Abstract- In this study the effectiveness of accounting information systems from finance managers of listed companies at Tehran Stock Exchange is evaluated. The results indicate that implementation of the accounting information systems at the companies under study caused the improvement of managers decision-making process, improving internal controls, improving the quality of the financial reports and facilitated the process of the company’s transactions. The results did not show any indication that performance evaluation process had been improved.
Key words: Accounting Information Systems, Quality of Financial Reports, Internal Controls, Decision Making, Performance Evaluation.
In managing an organization and implementing an internal control system the role of accounting information system (AIS) is crucial. An important question in the field of accounting and management decision-making concerns the fit of AIS with organizational requirements for information communication and control, Nicolaou (2000).
Although the information generated from an accounting information system can be effective in decision-making process, but purchase, installation and usage of such system is beneficial when its benefits exceeds its costs. Benefits of accounting information system can be evaluated by its impacts on improvement of decision-making process, quality of accounting information, performance evaluation, internal controls and facilitating company’s transactions. Regarding the above five characteristics, the effectiveness of AIS is highly important for all the firms.
An AIS is defined as computer-based system that processes financial information and supports decision tasks in the context of coordination and control of organizational activities, Nicolaou (2000).
Accounting information system is considered as a sub system of management information system (MIS). Regarding accounting as information system perhaps is the latest definition of accounting. For the first time in 1966 the Statement of Basic Accounting Theory, published by the American Institute of Certified Accountants (AICPA), stated that:
“Accounting actually is information system and if we be more precise accounting is the practice of general theories of information in the field of effective economic activities and consists of a major part of the information which is presented in the quantitative for”.
In the above definition, accounting is part of general information system of an economic entity. Boochhold (1999) defines accounting information systems as systems that have function of data gathering, processing, categorizing and reporting financial events with the aim of providing relevant information for the purpose of score keeping, attention directing and decision-making.
Accounting information systems are considered important organizational mechanisms that are critical for effectiveness decision management and control in organizations, (Galbraith, 1983; Zimmerman, 1995). Systems will be useful when information provided by them is used effectively in decision-making process by the users. Otley (1980, 325) argues that Accounting System are an important part of the fabric of organizational life and need to be evaluated in their wider managerial, organizational and environmental context. Therefore, the effectiveness of accounting information systems not only depends on the purposes of such systems but also depends on contingency factors of each organization. Accounting information systems are said to be effective when the information provided by them serves widely the requirements of the system users. Effective systems should systematically provide information which has a potential effects on decision-making process, Ivest et.al. (1983).
The effectiveness of accounting information systems has long been a subject of many research, (Chong, 1996, Chenhall and Moriss, 1986, Kim, 1988, Mia and Chenhall 1994).Accounting information usually are categorized under two categories; 1) information that influence decision-making and mainly used for the purpose controlling the organization and 2) information that facilitate decision-making process and mostly used for coordination within an organization, (Demski and Feltham, 1976, Kren, 1992). Huber (1990) argues that, integration of accounting information systems leads to coordination in organization which in turn increases the quality of the decisions. Some research in accounting show that the effectiveness of accounting information systems depend upon the quality of the output of the information system that can satisfy the users’ needs, (Cameron, 1986, Lewin and Minton,1986, Quinn and Rohrbaugh, 1983, Deone and Mclean, 1992, Kim, 1989).
Generally, accounting information systems; 1) provide financial reports on a daily and weekly basis and; 2) in addition provide useful information for monitoring decision-making process and performance of the organization. Simons (1987) in his study we used the first part of the above statement as measure of control for management and the second part for evaluating the effectiveness of the accounting information systems via continuous monitoring.
By reviewing research studies during 1987-1999, one finds out that 57 research has been conducted on the issue of accounting information systems and decision-making. Therefore, it shows the importance of the research in this area.
Accounting information systems provide primary data for decision-making. Information technology has caused many changes in reporting information. Thus, the characteristics of information currently prepared can help decision-makers to seek more alternatives to the solution of the problem in hand. Accessibility to information related to the main transactions of an organization leads to a categorized detailed information which facilitates decision making in any difficult situation, Sutton and Arnold (1995).
Accounting information system, is a computer based system that is defined by Nicoloau (2000) as a system that increases the control and enhance the corporation in the organization. Management is engaged with different types of activities that are requiring good quality and reliable information. They require also non-financial information such as production statistics, quality of production and so on. However, quality of information generated from AIS is very important for management, Mckinnon and Bruns (1992).
Kim (1989) argues that usage of AIS depends on the perception of the quality of information by the users. Generally the quality of information depends on reliability, form of reporting, timeliness and relevance to the decisions. Effectiveness of accounting information system also depends on the perception of decision-makers on the usefulness of information generated by the system to satisfy informational needs for operation processes, managerial reports, budgeting and control within organization. Some research indicate that the effectiveness of accounting information systems depend on the quality of output information that satisfy the users, Cameron (1986), Lewin and Minton, (1986), Quinn and Rohrbaugh, (1983), Delone and Mclean, (1992) and Kim, (1989).
Effectiveness of accounting information systems can be analyzed on three basis: 1)- information scope, 2)- timeliness, 3)- aggregation. Information scope is considered as financial and non-financial information, internal and external information that is useful in prediction of future events. Timeliness quality is related to the ability of accounting information system to satisfy informational needs by providing systematic reports to the users of information. Aggregation of information is considered as means of collecting and summarizing information within a given time period, Choe (1998). Doll and Torkzadeh (1988), for studying the satisfaction of the users’ of information use some concepts to measure the effectiveness of the accounting information systems. These concepts are information content, accuracy, format, ease to use and timeliness.
