The role of accounting in computer-based information systems


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The role of accounting in computer-based information systems
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xiii, 196 leaves. : ill. ; 28 cm.
Agrawal, Surendra P
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Electronic data processing -- Accounting   ( lcsh )
Management information systems   ( lcsh )
Accounting thesis Ph. D   ( lcsh )
Dissertations, Academic -- Accounting -- UF   ( lcsh )
bibliography   ( marcgt )
theses   ( marcgt )
non-fiction   ( marcgt )


Thesis--University of Florida.
Bibliography: leaves 184-194.
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Also available online.
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General Note:
Statement of Responsibility:
by Surendra Prakash Agrawal.

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University of Florida
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Full Text








The writing of a dissertation is an experience. It

requires a total commitment on the part of the writer, and

all the help he can get -- from his family, friends, col-

leagues, teachers, and, above all, his major advisor. It

is but a small acknowledgement to thank all the people, with

or without mentioning them by name, who have provided assis-

tance and encouragement over the long weeks and months spent

on the job. My greatest gratitude is to Professor Lawrence

J. Benninger, Chairman of the Supervisory Committee, who

worked patiently and helpfully through my many drafts. The

other members of the committee, Professors Ralph H.

Blodgett and M. S. Tysseland, have been instrumental in

giving a certain nonaccounting perspective to the study,

and I wish to record my appreciation to them.

I am especially thankful to my wife and our daughters

for sharing with me the trials and tribulations of a grad-

uate student's life so far away from home. The courage

shown by my little daughter during her own affliction has

proved to be a source of great strength to all of us.









The Problem under Study . .
Recognition of the Problem
in Literature . .
An Approach to Solve the Problem
Research Methodology and Scope .
Some Limitations to the Scope of
the Study . . . . . .
Organization of the Study . .


* 1


Purpose and Organization of the Chapter.
An Introduction to Systems . . . .
General Systems Theory . . . .
The Concept of Systems . . . .
The Systems Approach ... ........
Business Organizations from the
Systems Point of View . . . . .
Purpose of the Organization . . .
Structure of the Organization . .
Input, Output and Process of the
Organization . . . . . .
Component Subsystems of a Business
Organization . . . . . . .
The Decision Making System . . .
Purpose of the System . . . .
Structure of the System . . .


. . . . . . . ii

. . . . . . . x

. . . . . . . 1



II (continued)
Process of the System . . .. 31
Input of the System . . . .. 33
Output of the System . . . .. 34
The Information System . . . . 35
Purpose of the System . . .. 35
Structure of the System . . .. 40
Process of the System . . . 40
Input of the System . . . .. 41
Output of the System . . . .. 41
The Operations System . . . .. 43
An Overview of the Systems
Characteristics . . . . .. 44
Summary of the Chapter . . . .. 44


Purpose and Organization of the
Chapter ..... ............... 47
Accounting from the Systems
Point of View . . . . . . 48
Purpose of Accounting . . . .. 49
Structure of Accounting . . .. 55
Process of Accounting . . . .. 55
Financial Accounting and
Management Accounting.. . . . 56
General Attitude of Accountants . 57
Professional Judgment of
Accountants . . . . . .. 60
Input of Accounting . . . .. 61
Output of Accounting . . . .. 62
Dynamic Development of Accounting . 64
A Model of Accounting as an
Information System . . . . .. 64
Specialized Skill and Expertise
of Accountants . . . . . .. 66
Limitations of Accounting . . .. 67
Information Needs of the
Decision Making System . . . .. 67
Information Needs of the Operations
System .. . . . . .. .. 68
Information Needs of External Users 68
Basic Reasons for the Limitations
of Accounting . . . . . .. 69




III (continued)
Improvements in Accounting Suggested
in Literature . . . . . .. 70
Development of Decision Models
by Accounting . . . . . . 71
Adoption of New Techniques and
Procedures . . . . . . .. 73
Changes in the Standard of
Reliability . . . . . . 73
An Evaluation of the Proposals . 74
Summary of the Chapter . . . .. 75


Purpose and Organization of the
Chapter . . . . . . . . 78
The Concept of MIS . . . . .. 79
A Brief Historical Background . 79
Characteristics of MIS . . . . 81
Total Systems and Integrated
Systems . . . . . . .. 83
Functions of MIS ... ....... 85
Characteristics of MIS ........ 85
An Operational Definition of MIS . 86
MIS from the Systems Point of View . 87
Purpose of MIS . . . . . .. 87
Structure of MIS . . . . .. 88
Input of MIS . . . . . .. 88
Process of MIS . . . . . .. 89
Output of MIS . . . . . . 90
Dynamic Development of MIS . . .. 90
A Model of MIS . . ......... . ....91
Specialized Skills Required for
MIS Operations . . . . . .. 93
MIS and the Computer . . . .. 93
MIS and Operations Research ... . 97
Limitations and Deficiencies of MIS . 99
Overabundance of Irrelevant
Information . ............. 100
Inadequate Knowledge of
Information Needs . . . . .. .101
A Communication Gap Between the
Systems People and Users
of Information . . . . . .. 101


IV (continued)
Inability of Decision Makers to
Specify Their Informational Needs
Exclusion of Judgmental Factors
Inadequate Control over Input .
Lack of Flexibility in MIS . .
Incompatibility of Sophisticated
Information with Management
Capabilities . . . . . .
Basic Reasons of the Deficiencies
of MIS.... .. . . . . ..
Improvements in MIS Suggested in
Literature . . . . . . .
Introduction of a New Human
Element in MIS . . . . .
Acquisition of Skills in EDP
and Functional Areas . . . .
Source Data Automation . . .
Fractionalization of MIS . . .
An Evaluation of the Proposals .
Summary of the Chapter . . . .


Purpose and Organization of the
Chapter . . . . . .

* 103
* 103
* 104
* 105


* 106

* 107

* 107

* 109
i 111
* 112
* 114

Characteristics of a Good Information
System . . . . . . . .
Capability to Develop Various
Types of Information . . . . .
Capability to Communicate the
Required Information . . . . .
Flexibility . . . . . .
Feasibility . . . . . . .
Necessity of a Man/Machine System . .
The Model of Controlled Information
System . . . . . . . . .
Input Subsystem . . . . .
Processing Subsystem . . . . .
Output Subsystem . . . . .
Developmental Subsystem . . . .
Specialized Skill Requirements .......
Information Control . . . . .
Computer Operations . . . . .
Operations Research . . . . .









* *

* *

* * *

TABLE OF CONTLTS (continued)


V (continued)
Anticipated Problems . . . .
Feasibility of the Discipline
of Information Control . . .
Communication Gap Between Systems
People and Decision Makers . .
Time Dimension of the System . .
Controlled Information System and
Total Systems Concept . . .
Evaluation of Controlled Information
System . . . . . . . .
Criteria of a Good Information
System . . . . . . .
Dearden's Five Questions . . .
Summary of the Chapter . . . .


Purpose and Organization of the
Chapter . . . . .
Role of Accounting Suggested in
Literature.... ... . . ..
An Overall Evaluation of the
Proposals . . .
Role of Accounting in Controlled
Information Systems . . .
Control of Input . . . .
Manual Processing of Data .
Control of Output . . .
Receipt and Interpretation of
Feedback . . . . .
Participation in Operations
Research . .. ..........
Who'll Be in Charge? .......
Implications for Accountants'
Training and Education . . .
Some Standards and Guidelines

Standards for Data and Information
Guidelines for Receiving Feedback
from Users . . . . . .
Guidelines for Analyzing Informa-
tion Needs . . . . . .
Summary of the Chapter . . . .

. 135






. . 147







. 162
S. . 164

. 164




* *

* * *




Areas for Further Research . . .. .182

SELECTED BIBLIOGRAPHY . . . . . . .. 184

BIOGRAPHICAL SKETCH . . . . . . .. 195

vi ii



1 Characteristics of Systems Within
a Business Organization . . . . .



Figure Page

1 A model of the accounting information
system . . . . . . . . .. 65

2 A model of the management information
system . . . . . . . . .. 92

3 A model of controlled information
system . . . . . o. . . . 123

Abstract of Dissertation Presented to the Graduate Council
of the University of Flerida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy



Surendra Prakash Agrawal

June, 1973

Chairman: Dr. Lawrence J. Benninger
Major Department: Accounting

Traditionally, accounting has served as the only or

major information system of business organizations, but in

recent years many institutions have set up computer-based

management information systems as an alternative to it.

There is no specific function assigned to accountants in

such systems; hence their growing use is a matter of grave

concern for the future of accounting as a distinct disci-

pline. Suggestions given in the literature to enable account-

ing to face this challenge appear to be unsatisfactory. This

study, therefore, has addressed itself to the problem of

determining the role which accountants can perform effec-

tively and profitably, as specialists in their own rights,

in computer-based information systems.

Preliminary to a solution of this problem, an analysis

of the capabilities and deficiencies of both accounting and

management information systems was made. A major conclusion

drawn was that neither of these models is able to serve

appropriately as an effective information system of business

organizations in the modern environment. While accounting

develops information which meets with certain qualitative

standards, its scope is limited primarily by its historic

emphasis upon financial information. Moreover, accountants

in general are not -- and are unlikely to become -- suffi-

ciently versatile in the various techniques of scientific

management and hence do not ordinarily develop sophisticated,

quantitative information needed by many users. On the other

hand, while management information systems utilize such

mathematical techniques as model building, programmed deci-

sion making, and problem solving, they lack flexibility,

and there seems to be an inadequate insistence on the quali-

tative aspects (such as reliability) of information devel-

oped. Moreover, they do not have people who can effectively

communicate with and understand the needs of users. Further-

more, the recipients of information are at times unable to

utilize the information supplied by such systems because of

an inadequate sophistication in their own decision models.

It would appear from the foregoing that an efficient

information system requires a close coordination of men and

machines. The model of the controlled information system

developed in this study uses this idea and consists of com-

puters, operations research methods, and information control-

lers. Information controllers have the responsibility for


controlling its input and output and ensuring that they meet

with the specified standards of reliability, usability and

authority. Besides, they also carry out those manipulations

of data that can not be performed on the computer, receive

and interpret feedback from users, and help in operations


It is recommended that in the suggested model accoun-

tants act as information controllers which would involve

functions similar to those discharged by them in accounting

systems today. To do this, however, they would need to

expand the area of their interest to cover all types of data

and information. Their education and training would empha-

size such matters as the analysis of informational require-

ments, understanding of data needed therefore, and manual

manipulation of various types of data; it should also famil-

iarize them with the limitations and possible applications

of computers and operations research.

Upon the adoption of the suggestions contained in this

study it is expected that accountants would continue to

render specialized services to business organizations, and

such organizations would be able to take full advantage of

their information systems.




The Problem Under Study

Traditionally, accountants have performed the function

of collecting and developing information in business organi-

zations. Until but a short time ago, information supplied

by accounting was usually considered to be adequate for pur-

poses of management. However, recent developments in organ-

ization and management theories and practices have created

a need for various types of information which are not con-

sidered to be within the province of accounting. Organiza-

tions using modern management techniques are, therefore,

obliged to seek some alternative means to obtain the required

information. Developments in the application of computers

and mathematical techniques have been found to be helpful in

the provision of such information. Their utilization has

given rise to computer-based information systems (often

referred to as management information systems). Such sys-

tems develop considerable quantities of sophisticated infor-

mation, and often the information which has been historic-

ally supplied by accounting is one of their products (or

by-products). In general, these systems are not managed by

accountants, and, even where accountants do participate in

their operation, their exact role is not well defined. In

view of the fact that the use of computer-based information

systems is growing and is exncpected to grow, such a situation

becomes untenable for accountants. If accounting is to sur-

vive as a distinct discipline, its members must render some

specialized services which no other professionals can offer.

The problem with which this study is concerned is, there-

fore, the determination of the role which accountants can

perform effectively and profitably, as specialists in their

own rights, in computer-based information systems of busi-

ness organizations.

Before an appropriate solution to this problem may be

essayed, a further difficulty must be recognized. Most

management information systems established in business

organizations have failed to prove up to their expectations

in the supply of information actually required and used by

managements. There remains, therefore, a need to develop a

model of an information system which would be able to sat-

isfy demands for various types of information. Accordingly,

this study will first endeavor to specify a model of a

computer-based information system which can be expected to

carry out its function effectively and then to determine

the role, if any, which should be assigned to the accountant

within such a system.

In the absence of a clearly defined role for accounting

in the new setting of computer-based information systems,

there also appears to be confusion concerning the appropriate

educational background for today's accountant. The trend

seems to be to expand the scope of the accountant's educa-

tion with a view towards making him an expert in several

fields, such as coip:uter technology and operations research,

as well as continuing the technical accounting instruction

presently given accountants. There, however, appears to be

such a diversity of knowledge in these areas that it is

doubtful that a person could acquire expertise in all of

them after devoting a reasonable amount of time and effort.

