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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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Agrawal, Surendra P
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xiii, 196 leaves. : ill. ; 28 cm.

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Accountancy ( jstor )
Business structures ( jstor )
Data processing ( jstor )
Financial accounting ( jstor )
Information storage and retrieval systems ( jstor )
Management accounting ( jstor )
Management information systems ( jstor )
Operations research ( jstor )
Personal computers ( jstor )
User needs ( jstor )
Accounting thesis Ph. D ( lcsh )
Dissertations, Academic -- Accounting -- UF ( lcsh )
Electronic data processing -- Accounting ( lcsh )
Management information systems ( lcsh )
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non-fiction ( marcgt )

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

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Full Text















THE ROLE OF ACCOUNTING IN
COMPUTER-BASED INFORMATION SYSI E[1S





By



SURENDRA PRAKASII AGRAWAL


A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILL' '1JT OF THE REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY



UNIVERSITY OF FLORIDA


1973














ACKNOWLEDGE: iENTS


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.















TABLE OF CONTENTS


Page


ACKNOWLED(G'I.-FNTS .

LIST OF TABLES . .

LIST OF FIGURES . .

ABSTRACT . . .


CHAPTER


I INTRODUCTION .


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 . .

II SOME BASIC CONCEPTS, DEFINITIONS,
AND INTERRELATIONSHIPS . . .


* 1


Posed


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 . . .


iii


. . . . . . . ii


. . . . . . . x


. . . . . . . 1








TABLE OF CONTENTS (continued)


Page
CHAPTER

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

III ACCOUNTING AS AN INFORMATION SYSTEM . 47

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


I








TABLE OF CONTENTS (continued)


Page
CHAPTER

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

IV MANAGEMENT INFORMATION SYSTEMS . . .. 78

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









TABLE OF CONTENTS (continued)


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 . . . .


V A SUGGESTED MODEL: THE CONTROLLED
INFORMATION SYSTEM . . . .

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


* 103
* 103
* 104
* 105


105

* 106

* 107

* 107

* 109
110
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 . . . . .


116


116

117

117

118
118
119
119

121
124
127
129
132
133
133
134
134


CHAPTER


Page


* *


* *


* * *









TABLE OF CONTLTS (continued)


CHAPTER Page
CHAPTER


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 . . . .


VI THE SUGGESTED ROLE OF ACCOUNTING
IN CONTROLLED INFORMATION SYSTEMS

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


135

136
137

137

140

140
142
144


. . 147


147

148

151

151
152
154
157

158

159
161


. 162
S. . 164


. 164


170

171
173


vii


* *


* * *









TABLE OF CONTENTS (continued)


Page
CHAPTER

VII SI"'IlARY AND CONCLUSIONS . . . . 175

Areas for Further Research . . .. .182

SELECTED BIBLIOGRAPHY . . . . . . .. 184

BIOGRAPHICAL SKETCH . . . . . . .. 195


vi ii















LIST OF T4PLES


Table


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


Page















LIST OF FIGURES


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


THE ROLE OF ACCOUNTING IN
COMPUTER-BASED INFOOR.!NATION SYSTEMS


By

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


xii








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

research.

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.


xiii














CHAPTI. I

I .FtP.ODUCT If'



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
7
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
9
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.








1I4
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.








knowledge:

(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
180
taking charge of the management information system,18 or his

carrying out a role within the total area of information
19
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-
20
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-
21
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-
22
tion systems. Dearden thinks that the true management

information systems expert does not and can not exist -- no
23
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
27
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
28
system; this study will primarily aim at specifying that

role.



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.














CHAPTER II

SOME BASIC CONCEPTS, DEFINITIONS
AND INTERRELATIONSHIPS



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
6
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
8
sharp description. A general idea, however, may be gained

from a consideration of definitions formulated by various

writers.

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
whole.12


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
16
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
I7
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,
19
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-
20
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
21
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
22
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
23
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.








24
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-
25
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,








26
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
27
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
31
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
33
(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-
204.

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
37
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-
38
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.)








39
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
41
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.








42
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

follows.

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
49
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
,57
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

either.



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
59
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-
62
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-
64
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
66
memory.

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
67
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.








69
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
70
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
72
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

information.


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
73
scheduling; and process, quality, and inventory control.73

Programmed decision making delegated to the operations sys-
74
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

system.

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.














CHAPTER III

ACCOUNTING AS AN INFORMATION SYST'F-I



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
1
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
2
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.

47








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

environment.



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-
4
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
7
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
8
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
9
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
removed.]

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
others

(2) reports filed with the Securities and
Exchange.Commission

(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,
including:

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

responsibilities.

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

necessary.








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 --
21
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
23
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.








25
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
29
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-
ferent."

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

acceptance.

(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

reporting.

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
criteria.

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
38
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-

ing.

(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-
42
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-

tion.

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
47
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

channels.

Specialized skill and expertise of accountants include

accounting techniques, an appropriate attitude toward work,

professional judgment, and a facility in noninformational

functions.

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-

ment.














CHAPTER IV

MANA, .1'1I!.'XT I: FOR'.IATIO: SYSTEM;.!S



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
5
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

Colbert--..an 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

Stern--..an automated system which presents
information, both internal and external to the
business, that aids in making a specific set
of routine decisions.12

Kennevan--..an 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
process.13


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
him.








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-
14
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
18
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
20
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.








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

that the notion of "total" is now seen to be ridiculous in
22
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
27
purpose.


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.




Full Text
13
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.


164
In addition to specialized skills, information con
trollers would need an appropriate attitude toward their
work. Two important aspects of this attitude would be:
(1) the taking of a wholistic view of the organization and
(2) a disinterestedness in the information developed.
Some Standards and Guidelines
f
? f)
Standards for Data and Information
In the controlled information system, data and infor
mation must meet certain standards before they can be
accepted into the system or reported to users. A brief dis-
27
cussion of these standards is contained in Chapter V.
Many references are found in literature about similar
standards or qualitative objectives, and there appears to
be no unanimity of opinion among the various writers in
regard to them. In view of such diversity of ideas, a
further consideration of the standards advocated in this
study seems to be called for.
The following standards or qualitative objectives have
26. Before the preparation of this section, a brief
reference was made to certain draft notes of the proceedings
of American Accounting Association's Committee on Concepts
and Standards -- Internal Planning and Control, 1972-73.
These notes were made available by Professor Lawrence J.
Benninger, a member of the Committee, and were helpful in
the crystallization of ideas contained in this section.
27. See pp. 126-127 and 129-131.


94
data processing and communication devices and techniques.
There are many levels of sophistication in the related tech
nology, and the term "computer" as used here covers any such
level.
It has been indicated earlier that the concept and
applications of MIS have evolved along with the development
of the computer and its commercial applications. The rela-
f
tionship between these two is so close that many writers
consider them to be almost synonymous, while others specific
37
ally state that they are not identical. Use of computers
is not considered necessary for the operation of MIS by some
3 8
of the authors. A more realistic view is expressed by
Beyer, who thinks that while a computer has little to do with
the concept of the systems, it is obviously essential to
39
their functional effectiveness. As pointed out in Chapter
40
I, this study relates primarily to those organizations
37. Among those who think they are synonymous is
Leonard W. Hein, "The Management Accountant and the Inte
grated Information Systems," Management Accounting, XLIX
(June, 1968), pp. 34-38;
Those who think they are not synonymous include
Toan, pp. 77-78;
Harry Stern, "Information Systems in Management
Science," Management Science, XIV (December, 1967), p. B-255
38. For example, see Robert S. Stich, "Pitfalls to
Systems Management," Management International Review, X
(1970/1), p. 20.
39. Robert Beyer, "Management Information Systems:
Who'll Be in Charge?" Management Accounting, XLVIII (June,
1967), p. 6.
40.See p. 13.


79
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
2
of business, they have also become more and more complex.
2. David M. Sage, "Information Systems: A Brief Look
Into History," Datamation, XIV (November, 1968), p. 64.


86
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
25
system. 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 part of this chapter.


172
operations of a business. It should be prepared in such a
way as to indicate the decision areas, that is, the points
where alternative courses of action are actually available.
The second step would be to analyze and understand the deci
sion making process followed by the persons who decide upon
the particular course of action to be adopted. It is, how
ever, not essential that the exact decision model be known
(which would be the case when the decision making itself
had to be programmed); a general indication of the factors
taken into consideration while making the decisions may be
sufficient for the purpose of ascertaining the information
needs. The hierarchy of objectives and goals of the organi
zation and its operations subsystem, constraints placed by
the environment and internal conditions, and criteria of
success would normally be taken into account in decision
making. The last step would be to specify the information
actually needed. All types of information should be con
sidered, such as quantitative, qualitative, and so on.
Besides the information supplied by the information system,
the decision makers may also use their own knowledge and
direct observations, information received from other sources,
and subjective judgment where no adequate information is
available. A clear understanding of these will greatly
help in the development of the information system.


