendix B) in their respective groups in class. The firms vary in size and industry. An analysis of the data collected on the sample firms is presented below: Firm 1, a law firm, is in the service industry. The firm has 96 employees, annual revenue between $18 and $20 million, and total assets of about $3 million. It spends between $50,000 to $100,000 on IT investments each year. The firm uses Elite, an information systems software program, as a platform for its accounting information system. Elite supplies financial and practice management systems for professional service firms (see http://www.eliteis.com for details on Elite). The students rated their respondents reliance on the accounting information system (AIS) and accounting reports for decision making as 5 (with 1=very little and 5=a lot) respectively. The students rated their respondents satisfaction with use of the AIS and accounting reports as 5 (1=not at all satisfied; 5=very satisfied). With respect to the technological and accounting approach (Table 2) used by the firm, the firm was perceived to be using both the offline technological, dynamic database accounting approach; and online current

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technological, dynamic database accounting approach. Firm 2 is in the industry of global financial service. It has about 26,000 employees, revenue of about $5,979 million, and total assets of about $2.8 trillion in 2000. The firms annual investment in IT is about $500 million. The accounting information system of this firm consists of two systems. The first system allows users to enter domestic and global security and cash transactions, and to inquire on accounts, positions, and trade status. The features of this system include online, real-time processing, multi-currency transaction and account recording, specific authorizations per user identification number, and automated interfaces and reconciliation. The second system is a trade-date based accrual system designed to accommodate various industry and client specific accounting and reporting practices. This system is an online, real-time, multi-currency portfolio accounting system. The features of this system include flexible valuation periods, real-time transaction posting and inquiry updates, identified system controls, optional processing capabilities, and flexible architecture and structure to support future client and industry. The students rated their respondents reliance on the AIS and accounting reports for decision making as 4 and 5 respectively and their respondents satisfaction with use of the AIS and accounting reports as 5. The students classified their firm in two cells in Table 2; that is, online current technological, traditional static accounting approach; and online current technological, dynamic database accounting approach. Firm 3, a departmental store chain, is in the merchandising industry. The firm has about 10,061 employees, annual revenue of about $1.8 billion, and total assets of about $468.8 million in 2000. It invested about $600,000 in IT in 2000. The firm uses the M series General Ledger 3.0 accounting system,

a product of GEAC Computer Systems Inc. This system provides standard reports to users for decision making. In addition, users can query the database for specific information and export the results to a Lotus spreadsheet to create specialized reports. The students rated their respondents reliance on the AIS and accounting reports for decision making as 2 and 5 respectively and their respondents satisfaction with the AIS and accounting reports as 3 and 5 respectively. In terms of the classification in Table 2, the firm was perceived to be using the offline technological, traditional static accounting approach. Firm 4 is in the manufacturing and distribution industry. It has about 100 employees with annual revenue of over $25 million. The firm spent about $500,000 over an 8-year period on Effective Management Systems Time Critical Management (TCM), an enterprise resource planning system. TMC has all the basic functions (i.e., accounts receivable, accounts payable, general ledger, and foreign currency conversion) to collect, process, and store data about the firms business activities. The firm uses a flat file, COBOL database system where each database is contained in a single table. The accounting information system tracks all transactions and data pertaining to raw materials, labor, and other production expenses. It produces the reports required by the users for decision making. The data stored in the accounting information system can also be queried to create specialized reports. The students rated their respondents reliance on the AIS and accounting reports for decision making as 4 and their respondents satisfaction with the use of the AIS and accounting reports as 4. With respect to the firms classification in Table 2, the students perceived the firm to be using both the online current technological, traditional static accounting approach; and the online current technological, dynamic database accounting approach.