The scope of accountants' education should be determined

realistically, keeping in mind the constraints concerning

capabilities of individuals and the time and effort they may

be expected to devote in order to become accountants. This

problem can be solved only after the role of accountants in

computer-based information systems has been determined in

precise terms, because it will then be possible to state

what specialized skills they would actually need. This

study will accordingly attempt to draw implications for the

training and education of accountants from the role sug-

gested for them.

Recognition of the Problem in Literature

Considerable attention has been given in the accounting

literature to the problem under study here. The new develop-

ments are seen by the various writers either as a threat or

as a challenge to accountants. The Committee on Information

Systems, 1970-71, expressed the view that the accounting

department may be one of the first to vanish in the func-

tional reorganization caused by the new develonents, and

new information departments would evolve. Swyers thinks

that, as a result of the implementation of an integrated

management information system, the accounting information

system would cease to exist as a separate entity. Accord-

ing to Horngren, soothsayers of doom foresee a takeover of

the internal accounting function by mega-information special-

ists who would not label such work as accounting but as

information processing and reporting. External reports

would be the by-products of a management information system

(not an accounting system). Hartley finds truth in the

argument that accounting is being replaced by the total

information systems.

On the other hand, Churchill and Stedry observe that

the new areas of management and behavioral sciences and

information systems technology offer a challenge and an

1. American Accounting Association's Committee on
Information Systems, 1970-71, "Report of the Committee on
Information Systems," Accounting Review, Supplement to
Volume XLVII (1972), p. 206.

2. William E. Swyers, "Integrated Information Systems
and the Corporate Controllership Function," Management
Accounting, L (October, 1968), p. 19.

3. Charles T. Horngren, "The Accounting Discipline in
1999," Accounting Review, XLVI (January, 1971), p. 4.

4. Ronald V. Hartley, "Operations Research and Its
Implications for the Accounting Profession," Accounting
Review, XLIII (April, 1968), D. 327.

opportunity. "Someone must rise to it. By tradition and

by proven record it ought to be the accountants."5 The

Committee on Information Systems, 1969-70, states that

accounting in the broad sense of the term can and should

rise to the challenge and opportunities of the developing

information technology and take the lead in information

management. Swyers thinks that the controller should be

considered a leading contender for the post of the director
of management information. Staats observes that manage-

ment-oriented accountants are the logical choice to direct

and operate management information systems, whether the

responsibility is placed in the controller's organization

or in another group.8 Similarly, Joplin finds the account-

ant a logical choice and a qualified candidate to manage the
computer-based management information system. Horngren's

prophets of power and glory pin the accounting label on all

quantitative information needed for decision making.10

5. Neil C. Churchill and Andrew C. Stedry, "Extending
the Dimensions of Accounting Measurement," Management Ser-
vices, IV (March-April, 1967), p. 22.

6. American Accounting Association's Committee on
Information Systems, 1969-70,"Accounting and Information
Systems," Accounting Review, Supplement to Volume XLVI
(1971), p. 344.

7. Swyers, p. 20.

8. Elmer B. Staats, "Information Needs in an Era of
Change," Management Accounting, L (October, 1968), p. 15.

9. Bruce Joplin, "Can the Accountant Manage EDP?"
Management Accounting, XLIX (Novenber, 1967), D. 3.

10. Horngren, p. 4.

In order that the accountant may face the challenge of

the new developments successfully, various suggestions have

been made as to how he can prepare himself adequately for

the task. Hein observes that while the future of the

accounting function seems reasonably well assured, the prog-

nosis for the accountant is not quite so favorable -- that

is, unless the accountant takes some significant steps to

ensure his survival. The background capabilities considered

necessary by Hein are: formal training in business subjects

with concentration in accounting, familiarity with (and

masteryof most of) mathematics, statistics, simulation,

operations research, and electronic data processing (EDP).

"It is perhaps a trite truism to say the more the better."1

To fill the broader role, Jasper mentions the need to broaden

the accountant's knowledge in the fields of statistics, com-

puters, systems analysis, operations research, and behavioral

science (effective communication and human activation).12

Staat's list includes computers, communication facilities

and techniques, economics, systems analysis and related

mathematical techniques, psychology, and sociology. 13 Joplin

thinks that the accountant should expand his knowledge and

11. Leonard W. Hein, "The Management Accountant and the
Integrated Information Systems," Management Accounting, XLIX
(June, 1968), pp. 36, 37-38.

12. Harold W. Jasper, "Future Role of the Accountant,"
Management Services, III (January-February, 1966), pp. 52-53.

13. Staats, p. 15.

background in understanding EDP applications.14 Beyer

thinks that there is formidable competition for the role of

the director of management information, and states that the

accountant has to develop his understanding of the capabili-

ties -- and limitations -- of the information disciplines

participating in functioning systems. Firmin and Linn

recommend that accountants become operational in mathematics,

statistics, and other aspects of information technology, and

comprehend fundamental concepts of behavioral science.16

Gynther's list of educational fields for accountants in-

cludes computer language, quantitative methods, operations

research, quantification of variables, human behavior, finan-

cial accounting theory, managerial accounting theory, and

business finance theory.17

To summarize, various writers have mentioned the fol-

lowing fields of knowledge in which accountants need to

acquire expertise so as to be able to face the challenge

posed by technological developments and advancement of

14. Joplin, p. 3.

15. Robert Beyer, "Management Information Systems:
Who'll Be in Charge?" Management Accounting, XLVIII (June,
1967), p. 8.

16. Peter A. Firmin and James J. Linn, "Information
Systems and Managerial Accounting," Accounting Review, XLIII
(January, 1968), p. 81.

17. Reg S. Gynther, "The Management Accountant of the
Future," Accountants' Journal (New Zealand), LI (August,
1972), pp. 5-6.


(1) Accounting: financial and managerial

(2) Business, Finance, and Economics

(3) Quantitative M1ethods: mathematics, statis-
tics, and operations research

(4) Computers and Communication Equipment

(5) Behavioral Sciences

(6) Systems Analysis, and other areas relating
to information systems.

Once the accountant acquires the required expertise in

these fields, he will presumably be adequately equipped to

carry out his expanded role. The writers in this area, how-

ever, are almost uniformly silent on the question as to what

specific functions the expanded role will involve. A number

of vague references may be found as to the accountant's
taking charge of the management information system,18 or his

carrying out a role within the total area of information
systems in association with the other professionals; but

insufficient attention seems to have been given to this

question in the literature. The Committee on Information

Systems, 1969-70, does mention that the real issue is the

extent to which accounting should be involved in the formal

18. For example, see Beyer, pp. 3-4.

19. For example, see Gynther, p. 3;

H. Bruce Joplin, "The Accountant's Role in Manage-
ment Information Systems," Journal of Accountancy, CXXI
(March, 1966), p. 44.

information function but makes no explicit recommenda-
tion. 20

Doubt has also been expressed in literature as to the

feasibility of an individual acquiring expertise in such a

variety of fields. The Committee on Information Systems,

1969-70, raised this specific question: "... at the career

level, can you train a complete accountant-information

manager in four or five years?" and responded with an empha-
tic no. Similarly, the Committee on Foundations of

Accounting Measurement, 1969-70, found that the intellectual

skills required to be an "expert" in accounting are not

easily transferred to the whole area of management informa-
tion systems. Dearden thinks that the true management

information systems expert does not and can not exist -- no
man can possess a broad enough set of special skills.23

It is clear, therefore, that although the problem of

determining the role of accounting in computer-based infor-

mation systems has been widely recognized, there is no

agreement as to how to solve the problem. Solutions offered

by some of the writers have been found either unacceptable

20. See the report of the Committee, p. 349.

21. Ibid. p. 349.

22. American Accounting Association's Committee on
Foundations of Accounting Measurement, 1969-70, "Report of
the Committee on Foundations of Accounting Measurement,"
Accounting Review, Supplement to Volume XLVI (1971), p. 11.

23. John Dearden, "MIS Is a Mirage," Harvard Business
Review, L (January-February, 1972), p. 93.

or impracticable by others. There is, consequently, a need

to study this problem further with a view to finding an

acceptable solution.

An A roach to Solve the Problem Posed

Several steps are required to find a proper solution to

the problem under study. It will first be necessary to

determine the functions that an information system of a

business organization is expected to carry out and to antici-

pate difficulties which may be faced in its implementation.

A suitable model of such a system will have to be developed,

and the specialized skills required for its successful oper-

ation determined. It would then be possible to analyze

whether there is need for an accountant in such a system

and, if so, what his role should be. Finally, assuming a

need for an accountant is demonstrated, education and train-

ing requirements for accountants may be determined in more

precise terms.

Research Methodology and Scope

In the field of accounting, all methods of research are

considered to be acceptable.24 The most appropriate method

will depend upon the nature of the problem. One of the

24. American Accounting Association's Committee on
Research Methodology in Accounting, 1970-71, "Report of the
Committee on Research Methodology in Accounting," Accounting
Review, Supplement to Volume XLVII (1972), p. 406.

primary purposes of this study is to develop a new model of

an information system which may be placed in the category

of "invention of new systems." The Committee on Internal

Reporting and Measurement has recently given specific con-

sideration to this type of research.25 While the principal

emphasis of the Committee is on the scientific method in-

volving formation and testing of hypotheses, it finds that

research efforts concerning invention of new systems can be

conducted in an optimal manner without any hypothesis state-

ment. It also recommends that deductive or inductive logic

should be employed in building general models where possible.

The Committee, however, mentions that the method of intui-

tion (that is, accepting something as true because it is

self-evident or agrees with intuitive reason) may also be

useful in such cases.

The model to be developed in this study will be essen-

tially normative. The Committee on Research Methodology in

Accounting has given consideration to such models. In the

report of this Committee, Yuji Ijiri states that the process

of constructing normative models involves goal assumptions

and deduction. Properties that the model must have are

deduced from the assumed goals. He also specifies the appro-

priate defense for a normative model: a demonstration that

certain benefits are derived if the reality is changed so

25. American Accounting Association's Committee on
Internal Measurement and Reporting, 1971-72, "Report of the
Committee on Internal Measurement and Reporting," Mimeo-
graph copy, pp. 6, 13.

that it fits the specifications of the model, where benefits

are defined in relation to the assumed goals. Such a demon-

stration may be made either by logically showing the superi-

ority of the state that can be created by using the model,

or by demonstrating this superiority empirically. Further-

more, feasibility of a normative nodel is an important part

of its defense.26

The methodology of research adopted in this study will

include both induction and deduction. However, no formal

propositions or hypotheses will be utilized. Induction will

be employed mainly in the development of the objectives

which must be achieved by the system. Such a process will

include an analysis of the deficiencies observed in the oper-

ations of the systems presently used by business organiza-

tions, particularly those of management information systems.

In order to perform this analysis, reliance will be placed

upon results of surveys already made, case studies found in

the literature, and general statements made by people having

experience in the field of systems management. Reading the

literature is considered as an indirect but often effective
way of observing the phenomena. It appears that reference

to the considerable body of literature is an effective way

to learn what is happening in the real world operation of

26. Yuji Ijiri, "The Nature of Accounting Research,"
in the "Report of the Committee on Research Methodology in
Accounting," pp. 448-449.

27. Ibid., p. 447.

management information systems. A direct empirical study

of one, or even a few, such systems would be extremely

limited in scope and would, therefore, be insufficient to

provide a basis for making generalizations about the nature

and causes of deficiencies in their operation. An attempt

will also be made in this study to show that the model of

the information system to be developed and the role of

accounting to be suggested therein would result in the

achievement of objectives which are not achieved by existing

models, and that such a system would be feasible.

Some Limitations to the Scope of the Study

In pursuing this study several limitations have been

placed on its scope.

(1) Business organizations which have been considered

in this study are those that are, or can be, organized on

the basis of functional specialization. Organizations where

such specialization is not possible or necessary, such as
"one-man" type business firms and fully automatic plants,

do not need distinct information systems.

(2) This study is limited to those organizations that

use computer-based information systems. It is assumed that

the accountant does not face a serious challenge to his
"present relative position" in organizations not utilizing

computers or other advanced techniques.

(3) Considerable attention has been paid in the account-

ing literature to the contributions that the accountant can

make in the designing phase of a computer-based information

system. However, verv little attention seems to have been

given to the role of accounting in the operation of such a
system; this study will primarily aim at specifying that


Organization of the Study

The organization of this study follows closely the

steps indicated earlier under the approach to solve the

problem. Chapter II will be concerned primarily with the

importance of information in a business organization and the

functions that an information system ought to perform.

Chapters III and IV will study general models of information

systems which are presently utilized by organizations, namely

accounting and management information systems. An attempt

will be made to understand the structure and process of

28. Even in the studies relating to the impact of com-
puters or management information systems on business organi-
zations, no specific consideration seems to have been given
to accounting or accountants. For example, see:

Harold M. Sollenberger, Major Changes Caused by
the Implementation of a Management Information System, N.A.A.
Research Monograph #4 (New York: National Association of
Accountants, 1968);

Roger C. Vergin, "Computer Induced Organization
Changes," MSU Business Topics, XV (Suirer, 1967), pp. 61-68.

these systems as well as specialized skills required for

their operations. Deficiencies of these models will be

noted, and an analysis will be carried out to determine

their basic causes. Suggestions made in the literature to

overcome these deficiencies will also be evaluated. In

Chapter V, a model of the information system which may be

expected to achieve the stated objectives and to avoid the

observed deficiencies will be suggested. Specialized skills

needed for the successful implementation of such a model

will also be mentioned. Chapter VI will be concerned with

the role that accountants may play in the operation of the

suggested model and the implications of the suggested role

of accounting upon the education and training of accountants.