22
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.
Hall and Fagen -- 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.
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. ^ Haberstroh 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. 19 71) p. 7.
16. Stafford Beer, "What Has Cybernetics to Do with
Operational Research?" Operational Research Quarterly, X
(March, 1959) p. 3.


173
Summary of the Chapter
Several suggestions have been made in the literature
regarding the role of accounting in computer-based informa
tion systems. They are, in general, rather vague, and it
appears that accountants are still looking for a proper
place in this new setting. The role recommended here for
accounting in controlled information systems is quite clear.
It would consist of information control and participation in
operations research. This role has been suggested for
accountants because the functions involved in it are similar
to those traditionally carried out by them. Functions
included in information control consist of the control of
input, manual processing of data, control of output, and
receipt and interpretation of feedback. In order to perform
these tasks effectively, accountants should expand the scope
of their expertise beyond financial information to cover all
types of information. In operations research, they may help
in the identification of problems requiring solution and
the making of verbal models, as well as in the solution
control process and cost/benefit analysis.
The education and training of accountants should empha
size an analysis of users' information needs, an understand
ing of data needed to develop information, and skill required
to process different types of data manually. Accountants
should also acquire familiarity with computers and operations
research sufficient to understand their potential,


190
Kennevan, Walter J. "MIS Universe." Data Management, VIII
(September, 1970), 62-64.
Koontz, Harold. "Making Sense of Management Theory." Harvard
Business Review, Keeping Informed, XL (July-August,
1962) 24-46.
Kostetsky, Oleh. "Decision Making, Information Systems, and
the Role of the Systems Analysts." Management Science,
XIII (October, 1966), C-17-20.
Litterer, Joseph A. The Analysis of Organizations. New York:
John Wiley and Sons, 196 7 .
(ed.). Organizations: Structure and Behavior.
New York: John Wiley and Sons"^ 1967.
Long, Charles L. "Needed: A New Profession." Journal of
Systems Management, XXII (June, 1971), 33-34.
Lundquist, William H. "Accountants Face New Challenges."
Management Accounting, XLVIII (March, 1967), 3-9.
Martino, R. L. Information Management: The Dynamics of MIS.
Wayne, Pa.: Management Development Institute, Division
of Information Industries, Inc., 1968.
May, Phillip T., Jr. "System Control: Computers the Weak
Link?" Accounting Review, XLIV (July, 1969), 583-592.
Milano, James V. "Modular Method of Structuring MIS."
Journal of Data Management, VIII (February, 1970),
18-23. ^
Miller, James G. "Living Systems: Basic Concepts." Behavioral
Science, X (July, 1965), 193-237.
Moore, Michael D. "Communication Between Manufacturing and
Systems Groups." Journal of Systems Management, XXI
(October, 1970), 22-24.
Moore, Michael R. "Pitfalls in Planning an EDP Installation."
Management Services, V (September-October, 1968),
Moravec, A. F. "Basic Concepts for Designing a Fundamental
Information System." Management Services, II (July-
August, 1965), 37-45.
Murdick, Robert G. and Ross, Joel E. Information Systems
for Modern Management. Englewood Cliffs, N.J.: Prentice-
Hall, Inc., 1971.


187
Connor, J. E. "On-Time Systems Management." Datamation,
XV (April, 1969), 60-63.
Cougdon, Frank P., Jr. "Advance Planning for the Systems
Function." Journal of Systems Management, XXI (August,
1970), 13-19.
Cox, Donald F. and Good, Robert E. "How to Build a Market
ing Information System." Harvard Business Review, XLV
(May-June, 1967), 145-154.
Cyert, Richard M. and March, James G. A Behavioral Theory
of the Firm. Englewood Cliffs, N.J. : Prentice-Hall,
inc. 1963.
Dale, Ernest. "A Plea for Coalition of the Quantifiable and
the Non-Quant ifiable Approaches to Management."
Academy of Management Journal, XII (March, 1969), 15-19.
Dean, Neal J. "The Computer Comes of Age." Harvard Business
Review, XLVI (January-February, 1968) 83-91.
Dearden, John. "Can Management Information Be Automated."
Harvard Business Review, XLII (March-April, 1964),
TT8-135'.
. "How to Organize Information Systems." Harvard
Sus ine s s Review, XLIII (March-April, 1965) 65-73.
. "Myth of Real-Time Management Information." Harvard
Business Review, XLIV (May-June, 1966), 123-132.
. "MIS Is a Mirage." Harvard Business Review, L
("February, 1972), 90-99.
Dearden, John and McFarlan, F. Warren. MIS: Text and Cases.
Homewood, Ill.: Richard D. Irwin, Inc., 1966.
DeGreene, Kenyon B. (ed.). Systems Psychology. New York:
McGraw-Hill Book Co. 19 70.
Diebold, John. "ADP -- The Still-Sleeping Giant." Harvard
Business Review, XLII (September-October, 1964) 60-65.
Dorsey, John T. "A Communication Model for Administration."
Administrative Science Quarterly, II (1957-58),
307-324.
Ewing, David W. "The Knowledge of an Executive." Harvard
Business Review, XLII (March-April, 1964), 91-100.


11
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-
25
sideration to this type of research. While the principal
emphasis of the Committee is on the scientific method in
volving formation and testing of hypotheses, it finds that
f
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.


Table 1
Characteristics of Systems Within a Business Organization
System
Purpose
Structure
Process
Input
Output
Decision
making
system
To choose among
alternative
courses of
action
Men
Finding occasion to
make decisions, find
ing possible courses
of action, choosing
among them.
Information,
subjective
knowledge ,
j udgment
Decisions
Information
system
To provide
information to
other systems
and to external
users
Men,
machines
Perception, recorda
tion, storage, re
trieval, processing,
transmission, presen
tation, and pro
grammed decision
making
Data
Information
Operations
system
To carry out
physical oper
ations of the
organization
Men,
machines
Acquisition of
resources, and con
version or prepara
tion for customer
use
Money,
materials,
services,
decisions,
information
Money,
materials,
services


TABLE OF CONTENTS (continued)
Page
CHAPTER
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
IV MANAGEMENT INFORMATION SYSTEMS 78
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
v


69
widely varying interests. "The facts that different deci
sions and different decision makers 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
41
users."
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
* j ,,43
reported upon."
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.
ASOBAT, p. 22.
43.


70
qualitative standards.
(2) Total information needs of the various users are
not precisely known.
' (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
44
described and evaluated below.
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).


41
69
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
70
at higher levels more summarized information is required.
69. Sage, p. 63.
70. Gerald E. Nichols, "On the Nature of Management
Information," Management Accounting, L (April, 1969), p. 12.


32
42
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.^ 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.


98
used, such as inventory models, statistical decision theory
models, PERT/CPM, and capital budgeting models; or ad hoc
models developed to fit the specific requirements of a
problem.^
OR gives consideration to a practical solution of a
problem as contrasted to the purely mathematical, or theoret
52
ical, solution. A solution control process is an essen
tial part of OR. It is necessary for evaluating and making
a decision about the validity, usefulness and need for
changes in any model that is being used repetitively. In
terms of MIS, the model development process of OR will be
required in the original design and subsequent expansion of
the system, while the solution control process is necessary
for its proper control and modification needed to keep it
consistent with the changing internal and external environ
ment.
For a successful solution by the application of OR tech
iques, a problem should meet several conditions: (1) It
must be possible to represent the important aspects of the
situation by well-defined mathematical variables. (2) The
estimates of its parameters should have sufficient accuracy.
(3) It should fit the available mathematical tools. (4) It
51. Hartley, p. 324.
52. Arnoff, p. 13.
53. Hartley, pp. 323-324.


137
controller will serve as a communication link between the
functional managers and other systems experts.
Time Dimension of the System
It has been mentioned earlier that for routine and
repetitive matters,standard procedures and rules may be laid
down for input acceptance and output reporting. These should
be designed and implemented in such a way that the time
dimension of the system is not disturbed. For other types
of information, some time will be used up, particularly at
the stage of input control. But in such cases, generally,
the time dimension is not expected to be a critical factor.
Furthermore, concern is expressed in the literature as to
the desirability of placing all the information on an on
line real-time basis.^ The adoption of the system suggested
in this chapter may present one additional constraint on the
use of the on-line real-time facility. It will, however,
not prevent such use.
Controlled Information System and
Total Systems Concept
It has been stated earlier that the controlled informa
tion system will have the capability to develop all types of
16. For example, see John Dearden, "Myth of Real-Time
Management Information," Harvard Business Review, XLIV
(May-June, 1966), pp. 123-132;
Edward M. Tolliver, "Myths of Data Automation,"
Journal of Systems Management, XXI (August, 1970), p. 37.