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Firm 5, a governmental unit, employs about 72,000 people and has an annual revenue of about $22.587 billion in 2000. The IT division invested about $48 million in IT and the respective departments invested about $45 million in IT in 2000. The Management, Accounting, and Reporting System (MARS) is a comprehensive, financial management system that supports business functions such as general ledger, budgeting and revenue, fund accounting, procurement, payables, non-tax revenue, and financial reporting. The students rated their respondents reliance on the AIS and accounting reports for decision making as 5 and their respondents satisfaction with the use of the AIS and accounting reports as 4. This governmental unit was perceived to be using the online current technological, dynamic database accounting approach. Firm 6 is in the health care industry. It has about 100 employees, estimated annual revenue of about $3.5 million for the period ending June 30, 2001, and estimated total assets of $50 million. This organization invested about $70,000 on its Answers on Demand (AoD) accounting information system, and incurred annual expenses of $5,000 and $10,000 on licensing and support and IT support respectively. Currently, the system modules include accounts payable, accounts receivable, general ledger, fixed assets, medical records, and reporting. The AoD system was developed by a group of accountants from continued care facilities, academicians, and MIS engineers. The students rated their respondents reliance on the AIS and accounting reports for decision making as 4 and 5 respectively and their respondents satisfaction with the use of the AIS and accounting reports as 3. The firm was perceived to be using the offline technological, traditional static accounting approach. Firm 7 is in the high technological service industry. This firm employs about 1,500 people and has an annual revenue of

about $10 to $15 million. The firms accounting system is an SAP developed software package commonly used by large organizations. The system produces predefined electronic and paper reports. Users can also produce customized reports by selecting predefined criteria in their queries. This system has an initial cost of about $10 to $20 million. In addition, the firm needs to pay an annual license fee to SAP. The students rated their respondents reliance on the AIS and accounting reports for decision making as 1 and their respondents satisfaction with the use of the AIS and accounting reports as 3. With regard to the firms classification in Table 2, it was perceived to be using the online current technological, dynamic database accounting approach. Firm 8, a dot-com company that provides bundled telecommunications, energy, and utilities services, is in the service industry. This firm employs more than 50 people and has an annual revenue of about $15 million. It has spent about $1 million in information system development since its inception in 1998. The firm maintains a number of systems -- a main customer database (CostGuard), a business application (Utility Billing System), a provisioning application (Telecommunications Reseller System), and other applications developed to process customer payments, calculate their loyalty points, and so on. The students rated their respondents reliance on the AIS and accounting reports for decision making as 5 and their respondents satisfaction with the use of the AIS and accounting reports as 5. The firm was classified in the cell (in Table 2) that suggests use of the online current technological, traditional static accounting approach. Results Due to the small sample size, nonparametric correlations were performed

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to provide some insight into the data gathered on the eight firms. The Spearman rank correlation was run because it is appropriate for rank-ordered variables such as degree of AIS innovation (accounting and technological approach), user perceptions (sophistication of AIS and technological approach), and outcome measures (user satisfaction and interest in use of the AIS). The correlation coefficient for revenues and IT expenditure, drivers of AIS innovation, is 0.635; this suggests that revenues and IT expenditure are appropriate measures of the degree of AIS innovation. The correlation coefficients for the two drivers of AIS innovation and degree of AIS innovation are as follows: revenues and degree of AIS innovation, 0.415; and IT expenditure and degree of AIS innovation, 0.454. The positive relationship between the drivers of AIS innovation and the degree of AIS innovation provides some initial

evidence for Proposition 1; that is, firms that are larger in size and have larger IT expenditure will implement AISs that resemble more closely the dynamic database accounting system, compared to firms that are smaller in size and have smaller IT expenditure. These results are presented in Table 3. Table 4 shows the correlations between the degree of AIS innovation and the users perceptions of sophistication of the AIS and technological approach. The correlation coefficients between the degree of AIS innovation and the users perceptions of sophistication of the AIS and technological approach are 0.624 and 0.703 respectively. These results show some initial evidence for Proposition 2; that is, users will perceive a firms AIS and technological approach to be more sophisticated when the AIS resembles more closely the dynamic database accounting system.

Table 3. Correlations between drivers of AIS innovation and degree of AIS innovation REVENUE Correlation Coefficient Sig. (1-tailed) N Correlation Coefficient Sig. (1-tailed) N Correlation Coefficient Sig. (1-tailed) N REVENUE 1.000 . 8 .635 .045 8 .415 .153 8 IT .635 .045 8 1.000 . 8 .454 .129 8 ACCTEC .415 .153 8 .454 .129 8 1.000 . 8

IT

ACCTEC

*Correlation is significant at the .05 level (1-tailed)

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Table 4. Correlations between degree of AIS innovation and sophistication of AIS and Technological approach ACCTEC ACCTEC Correlation Coefficient Sig. (1-tailed) N Correlation Coefficient Sig. (1-tailed) N Correlation Coefficient Sig. (1-tailed) N 1.000 . 8 .624 .049 8 .703 .026 8 SOPHAIS .624 .049 8 1.000 . 8 .863 .003 8 SOPHTE C .703 .026 8 .863 .003 8 1.000 . 8