Furthermore, the possibility of setting forth standards and

guidelines useful to accountants in their new role will be

explored. Chapter VII will summarize the major findings of

this study.



Purpose and Organization of the Chapter

The purpose of this chapter is to consider some of the

concepts, definitions and interrelationships essential to a

basic understanding of the nature and necessity of informa-

tion and information systems. In keeping with the modern

trends of thinking in the field of organization theory and

other related areas, the systems approach will be adopted

in an attempt to acquire such an understanding.1

This chapter will begin with a resume of general sys-

tems theory. An attempt will then be made to understand

what is meant by systems and systems approach, followed by

an analysis of business organizations from the systems point

of view. The nature, necessity and importance of informa-

tion for systems in general, and for business organizations

in particular, will be discussed. Finally, the component

subsystems of a business organization, which include its

information system, will be analyzed.

1. For a brief discussion of this trend, see pp. 25-26.

An Introduction to Systems

In order to utilize the systems approach it is neces-

sary to have at least an elementary comprehension of general

system's theory, the concept of systems, and the meaning of

the systems approach. This section deals with a presenta-

tion of these.

General Systems Theory

General systems theory is concerned with developing a

systematic, theoretical framework for describing general

relationships of the empirical world. It aims at pointing

out similarities in the theoretical constructions of differ-

ent disciplines, where they exist, and to develop theoreti-

cal models having applicability to at least two fields of

study. Its subject matter is the formulation and deriva-

tion of those principles which are valid for "systems" in

general. Many systems are structurally similar when con-

sidered in abstract. General systems theory, however, is

2. The discussion in this paragraph is based primarily
on the ideas contained in the following works:

Ludwig von Bertalanffy, "General Systems Theory,"
General Systems, I (1956), pp. 1-10;

Kenneth E. Boulding, "General Systems Theory -- The
Skeleton of Science," Management Science, II (April, 1956),
pp. 197-208 ;

A. D. Hall and R. E. Fagen, "Definition of System,"
General Systems, I (1956), pp. 18-28;

Richard A. Johnson, Fermont E. Kast and James E.
Rosenzweig, "Systems Theory and Management," Management
Science, X (January, 1964), pp. 367-384.

not a collection of vague analogies. It is a useful tool

to provide models that can be used in, and transferred to,

different fields. It develops a framework of general theory

to enable one specialist to catch relevant communications

from others. It is an interdisciplinary movement, which has

resulted in the development of "multisexual" interdisciplines

and hybrid disciplines.

Two approaches to the organization of general systems

theory have been mentioned in the literature.3

Developing general models.--Look over the empirical

universe and pick out common phenomena which are found in

many different disciplines,and seek to build up general

theoretical models relevant to these phenomena.

Structuring a hierarchy of levels.--Arrange the empiri-

cal fields in a hierarchy of the organizational complexity

of their basic "individual" or unit of behavior, and try to

develop a level of abstraction appropriate to each. Bould-

ing has suggested the following arrangement of levels of

theoretical discourse.

First: Static structures -- frameworks

Second: Simple dynamic systems -- clockworks

Third: Control mechanisms or cybernetic
systems -- the thermostat

3. See Boulding, p. 200; and Johnson et al., p. 369.

4. Boulding, pp. 202-205.

Fourth: Open systems or self-maintaining
structures -- the cell

Fifth: Genetic-societal level, such as that
of plants

Sixth: Animal level

Seventh: Human level

Eighth: Social organizations

Ninth: Transcendental systems.

Boulding 'states that this hierarchy of systems gives some

idea of the present gaps in theoretical and empirical knowl-

edge. Adequate theoretical models extend up to about the

fourth level and not much beyond. Empirical knowledge is

deficient at practically all levels. He warns that "in

dealing with human personalities and organizations we are

dealing with systems in the empirical world far beyond our

ability to formulate."5

One aspect of the above arrangement that is of particu-

lar relevance to this study is the increasing importance of

information in the hierarchy. The transmission and inter-

pretation of information become an important part of the

systems at the third level. For these cybernetic systems,

it, however, relates only to the difference between the

"observed" value of the maintained variable and its "ideal"

value. Systems at the fifth level have information recep-

tors, but they are diffuse and incapable of much throughput.

5. Boulding, pp. 205, 207.

At the sixth level, there is the development of specialized

information receptors leading to an enormous increase in the

intake of information and its organization into a knowledge-

structure or "image." This image is not a simple piling up

or accumulation of information received but something essen-

tially different from the information itself. It intervenes

between a stimulus and the response and gives rise to diffi-

culties in the prediction of the behavior of these systems.

At the seventh -- human -- level, this image takes a self-

reflexive quality bound up with the phenomenon of language

and symbolism. Social organizations -- at the eighth level

-- may be considered as a set of roles tied together with

channels of communication. There is concern with the con-

tent and meaning of messages, the nature and dimensions of

value systems, the transcription of images into an histori-

cal record, the subtle symbolizations of art, music, and
poetry, and the complex gamut of human emotion.

The Concept of Systems

To take advantage of the interdisciplinary approach and

isomorphisms as developed in general systems theory, it is

necessary to understand the concept of systems. There is no

unanimity on the definition of a system. Various writers

have given different definitions. After considering a

number of them, Beckett observes that although definitions

6. Boulding, pp. 202-205.

are useful in most circumstances, they are by themselves

inadequate in this field. Hall and Fagen think that the

concept of systems is simply not amenable to complete and
sharp description. A general idea, however, may be gained

from a consideration of definitions formulated by various


Ackoff has made an attempt to organize the concepts

and terms commonly used to talk about systems. He defines

a system as "a set of interrelated elements."9 Definitions

quite similar to this have been used by many other writers.

A few examples of such definitions are given below.

Beckett -- A system is a collection of inter-
acting systems.10

Sollenberger -- ... an organized collection of
parts united by regulating interactions.11

Johnson, Kast and Rosenzweig -- ... an organized
or complex whole; an assemblage or combination
of thin s or parts forming a complex or unitary

7. John A. Beckett, Management Dynamics: The New
Synthesis (New York: McGraw-Hill Book Co., 1971), p. 31.

8. Hall and Fagen, p. 18.

9. Russell L. Ackoff, "Towards a System of Systems
Concepts," Management Science, XVII (July, 1971), p. 662.

10. Beckett, p. 29.

11. Harold M. Sollenberger, Major Changes Caused by
the Implementation of a Management Information System, N.A.A.
Research Monograph #4 (New York: National Accountants Associ-
ation, 1968), p. 6.

12. Johnson et al., p. 367.

Many authors have taken a somewhat more limited view

of the concept of systems. They include a statement of the

goal or purpose to be a necessary part of the definition of

a system. A few definitions of this type are cited below.

JInll 2':.-1 FPc. -- A system is a set of objects
together with relationships between the objects
and between their attributes ... has properties,
functions or purposes distinct from its constit-
uent objects, relationships and attributes.13

Anthony -- A complex unit formed of many often
Diverse parts subject to a common plan or
serving a common purpose.14

Murdick and Ross -- ... a set of elements form-
ing an activity or a processing procedure/scheme
seeking a common goal or goals by operating on
data and/or energy and/or matter in a time
reference to yield information and/or energy
and/or matter.15

Beer thinks that the fact that they are capable of

being understood as a coherent group is precisely what dif-

ferentiates a system from a meaningless collection or jumble
of bits and pieces. Ilaberstroh considers common purpose,

13. Hall and Fagen, p. 18.

14. Robert N. Anthony, Planning and Control Systems:
A Framework for Analysis (Boston: Division of Research,
Graduate School of Business Administration, Harvard Uni-
versity, 1965), p. 4.

15. Robert G. Murdick and Joel E. Ross, Information
Systems for Modern Management (Englewood Cliffs, N.J.:
Prentice-Hall, Inc., 1971), p. 7.

16. Stafford Beer, "What Has Cybernetics to Do with
Operational Research?" Operational Research Quarterly, X
(March, 1959), p. 3.

functional unity, and high internal interdependence as the
criteria of a system.17

Systems may be categorized in many ways. The particu-

lar classification of interest here is that of open systems

and closed systems. Closed systems are not affected by

their environments. Open systems have an environment con-

sisting of variables which affect their state.18 Such sys-

temns have inputs and outputs. They exchange materials,
energy or information with their environment.19 Business

organizations and their information systems, with which this

study is concerned, may be classified as open systems.

The characteristics of systems brought out by the above

discussion may be summarized as follows:

(1) Systems consist of interrelated and inter-
acting elements or subsystems.

(2) The elements or subsystems constitute a
complex whole (distinct from the constit-
uents) which tries to achieve some goal
or purpose.

(3) Systems (particularly open systems) have
inputs, processes, and outputs.

(4) The structure, inputs and outputs of
systems may consist of mass, energy
and/or information.

17. Chadwick J. Haberstroh, "Organization Design and
Systems Analysis," in Handbook of Organizations, Ed. J. G.
March (Chicago: Rand McNally and Co., 1965), p. 1174.

18. Ackoff, p. 663.

19. Hall and Fagen, p. 23.

The Systems Approach

The systems approach may be defined as a way of looking

at objects as systems. It has several implications:

(1) Since a system consists of interacting elements, its

understanding necessitates the analysis of such elements.

This will include an understanding of the interactions among

them, as well as their relationships with the environment

of the system. (2) A system has properties, functions or

purposes distinct from those of its constituents. A proper

understanding of a system, therefore, requires an integra-

tion or synthesis of the knowledge about its elements, and

a study of the synergistic effects created by their simul-
taneous action. (3) A system is itself a part of a larger

system. Hence its relationships with its sister systems

and with the larger system should also be understood.

(4) An understanding of a system requires the application
of various disciplines.

To summarize, the systems approach is an interdisci-

plinary approach employed to analyze the elements of a sys-

tem, to integrate this knowledge so as to relate it to the

system as a unitary whole, and to understand the

20. The first two points have been particularly empha-
sized by R. L. Martino, Information Management: The Dynamics
of MIS (Wayne, Pa.: Mlanagement Development Institute,
Division of Information Industries, Inc., 1968), pp. 1,2;

Murdick and Ross, pp. 8-9.

21. The last two points are emphasized by Yaaqob Gold-
schmidt, Information for Management Decisions (Ithaca:
Cornell University Press, 19707, p. 209.

relationships of the system with its sister systems and

with the larger system of which it makes a part. At the

operational level, this involves an understanding of the
system's purpose, structure, process, input, and output.22

Business Organizations from the
Systems Point of View

In terms of Boulding's hierarchy of systems, business
organizations can be placed at the eighth level.23 There-

fore, according to him, there do not exist either adequate

theoretical models or complete empirical knowledge about

them. Some progress, however, has been made since Boulding

made these observations and a systems approach is now being

adopted for an understanding of business organizations.

Classical organization theory consisted of an anatomy

of the formal organization. It had four pillars: division

of labor, scalar and functional processes (that is, vertical

and horizontal growth), structure, and span of control.

Neoclassical theory added a consideration of the behavior

of individual participants and of the informal organization

22. American Accounting Association's Committee on
Information Systems, 1969-70, puts it in a slightly differ-
ent way. "A particularly useful conception of the systems
approach involves the identification of a system's environ-
ment, goals, resources, management, and subsystems." See
the Committee's report, "Accounting and Information Systems,"
Accounting Review, Supplement to Volume XLVI (1971), p. 297.

23. Boulding, p. 205.

to the classical framework. 24 Modern organization theory

considers a business organization as a system of mutually

dependent variabcles, but even this theory falls short of

utilizing the systems concept fully. Though it looks at the

organization as an integrated whole, it focuses primarily on

the human organization. Consequently, the modern theory

approach is somewhat different from the systems approach

which would be concerned with all levels of the system.

From the systems point of view, a business organization

may be considered to have the following characteristics.

Purpose of the Organization

An organization is a purposeful system. There is con-

siderable diversity of opinion amongst writers in this field

as to what purpose an organization seeks to achieve. Some

of them think that it pursues the common purposes) of its

elements. The goals evolve through a process of bargaining

among potential coalition members, and differences in the

goals of individuals may cause disagreements and organiza-
tional conflict.25 Others distinguish between the goals of

the organization and those of its elements and think that it

24. William G. Scott, "Organization Theory: An Overview
and an Appraisal," in Organizations: Structure and Behavior,
Ed. Joseph A. Litterer (New York: John Wiley and Sons,
1967), pp. 14-15.