30
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
37
a creative or evolutionary and developmental process. 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-
38
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, 196 2), pp 32 34
Murdick and Ross, pp. 46-47;
Simon also considers decision making as equivalent
to management. (Simon, p. 1.)


185
American Institute of Certified Public Accountants, Account
ing Principles Board. Statement #3. Financial State
ments Restated for General Price-Level Changes" New
York: American Institute of Certified Public Accoun-
tants, 1969.
, Statement #4. Basic Concepts and
""Accounting Principles Underlying Financial Statements
of Business Enterprises. New York: American Institute
of Certified Public Accountants, 19 70.
, Committee on Terminology. Accounting Terminology
Builetin #1. Review and Resume. New York: American
Institute of Certified Public Accountants, 1953.
Ackoff, Russell L. "Towards a System of Systems Concepts."
Management Science, XVII (July, 1971), 661-671.
. "Management Misinformation Systems." Management
""Science, XIV (December, 1967), B-255-258.
Anthony, Robert N. Planning and Control Systems: A Frame
work for Analysis. Boston: Division of Research,
Graduate School of Business Administration, Harvard
University, 1965.
\
Arnoff, E. Leonard. "Operations Research and Decision-
Oriented Management Information System." Management
Accounting, LII (June, 1970), 11-16.
Barrett, William B. "A Functional Approach to Accounting."
Accounting Review, XLIII (January, 1968), 105-112.
Beckett, John A. Management Dynamics: The New Synthesis.
New York: McGraw-Hill Book Co. 19 71.
Bedford, Norton M. and Onsi, Mohamed. "Measuring the Value
of Information --An Information Theory Approach."
Management Services, III (January-February, 1966),
15-22.
Beer, Stafford. "What Has Cybernetics to Do with Operational
Research?" Operational Research Quarterly, X (March,
1959), 1-21.
Bennett, Edward M. "Data Entry Through Distributed Data
Processing." Journal of Systems Management, XX
(September, 1969) 30-31.
Beyer, Robert. "Management Information Systems: Who'll Be
in Charge?" Management Accounting, XLVIII (June, 1967),


196
He has numerous publications both in the U.S.A. and
in India and is a member of Beta Gamma Sigma. He is married
to the former Vijaya Gupta and is the father of two children.


80
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,
3
and most recently by the use of the computer.
The term "management information system" originated in
the late 1950s or early 1960s.^ 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, Comnuters and Management (New
York: McGraw-Hill Book Co. 1970) pp. 13-18.
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.


108
8 4
Rubin would like to introduce a data control and
design authority under the implementation manager of MIS.
It would have absolute authority over the data itself and
how it is used.
8 5
Cox and Good suggest the use of information coordina
tors who would be capable of understanding both the informa
tion needs of the management and the systems problems.
Long*^ finds the need for a new profession -- that of
information engineers. There would be an information engi
neering office in each major functional area responsible for
analyzing and defining in noncomputer terms the systems
objectives and requirements of the staff and operating
managers. Information engineers must be developed from
people with analytical expertise and an ability to logically
define complex conditions, parameters, and constraints. This
suggests that they should come from professions such as
management analysis or industrial engineering. The members
of the new profession suggested by Long would tackle only
one of the problems faced by MIS -- that of understanding
the information needs of the decision makers. If a distinct
profession has to be introduced into the business organiza
tion, it may be worthwhile to investigate whether the
84. Rubin, Vol. 5, p. 136.
85. Cox and Good, pp. 150-151.
86. Long, p. 33.


114
Summary of the Chapter
A management information system is an integrated system
which uses data as its input, processes them with the aid of
electronic data processing 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 infor
mation needs. There are no specific constraints on its
input, output and process. The process includes model
building, programmed decision making, and problem solving.
Since the "total systems" concept is no longer considered to
be an achievable objective, it is not referred to in this
description of MIS.
An MIS consists primarily of the computer and opera
tions research methods and specialized skills and expertise
in these areas are required for its successful operation.
The computer has the capability of processing large volumes
of data accurately and extremely fast, but it is suitable
for developing only certain types of information. Operations
research is based on the assumption that economic systems
contain a good deal of orderliness and regularity. Its
techniques are helpful in solving various types of problems
which meet certain conditions.
It has been observed that in many empirical and other
studies most organizations are unable to employ their manage
ment information systems effectively. The following prin
cipal deficiencies have been pointed out by researchers in


160
An information controller can make a contribution to opera
tions research in several areas. Since he would be familiar
with the various operations and decision processes of the
organization, he might occupy the ideal position with
respect to identifying problems which ought to be solved by
the operations research section. He would also be capable
of building verbal models which may be translated into
f
mathematical models by experts in the fields of mathematics
and statistics. Because he attempts to keep in constant
contact with users of information and receives feedback from
them, he might be of great help in the solution control pro
cess, that is, in the detection of significant changes in
parameter values which would necessitate a change in the
decision rules. Furthermore, changes in the processing sub
system of the controlled information system would be made
after an'incremental cost/benefit analysis, and the informa
tion controller may contribute to an understanding of the
financial implications of such changes.
The functions of the information controller in opera
tions research suggested in the foregoing paragraph are
similar to some of the functions suggested by Hartley for
22
accountants. To perform these functions, accountants
would need to acquire sufficient familiarity with operations
research to recognize its possible applications.
22. Ronald V. Hartley, "Operations Research and Its
Implications for the Accounting Profession," Accounting
Review, XLIII (April, 1968), pp. 324-326.


]0
or impracticable by others. There is, consequently, a need
to study this problem further with a view to finding an
acceptable solution.
An Approach 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.^ The most appropriate method
will depend upon the nature of the problem. One of the
24. American Accounting Associations 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.


146
evaluated in two ways: it was appraised on the basis of
the criteria developed in this chapter and also on the basis
of criteria-like questions posed by Dearden. In either in
stance, the system apparently scores well.
f


52
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.^
1. Provision of information
A. To people outside the organization, such as
(1) financial statements to stockholders and
others
(2) reports filed with the Securities and
Exchange. Commission
(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,
including:
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), ppT '2 -'ll;
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, XLVTII (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.


130
requirements of users must be known with some precision.
Several problems may arise in ascertaining such needs,
particularly when the information is for use in decision
making. The decision situation may not be well structured
with the result that the information required in making the
decision may not be specified. Even where structuring is
possible, the decision model in use might not be explicitly
f
stated. This may occur either because the decision maker
is not clear about his own decision making process, or
because no attempt has been made to formalize the model.
In such case also, the information required to make a deci
sion would be difficult to ascertain. Different decision
makers might use different information in similar decision
situations because of differences in their decision models,
or in the relative importance given by them to the various
types of information, or in their subjective knowledge. It
is thus extremely difficult to achieve the ideal of provid
ing custom-made information for each individual decision
maker and for each individual decision. To the extent that
information reporting is not standardized and users have
made no specification of their information needs, the person
in charge of the output subsystem must use his judgment to
determine what information should be provided to whom. In
order to be able to do this effectively, he would need to
be familiar with the operations of the business, the decision
areas, and the controllable and noncontrollable variables
that have an impact on the situation.


20
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.


103
machine sing if he wants to, but he typically
has a problem scoring the music because he
can't figure out the user's composition.66
Inability of decision makers to specify their informa
tion needsInadequate knowledge of the information needs
of decision makers exists not solely because of the failure
on the part of systems analysts to ascertain the same.
Often, the decision makers themselves are not sure of the
information they require. For a manager to know what infor
mation he wants, he must be aware of each type of decision
he would make and have an adequate model of each. These
6 7
conditions are seldom satisfied. Schoderbek and Schoder-
bek state that there is much weighty evidence that managers
can not identify the important variables involved in deci
sion making and can not reduce the decision process to
quantifiable expressions. Most managers do not know
nearly as well as they think they do the way in which they
actually make decisions.
Exclusion of judgmental factors.--In an earlier chapter
it was pointed out that decision making involves the use of
subjective knowledge and subjective judgment of the decision
66. Michael R. Moore, "Pitfalls in Planning an EDP
Installation," Management Services, V (September-October,
1968) p. 29.
67. Ackoff, p. B-149.
68. Schoderbek and Schoderbek, p. 28.
69. George F. Weinwurm, "Managing Management Informa
tion," Management International Review, X (1970/1), p. 43.