SOPHAIS

SOPHTE C

* Correlation is significant at the .05 level (1-tailed) **Correlation is significant at the .01 level (1-tailed) Table 5. Correlations between User Perceptions and User Satisfaction and Interest in AIS SOPHAIS 1.000 . 8 .863 .003 8 .680 .032 8 .520 .093 8 .769 .013 8 SOPHTEC .863 .003 8 1.000 . 8 .705 .025 8 .533 .087 8 .752 .016 8 AISSAT .680 .032 8 .705 .025 8 1.000 . 8 .752 .016 8 .779 .011 8 AISLIKE .520 .093 8 .533 .087 8 .752 .016 8 1.000 . 8 .675 .033 8 AISINT .769 .013 8 .752 .016 8 .779 .011 8 .675 .033 8 1.000 . 8

SOPHAIS

SOPHTEC

AISSAT

AISLIKE

AISINT

Correlation Coefficient Sig. (1-tailed) N Correlation Coefficient Sig. (1-tailed) N Correlation Coefficient Sig. (1-tailed) N Correlation Coefficient Sig. (1-tailed) N Correlation Coefficient Sig. (1-tailed) N

* Correlation is significant at the .05 level (1-tailed) **Correlation is significant at the .01 level (1-tailed)

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Table 5 illustrates the correlations between the users perceptions and the outcome measures of user satisfaction and interest in use of the AIS. The correlation coefficients between user satisfaction and the users perceptions of sophistication of the AIS and technological approach are 0.680 and 0.705 respectively. The correlation coefficients between interest in use of the AIS and the users perceptions of sophistication of the AIS and technological approach are 0.769 and 0.752 respectively. These findings provide some initial evidence for Proposition 3; that is, the users perceptions of sophistication of a firms AIS and technological approach will lead to higher user satisfaction and interest in use of the AIS. VII. Implications The traditional accounting system will eventually change in response to the availability of advanced information technologies and changing user expectations. Sorters events theory and the database approach to corporate accounting reporting are largely feasible today, from technological and accounting theory standpoints. Although the costs and institutional resistance to such transitions are indeed high, firms are clearly moving toward a dynamic database accounting system (for at least parts of their systems) as predicted by our model. Moreover, these innovative firms are benefiting from more satisfied users who are more interested in using their systems. It must be emphasized, however, that the use of a dynamic database accounting system should not be viewed as a replacement for good judgment and sound decision-making. Although users may have the tendency to place undue trust in computer-based data and analyses, they must not limit themselves to information in such a system to the exclusion of other sources that they might traditionally use. In addition, users are not recommended

to rely solely on the analysis tools provided by such a system to the exclusion of other tools and approaches they have traditionally employed. Future research may explore a number of possible questions related to the dynamic database accounting system. First, it is important to develop an understanding of what factors and features encourage users to more fully utilize an AIS at their disposal. Clearly, system satisfaction and interest are important constructs, but additional work could focus on more specific technological characteristics. Second, the problem of information overload may be reduced if future research efforts could identify the types of relevant financial or non-financial accounting information, analysis tools, and presentation formats to be put on a dynamic database accounting system. Third, it is interesting to see that 3 of our 8 sample firms could not be categorized into a single cell in Table 1, instead occupying two cells. This indicates that certain of their systems had been transitioned to a more sophisticated form while others had not. While this may simply be a factor of development and deployment timetables, it may also represent differential needs on the part of users for certain types of accounting information and perhaps on varying levels of management comfort with the online exposure of certain aspects of accounting information. Finally, studies should be conducted to examine the changing role of auditors; that is, real-time auditing of real-time information accessed by the users. Real-time auditing is essential because it provides reasonable assurance to users on the integrity of the information put on the dynamic database accounting system. Additional work is needed to determine whether it is beneficial to make differing levels of accessibility available to users through the sale of passwords to create a multi-tier market with users who can afford different levels of quality and/or scope of information. Users could purchase passwords