25. See Ackoff, p. 669.

Richard M. Cyert and James G. March, A Behavioral
Theory of the Firm (Englewood Cliffs, N.J., Prentice-Hall,

is a means of accomplishing both. The confusion of the

purpose of the organization is so deep-rooted that Orden

does not consider the organization to be a system because it
does not have completely defined objectives. Beckett,

however, takes a more realistic view in this matter. He

finds that expressions of purpose that are in common circula-

tion are of little, if any, value in themselves. He thinks

that new insights are obviously needed and goes on to define

purpose as the "intended intersystems patterns of relation-

ships." It is "an expression of the will or intent of one

system to achieve certain patterns of relationships between

itself and its sister systems."28

Structure of the Organization

An organization is a combination of human interrela-

tionship systems and nonhuman systems, the former being
2 9
hierarchically oriented.29 The hierarchical character of

Inc., 1963), p. 43;

Louis R. Pondy, "A Systems Theory of Organizational
Conflict," Academy of Management Journal, IX (September,
1966), p. 256.

26. See Johnson et al., p. 371;

Joseph A. Litterer (ed.), Organizations: Structure
and Behavior (New York: John Wiley and Sons, 1967), p. 6.

27. Alex Orden, "Man-Machine-Computer Systems," in
Management Organization and the Computer, Eds. George P.
Shultz and Thomas L. Whisler (Chicago: Graduate School of
Business, University of Chicago, 1960), pp. 70-71.

28. Beckett, pp. 174, 177.

29. Beckett, p. 197.

large organizations is almost universal. 30 The individual

subsystems will be given further consideration in a later

part of this chapter.

Input, Output and Process of the Organization

The concept of organization is changing from one of
structure to one of process. A business organization has

a dynamic interplay with its environment, receiving inputs

from it and delivering outputs to it.32 Generally, it

utilizes and produces materials, services and information.

Component Subsystems of a
Business Organization

A business organization may be divided into its con-

stituting subsystems or parts in many different ways. Hardly

any two writers in the field of organization theory will be

found to follow an identical approach in this regard. For

the purposes of this study, a business organization may be

considered to consist of the following three subsystems:

(1) a decision making system,

30. Herbert A. Simon, The New Science of Management
Decision (New York: Harper and Brothers, 1960), p. 40.

31. Stanley Young, "Organization as a Total System,"
California Management Review, X (Spring, 1968), p. 21.

32. See Joseph A. Litterer, The Analysis of Organi-
zations (New York: John Wiley and Sons, 1967), p. 149;

Johnson et al., p. 371.

(2) an information system, and
(3) an operations system.33

This classification emphasizes the necessity of func-

tional specialization. In dividing work, it is necessary

to determine which dimensions must be used to group and

which to divide the work elements.34 The essence of systems

engineering lies in recognizing and understanding constit-

uent specialities and allowing these to function only within

the context of integrating their efforts into a whole.35 To

a considerable degree organization is the work of isolating

the specializations which are required by the total organi-

zation and providing for them. Most commonly, the corporate

body is made up of separate units each carrying out its own

functions which contribute to the well-being and efficiency

of the whole.36

33. Classifications similar to this have been used by
several writers. For example, Martino specifies three func-
tions: the production or work-flow, the decision network,
and the information system. (Martino, p. 77.) Fertakis
considers the following three sectors: management sector,
operations sector, and controllership sector. (John P.
Fertakis, "Toward a Systems-Oriented Concept of Controller-
ship," Management Accounting, L (December, 1968), pp. 6-8.)

34. Litterer, The Analysis of Organizations, pp. 203-

35. Kenyon B. DeGreene (ed.), Systems Psychology (New
York: McGraw-Hill Book Co., 1970), p. 40.

36. K. K. White, Understanding the Company Organization
Chart, AMA Research Study #56 (New York: American Management
association, 1963), pp. 24,25.

One of the macroscopic properties of systems pointed

out by Hall and Fagen is "progressive segregation" -- move-

ment of their parts from wholeness to independence. If the

parts cease to behave as a system, this leads to decay; and

a system with fully independent parts is considered to be a

degenerate system. On the other hand, if the segregation

is in the form of differentiation of functions, then it is
a creative or evolutionary and developmental process.37 The

scheme of subsystems used in this study involves such a

differentiation of functions. A brief description of these

systems is contained in the following sections.

The Decision Making System

The term "decision making" as used in this study is

synonymous with "managing." Its use is in keeping with what

has been described as the "decision theory school" of manage-
ment. It is utilized here so as to avoid any confusion in

the nature of the functions carried out by the system under

consideration. Although planning and control are generally

considered to be the basic functions of management, they do

37. Hall and Fagen, pp. 21, 22.

38. See Harold Koontz, "Making Sense of Management
Theory," Harvard Business Review, Keeping Informed, XL
(July-August, 1962), pp. 32-3471,;

Murdick and Ross, pp. 46-47;

Simon also considers decision making as equivalent
to management. (Simon, p. 1.)

not relate to separable major categories of activities.

They are closely intertwined and involve decision making.

From the systems point of view a decision making system

has the following characteristics.

Purpose of the system.--The purpose of the decision

making system is to choose among alternative courses of

action in order to resolve problematic situations. The

intention of the decision maker is to move toward some

desired state of affairs. 40

Structure of the system.--The decision making system

consists primarily of men who may sometimes use machines or

other aids to carry out the function. Decisions have a

hierarchical nature and are made at various levels of the

organization. These levels are generally described in terms

of three categories. In Anthony's framework, they are:

strategic planning, management control, and operational
control. 41

Process of the system.--The process of decision making

has three phases: finding occasion to make a decision,

finding possible courses of action, and choosing among these

39. Anthony, pp. 10-12.

40. Fermont A. Shull, Jr., Andre L. Delbecq, and L.
L. Cummings, Organizational Decision Making (New York:
McGraw-Hill Book Co., 1970), pp. 30-31.

41. Anthony, pp. 16-18.

courses of action. The concept of information is vital

to the decision making process. In fact, these three phases

may be restated as: the acquisition and organization of

information about a problem situation, the processing and

transformation of the information in such a way as to pro-

duce a set of alternative courses of action, and the choice

of one of these courses of action.43 In addition to infor-

mation, rules and procedures are required for the processing

and transformation phase, as well as the choice phase. Such

rules and procedures may be worked out in advance, in which

case decision making may become a routine activity. In

these circumstances, the process may be programmed and dele-

gated to machines or to people in the other systems of the

organization. There is, however, no strict dichotomy between

programmed and nonprogrammed decisions. In fact, there is

an infinite variety of decisions on a continuum from program-

mable to nonprogrammable. Decisions may be considered as

programmed to the extent that they are repetitive and rou-

tine, and a definite procedure has been worked out for

handling them so that they do not have to be treated de novo

each time they occur. Decisions are nonprogrammed to the

extent that they are novel, unstructured, and consequential.

The making of nonprogrammed decisions requires use of

42. Simon, p. 2.

43. Shull et al., p. 38.

judgment, intuition, and creativity, or rules of thumb.44

Programmed decision making does not constitute a part of the

decision making system primarily because it does not necessi-

tate the use of subjective knowledge or subjective judgment.

In terms of the continuum from programmable to nonprogram-

mable decisions, it is itself a matter of judgment as to

what extent decisions should be programmed and delegated to

the other systems. The principal factors to be considered

in this regard would be the risks involved (both in program-

ming the decision making process, and in using judgment in

each decision situation) and the technical capability to

program the decision making process.

Input of the system.--Inputs to the decision making

system are as follows.

(1) Information -- This will include information
about the problem situation, available
alternative courses of action and their
expected consequences, and previously laid
out rules and procedures.45

(2) Subjective knowledge of the decision maker
-- Direct observations made by the decision
maker, either currently or in his previous
experience, and the knowledge otherwise
acquired by him, may be used in making a
decision. In fact, a decision maker's mind
is filled with a tremendous amount of data
collected over his lifetime which has a
profound effect on his decisions.46

44. Simon, pp. 5-6, 8.

45. For a further discussion of the concept of informa-
tion, see pp. 35-40.

46. Ernest H. Weinwurm, "Preliminaries of the Decision
Making Process," Management International Review, VIII
(1968/2-3), p. 115. For a discussion of the distinction
between information and knowledge, see p. 40.

(3) Subjective judre:-nt -- Use of subjective
judgment is necessary in nonprogrammed
decisions for which definite rules and
procedures can not be, or have not been,
worked out. Moreover, often the decision
maker has to fill in information that is
missing because it is too expensive to
collect, it can not be obtained by any
direct means, or because the information
depends on events that have not yet
occurred.47 Subjective judgment may thus
be regarded as essentially a substitute
either for undefined or undefinable rules
,and procedures, or for unavailable infor-
mation needed in making a decision.

Output of the system.--The output of the decision

making system is the selection of a particular course of

action. The selected course is then followed by the other

systems of the organization. A decision may also be stored

in the information system for use when similar situations

arise in future.

As indicated earlier, the specification of the three

systems of the organization has been made with a view to

functional specialization. Because the decision maker has

to use his subjective judgment, he needs special skills and

competence to do the job. Simon thinks that executiveshave

to be specially trained to carry out this function.48 For

the purposes of this study, the making of a particular

decision would be included in the decision making system

only if it should require the use of subjective knowledge

47. David R. Heise, "How Do I Know My Data? Let Me
Count the Ways," Administrative Science Quarterly, XVII
(March, 1972), p.T8--.

48. Simon, p. 8.

and/or subjective judgment of the decision maker.

The Information System

Characteristics of the information system are as


Purpose of the system.--The purpose of the information

system is to provide information to the other systems within

the organization and to people outside of the organization.

The importance of information to systems in general, and to

decision making systems in particular, was indicated earlier.

Its pervasive importance may be further emphasized by stating

that ever since the beginning of history, information has
been considered a source of power. The concept of infor-

mation, however, is far from clear. Beckett, after consid-

ering a number of definitions of information and its various

aspects, describes its nature as "still virtually incompre-

hensible."50 One of the reasons for the confusion is that

the rigorous concepts developed by several disciplines in

recent years are not identical, nor is any of them of general

applicability. On the other hand, the older concepts which

have a greater degree of generality do not have sufficient

rigor to suit modern modes of thought. Some of these con-

cepts are described below in brief.

49. David M. Sage, "Information Systems: A Brief Look
into History," Datamation, XIV (November, 1968), p. 69.

50. Beckett, p. 103.

In information theory, information is a measure of

one's freedom of choice when one selects a message. It

deals with the symbols of communication.51 This concept

relates to information as a physical quantity and to its

replication at a different point. The meaning of informa-

tion is irrelevant for purposes of information theory.

Closely related to the foregoing concept is the idea

of reduction of uncertainty. Miller defines information as

"the opposite of uncertainty. "52 This concept has received

wide recognition in accounting literature. According to

A Statement of Basic Accounting Theory, the utility of infor-

mation lies in its ability to reduce uncertainty about the

actual state of affairs of concern to the user.53 Bedford

and Onsi call it a process of ignorance reduction.

Uncertainty reduction as the function of information is,

however, not universally valid. In certain circumstances,

information might increase rather than decrease uncertainty.

51. Claude E. Shannon and Warren Weaver, The Mathe-
matical Theory of Communication (Urbana, Ill.: University
of Illinois Press, 1949), p. 100.

52. James G. Miller, "Living Systems: Basic Concepts,"
Behavioral Science, X (July, 1965), p. 194.

53. American Accounting Association's Committee to
Prepare a Statement of Basic Accounting Theory, A Statement
of Basic Accounting Theory (Evanston, Ill.: American
Accounting Association, 1966), p. 8.

54. Norton M. Bedford and Mohamed Onsi, "Measuring the
Value of Information--An Information Theory Approach,"
Management Services, III (January-February, 1966), p. 16.

This may occur when the unwarranted certainty inherent in

a person's naive model of the environment is transformed

into a more realistic, complex model that explicitly intro-

duces warranted uncertainty.55

In cybernetic systems models, information is considered

to be the feedback process, that is, the process of compar-

ing a presently existing condition with the desired condi-

tion.S6 This concept is useful for the limited purpose of

exercising control within such systems.

The legal concept of evidence has also been utilized

in an attempt to define information. Stevens summarizes

the meaning of information in a management context as

follows: "Information is evidence obtained from competent

sources and which is relevant and material for the problem
at hand...."57 This definition does not provide much help

in understanding the nature of information, since the sub-

stitute term "evidence" does not have a well-defined meaning


55. Alfred Rappaport (ed.), Information for Decision
Making: Quantitative and Behavioral Dimensions (Englewoocd
Cliffs, N.J.: Prentice-Hall, Inc., 1970), p. 50.

56. Beckett, pp. 76-78.

57. William T. Stevens, The Development of a Multi-
Dimensional Concept of Management Information Systems, with
Particular Reference to the Conceptual Framework of Manage-
ment Accounting (Gainesville, Fla. : University of Florida,
1970), p. 55.