186
Beyer, Robert. "A Positive Look at Management Information
Systems." Financial Executive, XXXVI (June, 1968),
50-57.
Boulding, Kenneth E. "General Systems Theory -- The Skeleton
of Science." Management Science, II (April, 1956),
197-208.
Bridges, Ronald A. "The Mad, Mad World of Information."
Journal of Systems Management, XXIII (January, 1972),
1"6 -18.
Brown, Warren B. "Systems, Boundaries, and Information
Flow,." Academy of Management Journal, IX (December,
1966), 318-327.
Brundage, Percival F. "Milestones on the Path of Account
ing." Harvard Business Review, XXIX (July, 1951), 71-81.
Burch, John G., Jr. "An Independent Information System."
Journal of Systems Management, XXIII (March, 1972),
36-4i. :
Carter, Norman H. "Introduction to This Data Gathering
Issue." Journal of Systems Management, XX (September,
1969), 10-11.
Chambers, Raymond J. Accounting, Evaluation and Economic
Behavior. Englewood Cliffs, N.J.: Prentice-Hall, Inc.,
Churchill, Neil C., Kempster, John H. and Uretsky, Myron.
Computer-Based Information Systems for Management:
A Survey. N.A.A. Research Study. New York: National
Association of Accountants, 1969.
Churchill, Neil C. and Stedry, Andrew C. "Some Developments
in Management Science and Information Systems with
Respect to Measurement in Accounting," in Research in
Accounting Measurement. Eds. Robert K. Jaedicke, Yuji
Tj~iri and Oswald Nielsen. American Accounting Associ
ation, 1966.
. "Extending the Dimensions of Accounting Measure
ment." Management Services, IV (March-April, 1967),
15-22.
Churchill, Neil C. and Uretsky, Myron. "Management Accounting
Tomorrow." Management Accounting, L (June, 1969), 46-53.
Colbert, Bertram A. "Pathways to Profit: The Management
Information System." Management Services, IV (September-
October, 1967), 15-24.


9
information function but makes no explicit recommenda-
20
tion.
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-
21
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-
22
tion systems. Dearden thinks that the true management
\
information systems expert does not and can not exist -- no
2 3
man can possess a broad enough set of special skills.
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.


31
39
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.^
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 Anthonys framework, they are:
strategic planning, management control, and operational
41
control.
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., 19 70), pp. 30-31.
41.Anthony, pp. 16-18.


2
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 expected 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,


87
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
2 6
by-product. 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
27
purpose.
26. See John G. Burch, Jr., "An Independent Information
System," Journal of Systems Management, XXIII (March, 1972),
pp. 36, 371
James D. Gallagher, Management Information Systems
and the Computer, AMA Research Study"ff5'l (New York: American
Management Association, 1961), p. 62.
27. Schoderbek and Schoderbek, p. 27.


142
Dearden's Five Questions
In a recent article, Dearden raised serious doubts
18
about the very concept of management information systems.
He put five questions which, in his view, the proponents of
MIS ought to ask themselves. The suggested model of the
controlled information system is examined below in the
light of these questions.
"Which information systems are to be included in the
MIS?"--Under the concept of the controlled information sys
tem, there will not be several information systems, but only
one integrated system. This will cover all the information
which is developed from the data arising within, or received
from outside, the organization and communicated to the
decision making and operations systems of the organization
and to people outside the organization in accordance with
their needs and authority. Personal knowledge and judgment
of the executives of the organization do not make part of
the information system unless they are formally entered into
the system after having met the standards of input acceptance.
The controlled information system will employ not only the
procedures similar to those used by accounting and other
traditional information systems but also such advanced tech
niques as model building, programmed decision making, and
problem solving. There are no constraints on the types of
18. John Dearden, "MIS Is a Mirage," Harvard Business
Review, L (January-February, 1972), p. 99.


TABLE OF CONTENTS
Page
ACKNOWLEDGEMENTS ii
LIST OF TABLES ix
LIST OF FIGURES x
ABSTRACT xi
CHAPTER
I INTRODUCTION 1
The Problem under Study 1
Recognition of the Problem
in Literature 3
An Approach to Solve the Problem Posed 10
Research Methodology and Scope 10
Some Limitations to the Scope of
the Study 13
Organization of the Study 14
II SOME BASIC CONCEPTS, DEFINITIONS,
AND INTERRELATIONSHIPS 16
Purpose and Organization of the Chapter. 16
An Introduction to Systems 17
General Systems Theory 17
The Concept of Systems 20
The Systems Approach 24
Business Organizations from the
Systems Point of View 25
Purpose of the Organization 26
Structure of the Organization .... 27
Input, Output and Process of the
Organization 28
Component Subsystems of a Business
Organization 28
The Decision Making System 30
Purpose of the System 31
Structure of the System 31
iii


67
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
39
the following comprehensive classification.
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.


82
information is to be presented to him in such a
way so as to stimulate behavior that will lead
to the attainment of the goals established for
the entire management process.9
Toan--.a computer-based, integrated, accessible,
timely and/or interactive as well as important
to the essential functions of management.10
Godfrey and Prince-a computer-based informa
tion network encompassing 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.H
Stern--..an automated system which presents
information, both internal and external to the
business, that aids in making a specific set
of routine decisions.12
Kennevan--..an 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
process.13
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
him.


38
At a more general level, information is considered as
5 8
"obtained knowledge, facts, data, or news." It can add
to a representation of what is known, believed, or alleged
59
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.
f
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.^ 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.


28
30
large organizations is almost universal. 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
31
structure to one of process. A business organization has
a dynamic interplay with its environment, receiving inputs
32
from it and delivering outputs to it. 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. 149T
Johnson et al., p. 371.


CHAPTER VI
THE SUGGESTED ROLE OF ACCOUNTING
IN CONTROLLED INFORMATION SYSTEMS
Purpose and Organization of the Chapter
It was suggested in Chapter V that in a controlled
information system the function of information control may
be performed by the controller and his staff. The purpose
of this chapter is to explore this suggestion further and
to study its implications, particularly as regards the
education and training of accountants.
This chapter will begin with a brief description and
evaluation of the suggestions made in the literature regard
ing the role of accounting in computer-based management
information systems. It will be shown why the function of
information control is considered to be an appropriate role
for an accountant. Implications of the suggested role as
regards the education and training of accountants will then
be investigated. Finally, certain suggestions will be made
to help the accountant carry out the new tasks.
147


168
with "usefulness"). Secondly, usability does not indicate
the suggestion of a prior commitment on the part of the
information supplier to a particular course of action or a
particular result,which is sometimes implied in explana
do
tions of the concept of relevance.
It appears that in the literature authority (or author
ization) is not considered to be a necessary quality of
information. However, references to it are found in some
31
of the writings. It seems that the concept of authority
marks one of the differences between theoretical desirability
and practical availability of information. Since this study
is concerned with developing an operational model of the
information system, authority is considered to be one of
the essential characteristics of information.
30. For example, see the definition of relevance in
A Statement of Basic Accounting Theory (Evanston, Ill.:
American Accounting Association, 1966, p. 9): "For infor
mation to meet the standard of relevance, it must bear upon
or be usefully associated with the action it is designed
to facilitate or the result it is desired to produce."
31. For example, see Louis Goldberg,An Inquiry Into the
Nature of Accounting (American Accounting Association,
1965). On p. 55 he states: ". . the purpose of account
ing reports, it would seem, is to inform persons entitled
to information." [Emphasis added ];
A similar idea is expressed by American Accounting
Association's Committee on External Reporting: "The social
interests may be served by permitting the withholding of
relevant information in those cases where it would not be
in the public interest to make full disclosure even though
such withholding might make the reports biased or lacking
in relevant data. For example, the disclosure of certain
information might give competitors an undue advantage or it
might be in conflict with public security requirements."
See "An Evaluation of External Reporting Practices: A
Report of the 1966-68 Committee on External Reporting,"
Accounting Review, Supplement to Volume XLIV (1969) p. 96.


119
Feasibility
- i...
The model should be capable of being put into actual
practice, both technically and economically. The principal
economic aspect of the system would be the outcome of a
cost/benefit analysis. Such an analysis may be carried out
at two levels -- total cost and total benefits of the sys
tem as a whole and the incremental cost and incremental
benefits of any additions or modifications in the system.
It may be noted that these characteristics relate to
the information system and not to any particular item of
information developed and supplied by such a system. The
standards relating to information as such will be considered
in the later parts of this chapter and in Chapter VI.
Necessity of a Man/Machine System
In order to be able to acquire the characteristics
mentioned in the foregoing section, the information system
must be a man/machine system. Both men and machines have
their capabilities and limitations. Advantages of utilizing
computers and limitations on the types of information that
can be developed with the use of computers were mentioned
in Chapter IV.'*' Human beings have the capacity of creative
thinking, use of judgment, and flexibility in their approach;
but they have low channel capacity, lack of reliability, and
1. See pp. 95-96.