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to gain access to the information stored in the databases of firms. Further, systems can be set up in such a way that the users can access either audited or unaudited accounting information. Even though unaudited accounting information can be more timely than audited accounting information, users may face a risk of deficient decision making if they use unaudited information. As a result, users of audited accounting information may receive more assurance than users of unaudited accounting information. However, researchers need to consider the problem of insider information if different users are given different levels of access. VIII. Concluding Remarks Sorters events theory and the database approach to corporate accounting reporting can be said to have materialized. Firms adopting more innovative AISs, based on our framework, tend to be larger and to focus more resources into information technology. The importance of the database accounting approach has increased and the information technologies for its implementation have improved. It is expected that continued improvements would be made to database technology to ensure improved security and availability of real time data. For example, improved user interface between the database technology and other applications such as word processing, spreadsheet, electronic mail, and graphic images might allow users to manipulate data and produce various kinds of reports for decision-making. Current operating system and application vendors (e.g., IBM, Apple, and America Online/Time Warner) have implemented a vertically integrated strategy (e.g., IBMs integration of hardware, operating system, and database features; Apples integration of hardware, operating system, and user interface; and America Onlines integration of Internet Service Provider-style Net access

with various content services to provide users with an integrated Web experience) so that users can create, store, retrieve, and disseminate information in a relatively easy manner. Finally, the typology and propositions put forth here provide guidance to practitioners on how to implement a dynamic accounting system and a framework for researchers interested in the topic. Further empirical investigation of these propositions should provide valuable insights into use of the database approach for corporate accounting reporting. References Bailey, J. E. and S. W. Pearson. 1983. Development of a tool for measuring and analyzing computer user satisfaction. Management Science 29(5): 530-545. Beaver, W. H. and A. Rappaport. 1984. Financial reporting needs more than the computer. BusinessWeek (August): 16. Carlson, J. R. and C. J. Kacmar. 1999. Increasing link marker effectiveness for WWW and other hypermedia interfaces: An examination of end-user preferences. Journal of the American Society for Information Science 50 (5): 386-398. Chan, S. H. 2001. A framework for understanding motivation to use decision aids: A test of the core constructs. Dissertation study, University of Utah. Cushing, B. 1989. On the feasibility and the consequences of a database approach to corporate financial reporting. Journal of Information Systems (Spring): 29-50. Daft, R. L., Lengel, R.H., and Trevino, L.K. 1987. Message equivocality, media selection, and manager performance:

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Implications for information systems. MIS Quarterly 11(3): 355-366. DeSanctis, G. 1986. Human resource information systems: Current assessment. MIS Quarterly 10(1): 1527. Elliott, R. 1996. AICPA Council Meeting. Chicago. Gibson, D. L. 1994. The effects of screen layout and feedback type on productivity and satisfaction of occasional users. Journal of Information Systems 8(2): 105-114. Groomer, S. M. and U. S. Murthy. 1989. Continuous auditing of database applications: An embedded audit module approach. Journal of Information Systems (Spring) 3 (2): 53-69. Hunton, J. E. 1996. Involving information system users in defining system requirements: The influence of procedural justice perceptions on user attitudes and performance. Decision Sciences 27(4): 647-671. Kogan, A., E. F. Sudit, and M. A. Vasarhelyi. 1999. Continuous online auditing: A program of research. Journal of Information Systems (Fall): 87-103. Landow, G. P. 1990. Popular fallacies about hypertext. Designing Hypermedia for Learning. In D. H. Jonassen and H. Mandl (Eds.). NATO ASI Series. Vol. F 67. Springer-Verlag Berlin Heidelberg, New York: 39-59. Nelson, R. R. and P. H. Cheney. 1987. Training end users: An exploratory study. MIS Quarterly 11(4): 547-559.

Ramarapu, N. K., Frolik, M. N., Wilkes, R. B., and Wetherbe, J. C. 1997. The emergence of hypertext and problem solving: An experimental investigation of accessing and using information from linear versus nonlinear systems. Decision Sciences 28(4): 825-849. Sorter, G. H. 1969. An events approach to basic accounting theory. The Accounting Review (January): 12-19. Szajna, B. and Scamell, R. W. 1993. The effects of information system user expectations on their performance and perceptions. MIS Quarterly 17: 493516. Yuthas, K. and Eining, M. M. 1995. An experimental evaluation of measurements of information system effectiveness. Journal of Information Systems 9(2): 6984.