After reviewing relevant literature, five main variables and three moderator variables were hypothesized. Hypothesis 1: Accounting information systems leads to better decision-making by managers. Hypothesis 2: Accounting information systems leads to more effective internal control systems. Hypothesis 3: Accounting information systems enhance the quality of financial reports. Hypothesis 4: Accounting information systems improves performance measures. Hypothesis 5: Accounting information systems makes financial transaction process easy.
Hypotheses based on moderator variables are set up to see whether such variables have any impact on the respondents’ responses to the research questions. One expects that such variables do not influence the way that respondents reply to the questions in the questionnaire. Hypothesis 1: There is a relationship between the levels of respondents’ education and evaluation of the effectiveness of accounting information system.
Hypothesis 2: There is a relationship between the job experience of the respondents and evaluation of the effectiveness of accounting information system.
Hypothesis 3: There is a relationship between the field of respondents’ education and evaluation of the effectiveness of accounting information system.
Sample and data collection
This study is based on the companies listed at Tehran’s stock exchange. No specific time period is considered since it is not a time series study. A questionnaire is designed and after pilot study was sent to the sample firms.
A population of 347 companies has been listed at Tehran’s stock exchange up to 1383. These companies are distributed along fifteen industries. Our sample has been randomly selected using sampling with no replacement process. For this purpose the below formula: 2 2
N Zα/2 δ X
n = —————————
2 2 2
є (N-1) + Zα/2 δ X
347 ( 1.96) (0.29)
n = ———————————— = 95
(0.05)2 (347-1) + (1.96)2(0.29)2
Based on the ratio of the companies in each industry to the total number of companies in the population, the number of companies in each industry for the sampled firms was determined.
The main data collection instrument in this study is questionnaire. For this purpose a questionnaire was designed after reviewing the relevant literature. The questions are on the five point Likert type questions, with a choice of very little to very much. The questionnaire consists of twenty questions, which were carefully designed to collect relevant data. The research instrument was pilot studied, by expert panels including faculty members. The revised instrument and a cover letter were mailed to the specific individual who was listed as financial managers of the sampled firms. A reminder was sent and non-respondents were followed up with two additional mailings. In the first questionnaire launching 54 questionnaires were completed and returned. In the second and third mailings a total of 33 more completed questionnaires were returned. Altogether 87 questionnaires were available for data analysis in this study.
To test the hypotheses of this research we have used z and χ2 statistics at confidence level of 95%. The research hypotheses were put in the form of statistical hypotheses such as H0 and H1. With regards to the nature of five-point scale questions, therefore, we test whether the mean value of each question is less than or greater than 3. Number 3 is the average number of the five choices in each question:
µ = ——————- = 3
Thus, statistical hypotheses are set up as follows:
H0: µ ≤ 3
H1: µ > 3
Testing moderator variables: to test the moderator variables and see whether they have any impact on the main variables, in this research χ2 tests were conducted.
TESTING HYPOTHESES AND ANALYZING THE RESULTS
To study the research hypotheses eighty seven finance directors (financial managers) were selected as final sample in this study to answer the question put forward to them in the questionnaire. The data collected in this way was edited and some questions merged to measure each hypothesis. Average number of 3 was taken as the mean of the five-point questions in the questionnaire. Table -1 shows a descriptive statistics of five hypotheses.
Table-1 Descriptive statistics
MinMaxStd.Error of KurtosisKurtosisStd. Error of SkewnessSkewnessVarianceStandard DeviationModeMeanStd. Error from MeanAveHypotheses 22.214.171.12410.0940.258-1.0870.1040.3126.96.36.19953.227H1 2.540.5110.799-0.2580.5680.1780.422330.0453.244H2 2.5.7540.5110.252-0.2580.364-0.2630.51243.750.5493.75H3 188.8.131.5210. 890-0.2580.8250.1380.3722. 52.750.3992.80H4 2.754.50.5110.419-0.2580.175-0.1950.44184.108.40.20643.58H5
Results of the first hypothesis: Accounting information systems lead to better decision-making by managers. Z statistic concerning the test of first hypothesis is equal to 6.47 (table-2 ).By comparing this value with the critical value of 1.645, we accept H1 and reject H0. Therefore, the first hypothesis is accepted indicating that implementation of an accounting information system in an organization could improve decision making by managers. The average of the questions measuring this hypothesis is 3.227 and the skewness of -1.087. The kurtosis of 0.094 indicates that the distribution of our data is slightly taller than normal distribution with 0.322 standard deviation. Thus, we could conclude that our respondents on average and slightly above the average believe that accounting information systems lead to better decision-making by managers.
Results of the second hypothesis: Accounting information systems leads to more effective internal control systems. Table-2 shows the Z value of testing the second hypothesis equal to 5.389. Again, comparing this value with the critical value of 1.645, we accept H1 and reject H0. This indicates that from the respondents’ point of view accounting information systems would lead to better internal control systems. Descriptive statistics shown in table-1 gives the average of 3.224 to the questions measuring the second hypothesis, skewness of 0.568, kurtosis of -0.799 and standard deviation of 0.442. This information indicates that the distribution of our data is slightly shorter than normal distribution.