37
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.5^ 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
5 7
at hand...." 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
either.
55. Alfred Rappaport (ed.), Information for Decision
Making: Quantitative and Behavioral Dimensions (Englewood
Cliffs N. J. : Prentice-Hall, Inc. 1970) pi, 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.


140
developing and supplying more and more information and are
utilizing problem solving and programmed decision making
techniques to an ever-increasing degree. Thus, the ulti
mate aim of such systems is the total information system,
even though the achievement of that end is an impossibility.
This observation applies also to the model of the con
trolled information system developed in this study. Thus,
while a controlled information system will have the capacity
to develop and communicate all types of information, and
will encompass in its scope more and more information, it
will never achieve the status of a total information system.
Evaluation of Controlled Information System
Criteria of a Good Information System
At the outset of this chapter certain characteristics
of a good information system were mentioned, and it was
indicated that these could be used as criteria in evaluating
the soundness of such a system. The model of the con
trolled information system is evaluated below in terms of
these characteristics.
Capability to develop various types of information.- -
The controlled information system will have the required
capacity to accept and process all types of data. The two
channels within the system will be able to handle both quan
titative and nonquantitative data and to utilize both pro
grammed and nonprogrammed procedures.


71
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
tion.
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
information^ 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


132
Developmental Subsystem
This subsystem may be divided into two sections: one
receiving and interpreting the feedback and the other carry
ing out operations research, and developing or modifying
procedures and programs used by the processing subsystem.
Both of these functions must be carried out by men. The
feedback section indicates the areas in which development
is needed, and the research section carries out the search
for new or better procedures and programs. The work per
formed by the developmental subsystem may be considered to
be an extension of the work done when the information system
was originally established. Even where the expansion of the
scope of the information system is not envisaged, the major
role of this subsystem is to maintain the information system
in keeping with changing needs of users. Furthermore, this
subsystem will make continuing efforts to refine the exist
ing techniques and procedures so as to make the information
system increasingly more useful to the organization.
An important aspect of the introduction or modification
of a procedure is a cost/benefit analysis of such a proced
ure. While it may be comparatively easy to determine the
cost of introducing or modifying the procedure, it will be
extremely difficult to assess the benefits in terms of money.
Two types of cost/benefit analyses may be required for the
success of the system. The total cost of the system should
be related to the total benefits received from the same.


180
variety of data and information. This study therefore con
cludes that in order to survive as members of a distinct
discipline accountants should perform the functions of infor
mation controllers in the suggested model of controlled
information systems. Additionally, they may make useful
contributions to operations research, particularly in the
identification of problems to be solved and the making of
verbal models as well as in the solution control process
and cost/benefit analyses.
In order to successfully carry out the suggested role,
the education and training of accountants would need to be
such as to enable them to analyze the informational require
ments of various users, understand the data required to
develop such information, and manipulate quantitative and
nonquantitative data manually. They should also acquire
sufficient familiarity with operations research and com
puters to understand the limitations and applications
thereof. Their attitude should include a wholistic approach
toward the organization and a lack of bias toward the infor
mation developed. A general interest in the financial
aspects of states and events would be helpful in the per
formance of their duties.
The responsibilities of information controllers include
the function of ensuring that data and information meet with
appropriate standards. For this purpose, three standards
were suggested in this study: reliability, usability, and


105
Lack of flexibility in MIS.--A large computer project
75
is always a one-time job. An MIS lacks flexibility and
7 6
is difficult to change.' Prince thinks that in a dynamic
setting where short-run objectives may change frequently,
77
MIS may not be suitable or feasible. The Committee on
Information Systems points out the need for flexible infor-
7 8
mation systems.
Incompatibility of sophisticated information with
management capabilities.--An MIS produces highly sophis
ticated information. The OR specialists are trained to
avoid suboptimization and hence create "grand schemes."
The management, however, has not prepared itself to use such
79
analyses. It does no good to install systems of a high
order if managers at all levels are unable to interpret and
8 0
make use of their output. The quality of information can
be upgraded much more rapidly than the quality of the
75. J. E. Connor, "On-Time Systems Management," Data
mation XV (April, 1969), p. 60.
76. Toan (1970), p. 80.
77. Thomas R. Prince, Information Systems for Management
Planning and Control (Homewood, Ill..Richard D. Irwin, Inc..
woy, pP: 43-44.
78. 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. 195.
79. Robert F. Vandell, "Management Evolution in the
Quantitative World," Harvard Business Review, XLVIII
(January-February, 1970), p. 84.
80.Sanders, p. 149.


125
into the system. This will require exercise of subjective
judgment. Moreover, when some such data are observed, a
feedback should be made to the developmental subsystem so
that adequate consideration may be given to their use in
the system. Such feedback must include not only the descrip
tion of the new type of data, but also the reasons why and
how such data may conceivably be used. Changes in the
r
nature of data collected on a routine basis should also be
similarly dealt with.
Reliability of input is a precondition to the relia
bility of output of the system. It was indicated in Chapter
III that accountants take great care to ensure that only
9
reliable input enters the accounting system. On the other
hand, while systems specialists in management information
systems seem to have considerable concern for the accuracy
of data, they generally do not consider other aspects of their
reliability.^ Reliability of data may be defined as the
certainty that the data correspond with the real world state
or event they seek to represent. Reliability may be thought
of as a continuum, and data available may have various
levels of reliability. It is suggested that several levels
of reliability may be specified, and all data accepted into
the system should be categorized accordingly. A record
9. See pp. 61-62.
10. See pp. 88-89.


90
and problem solving form an important part of the process
of MIS.
Output of MIS
The output of MIS is information which is communicated
to the users. Earlier, it was indicated that providing the
totality of all the information is not now considered to be
an achievable objective. If the system is to be of any
value, the output should be designed using strict standards
32
and with the using environment in mind. Study of the user
needs which the output of the system must satisfy is one of
the important aspects of the design and development of MIS.
Dynamic Development of MIS
An MIS operates in a dynamic environment, and in order
to maintain its usefulness it should undergo continuing
modification and improvement. Moreover, since the MIS will
never be able to provide all the information required for
decision making, there always is scope for an expansion of
its activities. Restructuring the system by adding or sub
tracting elements and by adding or subtracting rules (rela-
33
tionships) is the very essence of the systems concept.
Operations research (hereafter referred to as OR) plays the
32. Norman H. Carter, "Introduction to This Data Gather
ing Issue," Journal of Systems Management, XX (September,
1969), p. 11.
33. Martino, p. 25.


2 4
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-
2 0
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
21
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.: Management Development Institute,
Division of Information Industries, Inc., 196 8) 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, 19 70), p. 29".


55
communication of reliable, financial information to the
decision making system of the organization and to people out
side of the organization. Certain noninformational functions
which have an intimate relationship to the development and
communication of such information are also performed by the
accounting system.
Structure, of Accounting
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
necessary.


25
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
22
systems purpose, structure, process, input, and output.
Business Organizations from the
Systems Point of View
In terms of Boulding's hierarchy of systems, business
2 3
organizations can be placed at the eighth level. 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.11 See
the Committee's report, "Accounting and Information Systems,"
Accounting Review, Supplement to Volume XLVI (1971), p. 297.
23. Boulding, p. 205.


26
24
to the classical framework. Modern organization theory
considers a business organization as a system of mutually
dependent variables, 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
f
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 purpose(s) 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-
2 5
tional conflict. 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,


40
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 persons mind. Informa
tion is then one of the inflows into this reservoir. Other
inflows will include direct observation and perceptions made
6 7
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
t
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.^
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.