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APPENDIX A GROUP PROJECT This assignment requires you to visit any organization of your choice to study the accounting information system currently used by the organization. This organization can be any profit or non-profit entity. If your organization uses more than one system, describe all the systems used by the organization. Your report should contain the following information: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Describe the organization (e.g., the size of its workforce, amount of its annual revenue, its total assets, the amount of money and resources it invests in information systems each year, and the industry the organization is in) Describe the technology used in the organization (i.e., the accounting systems and information systems currently in use and the use of network technology, the Web, or database technology) Identify and describe the accounting information system currently used by the organization State the purpose and/or objectives of the system and provide an estimate of the amount of money and resources invested in the system How was this system developed and how is it maintained internally, externally, or some combination? Identify key managerial issues (e.g., the importance that the organization places on information systems, the presence of a chief information officer or an information systems department in the organization, and other systems related issues) Evaluate the organization's attitude toward security issues and its strategies for dealing with these issues (i.e., use of passwords, control matrix, firewalls, etc.) Describe the input (i.e., the source data or documents) of the system Describe the process of the system (i.e., how does the system process information?) Describe the output (i.e., the accounting reports) of the system in general terms using descriptive names (more details for these reports will be requested below) Are any of these accounting reports provided to employees and/or external constituents outside of the United States? If so, does the system convert or reformat these reports in accordance with local accounting regulations? Identify the characteristics of the accounting reports (i.e., how do the users access the reports? What is the format of the reports (HTML, pdf, mdb, jpeg, gif, text, etc.)? How useful are the reports to the users for decision-making (i.e., are the reports timely, relevant, and reliable?)? Describe the accounting reports in terms of Table A, i.e., do the users use a predefined set of paper or electronic reports? Can the users download electronic versions of a set of predefined reports? Are these reports based on most recent periodic (e.g., weekly, monthly, quarterly, or annually) or current data? Are the users provided with an electronic (e.g., CD-ROM based) version of the database and tools to query data to produce customized reports? Can the users query the database using on-line (e.g., Internet/Intranet based) tools to produce customized reports

13.

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14. 15. 16. 17. 18. 19. 20. 21. 22.

based on most recent periodic (e.g., weekly, monthly, quarterly, or annually) or current data? For reports that are generated periodically, state whether the report is weekly, monthly, quarterly, annually, or only generated on the basis of need? Identify the persons/groups who have access to the accounting reports and explain the reason for such access How are the reports audited -- in the traditional, periodic manner, or some other approach? Identify the accounting reports most frequently used by the respondent How satisfied (rate on a scale from 1 to 5 with 1=very satisfied and 5=least satisfied) is the respondent with the use of the accounting information system and accounting reports? Does the respondent rely (rate on a scale from 1 to 5 with 1=great reliance and 5=little reliance) on the accounting information system and accounting reports for decision-making? Does the respondent feel that their accounting information system technology and approach is ahead of the curve, behind the curve, or about in line compared to other firms in the industry? Provide demographic information of the respondent (i.e., age, gender, position in the organization, number of employees supervised, number of years in the organization, and job responsibilities) Obtain the email address of the respondent for follow-up purposes.

TABLE A Accounting Approach Technological Approach Offline Traditional/Static Current approach using a predefined set of paper or electronic reports. User may download electronic versions of a set of predefined reports; these reports are based on most recent periodic data. User may download electronic versions of a set of predefined reports; these reports are based on current data. Database/Dynamic User is provided with an electronic version of the database and tools to query data to produce customized reports. User may query database using on-line tools to produce customized reports based on most recent periodic data. User may query database using on-line tools to produce customized reports based on current data.

Online Periodic

Online Current

Use this table as a guide for answering question 13

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APPENDIX B Group: ___________ Based on your review of your firms accounting information system, answer the following questions by circling the response that best represents what you feel. 1. How effective do you think the firms security precautions are for its accounting information system? Not at all effective Very effective ____________________________________________________________ 1 2 3 4 5 2. How innovative do you think the firms accounting information system is? Not at all innovative Very innovative ____________________________________________________________ 1 2 3 4 5 3. How do you think the respondent perceived the quality of the accounting reports generated by the accounting information system? Very low quality Very high quality ____________________________________________________________ 1 2 3 4 5 4. How do you think the respondent felt about the accuracy of the accounting reports generated by the accounting information systems? Not at all accurate Very accurate ____________________________________________________________ 1 2 3 4 5 5. Do you think the respondent found the accounting information system useful for decision-making? Not at all useful Very useful ____________________________________________________________ 1 2 3 4 5