At a more general level, information is considered as
"obtained knowledge, facts, data, or news."'58 It can add

to a representation of what is known, believed, or alleged
to be so. Although these various concepts of information

may lack the degree of precision and rigor that is required

for scientific application, they do show that there is an

intimate relationship between information and knowledge.

This relationship will be explored further.

A somewhat more realistic view of information has been

adopted by those writers who have tried to find a referent

for this term in the real world. Haberstroh considers a

given piece of information as an abstraction which has as

referent some aspect of the internal or external reality

with which the organization is dealing.60 Murdick and Ross

define information as a symbolic representation of a real
system, while Fredericks finds it a symbolic representa-
tion of a process.

The idea of information is often combined with its

communication to somebody and its receipt by the other.

58. Bedford and Onsi, p. 15.

59. Ira G. Wilson and Marthann E. Wilson, Information,
Computers, and System Design (New York: John Wiley and
Sons, 1967), p. 22.

60. Haberstroh, p. 1192.

61. Murdick and Ross, p. 159.

62. Ward A. Fredericks, "A Manager's Perspective of
Management Information Systems," MSU Business Topics, XIX
(Spring, 1971), p. 8.

For example, Dorsey calls it "'a patterned relationship

between events' which can be transmitted through a sequence

of channels by a series of codifications and by which one

type of event is substituted for another in such a way that

the event substituted in some sense stands for the other."63

Martino also finds implicit in the term information the con-

cept of flow. It moves from one person to another. When

it is absorbed, it is no longer information, but is knowl-
edge. Kostetsky thinks that information should be capable

of being perceived into an increase in knowledge by the

decision maker.65 Ewing takes the reverse route. He defines

knowledge as piles of information reposing in the executive's

From the foregoing discussion it appears that informa-

tion has three essential characteristics: (1) it is a

symbolic representation of reality, (2) it is communicated,

and (3) it adds to knowledge. These characteristics may be

combined in the following definition which will be used for

63. John T. Dorsey, Jr., "A Communication Model for
Administration," Administrative Science Quarterly, II
(1957-58), p. 317.

64. Martino, p. 37.

65. Oleh Kostetsky, "Decision Making, Information
Systems, and the Role of the Systems Analysts," Management
Science, XIII (October, 1966), p. C-18.

66. David W. Ewing, "The Knowledge of an Executive,"
Harvard Business Review, XLIII (March-April, 1964), p. 92.

the purposes of this study. Information is a symbolic

representation of some real world state or event which when

communicated to an individual adds to his knowledge. This

definition does not confine information to any particular

source, use, role, or form, and hence can be utilized in any

general context. Knowledge may be considered as a reservoir

of images and ideas residing in a person's mind. Informa-

tion is then one of the inflows into this reservoir. Other

inflows will include direct observation and perceptions made
by the person, and his internal mental processes.

Structure of the system.--The second characteristic of

information systems is that they are man/machine systems.

The extent of mechanization, however, may vary considerably

among different organizations. It is possible to have an

information system using very simple or few mechanical aids.

At the other extreme, it may be largely automated using

advanced computers and communication equipment.

Process of the system.--The process of information sys-

tems includes perception, recordation, storage, retrieval,

processing, transmission, presentation, and decision making.68

It translates information from the environment and from its

components as its input, stores this information and

67. It is not implied here that all information or all
knowledge is true.

68. Peter A. Firmin and James J. Linn, "Information
Systems and Managerial Accounting," Accounting Review, XLIII
(January, 1968), p. 76.

associates it with previously stored information. Deci-

sion making may be considered to be a controversial inclu-

sion in the information system. It has been mentioned

earlier, however, that programmed decision making may be

delegated to machines or people within the other systems of

the organization. To the extent that such delegation is

made to the information system, the programmed decision

making is included in this system.

Input of the system.--Both the input and the output of

the information system consist of information. To make a

distinction between the two in keeping with widespread

practice, the input may be referred to as data, and output

as information. Input data may be of many types: internal

or external; quantitative or qualitative; past, present or

projected; routine or nonroutine; and so on.

Output of the system.--Information is the output of the

information system. It may be supplied to the other systems

within the organization or to people outside of the organi-

zation. Within the organization, the primary user of infor-

mation is the decision making system. In keeping with the

hierarchy of decision making, the information needs of

management are also hierarchical. Detailed information is

generally necessary for lower levels of management, whereas
at higher levels more summarized information is required.70

69. Sage, p. 63.

70. Gerald E. Nichols, "On the Nature of Management
Information," Management Accounting, L (April, 1969), p. 12.

The nature of information needed also differs. According

to Anthony, information for operational control is tailor-

made to the operation, frequently nonfinancial in nature,

precise, and often in real time. For managerial control,

it has to be integrated, more internal and historical, and

more accurate. For strategic planning, information ought to

be tailormade for the problem, and more external and predic-
71 '
tive.71 For the operations system, the information required

will generally be instructions prepared by the information

system on the basis of relevant facts and decisions pre-

viously made and stored therein.

External users of information are a heterogeneous

group, and their precise and total needs are unknown. Such

users include present and potential investors, creditors,

employees, stock exchanges, governmental units, customers,

and others. Some of the users have the power to specify the
information to be submitted to them.72

Information handling requires special skill and exper-

tise. People performing this function need an understanding

of the information needs and data sources, facility in col-

lecting, processing and communicating information, ability

to select among alternative sources and techniques that may

be used and the information that may be produced, and ability

71. Anthony, pp. 67, 93.

72. A Statement of Basic Accounting Theory, pp. 20-21.

to carry out the cost/benefit analysis of providing the


The Operations System

The purpose of the operations system is to carry out

the physical operations necessary for the business of the

organization. It is also a man/machine system, but the

extent of, mechanization may differ widely among the various

organizations. In some, men may use simple or few mechani-

cal aids, while others may be highly automated.

The process of the operations system will depend on the

nature of the operations to be carried out. It would encom-

pass the acquisition of resources and their conversion or

preparation for customer use. In manufacturing, operations

include the activities of purchasing; materials handling;

product fabrication and assembly; production planning and
scheduling; and process, quality, and inventory control.73

Programmed decision making delegated to the operations sys-
tern is also included in its process.

The inputs of the system would consist of materials,

services, decisions and information. Its output would be

73. Neil C. Churchill, John H. Kempster, and Myron
Uretsky, Computer-Based Information Systems for Management:
A Survey, N.A.A. Research Study (New York: National Asso-
ciation of Accountants, 1969), p. 43.

74. However, in the subsequent parts of this study,
the term "programmed decision making" would generally refer
only to what has been delegated to the information system.

materials and services. The inputs and outputs are exchanged

for money and such exchange is also part of the operations


The operations system involves the use of a number of

skills and expertise, and these may be divided into various

subsystems accordingly. Expertise in handling materials and

machines, knowledge of various techniques used in production

and processing, and skill in preparing documents and handling

cash are examples of the specialized needs.

An Overview of the Systems Characteristics

The characteristics of the three systems just discussed

are summarized in Table 1 on page 45. These systems are

interrelated and interdependent in terms of their inputs

and outputs. The overall purpose of the business organiza-

tion is sought to be achieved by them in conjunction with

each other.

Summary of the Chapter

This chapter was concerned with the ideas lying behind

the concept of information systems and with'the concept and

importance of information in a business organization.

General systems theory, which provides a backdrop for using

the systems approach, makes it possible to utilize ideas

developed in a particular discipline about a particular sys-

tem in all other disciplines for isomorphic systems. The

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systems approach is a way of looking at objects as systems,

in terms of their purpose, structure, process, input and

output. It involves both analysis and synthesis. A busi-

ness organization may be seen as consisting of three sub-

systems: a decision making system, an information system,

and an operations system. The important characteristics of

these systems were summarized in Table 1.

Information is of vital importance for all systems.

The concept of information is, however, not quite clear.

For the purposes of this study, it is defined as a symbolic

representation of some real world state or event which

when communicated to an individual adds to his knowledge.

Information constitutes an important part of the input to

the decision making system of a business organization, and

is also used by the operations system as well as by people

outside of the organization. The purpose of the information

system is to provide such information. Specialized skills

are required to operate an information system.



Purpose and Organization of the Chapter

In the last chapter the importance of the information

function to systems in general and to business organiza-

tions in particular was indicated. Traditionally, accoun-

tants have carried out this function. Accounting was the

original information system and in most organizations today
it exists as the only such system. Often it is the only

formal information system and additional and ad hoc systems

are created when additional information is needed for
decision making. Until the advent of management informa-

tion systems, accounting was the only major department

established for the sole purpose of generating information.

1. Bruce Joplin, "Can the Accountant Manage EDP?"
Management Accounting, XLIX (November, 1967), p. 5.

2. Peter A. Firmin and James J. Linn, "Information
Systems and Managerial Accounting," Accounting Review, XLIII
(January, 1968), p. 77.

3. H. Bruce Joplin, "The Accountant's Role in Manage-
ment Information Systems," Journal of Accountancy, CXXI
(March, 1966), p. 44;

Also see William E. Swyers, "Integrated Infor-
mation Systems and the Corporate Controllership Function,"
Management Accounting, L (October, 1968), p. 18.


The purpose of this chapter is to examine whether account-

ing is capable of serving adequately as the information

system of a business organization in today's environment.

An attempt will first be made to understand the purpose,

structure, process, input, output and dynamic development

of the accounting system. Next, the specialized skill and

expertise acquired by accountants to carry out their work

will be analyzed. Limitations of accounting in its role as

the information system of a business organization will be

noted and the basic reasons for this will be analyzed.

Finally, suggestions made in the literature for improvements

in accounting will be evaluated in order to assess whether

they would enable accounting to serve adequately as the

information system of a business organization in a modern


Accounting from the
Systems Point of View

In business organizations, accounting is generally con-

sidered as a specialized function carried out by members of

a specialized discipline. It has its own structure and pro-

cess and may be regarded as one of the subsystems of the

organization. The systems approach may be adopted, there-

fore, to better understand the nature of accounting.

Purpose of Accountin a

Two methods may be used to determine the purpose of

accounting. First, generalizations made in the literature

about the nature and functions of accounting may be examined

to find out what is considered to be its purpose. Second,

functions actually carried out by accounting may be ana-
lyzed to determine the same.

One of the first serious attempts to make an organized

generalization of the practices recognized as desirable by

leaders in the practicing area of accountancy was made in

the 1936 Statement of the American Accounting Association.

In this Statement, accounting was described as a process of

"the allocation of historical costs and revenues to the

current and succeeding fiscal periods."5 A rationale of

these practices was given in Paton and Littleton's monograph

in 1940. This monograph laid down certain standards which,

among other things, represented an integrated conception of

the function of accounting "as a means of expressing the

financial facts of business in a significant manner." These

standards rested upon assumptions specified by the authors,

4. The discussion that follows does not exhaustively
cover everything which has been said in the literature about
these matters, but is aimed at pointing out the principal
streams of thought.

5. American Accounting Association's Executive Com-
mittee, "A Tentative Statement of Accounting Principles,
Underlying Corporate Financial Statements," issued in June,
1936, in Accounting and Reporting Standards for Corporate
Financial Statements and Preceding Statements and Supple-
ments (Iowa City: American Accounting Association), p. 61.

which were supposed to be "known and accepted."6 They were

based upon the specific tasks carried out by accountants.

The 1941 Statement of AAA made a fundamental change in this

situation and specified the purpose of periodic financial

statements to be "to furnish information that is necessary
for the formulation of dependable judgments."7 The 1948

Statement made only a slight change, and said that the

financial statements "must supply dependable information for
the formulation of judgments." These two Statements appear

to have been ahead of their times in referring to the formu-

lation of judgments on the basis of accounting information.

The 1957 Statement reverted to some extent and specified

that the "primary function of accounting is to accumulate

and communicate information essential to an understanding of
the activities of an enterprise." However, A Statement of

Basic Accounting Theory (hereafter called ASOBAT) brought

back ideas of the 1941 and 1948 Statements in a more refined

6. William A. Paton and A. C. Littleton, An Introduc-
tion to Corporate Accounting Standards (Chicago: American
Accounting Association, 1940), pp. 4, 7.

7. American Accounting Association's Executive Com-
mittee, "Accounting Principles Underlying Corporate Finan-
cial Statements," issued in June, 1941, in Accounting and
Reporting Standards for Corporate Financial Statements and
Preceding Statements and Supplements, p. 52. [Emphasis

8. "Accounting Concepts and Standards Underlying Cor-
porate Financial Statements," 1948 Revision, ibid., p. 18.

9. "Accounting and Reporting Standards for Corporate
Financial Statements," 1957 Revision, ibid., p. 1.

way and defined accounting as "the process of identifying,

measuring, and communicating economic information to permit

informed judgments and decisions by users of the informa-

tion. 110

Progress in the same direction was made also be accoun-

tants in public practice. The Accounting Terminology Bulle-

tins of the American Institute of Accountants defined

accounting as "the art of recording, classifying, and sum-

marizing in a significant manner and in terms of money,

transactions and events which are, in part at least, of a

financial character, and interpreting the results thereof."