136
There will be numerous interfaces between information
control and the other two elements of the system -- the
computer and operations research. Interface with the com
puter will occur at the point of data entry, integration of
manually processed and computer-processed information and
communication of information. Feedback will be used by
operations research people, and the information controller
may also be one of the participants in the operations
research team. These interfaces will necessitate a general
familiarity with these elements, but the information con
troller need not be an expert in these areas. Similarly,
it will also be necessary for the information controller to
be generally familiar with the operations of the business,
but he need not be an expert in the functional areas. In
view of these observations, it seems that the training and
education of a person as an information controller should
not present any insurmountable difficulties.
Communication Gap Between Systems People
and Decision Makers
Under the controlled information system, the systems
people will include the information controller who will be
familiar with the operations and information needs of the
business and should be able to communicate with the decision
makers. He will also be familiar with the computer and
operations research, enough so as to be able to communicate
with the experts in these fields. Thus the information


145
observed in the operations of accounting and management
information systems, a good information system should
possess the following characteristics: capability to develop
various types of information, capability to communicate the
required information, flexibility, and feasibility. To
acquire these characteristics such a system needs to be a
man/machine system in which man is integrated as an essen
tial element. It was suggested that the model of the con
trolled information system meets these objectives. In this
model, the input (data) and output (information) of the sys
tem must meet certain standards (usability, reliability and
authority). Two channels are provided for processing the
data -- one on the computer and the other manually. The
developmental subsystem receives feedback from users of
information and the other subsystems of the system; it
develops and modifies the techniques and procedures used in
processing. The operation of this model will need people
with specialized skills in three areas: information control,
computer operations, and operations research. The functions
of information control will consist of the control of input
and output, manual processing of data, and receiving and
interpreting of feedback and will be carried out by members
of a distinct discipline. Though the system will have the
capacity to develop and communicate all types of information,
it will not achieve the status of the total information sys
tem. The model of the controlled information system was


93
Specialized Skills Required for MIS Operations
An MIS needs specialized skills of several different
disciplines. Its techniques and tools are borrowed prin
cipally from management science, accounting, computer tech
nology, operations research, systems engineering, economics,
statistics, information science, and behavioral sciences.
These disciplines lend to MIS a developed expertise in
problem solving. Several of the fields included in this
list are in themselves of an interdisciplinary character,
and hence, it may be regarded as repetitive. This is par
ticularly true of operations research which is sometimes
considered to be synonymous with management science and
adopts techniques from many disciplines. The skill
requirements for MIS may conveniently be summarized by
*7
including only computer technology and OR methods. This
is consistent with the structure of MIS mentioned in the
preceding section of this chapter. The role of computer
and OR will be further considered in this section.
MIS and the Computer
The term "computer" is being used in this study in a
very broad and undefined sense. It includes all electronic
34. Rubin, Vol. 5, p. 173.
35. E. Leonard Arnoff, "Operations Research and
Decision-Oriented Management Information System," Management
Accounting, LII (June, 1970), p. 12.
36. Holden et al., p. 166.


141
Capability to communicate the required information.- -
The control of the output of the system aims at providing
only the information actually needed by users. The feedback
mechanism is provided to keep in constant touch with such
needs. The information controller will have to use his
judgment in supplying information where the information
requirements can not be known precisely.
Flexibility.--The duality of the processing channels
and the provision of manual input into the computer before
a piece of information is considered to be ready for report
ing will enable the system to have a sufficient degree of
flexibility to change in keeping with the changing environ
ment. When computer programs can not be revised or added
to in appropriate time to carry out the modified, or newly
required, procedures, such procedures may be temporarily
performed by the information controller manually, and the
results thereof combined with the other information devel
oped by the computer.
Feasibility.--There does not seem to be any technical
problem in giving effect to the suggested model of the con
trolled information system. Economic feasibility depends
largely on the measurement of the costs and benefits aris
ing because of the introduction of the system. The develop
mental subsystem of the suggested model is required to carry
out the cost/benefit analysis before any changes or addi
tions are made. Hence, the system as a whole should be
fully feasible at all times.


139
knowledge, and subjective judgment. The last two (subjec
tive knowledge and subjective judgment) may be substituted
for by information -- information about the problem situa
tions, available alternative courses of action and their
expected consequences, and previously laid out rules and
procedures. When the totality of information is available
from the information system, the decision maker will not
need to use his direct observations or other sources of
knowledge (which constitute his subjective knowledge), nor
will there be any undefined rules or procedures or any
missing information (which require the use of subjective
17
judgment). In such an instance, all decision making will
become programmed decision making, which is considered to be
a part of the information system. This would, however,
require predetermination of all possible decision situations
and the decision rules or models to be followed in each of
them and a mechanism to collect all the information neces
sary for making the decisions. Since the internal and
external environment of a business organization is suscepti
ble to continuous, and often unexpected, change, such pre
dictions may be considered to be impossible; Hence, the
establishment of total information systems would also be an
impossibility.
However, all information systems, particularly computer-
based information systems, are making progress toward
17. See pp. 33-34.


95
which use computers as an element of their information sys
tems. Hence, computer technology will be considered as a
necessary part of the skill requirements for MIS operations
The computer offers a number of advantages to business
organizations: (1) it is extremely fast and accurate;
(2) it can carry out arithmetic and logic functions; (3) it
has capacity to store and handle large volumes of informa
tion; (4) its costs are at an acceptable level; and (5) it
greatly improves accessibility of information to users by
integrated and centralized data files, retrieval systems
and interactive devices.^ In theory, the computer can
perform any specified task that does not involve physical
M 2
impossibilities or logical contradictions. However, tech
nological development has not quite reached that stage.
Time-sharing, table-top display units and other interactive
devices, remote data entry systems and terminals, on line
real time systems, computer output microfilm, and computer
instructions in ordinary language are among the techniques
which have been or are being developed to improve the com
puter's usefulness. However, for the effective and profit
able use of the computer, operations required to develop
41. See Beyer (1967), p. 6;
Arthur B. Toan, Jr., Using Information to Manage
(New York: Ronald Press Co., 1968), pp. 112-117.
42. Ira G. Wilson and Marthann E. Wilson, Information,
ComDUter,and System Design (New York: John Wiley and Sons.
IncT,' 1967), p. 19.


27
2 6
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
2 7
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
2 8
itself and its sister systems."
Structure of the Organization
An organization is a combination of human interrela
tionship systems and nonhuman systems, the former being
29
hierarchically oriented. 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. '
26. See Johnson et al., p. 371;
Joseph A. Litterer (ed.), Organizations: Structure
and Behavior (New York: John Wiley and Sons, 196 7), p. (T!
27. Alex Orden, "Man-Machine-Computer Systems," in
Management Organization and the Computer, Eds. George P.
Shultz and Thomas L. Whis1er (Chicago: Graduate School of
Business, University of Chicago, 1960), pp. 70-71.
28. Beckett, pp. 174, 177.
29. Beckett, p. 197.


135
Anticipated Problems
Certain basic causes of the deficiencies of MIS were
mentioned in Chapter IV.^ In the suggested model of the
controlled information system these causes have been elimi
nated, and hence it should not suffer from such deficien
cies. An effective integration of man/machine elements
would have a mutually reinforcing effect and remove the
limitations of both. The information controller would serve
as the communication link with the users, and it will be his
responsibility to ensure that only usable information is
supplied to them. Several difficulties may, however, be
anticipated in the operation of the suggested model. These
difficulties and the ways to overcome them are discussed
below.
Feasibility of the Discipline
of Information Control
One of the points repeatedly made in this study is that
an individual can not ordinarily fully acquire expertise in
several disparate areas. For information control the exper
tise to be developed will principally be an understanding of
the information needs of the various users and relating them
back to the sources of data. Control of the input and out
put, integration of computer-processed and manually pro
cessed information, and interpretation of feedback are multi
dimensional applications of this expertise.
15. See p. 106.


178
and make it accessible to users by means of integrated and
centralized data files, retrieval systems, and interactive
devices. The procedures used include techniques such as
model building, programmed decision making, and problem
solving. However, such systems operate on the basis of
established programs and lack a certain amount of flexi
bility. Moreover, in the absence of a proper integration
r
of men and machines, there is no adequate insistence on the
qualitative aspects of information (such as reliability),
and there is a lack of people who can effectively communi
cate with and understand the needs of various users. One
of the results is the production of an overabundance of
irrelevant information. In many organizations, there is
also an unbalanced development of managerial skills and
information handling techniques so that the sophisticated
information provided by MIS is not actually put to use by
the recipients.
A major conclusion that may be drawn from the fore
going is that in the modern environment neither accounting
nor MIS as presently established is able to serve as an
effective information system. There is still a need to
evolve a model which would have the capability to develop
various types of information and communicate them as per
users' requirements. It should also have sufficient flexi
bility to modify itself in keeping with changing needs and
be technically and economically feasible at all times.


