Information Technology (IT) and its Role in Accounting Practice

International Journal of Economy, Management and Social Sciences

ISSN 2306-7276

* Corresponding author.

Email address: [email protected]

Information Technology (IT) and its Role in Accounting Practice

Shirzad Amiri *

, Nikzad Amiri

1,2

Eslamabad-E-Gharb branch, Islamic Azad University, Eslamabad-E-Gharb, Iran.

A R T I C L E I N F O A B S T R A C T

Keywords:

Accounting information systems Information technology Management information systems Financial documents

Today, business world is changing rapidly. Frequent investments and rapid pace of changes in information technology (IT) are reasons for globalization. Organizations are reacting to a wide range of ITs through different practices and with varied proportions based on opportunities and bottlenecks faced. Objectives of this paper are to focus on effects related to organizational changes of IT on performance of management accounting and to help knowledge recognize to what extent the spread of IT can influence empowerment of accounting practice and function. Relationships between IT and accounting practices are examined qualitatively and, also, effects of IT on accounting practice and functions are measured.

© 2014 Int. j. econ. manag. soc. sci. All rights reserved for TI Journals.

1.

Introduction

Today, business world is changing rapidly. Frequent investments and rapid pace of changes in IT along with increased costs of research and development (R&D) all are reasons for globalization [1]. During past decades, role of IT has changed in relation to how corporations manage and control their resources [2]. Organizations are reacting to a wide range of ITs through different practices and with varied proportions based on opportunities and bottlenecks faced [3]. Decisions on foundation of IT structure need to be linked to making decisions on designing organization of IT within organizations. As a result, IT plays a vital role in new trade, especially with respect to accounting performance [4]. IT alters the nature of practices of business and accounting basically [5]. The first advantage of relationships between accounting and IT is that they will be accepted gradually; without IT, accounting is not accomplished easily, and it is assumed that IT is a base for accounting data, allowing certain distortions on performance to be inquired [6]. Therefore, IT and accounting systems will constitute main acknowledged part of accounting research. Although it has been that IT plays an important role in accounting field, few studies have been performed on relationships between them.

Based on review of literature previous research and studies, it is concluded that very little is known about effectiveness of advancement of the newest today’s world technologies in accounting field. Although IT clearly plays an important role in accounting and management control [7], this relationship has not been studied sufficiently. Present researches greatly focus on relationships between investment in IT and performance of companies [8]. In particular, such studies have tried to measure the amounts of investment in IT and of companies productivity [9] or even the material payoff of investment in IT [10].

But experimental studies test relationship between IT and performance reported from mixed findings. And conflicting results show that there is no direct relationship between investment in IT and performance of companies [11]. So it seems that the relationship between IT and companies performance is more complex that what was imagined before [12]. The aim of this paper is to focus on IT effectiveness regarding organizational changes, especially performance of management accounting. We seek to prepare profession of management accounting for challenges outlined by IT, and to help knowledge recognize to what extent IT influences empowerment of different accounting functions. Thus, we will make efforts to measure effectiveness of IT application in fulfilling an accountant duties.

2.

Review of research literature

Effectiveness of new IT in companies is clear and obvious. Integrated system like enterprise resource planning systems as well as Internet keep pace with the newest transitions in companies knowledge. Some of these technologies, especially Internet, with widespread usages have changed companies accounting procedure and structure. Before the advent of this medium (Internet), organizations typically had made use of IT in the form of application of particular computer systems such as payment and financial reporting systems which had employed certain operational methods and or supported given managerial processes automatically. Usually, it is argued that accounting field was the first to use information systems[13] in that IT often relates to companies main ledger and reporting systems [14]. But continuous growth and changes in IT area had an important effect on executive roles at all organizational levels [15]. Today, research into management accounting and information systems such as enterprise resource planning ones. In this sense, term “Information management was coined as the simplest and shortest name for management of IT usage in organizations.

New information and communication technologies (ICTs) represent a course of development and display an important part of formal information systems via computer information. Possibility of sharing and exchanging information among complexities can result in creation of an informal cognitive network such as electronic thought exchange forum and strengthen relationships with economic partners (e.g. idea and knowledge exchange). However, it seems that electronic information is agonized by its own abstract and artificial features as well as by more trust and often become dependent on the least inhuman connections [16]. It is unrealistic to think that an information system can always provide decision-markers with relevant and timely information. Decision-markers must know what information they need to move ahead. By definition, to solve complex problems is impossible when such predictions are not made [17]. However, IT provides invaluable aid in processing information needed by decision-making process [18].