This definition emphasized the sources of accounting infor-

mation and the specific tasks carried out by accountants.

It was later superseded by Statement #4 of the Accounting

Principles Board which describes accounting with reference

to its function: "to provide quantitative information,

primarily financial in nature, about economic entities that

is intended to be useful in making economic decisions -- in

making reasoned choices among alternative courses of action.",12

10. American Accounting Association's Committee to Pre-
pare A Statement of Basic Accounting Theory, A Statement of
Basic Accounting Theory (Evanston, Ill.: American Accounting
Association, 1966), p. 1.

11. Committee on Terminology, Accounting Terminology
Bulletin #1; Review and Resume (New York: American Institute
of Certified Public Accountants, 1953), p. 9.

12. Accounting Principles Board Statement #4, Basic
Concepts and Accounting Principles Underlying Financial
Statements of Business Enterprises New York: American Insti-
tute of Certified Public Accountants, 1970), paragraph 40.

It would appear from the foregoing then that the pur-

pose of accounting is to provide reliable financial informa-

tion for decision making. The scope of the functions

actually carried out by accountants, however, seems to be

much broader. Services and functions traditionally per-

formed by accountants are summarized below.13

1. Provision of information

A. To people outside the organization, such as

(1) financial statements to stockholders and

(2) reports filed with the Securities and

(3) information to independent auditors

(4) information to lenders, bondholders and
financial institutions

13. This summary was prepared after taking into con-
sideration the statements contained in a number of writings,

Percival F. Brundage, "Milestones on the Path of
Accounting," Harvard Business Review, XXIX (July, 1951),
pp. 71-81;

Leonard A. Robinson and Milton J. Alexander, "Are
Accountants Adjusting to Change?" Management Accounting,
LIII (November, 1971), p. 11;

Reg S. Gynther, "The Management Accountant of the
Future," Accountants' Journal (New Zealand), LI (August,
1972), pp. 2-11-T-
William B. Barrett, "A Functional Approach to
Accounting," Accounting Review, XLIII (January, 1968),
pp. 105-112;

Robert Beyer, "Management Information Systems: Who'll
Be in Charge?" Management Accounting, XLVIII (June, 1967),
pp. 4-5;
Arthur B. Toan, Jr. "Is Accounting Geared to
Today's Needs?" Management Adviser, VIII (November-December,
1971), pp. 17-18.

(5) information provided to various government
agencies for specific purposes

(6) information to potential investors

B. To people within the organization, such as

(1) costs of products

(2) information for planning and control,
including budgets, standards, and analysis
of variances

(3) price and cost estimates

(4) projected economic data

(5) analysis, interpretation and evaluation
of information

2. Institution and enforcement of internal control

3. Development of systems

4. Financial custodianship and management

5. Settlement of tax liability

6. Negotiations about cost plus contracts

Functions contained in the foregoing list have evolved

slowly over the years. This evolution has come about due

primarily to exogenous factors, some of which are listed
1 4
below. 14

(1) Mergers and combinations of businesses

(2) Income tax legislation

(3) Securities Act and Securities Exchange Act

(4) Impact of the two world wars on business,
such as granting of cost plus contracts

14. See Brundage, pp. 79-80;

Robinson and Alexander, pp. 12-14.

(5) DevelopTents in the minanagement science
techniques and electronic data processing
equi pFeJnt

(6) Changes in general price level and their
inTact on bsi ness, such as wage and price
cont rols

The noninformational functions carried out by accoun-

tants arc intimately related to their information-provision

activities. Institution of internal control and systems

development form the basis of the reliability of data col-

lected by the accounting system. The accountant's primary

interest in the financial aspects of states and events makes

him suitable to take the responsibility of financial cus-

todianship and management.16 Similarly, compliance with

taxation laws, Securities Act and the Securities Exchange

Act, as also negotiations about the cost plus contracts,

require primarily the submission of information to appropri-

ate authorities. Such information is developed by the

accountant, and therefore he is found suitable to carry out

these functions also. Thus it seems that even though the

accountant does carry out several noninformational functions,

these may not be completely detached from his informational


In the light of the foregoing, the purpose of the

accounting system appears to be the development and

15. Further consideration will be given to the relia-
bility of data in the later parts of this chapter.

16. Further consideration will be given to the accoun-
tant's interest in the financial aspects in the later parts
of this chapter.

communication of rclitble, financial information to the

decision raking system of the organization and to people out-

side of the organization. Certain noninformational functions

which have aIj intimate relationship to the development and

communication of such information arc also performed by the

accounting system.

Structure. of Account ing

The structure of accounting consists of men, books, and

machines. The extent of mechanization may differ widely in

various organizations, varying from the use of very simple

mechanical devices to the utilization of advanced data

processing equipment. The machines are, however, used

mainly to help men in discharging their functions with

greater speed, accuracy and efficiency.

Process of Accounting

Accounting collects data and converts the same into

information which is communicated to users. A large number

of accounting techniques and procedures have been developed

which are often categorized into two parts: financial

accounting and management accounting. Apart from the use

of these techniques and procedures, the successful opera-

tion of the accounting system depends upon the general

attitude which accountants have developed toward their work

and utilization of professional judgment by them where


Financial accounting and management accounting.--

Financial accounting refers to the process of reporting

financial information about the organization to the outside

world while the objective of management accounting is to

provide information useful to management. 17 The external

reporting is mainly in the form of financial statements,

and the techniques used for their preparation include gener-

ally accepted accounting principles. These principles are

formalized in the opinions of the Accounting Principles

Board of the American Institute of Certified Public Accoun-

tants (hereafter called APB). There has been widespread

dissatisfaction with these principles and the Institute is

in the process of replacing the APB by the Financial Account-

ing Standards Board to help develop financial accounting in

keeping with today's environment.18 A number of suggestions

are found in the accounting literature for improvements in

external reports, but insufficient attention seems to have

been given to them in practice. For example, in spite of

APB's recommendation to prepare price level adjusted finan-

cial statements, hardly any business organization prepares

17. Robert N. Anthony, Planning and Control Systems:
A Framework for Analysis (Boston: Division of Research,
Graduate School of Business Administration, Harvard Uni-
versity, 1965), pp. 100-101.

18. "AICPA Adopts Wheat Report on Accounting Standards
Board," Journal of Accountancy, CXXVII (June, 1972), p. 10.

such statements. 19 The situation of management accounting

seems to be entirely different in this regard. A large

number of accounting techniques developed in this area have

helped convert the erstwhile "cost accounting" into the

modern concept of "rin: iement accounting." Such techniques

include standard and direct costing, variance analysis using

statistical methods, flexible and probabilistic budgeting,

use of decision theory techniques, and adoption of the

learning curve phenomenon. The distinction between finan-

cial and management accounting seems to be widening gradu-

ally. As indicated earlier, the Accounting Principles Board

is being replaced by the Financial Accounting Standards

Board. The National Association of Accountants has recently

established the Institute of Management Accounting to grant

Certificates in Management Accounting.

General attitude of accountants.--Despite the differ-

ences between financial accounting and management account-

ing, accountants have developed a distinct attitude toward

their work which helps them in the performance of their

functions. The important characteristics of this attitude

are mentioned below.

19. The recommendation was made in APB Statement #3,
Financial Statements Restated for General Price-Level
Changes (New York: Arnerican Institute of Certified Public
Accountants, 1969), paragraph 25. But according to the
1970, 1971 and 1972 editions of the Accounting Trends and
Techniques, none of the 600 companies included in each
year's survey presented such statements. (See page 42 of
the 1970 edition, page 49 of the 1971 edition, and page 66
of the 1972 edition.)

(1) Looking at the organization as a whole -- The

accounting system is a model of the organization,20 and

accountants take a who istic view of the same.

(2) Seeking financial aspects of states and events --
Accounting is financially oriented.21 Its main task is to

translate all the variables into financial terms.22 This

aspect of the accountant's general approach is important

because money is the only common denominator for bringing

together the heterogeneous elements of outputs and inputs
that are of concern to management.

(3) Presenting only reliable information -- Reliability

of information may be defined as the certainty created in

the mind of the user that the information corresponds with

the real world state or event it seeks to represent.24 It

20. Robert R. Sterling, "On Theory Construction and
Verification," Accounting Review, XLV (July, 1970), p. 450.

21. Joplin (1967), p. 5.

22. Gynther, p. 7.

23. Anthony, p. 41.

24. This definition is compatible with Chambers' state-
ment: "The reliability of processed information subsists
in the actor's belief in its correspondence...." See
Raymond J. Chambers, Accounting, Evaluation and Economic
Behavior (Englewood ClifTfs, N.J.: Prentice-Hall, Inc.,
1966), p. 165 [Emphasis removed ];

Also with the definition given by Snavely: "Reli-
ability is that criterion which recognizes that for informa-
tion to be useful, a user must be able to depend on it as
a representation of what it purports to be." See Howard J.
Snavely, "Accounting Information Criteria," Accounting
Review, XLII (April, 1967), p. 228.

has been one of the cornerstones of accounting. APB

Statement #4 considers the provision of reliable financial

information as the first general objective of financial

accounting. Achievement of the six qualitative objectives

specified by it enhances such reliability.26 The standard

of verifiability laid down by ASOBAT is a necessary attri-
2 7
bute of accounting information to make it reliable.27
2 8
(4) Disinterestedness in the information supplied --

The functions of accounting are neither in operations nor
in management. 29 For the most part, the accountant reports

on the operations of the business, which reflect the conse-

quences of the decisions made by management, and not on his

own performance. Ile attempts to preserve a disinterestedness

in the information he provides. The qualitative objective

25. Sometimes, the term "objectivity" is used in account-
ing literature in the same sense as "reliability." See
Snavely, p. 228.

26. APB Statement #4, paragraphs 77, 107.

27. ASOBAT, p. 10.

28. The term disinterestednesss" is being used here in
its restricted sense of objectivity, freedom from personal
interests, and impartiality. It should be distinguished
from "uninterestedness," which indicates the fact of lack
of interest. See Webster's Third New International Diction-
ary, Phillip B. Gove, Editor-in-Chief (Springfield, Mass.:
G. and C. Merriam Company, 1968), p. 1151 under "indif-

29. John P. Fertakis, "Toward a Systems-Oriented Con-
cept of Controllership," Management Accounting, L (December,
1968), p. 6.

of neutrality in APB Statement #4 and the standard of freedomr

from bias in ASOBAT are reflections of this attitude. 30 The

accountant is, however, often accused of concentrating too

much on noninformational functions such as the compliance

with the taxation laws and on the formal presentation of

information to outsiders.31

Professional judgment of accountants.--The functions of

accountants are not purely mechanistic. They require fre-

quent use of judgment. Some of the areas necessitating such

use are as follows.

(1) Input to the accounting system -- It is necessary

to determine the level of reliability of the input of the

system. For some of the routine and regular inputs, stan-

dard procedures may be laid down. For other inputs such

procedures may not be feasible. Accountants have to use

their professional judgment in establishing the standard

procedures as well as in considering nonroutine items for


(2) Output of the accounting system -- Accounting

systems are not often set up after a formal analysis of the

30. APB Statement #4, paragraph 91;

ASOBAT, p. 11.

31. For example, see William H. Lundquist, "Accountants
Face New Challenges," Management Accounting, XLVIII (March,
1967), p. 3;

Bertram A. Colbert, "Pathways to Profit: The
Management Information System," Management Services, IV
(September-October, 1967), p. 19.

needs of the users of information. Accountants, therefore,

have to use their jud .-,?nt in deciding what information they

should provide to the decision makers and other users of

information. Judgment exercised is generally based upon

their familiarity with the operations of the organization,

decisions to be made, and the information required for mak-

ing them.

(3) Techniques and procedures to be used -- Alternative

techniques are available for developing many of the items of

accounting information. Accountants need to decide which

particular procedure will be the most appropriate under a

particular set of circumstances. The expected impact on the

finances and the tax situation of the organization are among

the matters taken into consideration by accountants in making

such decisions.

Input of Accounting

In keeping with the purpose and process of accounting,

its input is limited to reliable data relating primarily to

the financial aspects of states and events that meet appro-

priate qualitative standards. There are gradations in the

reliability standard. The accountant has to ensure that the

level of reliability of the various items of data used in

producing some information is compatible with the level of

reliability required for such information. Highest reli-

ability can be achieved for historical internal or inter-

active data based upon completed transactions and events.

Projected data based i!-,'rL expected external events will

have the least reliability.

Data received by the accounting system consist of both

quantitative and qualitative elements. Qualitative aspects

are generally used for some limited purposes, such as clas-

sifying and arranging data in accordance with the nature of

the state or event represented, and explaining, qualifying

or supplementing quantitative information.

Output of Accounting

The output of accounting is financial information. It

is communicated to the decision making system within the

organization and to people outside the organization. Types

of information supplied by the accounting system have been

illustrated in the section relating to the purpose of

accounting. The information may have varying degrees of

reliability as may be appropriate for different purposes.

