CHAPTER 1

Information systems in accounting and finance:

a contemporary overview

Question 1

The long-term financial objective of a company is often seen as being ‘…the maximisation of
shareholder wealth.’ Briefly describe how a company’s accounting information system can
assist in achieving this objective.

Suggested Answer

There is an intimate relationship between:

• the corporate search for comparative advantage and the elimination of competitive threats
and environmental disturbances

• the development of market opportunities and the optimisation of the long-term rate of return

• the management of social, political and economic change and,

• the maximisation of shareholder wealth.

While there can be little doubt that the maximisation of shareholder wealth is seen – at least in
liberal economic context as the primary long-term financial objective, the key to sustainable
long-term success is information. Indeed, as suggested by Lynch (2003)1: ‘….whether it ... (a
company)… needs to make a profit or not, every organisation needs information to survive,’
(Lynch 2003: 402). Information that can be used to;

• control activity

• compare performance

• ensure accountability

• facilitate surveillance and perhaps most important of all

• enforce regulations.

Because of the vast the range of influences affecting the company, the continued survival and
growth of a company increasingly depends on a supply of effective accounting information – on
a wide range of issues – to a wide range of diverse stakeholder groups. In maximising

1 Lynch R. (2003) Corporate Strategy, Prentice Hall, London

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 Tony Boczko, Corporate Accounting Information Systems, 1st Edition, Instructor’s Manual

shareholder wealth, and ensuring – at least theoretically – corporate survival, corporate

accounting information systems possess two common interrelated purposes:

• to provide users with information – or a ‘decision facilitating function’ – that is, a function
concerned with assisting decision making/decision makers by providing ‘useful’
information and,

• to support decision making and facilitate control – or a ‘decision influencing/mediating

function’ – that is a function concerned with controlling and inducing alternative forms of
behaviour in transacting parties where conflict exists and/or mediation is required.

Question 2

Contemporary accounting information systems are ultimately political in nature. Discuss.

Suggested Answer

Like all socially created organisational structures, corporate accounting information systems are
political in nature and possess a range of general characteristics:

• they are goal orientated – that is they are purposeful

• they are generally composed of a range of interacting components (subsystems)

• they exist/function with a hierarchical context

• as a system they have a defined (often imposed) boundary and

• as system they possess synergistic qualities.

More importantly, because corporate accounting information systems have many users, and
involve many different groups of stakeholders, they are subject to a range of social, political and
economic influences and controls – both internal to, and external of the company.

Such internal influences include issues related to:

• the size of the company,

• the knowledge base and intellectual capacity of the company (and its employees)

• the structure/organisation of the company, and the complexity of information demands and
requirements

• internal management factors/features and of course

• the availability of company resources.

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 Tony Boczko, Corporate Accounting Information Systems, 1st Edition, Instructor’s Manual

Such external influences would include issues related to:

• political influences such as company law requirements and other legal/political requirements
imposed by quasi-governmental organisations

• social influences such as professional reporting standards requirements like UK GAAP, and
other professional pronouncements

• economic influences such as market regulatory requirements (London Stock Exchange

requirements), and other industry standards/regulations and of course

• technological influences such as of hardware/software technologies constraints

Question 3

The increasing uncertainty and risk of organisational activity has resulted in an increasing
dependency on trust systems. Explain to what extent contemporary accounting information
systems can be regarded as a trust system and illustrate how it is related to the changing nature
of capital.

Suggested Answer

The continued dominance of contemporary market capitalism remains a central feature of

today’s global business environment. A global business environment in which the primary aim
of traditional market based economic activity is the achievement and maintenance of
competitive advantage and wealth maximisation.

However, while the transformative consequences of global capital and the dominance of market
economics in the late 20th and early 21st century have produced many social, political and
economic benefits (e.g., in a macro context sustained national/international economic growth,
national/international market stability, social and political security and in a micro context, low
investment risk, stable corporate growth and increasing market/product opportunities/
development), such benefits have been, and indeed continue to be achieved at some social,
economic and political cost.

The achievement and maintenance of competitive advantage, the development and maintenance
of key success factors, the extending of product and service life cycles and the continued
maximisation of product and service profitability, have all become heavily dependent on
information – on information and communication technologies – on intangible knowledge based
systems, (specifically accounting information) to ensure the effective management of corporate
resources, the accurate measurement of corporate performance and provide a necessary
determination of continued corporate survival.

While the need for information is by no means a new phenomenon, in a global business
environment increasingly shaped by the complex business transactions that have become
evermore uncertain, evermore compressed and increasingly lacking in transparency, corporate
business activities have out of necessity, become bound with a growing dependency on
networks of surveillance – on regulation and control – on the development of sophisticated

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 Tony Boczko, Corporate Accounting Information Systems, 1st Edition, Instructor’s Manual

systems for collecting, storing and processing information – on networks of trust, not in people
but in systems

Such networks of trusts exist not because of a lack of power – but because of a lack of
knowledge. More importantly such trust in systems provides a means of:

• understanding the causes of change

• controlling the effects of change and

• regulating the impact of change

Such a trust in systems has become an important component of a market based society in which
the need to know and the ability to control have become a central feature in the search for
competitive advantage – the search for profit – the maximisation of corporate wealth. A market
based society in which the politics of global competition and the economics of the marketplace
have not only contributed to changing the structure, nature and context of contemporary society
itself, but more importantly contributed to changing contemporary notions/perceptions of the
company – the corporate entity.

Question 4

All users of corporate accounting information systems are interested in one issue only – how
profitable is the company/will the company be. Discuss.