Presently, accountants are potentially able to create added values for economic units, changing the society. Most traditional accounting functions in relation to record and process accounting interactions can be automated reliably. In this case, therefore, accountants provide organization with low extra added values. Instead, currently, the value of an accountant is reflected at higher level of critical thinking skills such as design of business processes, developing electronic business (e-business) models, and integrating strategic knowledge. Rapid evolution of IT represents potential opportunities and risks to accountants. By avoiding potential risks, accountants can use new IT to improve their intra organizational roles. Prior to 1960s, an accountant was perceived as a bookkeeper with main responsibility for ensuring that papers and documents were kept accurately, investing his efforts against shortage of documents. During 1960s, an accountant was perceived as a bookkeeper with main responsibility for ensuring that papers and documents were kept accurately, investing his efforts against shortage of documents. During 1960s, accountants were no longer able to respond to management needs for reporting companies activities. Computers represented a more efficient way to keep documents and books, leading to faster access of accountants to financial information for reporting purposes. In next stage, 1970s brought about development of IT and increased demands of management for information on companies. Management information systems (MISs) were developed to support new roles of accountants. However, new MISs were generating whole information with no regard to its relevance so that accountants had to interpret all information, as a result of which they faced the problem with high volume of additional information. So we face a paradox: There is a huge amount of information available making access to useful and relevant information when necessary too difficult [19].

Traditionally, information systems (ISs) research has focused on study of information process about security of computer systems as well as on developing new systems. To discard such traditional research is essential in order to study relationships between IT and accounting. Even those studies such relationships in terms of some features did not arrive at a conclusion due to focusing on old tools. Therefore, if we want to be enabled to understand emerging technologies and to predict their effects on accounting, we need to understand effects of the most update technologies on accounting [20].

3.

Experimental study

Philosophically fundamental assumptions on the nature of reality, knowledge, and human behaviors are the basis for any research, influencing conception of acceptable research methods [21]. In recent years, management accounting research has been done in domain of verificational and functional paradigms, indicating increased recognition of need for quantitatively complementary methods with one more or less quality element such as case study-based research [22]. Such a complementary approach requires that elements of qualitative case studies to be combined with those of quantitative investigation methods by relying on tri-angulation technique [23]. In present study, a mixed approach, use of which has been recommended for such studies generally, has been used [24]. Experimental studies are defined as some research which uses qualitative and quantitative data as a basis to examine research questions [25]. In order to gather data, some methods like experiments, investigations, and case studies were assessed [26]. On the basis of our study aims and of successfully confronting challenges identified by literature review, it is necessary for researchers to do more coherent research in this study [27], this study uses a combination of qualitative/ quantitative data, with research question being: Has development of IT changed the structure of accountants' functions?

Multiple conditions are considered below. This phase of study consists of face-to-face interviews within six manufacturing companies (table 1).

Table 1. Interviews Interviews no./ Functional domains

Study case Finance/Accounting Sale/ Marketing Manufacture Manufacture Number

of Interviews 1 2 1 2 5 2 1 0 1 2 3 1 1 1 3 4 1 1 1 3 5 1 0 1 2 6 1 0 1 2 Total 7 3 7 17

Methodologically, we considered 6 eligible samples. Case research supports a valid research strategy in MISs, which is less advocated in accounting field. However, case study research is more common in management accounting than in other accounting domains.

Typically, decision- making on whether case study approach be used or not is a strategic decision pertaining to the research scale and domain [28]. Our research question relates to a comparative analysis on before and after new technologies conditions in order to describe managers' attitudes toward their accessibility. And qualitative analysis focuses on case studies given that they need to be explained in a real situation due to their application under conditions being intervened [29]. This problem is organized by using interview and direct observation of activity methods which are considered main procedures to gather data for research. In order to achieve study objectives, we tried to gather accounting documents and papers which are used in decision- making processes. Documents can be regarded as a data source we used to interpret their contents by performing interviews. So the main sours of data was interviews, analysis of papers and documents prepared via details and results of the project. We used papers and documents to prove and clarify data gathered through interviews. A 34-hour set of interviews was performed during 3 months.

4.