Information supplied by the accounting system has to

meet certain qualitative standards. There is, however, no

unanimity of opinion among the writers in this area as to

what these standards are. ASOBAT considers relevance,

verifiability, freedom from bias, and quantifiability as

the basic standards which constitute the usefulness of

accounting information.32 APB Statement #4 lays down the

following qualitative objectives for financial accounting:

32. ASOBAT, pp. 7, 3.

relevance, understandability, verifiability, neutrality,

timeliness, comparability, and coinpleteness. Snavely

considers relevance, reliability, understandability, sig-

nificance, sufficiency, and practicality as the necessary

criteria, and the information meeting these would have use-

fulness.34 While both ASOBAT and APB Statement #4 admit

the possibility of trade-off among the standards or objec-

tives laid down by them, Snavely rules out any such possi-

bility among his criteria.36

Accountants also concern themselves with the authority

of the recipients of the information.37 Only authorized

information is provided to the persons authorized to receive

the same. This criterion is applied both to external

reporting and, perhaps in a lesser degree, to internal


Though accounting provides primarily financial (or

monetary) information, it is sometimes supported by other

33. APB Statement #4, paragraphs 88-94.
34. Snavely, pp. 227-231. Usefulness is his Level I
criterion, while the others are Level II criteria.

35. ASOBAT, p. 10;

APB Statement #4, paragraph 111.

36. Snavely, p. 232. This applies to his Level II

37. Cf. Goldberg: "... the purpose of accounting
reports, -t would seem, is to inform persons entitled to
information." Louis Goldberg, An Inquiry Into the Nature
of Accounting (American Accounting Association, 1965),
p. 55. [Emphasis added.]

types of information also. For example, the dollar amount

of sales may be accompanied by the quantity of the goods

sold. This is particularly the case in internal reporting.

HIowever, the emphasis of accounting remains upon financial

aspects of states and events.

Dynamic Development of Accounting

Accounting is a time varying system. Its evolution has
been directed to providing useful information to users.

The nature of information considered to be useful may change

with time, requiring variations in the accounting system.

To accomplish this, accountants try to keep in touch with

the changes in the information needs of users. Being in

close touch with the day to day operations of the business,

they are more successful in this task with respect to the

decision making system of the organization. In order to

meet the changing information needs, modifications may be

made in the standards for input acceptance or output report-

ing, or in the processing subsystem of the accounting system.

A Model of Accounting as an Information System

So far as its informational functions are concerned,

accounting may be represented by the model shown in Figure 1

on page 65.

38. APB Statement #4, paragraph 209.

Figure 1. A model of the accounting information system.

Data are accepted into the accounting system if they

are found to meet with standards of input acceptance. They

are stored, retrieved and processed according to the appli-

cable techniques of accounting. Information that meets with

the stipulated standards is reported to different users.

Users get nonaccounting information by direct observation or

through other channels, and also contribute to the data in-

puts of the accounting system.

Specialized Skill and Expertise
of Accountants

The performance of accounting functions requires the

use of specialized skills and expertise such as the follow-


(1) Acquisition of accounting techniques, some
of which were mentioned earlier.

(2) Development of an attitude appropriate for
accountants, the characteristics of which
were listed earlier.

(3) Development of professional judgment for
use in various areas, some of which were
mentioned earlier.

(4) Expertise in the noninformational functions
that an accountant has to carry out, such
as in taxation laws.

Limitations of Accounting

Although accounting has been the principal formal

information system of business organizations for a long

time, it has been found deficient in the modern environment.

This is because accounting is unable to develop and provide

all types of information needed by users. A brief look at

the information needs of the various categories of users

of information will be helpful in determining the limita-

tions of accounting.

Information Needs of the Decision Making System

Accounting is able to supply only a part of the infor-

mation needed by management. The total information needs of

management may be analyzed in many ways. Nichols has used

the following comprehensive classification.39

1. Internal information

(a) Quantified -- (i) financial, (ii) nonfinancial

(b) Nonquantified

2. Extrinsic information

(a) Management intelligence -- (i) competitive
information, (ii) general information

(b) Interaction information-- (i) latent,
(ii) consummated

39. Gerald E. Nichols, "Accounting and the Total Infor-
mation System," Management Accounting, LII (March, 1971),
p. 30.

In terms of this classification, accounting generally pro-

vides financial internal information and consummated inter-

action information. For other types of information, deci-

sion makers must depend upon other sources, such as direct

observation, subjective knowledge, or other channels of

obtaining information.

Information Needs of the Operations System

Accounting does not aim at providing information for

the operations system of the organization. The information

needed by that system would generally revolve around deci-

sions previously made by the decision making system and a

combination of data and such decisions. It would often be

of a nonfinancial nature and be required in real time.40

Logistics,which relate to the physical flow of goods includ-

ing procurement, production and distribution, form an impor-

tant part of the information needs of the operations system.

The logistics information system is complex and involves the

use of many operations research and scientific management

techniques which are not usually adopted by accounting.

Information Needs of External Users

Accounting for external users has received more atten-

tion in the literature than has accounting for internal

management. Such users are a heterogeneous group with

40. Cf. Anthony, p. 78.

widely varying interests. "The facts that different deci-

sions and different decision make'; are involved and that

many unverifiable and unquantifiable types of information

are probably significant to them indicate that accounting

can supply only some of the information needed by external

users. 41

Though attempts have been made to identify the impor-
tant external users and their information needs, there is

only a broad and imprecise understanding of such needs.

However, "the accountant is accustomed to situations in

which no specific requests for information are made and in

which responsibility for generalizations about the more

important needs of users must be assumed jointly by the

accountant and the entity whose activities are being
,4 3
reported upon."43

Basic Reasons for the Limitations of Accounting

The following appear to be the basic reasons why account-

ing is unable to provide all types of information needed by

the various users.

(1) The scope of accounting is generally limited to

reliable financial information which also meets certain

41. ASOBAT, p. 20.

42. For example, see APB Statement #4, paragraphs 44-48;

ASOBAT, pp. 19-23.

43. ASOBAT, p. 22.

qualitative standards.

(2) Total information needs of the various users are

not precisely known.
S(3) Techniques of scientific management (such as oper-

ations research) have not been integrated into the account-

ing system. Many of these techniques, which have been

developed in recent years, are complex -- sometimes so

complex as to require the use of the computer -- and require

information which is not developed by the accountant.

Improvements in Accounting
Suggested in Literature

A number of suggestions have been made in the litera-

ture to improve accounting. In most cases, individual pro-

posals relate to particular techniques or procedural details

which are of no direct interest in this study. However, the

implementation of the various recommendations would make some

basic changes in the structure and process of accounting.

The expected impact of the suggested changes is briefly

described and evaluated below.44

44. Suggestions found in the literature have been pre-
sented in summary form in the following writings:

APB Statement #4, paragraphs 214-219 (suggestions
relating to improvements in financial accounting); American
Accounting Association's Committee on Managerial Accounting,
"Report of the 1969-70, 1970-71 Committee on Managerial
Accounting," Accounting Review, Supplement to Volume XLVII
(1972), pp. 322-329 (suggestions relating to improvements
in management accounting).

Development of Decision Models by Accounting

Researchers in the field of accounting are preoccupied

with the idea that accounting information must be kept with

the requirements of the users. The informational needs, it

is assumed, depend upon the decision models used by the

recipients of information. In order to improve accounting

it is necessary to be familiar with these models. But often

these models are not known with any precision. To cope with

this difficulty, various writers either vaguely assume the

existence of some decision models, or develop such models on

a priori grounds, and recommend that accounting should

develop and communicate information in accordance therewith.

An implication of these recommendations seems to be that

accounting itself should lay down normative decision models

which must be used by the recipients of accounting informa-


Such proposals abound both in the areas of financial

accounting and management accounting. Proposals contemplat-

ing sweeping changes in the financial accounting structure

or the contents of financial statements and those contem-

plating change in the presentation of financial accounting

information45 are, in most cases, based on vague assumptions

45. See APB Statement #4, paragraphs 216-217. These
proposals would, for example, permit accrual of increases
in value of resources during production; substitute current
replacement prices, current selling prices, or discounted
present value concepts for acquisition prices as the basis
of measurement; recognize changes in the general level of
prices; and incorporate budgets as part of the basic finan-
cial statements. They would also require the use of ratios

of decision models used by external users of accounting

information. E-iales of decision models developed by

accountants in this field are the normative investment

valuation model and the dividend prediction model created

by the Committee on External Reporting.46 In the area of

management accounting, the Committee on Managerial Account-

ing has found that accountants rely upon a priori reasoning

to identify the types of models decision makers should use

in various decision situations. Furthermore, various

accountants have proposed that specific decisions concern-

ing capital acquisition, inventories, and output mixes
serve as individual accounting entities.47

(instead of money amounts), graphs, charts, and other
visual aids.

46. American Accounting Association's Committee on
External Reporting, "An Evaluation of External Reporting
Practices: A Report of the 1966-68 Committee on External
Reporting," Accounting Review, Supplement to Volume XLIV
(1969), pp. 80-88. The Committee has made specific sugges-
tions about the content and format of financial statements
which would supply the information necessary for the use
of its models. See pp. 119-122.

47. Committee on Managerial Accounting, pp. 323, 325.
The implementation of the latter proposals would necessi-
tate additional classifications of performance statistics.
The advantage of such a system would be that control infor-
mation would be consistent with the planning information,
and the significance of any deviation between forecasted
and actual values could be assessed in terms of the struc-
ture of the model.

Adoption of New Techniques and Procedures

Various writers recognize that in order to develop and

communicate the information required by decision makers, it

would be necessary for accounting to adopt appropriate

techniques and procedures, some of which have not been

traditionally used by accountants.

In financial accounting, many of the proposals contem-

plate changes within the basic historical-cost-based

accounting which would broaden the measurement and recog-

nition criteria.48 In management accounting, a consider-

able body of literature has grown which contains proposals

relating to the control and evaluation of performance.

Such research is concerned with the various aspects of

standards setting and variance analysis, and utilizes ideas

from several disciplines, such as the behavioral sciences,

information theory, and statistical decision theory.49

Changes in the Standard of Reliability

An implementation of many of the suggestions made in

the literature would result in a lowering of the level of

reliability required for accounting information, particularly

the information communicated to external users. Examples of

such information are: valuation of items at their

48. APB Statement #4, paragraph 215. This would result
in the inclusion of many new items in the financial state-
ments, such as contracts, commitments and leases.

49. Committee on Managerial Accounting, pp. 326-329.

discounted present values (as opposed to historical costs)

and projected information about the future (as opposed to

merely historical information). Other recommendations

relate to the refinement of thc concept of reliability by

the adoption of new techniques, such as the use of interval

estimates and preparation of probabilistic budgets.

An Evaluation of the Proposals

Even if all or most of the proposals relating to im-

provements in financial accounting and management account-

ing are implemented, accounting can not be expected to

serve adequately as the sole, or major, information system

of a business organization. The reasons for this situation

are as follows.

(1) Accounting will continue to be concerned primarily

with financial information. Most of the nonfinancial infor-

mation required by internal and external users will need to

be obtained through other sources or channels.

(2) Accounting will continue to supply information to

the decision making system and to people outside the organi-

zation. The informational needs of the operations system

of the organization will not be supplied by accounting.

(3) Accounting will provide information relevant to

decision models specified by itself. Insofar as such models

represent the structured decision making process actually

followed by the users, such a development would make account-

ing information more useful. But if accountants insist on

laying down normative decision models for unstructured deci-

sions, they may be considered to be working beyond the scope

of their specialized skills.

(4) When the scope of the accounting function beconies

considerably broader by the implementation of some or all

of the various recommendations, it seems unlikely that it

will continue to exist as an independent system or as an

independent discipline. As anticipated in A Statement of

Basic Accounting Theory, it may well merge with other

separate disciplines, and a new "information profession" may

evolve. The concern of the profession of accounting will

then be as to how the accountant can maintain his "present

relative position."0

Summary of the Chapter

Traditionally, accounting has been the principal, or

only, formal information system of business organizations.

Its purpose is the development and communication of reliable

financial information to the decision making system of the

business organization and to people outside the organization,

and to carry out other functions which have a close rela-

tionship to such information. The structure of the account-

ing system consists of men, books and machines where

machines are used primarily to help men in the performance

50. ASOBAT, p. 63.

of their tasks. Its process includes the techniques of

financial and management accounting which are used in con-

junction with the general attitude of accountants toward

their work and their professional judgment. The important

characteristics of this attitude are: looking at the organ-

ization as a whole; seeking the financial aspects of states

and events; presenting only reliable information; and pre-

serving a disinterestedness in the information supplied.