THE ROLE OF ACCOUNTING IN
COMPUTER-BASED INFORMATION SYSTEMS
By
SURENDRA PRAKASH AGRAWAL
A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1973

ACKNOWLEDGEMENTS
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 students 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.
11

TABLE OF CONTENTS
Page
ACKNOWLEDGEMENTS ii
LIST OF TABLES ix
LIST OF FIGURES x
ABSTRACT xi
CHAPTER
I INTRODUCTION 1
The Problem under Study 1
Recognition of the Problem
in Literature 3
An Approach to Solve the Problem Posed 10
Research Methodology and Scope 10
Some Limitations to the Scope of
the Study 13
Organization of the Study 14
II SOME BASIC CONCEPTS, DEFINITIONS,
AND INTERRELATIONSHIPS 16
Purpose and Organization of the Chapter. 16
An Introduction to Systems 17
General Systems Theory 17
The Concept of Systems 20
The Systems Approach 24
Business Organizations from the
Systems Point of View 25
Purpose of the Organization 26
Structure of the Organization .... 27
Input, Output and Process of the
Organization 28
Component Subsystems of a Business
Organization 28
The Decision Making System 30
Purpose of the System 31
Structure of the System 31
iii

TABLE OF CONTENTS (continued)
Page
CHAPTER
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
III ACCOUNTING AS.AN INFORMATION SYSTEM ... 47
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
IV

TABLE OF CONTENTS (continued)
Page
CHAPTER
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
IV MANAGEMENT INFORMATION SYSTEMS 78
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
v

TABLE OF CONTENTS (continued)
Page
CHAPTER
IV (continued)
Inability of Decision Makers to
Specify Their Informational Needs . 103
Exclusion of Judgmental Factors . 103
Inadequate Control over Input .... 104
Lack of Flexibility in MIS 105
Incompatibility of Sophisticated
Information with Management
Capabilities 105
Basic Reasons of the Deficiencies
of MIS 106
Improvements in MIS Suggested in
Literature 107
Introduction of a New Human
Element in MIS 107
Acquisition of Skills in EDP
and Functional Areas 109
Source Data Automation 110
Fractionalization of MIS Ill
An Evaluation of the Proposals .... 112
Summary of the Chapter 114
V A SUGGESTED MODEL: THE CONTROLLED
INFORMATION SYSTEM 116
Purpose and Organization of the
Chapter 116
Characteristics of a Good Information
System 117
Capability to Develop Various
Types of Information 117
Capability to Communicate the
Required Information 118
Flexibility 118
Feasibility 119
Necessity of a Man/Machine System . 119
The Model of Controlled Information
System 121
Input Subsystem 124
Processing Subsystem 127
Output Subsystem 129
Developmental Subsystem 132
Specialized Skill Requirements 133
Information Control 133
Computer Operations 134
Operations Research 134
vi

TABLE OF CONTENTS (continued)
Page
CHAPTER
V (continued)
Anticipated Problems 135
Feasibility of the Discipline
of Information Control 135
Communication Gap Between Systems
People and Decision Makers 136
Time Dimension of the System 137
Controlled Information System and
Total Systems Concept 137
Evaluation of Controlled Information
System 140
Criteria of a Good Information
System 140
Dearden's Five Questions 142
Summary of the Chapter 144
VI THE SUGGESTED ROLE OF ACCOUNTING
IN CONTROLLED INFORMATION SYSTEMS .... 147
Purpose and Organization of the
Chapter 147
Role of Accounting Suggested in
Literature 148
An Overall Evaluation of the
Proposals 151
Role of Accounting in Controlled
Information Systems 151
Control of Input 152
Manual Processing of Data 154
Control of Output 157
Receipt and Interpretation of
Feedback 158
Participation in Operations
Research 159
Who'll Be in Charge? 161
Implications for Accountants'
Training and Education 162
Some Standards and Guidelines 164
Standards for Data and Information . 164
Guidelines for Receiving Feedback
from Users 170
Guidelines for Analyzing Informa
tion Needs 171
Summary of the Chapter 173
vi i

TABLE OF CONTENTS (continued)
Page
CHAPTER
VII SUMMARY AND CONCLUSIONS 175
Areas for Further Research 182
SELECTED BIBLIOGRAPHY 184
BIOGRAPHICAL SKETCH 195
VI11

LIST OF TABLES
Table Page
1 Characteristics of Systems Within
a Business Organization 45
IX

LIST OF FIGURES
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 123
X

Abstract of Dissertation Presented to the Graduate Council
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy
THE ROLE OF ACCOUNTING IN
COMPUTER-BASED INFORMATION SYSTEMS
By
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
;:i

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
xxi

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
research.
It is recommended that in the suggested model accoun-
f
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 therefor, 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.
xiii

CHAPTER I
INTRODUCTION
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
1

2
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 expected 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,

3
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 computer 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

4
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 developments, and
new information departments would evolve.^ Swyers thinks
that, as a result of the implementation of an integrated
management information system, the accounting information
2
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~2'0'6';
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, "Ot)erations Research and Its
Implications for the Accounting Profession," Accounting
Review, XLIII (April, 1968), p. 327.

5
opportunity. "Someone must rise to it. By tradition and
by proven record it ought to be the accountants."^ 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
7
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
8
or in another group. 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. ^
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), V.~3W.
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 (November, 1967), p. 3.
10.Horngren, p. 4.

6
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.
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
12
science (effective communication and human activation).
Staat's list includes computers, communication facilities
and techniques, economics, systems analysis and related
mathematical techniques, psychology, and sociology.^ 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.

7
14
background in understanding EDP applications. 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. ^
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
17
business finance theory.
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. 1
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.

8
knowledge:
(1) Accounting: financial and managerial
(2) Business, Finance, and Economics
(3) Quantitative Methods: 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, or his
carrying out a role within the total area of information
19
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.

9
information function but makes no explicit recommenda-
20
tion.
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-
21
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-
22
tion systems. Dearden thinks that the true management
\
information systems expert does not and can not exist -- no
2 3
man can possess a broad enough set of special skills.
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.

]0
or impracticable by others. There is, consequently, a need
to study this problem further with a view to finding an
acceptable solution.
An Approach 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.^ The most appropriate method
will depend upon the nature of the problem. One of the
24. American Accounting Associations 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.

11
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-
25
sideration to this type of research. While the principal
emphasis of the Committee is on the scientific method in
volving formation and testing of hypotheses, it finds that
f
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.

12
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 model is an important part
of its defense.
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
2 7
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.

13
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.

14
(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, very little attention seems to have been
given to the role of accounting in the operation of such a
2 8
system; this study will primarily aim at specifying that
role.
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^ 17.A.A.
Res earch Monograph #4 (New York: National Association of
Accountants, 1968);
Roger C. Vergin, "Computer Induced Organization
Changes," MSU Business Topics, XV (Summer, 1967), pp. 61-68.

15
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.

CHAPTER II
*>
SOME BASIC CONCEPTS, DEFINITIONS
AND INTERRELATIONSHIPS
Purpose and Organization of the Chapter
; 1
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.'*'
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.
16

17
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
2
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-
I
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.

18
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
3
theory have been mentioned in the literature.
Developing general modelsLook 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.

19
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."^
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.

20
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.

21
are useful in most circumstances, they are by themselves
7
inadequate in this field. Hall and Fagen think that the
concept of systems is simply not amenable to complete and
g
sharp description. A general idea, however, may be gained
from a consideration of definitions formulated by various
writers.
Ackoff has made an attempt to organize the concepts
and terms commonly used to talk about systems. He defines
9
a system as "a set of interrelated elements." Definitions
quite similar to this have been used by many other writers.
A feiv 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.H
Johnson, Kast and Rosenzweig -- ... an organized
or complex whole; an assemblage or combination
of things or parts forming a complex or unitary
whole.12
7. John A. Beckett, Management Dynamics: The New
Synthesis (New York: McGravT-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.

22
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.
Hall and Fagen -- 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.
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. ^ Haberstroh 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. 19 71) p. 7.
16. Stafford Beer, "What Has Cybernetics to Do with
Operational Research?" Operational Research Quarterly, X
(March, 1959) p. 3.

23
functional unity, and high internal interdependence as the
r 17
criteria of a system.
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-
18
sisting of variables which affect their state. Such sys-
f
terns have, inputs and outputs. They exchange materials,
19
energy or information with their environment. 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), pT 1174.
18. Ackoff, p. 663.
19. Hall and Fagen, p. 23.

2 4
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-
2 0
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
21
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.: Management Development Institute,
Division of Information Industries, Inc., 196 8) 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, 19 70), p. 29".

25
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
22
systems purpose, structure, process, input, and output.
Business Organizations from the
Systems Point of View
In terms of Boulding's hierarchy of systems, business
2 3
organizations can be placed at the eighth level. 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.11 See
the Committee's report, "Accounting and Information Systems,"
Accounting Review, Supplement to Volume XLVI (1971), p. 297.
23. Boulding, p. 205.

26
24
to the classical framework. Modern organization theory
considers a business organization as a system of mutually
dependent variables, 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
f
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 purpose(s) 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-
2 5
tional conflict. 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,

27
2 6
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
2 7
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
2 8
itself and its sister systems."
Structure of the Organization
An organization is a combination of human interrela
tionship systems and nonhuman systems, the former being
29
hierarchically oriented. 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. '
26. See Johnson et al., p. 371;
Joseph A. Litterer (ed.), Organizations: Structure
and Behavior (New York: John Wiley and Sons, 196 7), p. (T!
27. Alex Orden, "Man-Machine-Computer Systems," in
Management Organization and the Computer, Eds. George P.
Shultz and Thomas L. Whis1er (Chicago: Graduate School of
Business, University of Chicago, 1960), pp. 70-71.
28. Beckett, pp. 174, 177.
29. Beckett, p. 197.