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6. Do you think the respondent found the accounting reports (generated by the accounting information system) useful for decision-making? Not at all useful Very useful ____________________________________________________________ 1 2 3 4 5 7. Do you think the respondent felt that it is important to be skilled at using the accounting information system? Not at all important Very important ____________________________________________________________ 1 2 3 4 5 8. Do you think the respondent felt that it is important to be skilled at using the accounting reports (generated by the accounting information system)? Not at all important Very important ____________________________________________________________ 1 2 3 4 5 9. Do you think the respondent found the accounting information system easy to use? Not at all easy Very easy ____________________________________________________________ 1 2 3 4 5 10. Do you think the respondent found the accounting reports (generated by the accounting information system) easy to use? Not at all easy Very easy ____________________________________________________________ 1 2 3 4 5 11. How satisfied do you think the respondent was with the use of the accounting information system? Not at all satisfied Very satisfied ____________________________________________________________ 1 2 3 4 5

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12. How satisfied do you think the respondent was with the use of the accounting reports (generated by the accounting information system)? Not at all satisfied Very satisfied ____________________________________________________________ 1 2 3 4 5 13. system? How much do you think the respondent liked using the accounting information

Very little A lot ____________________________________________________________ 1 2 3 4 5 14. How much do you think the respondent liked using the accounting reports (generated by the accounting information system)? Very little A lot ____________________________________________________________ 1 2 3 4 5 15. How much do you think the respondent relied on the accounting information system for decision-making? Very little A lot ____________________________________________________________ 1 2 3 4 5 16. How much do you think the respondent relied on the accounting reports (generated by the accounting information system) for decision-making? Very little A lot ____________________________________________________________ 1 2 3 4 5 17. How important do you think it is for the respondent to be effective at using the accounting information system? Not at all important Very important ____________________________________________________________ 1 2 3 4 5

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18. How important do you think it is for the respondent to be effective at using the accounting reports (generated by the accounting information system) Not at all important Very important ____________________________________________________________ 1 2 3 4 5 19. How often do you think the respondent used the accounting information system for decision-making? Not often Very often ____________________________________________________________ 1 2 3 4 5 20. How often do you think the respondent used the accounting reports (generated by the accounting information system) for decision-making? Not often Very often ____________________________________________________________ 1 2 3 4 5 21. In general, do you think the respondent found using the accounting information system: Not at all interesting Very interesting ____________________________________________________________ 1 2 3 4 5 22. In general, do you think the respondent found using the accounting reports (generated by the accounting information system): Not at all interesting Very interesting ____________________________________________________________ 1 2 3 4 5 23. How volatile do you think is the industry that the firm is in?

Not at all volatile Very volatile ____________________________________________________________ 1 2 3 4 5 24. How sophisticated do you think is the accounting approach used by the firm?

Not at all sophisticated Very sophisticated ____________________________________________________________ 1 2 3 4 5 25. How sophisticated do you think is the technology used by the firm?

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Not at all sophisticated Very sophisticated ____________________________________________________________ 1 2 3 4 5 26. How do you think the respondent felt about the accuracy of the accounting information systems in providing him/her with information for decision-making? Not at all accurate Very accurate ____________________________________________________________ 1 2 3 4 5 27. Refer to the table below. Which one of the six cells would you classify your firm in? Mark your response in one of the spaces below: ___ Offline technological approach, traditional/static accounting approach ___ Offline technological approach, database/dynamic accounting approach ___ Online periodic technological approach, traditional/static accounting approach ___ Online periodic technological approach, database/dynamic accounting approach ___ Online current technological approach, traditional/static accounting approach ___ Online current technological approach, database/dynamic accounting approach TABLE B

Accounting Approach Technological Approach Offline Traditional/Static Current approach using a predefined set of paper or electronic reports. User may download electronic versions of a set of predefined reports; these reports are based on most recent periodic data. User may download electronic versions of a set of predefined reports; these reports are based on current data. Database/Dynamic User is provided with an electronic version of the database and tools to query data to produce customized reports. User may query database using on-line tools to produce customized reports based on most recent periodic data. User may query database using on-line tools to produce customized reports based on current data.

Online Periodic

Online Current

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