Suggested Answer

While in a traditional liberal economic management context maximising shareholder wealth is

seen as essential to the continued survival, growth and success of a company, there is
nonetheless a wide range of diverse stakeholder groups – both internal and external to the
company whose priorities may not necessarily be directly by dictated by the demands for
shareholder wealth maximisation.

Clearly, the nature, size, location and complexity of a company will have a direct impact on not
only the range of corporate accounting information systems users, but also on the types of
information various stakeholder groups may require. For example, a large diversified UK based
multinational company would have a greater range of accounting information systems users and
information demand requirements than say a small regional single purpose private limited
company.

So who are the users of corporate accounting information systems?

The primary internal users of any corporate accounting information systems would be:

• financial accountant

• account managers

• management accountants

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 Tony Boczko, Corporate Accounting Information Systems, 1st Edition, Instructor’s Manual

• systems developers

• internal auditors and

• other departmental managers.

Many of these users would be generally concerned with outputs from the corporate accounting
information system. For example, outputs such as:

• profit and loss accounts

• financial statements of affairs and balance sheets

• cash flow statements

• performance budgets/reports

• costing and activity reports and

• financing summaries.

Others would of course also be interested in:

• accounting information systems inputs, for example, the collection/recording of relevant

business transactions

• accounting information systems processes, for example, the processing and maintenance of
proper accounting records and

• accounting information systems controls, for example, the application of appropriate

regulatory requirements and standards.

Such users would for example, include the financial accountant, internal auditor and perhaps the
systems developer.

The primary external users of any corporate accounting information systems would be:

• shareholders

• external auditors

• shareholders and potential lenders

• markets regulators

• government regulators

• taxation authorities

• suppliers and creditors and

• other interest groups such as trades unions, employee groups and other social/political
agencies.

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As with internal users, many of these external users would be generally concerned with outputs
from the corporate accounting information system. For example, outputs such as:

• published profit and loss accounts

• balance sheet and

• cash flow statements

Again, as with internal users, some external users would of course also be interested in inputs,
process and relevant controls. Such users would for example, include the external auditor,
government regulators, market regulators and or course taxation authorities and their interest
would generally derive from some legal and/or institutional requirement.

Question 5

Contemporary accounting information systems can be regarded the fundamental/core resource/

asset of any corporate organisation. Discuss.

Suggested Answer

The basis of contemporary market based capitalism is the notion of resource movement/
exchange – that is the temporal and spatial displacement of resources is the foundation of
conventional economic activity, corporate profitability and wealth maximisation. More
importantly, from a liberal economic perspective at least, such resource movement/exchange is
also the foundation of continued corporate survival. Indeed, in today’s highly competitive (some
would say chaotic) global market place companies must not only be flexible and adaptive, but
also responsive to social, political and economic change. One consequence of this need/desire
for continued flexibility/adaptability in an ever more hectic business environment, is that
corporate accounting information systems as an essential part of a company’s arsenal of
competitive technologies have become increasingly complex – a complexity directly related to
notions of security, of control and risk reduction. A complexity directly influenced by:

• ever increasing volumes of accounting/financial management data and business data

processing,

• ever increasing demands of internal and external users to reduce data processing times,

• an evermore critical emphasis placed on correct processing,

• an increasing importance of detail management,

• ever increasing computerisation of accounting/financial management transactions and,

• ever increasing requirement/demand of market participants to minimise, management/

regulatory intervention in competitive business activities

However, despite such ever increasing pressures, corporate accounting information systems are
by their very nature created resource structures – that is they emerge from a need/desire to

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protect, control and manage resource activities and wealth creation processes, the purpose of
such systems being to provide 2 clear functions:

• a decision facilitating function and

• a decision influencing/mediating function.

Such a duality of function can and indeed often is interpreted in a number of alternative
contexts. Such contexts include:

• a procedural/processing context,

• an organisational and relational context and,

• a functional context.

From a procedural/processing context, corporate accounting information systems are essentially

‘data transformation management systems.’ That is, such a contextualisation of corporate
accounting information systems suggests that the purpose of such a system is to facilitate five
key procedures:

• data collection

• data maintenance

• data management

• data control and

• information generation.

From an organisational context corporate accounting information systems are essentially

hierarchical information systems. They are designed to:

• assist in defining business strategies/policies

• embed information into tactical decision making processes

• provide useful information for operational control purposes

From a relational context corporate accounting information systems are essentially a component
part of an integrated corporate information system. They exist as an essential part/component of
a company’s overall management information system,

Such organisational and relational contexts are of course related to a range of internal/external
factors such as:

• size of the company and the complexity of corporate structures/lines of accountability

• organisation of the company and the intricacy of data/information flows,

• company maturity and the current stage of corporate evolution/development

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• internal psychological factors and the underlying nature/philosophy of management

behaviour/activity. Also the related the attitudes of information users

• external environmental factors (including social/political/geographical factors) and the

levels of risk and competition the company faces and

• company resources and the availability of financial resources for investment in systems
development.

From a functional context corporate accounting information systems are essentially transaction
processing systems. They are designed to mirror a company’s cycles of operation and/or
business activity – the temporal and spatial displacement of resources founded on the following:

• tangible/intangible products and services absorb resource expenses

• resources are bought and sold

• resources are converted

• equity is increased and/or diminished and

• debts are incurred and/or liquidated

Such activities are generally analysed within the context of four functional subsystems:

• an expenditure cycle – generally consisting of an acquisition control system, a receiving and

inspection system and a purchasing and creditor system

• a conversion cycle – generally consisting of a stock control system, a production control

system and a payroll system

• a revenue cycle – generally consisting of a marketing system, a transportation system and

sales and debtors system and

• a management and administrative cycle – generally consisting of a cash receipts and

payments system, a fixed assets and property system, and a general ledger system.

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