Input and output of the accounting system consist of finan-

cial data and information of varying degrees of reliability

which also meet with certain qualitative standards. The

information developed is communicated only to authorized

users. Accountants also try to keep in touch with changes

in the information needs of users and make necessary changes

in the system. Users, however, have to get some of their

information either by direct observation or through other


Specialized skill and expertise of accountants include

accounting techniques, an appropriate attitude toward work,

professional judgment, and a facility in noninformational


The accounting system is generally unable to supply all

types of information needed by users. The basic reasons for

this situation appear to be its concern with the development

of reliable financial information, lack of knowledge regard-

ing the total information needs of users, and a practical

inability to become versatile in all the techniques of

scientific management. An examination of the various

suggestions made in the literature relating to improvements

in accounting shows that their acceptance and implementa-

tion in practice would considerably broaden the scope of

accounting, and accounting would need to utilize many new

techniques to develop information for meeting the needs in

accordance with the normative decision models assumed to be

used by decision makers (both internal and external) on

a priori basis. However, accounting would still be con-

cerned primarily with financial information. It would be

unable to use sophisticated techniques for problem solving

and programmed decision making or to supply information for

the operations system of the organization. Its ability to

specify decision models with respect to unstructured deci-

sions to be employed by users is also suspect. In view of

these observations it seems unlikely that accounting would

be able to serve adequately as the sole, or major, informa-

tion system of business organizations in the modern environ-




MIS -- a system concept put forth as the major
thrust of a joint conspiracy of DP professionals
and consultants, formulated and used to increase
their own salaries, to confuse what otherwise
would be a record of minimal accomplishment, and
to retain their position in the organization by
using the MIS effort as a means of retaining
their staffs until the next generation of com-
puters is released.
Clarke Newlin.

Purpose and Organization
of the Chapter

The concept and functions of accounting were discussed

in the last chapter and it was found that accounting did

not provide all types of information required by different

users because of certain basic deficiencies and limitations.

An alternative to accounting which has evolved during the

last two decades or so is that of management information

systems (hereafter referred to as MIS). The purpose of this

chapter is to study the meaning and functions of MIS -- to

determine to what extent they are capable of fulfilling the

1. Clarke R. Newlin, "The Changing World of the Data
Processing Administrator," Data Management, X (February,
1972), p. 37.

informational needs of the decision making and operations

systems of business organizations and of external users.

There is a wide difference between the theoretical con-

cepts of MIS put forward in the literature and such systems

under actual operation. In order to be able to evaluate

them adequately, an operational definition of MIS will

first be developed in this chapter. An attempt will then

be made to understand the purpose, structure, process,

input, output and dynamic development of MIS. Next, the

specialized skill and expertise required to operate such

systems will be mentioned. Limitations and deficiencies of

MIS, as indicated in various empirical and other studies

reported in the literature, will then be noted, and the

basic reasons of their occurrence will be analyzed.

Finally, suggestions made in the literature for improvements

in MIS will be studied and evaluated.

The Concept of MIS

A Brief Historical Background

Information systems have been used by business organi-

zations ever since the beginning of history. With the pas-

sage of time, and in keeping with the increasing complexity

of business, they have also become more and more complex.2

2. David M. Sage, "Information Systems: A Brief Look
Into History," Datamation, XIV (November, 1968), p. 64.

For a very long time information processing was done manu-

ally. With the development of appropriate technology, the

next stage was that of machine-assisted manual processing,

followed in turn by electromechanical punch card systems,

and most recently by the use of the computer.3

The term "r-nacen.?nt information system" originated in

the late 1950s or early 1960s.4 It was meant to emphasize

the importance and interrelationships of information and

electronic data processing (hereafter referred to as EDP).

The concept of MIS has kept changing with the developments in

EDP. These changes reflect both the tremendous increase in

the capabilities of the EDP equipment and the disillusion-

ments faced in making the earlier concepts operational.

During the period of the second generation computers, an

MIS was considered almost synonymous to a fully integrated

system, and even with the "total systems." Neither of these

concepts was found to be fully operational and more modest

ideas had to be accepted. With the advent of third genera-

tion computers, however, the concept of MIS expanded to

cover not merely the integration of systems, but to involve

it with the production, delivery and content of information.

3. David H. Sanders, Computers and Management (New
York: McGraw-Hill Book Co., 1970), pp. 13-1l8.

4. The discussion in this paragraph uses many of the
observations made in Arthur B. Toan, Jr., "MIS -- A Status
Report on the Concept and Its Implementation," Journal of
Accountancy, CXXIX (June, 1970), pp. 77-83.

Characteristics of MIS

A management information system can be defined in such
a variety of ways as to be virtually meaningless. A con-

sideration of some of the definitions given in the litera-

ture will, however, clarify its meaning to some extent and

indicate its functions.

Rubin--..a management information system is the
expression of a philosophy of information manage-
ment based upon an organization's long-term
objectives. 6

Milano--..a concept of managing an enterprise as
an integrated whole with the assistance of a
systematic application of information and com-
puter technology -- in short, automating and
integrating data from the various functional
management areas.7 organized method of providing each
manager with all the data and only those data
which he needs for decision, when he needs them,
and in a form which aids his understanding and
stimulates his action.8

Stevens--..a means of communication which com-
bines the planning, doing, and reviewing elements
of the management process into an integrated and
coherent whole. It is designed to provide each
manager, whatever his status, with all the rele-
vant, verifiable, quantifiable, and unbiased
evidence he will use for making decisions. This

5. Ibid., p. 78.

6. Martin L. Rubin (ed.), Handbook of Data Processing
Management (Princeton: Auerback Publishers, 1971), Vol. 5,
p. 155.

7. James V. Milano, "Modular Method of Structuring
MIS," Journal of Data Management, VIII (February, 1970), p. 18.

8. Bertram A. Colbert, "Pathways to Profit: The Manage-
ment Information System," Management Services, IV (September-
October, 1967), p. 16.

information is to be presented to him in such a
way so as to -tirnlatc behavior that will lead
to the attainment of the goals established for
the entire anagement process.9

Toan- .aconputer-based, inte'r:ited, accessible,
FTiely and/or interactive as well as important
to the essential functions of management.10

Godfrey and Prince--..a com)muter-based informa-
tion networi\-cncoipassing one or more operating
systems that provides relevant information to a
decision maker or decision making group and
contains the appropriate mechanism for handling
a decision maker's responses to these relevant
data in terms of changes in parameters and
variables of programmed decision models.11 automated system which presents
information, both internal and external to the
business, that aids in making a specific set
of routine decisions.12 organized method of providing
past, present and projection information
relating to internal operations and external
intelligence. It supports the planning, con-
trol and operational functions of an organiza-
tion by furnishing uniform information in the
proper time-frame to assist the decision-making

9. William T. Stevens, The Development of a Multi-
Dimensional Concept of Management Information Systems, with
Particular Reference to the Conceptual Framework of Manage-
ment Accounting (Gainesville, Fla. University of Florida,
1970), pp. 191-192.

10. Toan, p. 78.

11. James T. Godfrey and Thomas R. Prince, "The Account-
ing Model from an Information Systems Perspective," Account-
ing Review, XLVI (January, 1971), p. 77.

12. Harry Stern, "Management Information System -- What
It Is and Why," Management Science, XVII (October, 1970),
p. B-121.

13. Walter J. Kennevan, "MIS Universe," Data Manage-
ment, VIII (September, 1970), p. 63. This is the synthesis
prepared from a number of definitions of MIS considered by

These definitions specify a number of common character-

istics of MIS although they differ in relative emphasis.

Before any generalized conclusions are drawn for use in this

study, it is, however, necessary to consider two related

concepts of total information systems and integrated infor-

mation systems which have been referred to in most of the

cited definitions directly or indirectly.

Total systems and integrated systems.--Though these two

terms are often used synonymously, or as very closely re-
lated,14 they are essentially distinct concepts and have

important implications. The concept of total information

embodies the notion that all of the relevant data can be

stored in a computer and disseminated as needed and in the

appropriate form to all those requiring such data.15 A

total system provides the maximum pertinent information that

management or operations requires to effectively discharge

14. For example, see William E. Swyers, "Integrated
Information Systems and the Corporate Controllership Func-
tion," Management Accounting, L (October, 1968), p. 19;

J. W. Haslett, "Total Systems -- A Concept of Pro-
cedural Relationships in Information Processing," in Total
Systems, Eds., E. D. Meacham and V. B. Thompson (Detroit:
American Data Processing, Inc., 1962), pp. 16-19;

R. L. Martino, Information Management: The Dynamics
of MIS (Wayne, Pa.: Management Development Institute,
Division of Information Industries, Inc., 1968), p. 77.

15. Neil C. Churchill and Andrew C. Stedry, "Extending
the Dimensions of Accounting Measurement," Management
Services, IV (March-April, 1967), p. 20.

their assigned responsibility at all levels.16 Integration

involves taking a wide variety of information and blending

it into a meaningful whole.17 It is possible to have

degrees of integration depending upon the design of the
system. An integrated system may even be conceived of as

a combination of a number of interdependent subsystems.19

An important aspect of the integrated system is the utili-

zation of single source data for multiple usage, whereas in

a total information system multiple records of similar data
may be made.20

Several empirical studies have found that the total

systems concept is no longer considered to be an achievable

objective. Sollenberger has noted that the use of the term

16. See Richard W. Graham, Jr., "Total Systems Concept,"
in Financial Information Systems, Eds., James B. Bower and
William R. Wilke (Boston: Houghton Mifflin Company, 1968),
p. 79;

A. F. Moravec, "Basic Concepts for Designing a
Fundamental Information System," Management Services, II
(July-August, 1965), p. 38.

17. Robert Beyer, "A Positive Look at Management Infor-
mation Systems," Financial Executive, XXXVI (June, 1968),
p. 52.

18. Peter P. Schoderbek and Stephen E. Schoderbek,
"Integrated Information Systems -- Shadow or Substance?"
Management Adviser, VIII (November-December, 1971), p. 28.
19. Systems and Procedures Association, Business
Systems (Cleveland, Ohio, 1966), p. 2-27.

20. See ibid. p. 2-25 ;

Moravec, p. 38.

"total systems" is probably dead or dying.21 Toan observes

that the notion of "total" is now seen to be ridiculous in
any literal sense of the word. Therefore, in the opera-

tional definition of MIS which will be developed for the

purposes of this study, the total systems concept will not

be considered to be an essential part of MIS. The use of

integrated systems is, however, found to be on the increase,23

and will, therefore, be included in that definition.

Functions of MIS.--The functions carried out by MIS

may not be identical for all organizations. On the basis

of their empirical studies, IIolden, Pederson and Germane have

suggested the following generalized classification of the

applications of MIS: (1) record keeping, (2) problem solv-

ing, and (3) automatic control.24

Characteristics of MIS.--The characteristics of MIS

which are brought out by the definitions cited earlier and

21. Harold M. Sollenberger, "Management Information
Systems in the Real World," Management Services, VI
(November-December, 1969), p. 37.

22. Toan, p. 78.

23. For example, see Neal J. Dean, "The Computer Comes
of Age," Harvard Business Review, XLVI (January-February,
1968), pp. 89-90 ;

Robert V. Head, "Management Information Systems:
A Critical Appraisal," Datamation, XIII (May, 1967), p. 25.

24. Paul E. Holden, Carlton E. Pederson and Gayton E.
Germane, Top Management (New York: McGraw-Hill Book Co.,
1968), p. 170.

the foregoing discussion may now be listed as follows.

(1) An MIS is a man/machine system.

(2) Its input is data which it processes into the out-

put, information. The processing includes model building,

programmed decision making, and problem solving.

(3) Information is provided to the decision making and

operations systems of the organization and constitutes a

substantial part of their informational needs.

(4) There are no constraints on the types of data used

and information produced, which may be, for example, inter-

nal, external, past, present or projected.

(5) Though automation is not considered essential, for

all practical purposes, use of electronic data processing

and communication equipment forms a necessary element of the

system.2S The level of technology in use would determine

several of the features of an MIS, including the time dimen-

sion, accessibility, and system/user interaction.

(6) It utilizes single source data for multiple usage.

An operational definition of MIS.--A management informa-

tion system is an integrated system which uses data as its

input, processes them with the aid of electronic data pro-

cessing and other equipment, and produces information as its

output which is supplied for use by the other systems of the

organization as a part of their informational needs. There

25. This aspect of MIS will be further considered in
a later Dart of this chapter.

are no specific constraints on its input, output and pro-

cess. The process includes model building, programmed

decision making and problem solving.

MIS From the Systems Point of View

An MIS is a system by definition, and the systems

approach may be adopted for its clear understanding.

Purpose of MIS

The purpose of MIS is to provide information to the

other systems within the organization, primarily to the

decision making system. Such information is used to facili-

tate the decision making process and the operations of the

business. However, information required to be supplied to

external users may also be provided by MIS, even if as a

by-product.26 Providing information which will be found

useful by the recipients is something more than merely

managing information. Information management will be con-

cerned with the rapid collection, processing, and display

of data, while MIS restructures the data so as to serve its

26. See John G. Burch, Jr., "An Independent Information
System," Journal of Systems Management, XXIII (March, 1972),
pp. 36, 37;

James D. Gallagher, Management Information Systems
and the Computer, AMA Research Study f#51 (New York: American
Management Association, 1961), p. 62.

27. Schoderbek and Schoderbek, p. 27.