Main results

During research literature review, accounting was criticized more: (a) overperfectionism on the part of some of accountants, which made them face difficulties in having access to information timely; (b) to propose too much data, which was very difficult to understand; (c) conceptual disagreement between accountants and managers, with the former paying too much attention to formal aspects; (d) paying low attention to more dynamic accounting, which is more suitable for managers' needs; and (e) other managers' indifference to accounting services, which were viewed as a merely financial and legal requirement. Given such criticisms, managers are willing to embark on the formulation of accounting documentation themselves in order to understand data better and gain it faster even if it is vague.

In case studies, most accounting documents used by marketing and operational managers were prepared by accounting department (tables 2 and 3).

Table 2. Documents used by marking managers.

Documents Form: Were documents prepared by the same

department? Study sample 1

List of main ledger Accounting information system No

Activity reports- strategic business unit Financial manager Yes

Annual activity reports Financial manager Yes

Business programmes Financial manager Yes

Study sample 3 No

Analysis of customers profitability Accounting information system No

Sale daybook Accounting information system No

Fund out of company resources Outside the company No

Internal fund Management Yes

Study sample 4

Analysis of domestic market sale Accounting department No

Domestic markets sale by sale group Accounting department No

Analysis of sale by markets and products Accounting department No Analysis of sale/cost price-to fix selling price Accounting department No

Analysis of sale by markets Accounting department No

Costs of the lack of foreign markets Sold product inventory management No

However, for manufacturing unit, many of documents and papers were prepared by the same unit. Collected data indicated that most documents and papers used on accounting information were prepared by respective units, being always supported with computers. In some cases where managers were willing to perform documentation themselves, some differences were generated between documents prepared by accounting departments. This is not a new situation and needs to be taken into account.

As for analysis of the aims of using documents and papers, it can be said that accounting documents and papers primarily help to make predictions and to define corrective actions. Accounting documents and papers were used to understand companies status quo, to identify problems, and, then, to solve problems. In addition, some of documents and paper found were detailed because feedback needed to be given well in order for all coworkers to be able to apply self-control by comparing expectations with results [30]. However, detailed documents and papers were not always complemented really for this purpose. Just as Bronz's study [31] showed, this study found that decentralization of functions is centered on accounting department traditionally.

Table 3. Documents used by operational managers.

Documents Form: Were documents prepared

by the same department? Study sample 1

Supplies daybook Accounting department No

Orders record Purchase manager Yes

Line order valuation Financial manager Yes

Work sheet of line order price Financial manager Yes

Customer account report Accounting department No

Study sample 1 Accounting information system No

List of main ledger Accounting information system No

Line order valuation Accounting information system No

Salary and wage reports Financial manager Yes

Sale daybook Accounting information system No

Internal report of activities Financial manager Yes

Business programmes strategic business unit Financial manager Yes

Study sample 2

Profit-loss summary Accounting department No

Industry proportions Quality manager Yes

Sale forecasts Forecast department Yes

Study sample 4

Inventory status file Sold product inventory management Yes

Line order valuation Administrative unit No

Contracts audition Administrative unit No

Inventory statement Headquarters units Yes

Study sample 5

Line order valuation Headquarters units Yes

Equipment application reports Headquarters units Yes

Orders fund Headquarters units Yes

Study sample 6

Balance sheet Accounting department No

Profit-loss list Accounting department No

Reports of production cost by manufacturing Accounting department No

Analysis of cost price activity volume/profits Headquarters units Yes

Salary and wage reports Headquarters units Yes

Report of deviation analysis Headquarters units Yes

Gross profit and price allocation by manufacturing unit

Accounting department No

5.

Conclusions

Study companies have invested in IT at a high level. Sale and marketing departments were using laptops more considerably than other units were. It was because of the nature of their activities, especially more need for working outside companies.

Collected data indicated that most documents and papers used on accounting information were prepared by respective units, being almost always Supported with comuters.as for analysis of aims of using documents and papers ,it can be said that accounting documents and papers primarily help to make predictions and to define corrective actions. Accounting documents and papers were used to understand companies status quo ,to identify problems , and , then, to solve problems. Ultimately, this paper found that decentralization of function is centered on accounting department traditionally. Future research will need to future study relationships between it and accounting. Today, accounting and it are inseparable. To make use of advanced management accounting techniques by accountants depends on the existence of it obviously. Options of fabricated configuration are robust in implementation of it. Advantages of it – based accounting will be revealed only with non-specific methods and after a prolonged implementation.

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