28
30
large organizations is almost universal. 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
31
structure to one of process. A business organization has
a dynamic interplay with its environment, receiving inputs
32
from it and delivering outputs to it. 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. 149T
Johnson et al., p. 371.

29
(2) an information system, and
33
(3) an operations system.
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
34
which to divide the work elements. The essence of systems
engineering lies in recognizing and understanding constit-
f
uent specialities and allowing these to function only within
35
the context of integrating their efforts into a whole. 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.^
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-
204.
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.

30
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
37
a creative or evolutionary and developmental process. 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-
38
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, 196 2), pp 32 34
Murdick and Ross, pp. 46-47;
Simon also considers decision making as equivalent
to management. (Simon, p. 1.)

31
39
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.^
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 Anthonys framework, they are:
strategic planning, management control, and operational
41
control.
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., 19 70), pp. 30-31.
41.Anthony, pp. 16-18.

32
42
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.^ 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.

33
44
judgment, intuition, and creativity, or rules of thumb.
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 wrhich 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. 11T7 For a discussion of the distinction
between information and knowledge, see p. 40.

34
(3) Subjective judgment -- 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
rand 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 executives have
4 8
to be specially trained to carry out this function. 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. 58.
48. Simon, p. 8.

35
and/or subjective judgment of the decision maker.
The Information Svstem
-
Characteristics of the information system are as
follows.
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
49
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."^ 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.

36
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.^ 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
52
"the opposite of uncertainty." 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
5 3
actual state of affairs of concern to the user. Bedford
54
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. TOO.
52. James G. Miller, "Living Systems: Basic Concepts,"
Behavioral Science, X (July, 1965), p. 194.
i
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.

37
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.5^ 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
5 7
at hand...." 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
either.
55. Alfred Rappaport (ed.), Information for Decision
Making: Quantitative and Behavioral Dimensions (Englewood
Cliffs N. J. : Prentice-Hall, Inc. 1970) pi, 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.

38
At a more general level, information is considered as
5 8
"obtained knowledge, facts, data, or news." It can add
to a representation of what is known, believed, or alleged
59
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.
f
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.^ 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.

39
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
6 3
the event substituted in some sense stands for the other."
Martino also finds implicit in the term information the con
cept of flow. It moves from one person to another. When
f
it is absorbed, it is no longer information, but is knowl-
64
edge. Kostetsky thinks that information should be capable
of being perceived into an increase in knowledge by the
decision maker.^ Ewing takes the reverse route. He defines
knowledge as piles of information reposing in the executive's
66
memory.
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.

40
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 persons mind. Informa
tion is then one of the inflows into this reservoir. Other
inflows will include direct observation and perceptions made
6 7
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
t
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.^
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.

41
69
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
70
at higher levels more summarized information is required.
69. Sage, p. 63.
70. Gerald E. Nichols, "On the Nature of Management
Information," Management Accounting, L (April, 1969), p. 12.

42
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-
tive. 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
72
information to be submitted to them.
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.

43
to carry out the cost/benefit analysis of providing the
information.
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
73
scheduling; and process, quality, and inventory control.
Programmed decision making delegated to the operations sys
tem 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-
ciatxon 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.

44
materials and services. The inputs and outputs are exchanged
for money and such exchange is also part of the operations
system.
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

Table 1
Characteristics of Systems Within a Business Organization
System
Purpose
Structure
Process
Input
Output
Decision
making
system
To choose among
alternative
courses of
action
Men
Finding occasion to
make decisions, find
ing possible courses
of action, choosing
among them.
Information,
subjective
knowledge ,
j udgment
Decisions
Information
system
To provide
information to
other systems
and to external
users
Men,
machines
Perception, recorda
tion, storage, re
trieval, processing,
transmission, presen
tation, and pro
grammed decision
making
Data
Information
Operations
system
To carry out
physical oper
ations of the
organization
Men,
machines
Acquisition of
resources, and con
version or prepara
tion for customer
use
Money,
materials,
services,
decisions,
information
Money,
materials,
services

46
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.
i

CHAPTER III
ACCOUNTING AS 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
2
decision making. Until the advent of management informa
tion systems, accounting was the only major department
3
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, 19 66) n. 44 ;
Also see William E. Swyers, "Integrated Infor
mation Systems and the Corporate Controllership Function,"
Management Accounting, L (October, 1968), p. 18.
47

48
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
f
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
environment.
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.

49
Purpose of Accounting
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-
4
lyzed to determine the same.
f
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."^ A rationale of
these practices was given in Patn 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. Fl.

50
which were supposed to be "known and accepted."^ 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
7
for the formulation of dependable judgments." The 1948
Statement made only a slight change, and said that the
financial statements "must supply dependable information for
g
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 essentia] to an understanding of
9
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. Patn and A. C. Littleton, An Introduc
tion to Corporate Accounting Standards (Chicago: American
Accounting Association, 1940) pp. T] 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. S2~. (Emphasis
removed.]
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.

51
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-
10
tion."
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."
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.
12

52
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.^
1. Provision of information
A. To people outside the organization, such as
(1) financial statements to stockholders and
others
(2) reports filed with the Securities and
Exchange. Commission
(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,
including:
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), ppT '2 -'ll;
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, XLVTII (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.

53
(5) information provided to various government
agencies for specific purposes
(6) information to potential investors
B. To people \^ithin 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
v 14
below.
(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.

54
(5) Developments in the management science
techniques and electronic data processing
equipment
(6) Changes in general price level and their
impact on business, such as wage and price
controls
The noninformational functions carried out by accoun
tants are 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.^ 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
responsibilities.
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.

55
communication of reliable, financial information to the
decision making system of the organization and to people out
side of the organization. Certain noninformational functions
which have an intimate relationship to the development and
communication of such information are also performed by the
accounting system.
Structure, of Accounting
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
necessary.

56
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
17
provide information useful to management. 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
18
keeping with today's environment. 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
APBs 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.

57
19
such statements. 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 "management 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: American 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.)

58
(1) Looking at the organization as a whole -- The
20
accounting system is a model of the organization, and
accountants take a wholistic view of the same.
(2) Seeking financial aspects of states and events --
21
Accounting is financially oriented. Its main task is to
2 2
translate all the variables into financial terms. 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
2 3
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
24
the real world state or event it seeks to represent. 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 Cl i f f s 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. ^

59
25
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
2 6
specified by it enhances such reliability. The standard
of verifiability laid down by ASOBAT is a necessary attri-
2 7
bute of accounting information to make it reliable.
2 8
(4) Disinterestedness in the information supplied
The functions of accounting are neither in operations nor
29
in management. 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. He 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 "disinterestedness" 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
ferent ."
29. John P. Fertakis "Toward a Systems Oriented Con
cept of Controllership," Management Accounting, L (December,
1968), p. 6.

60
of neutrality in APB Statement #4 and the standard of freedom
from bias in ASOBAT are reflections of this attitude. 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
31
information to outsiders.
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
acceptance.
(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 CMarch,
1967), p. 3 ;
Bertram A. Colbert, "Pathways to Profit: The
Management Information System," Management Services, IV
(September-October, 1967), p. 19.

61
needs of the users of information. Accountants, therefore,
have to use their judgment 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.

62
Projected data based upon 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
32
accounting information. APB Statement #4 lays down the
following qualitative objectives for financial accounting:
32. ASOBAT, pp. 7, 3.

63
relevance, understandability, verifiability, neutrality,
33
timeliness, comparability, and completeness. Snavely
considers relevance, reliability, understandability, sig
nificance, sufficiency, and practicality as the necessary
criteria, and the information meeting these would have use-
34
fulness. While both ASOBAT and APB Statement #4 admit
the possibility of trade-off among the standards or objec-
i 35
tives laid down by them, Snavely rules out any such possi-
7 f.
bility among his criteria.'
Accountants also concern themselves with the authority
37
of the recipients of the information. 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
reporting.
Though accounting provides primarily financial (r
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
criteria.
37. £f. Goldberg: "... the purpose of accounting
reports, it would seem, is to inform persons entitled to
information." Louis Goldberg, An Inquiry Into the Nature
of Accounting (American Accounting Association, 1965),
p~] 5T] [Emphasis added.]

64
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.
However, 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
3 8
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.

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

66
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
ing.
(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.

67
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
39
the following comprehensive classification.
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.

68
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.^
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.

69
widely varying interests. "The facts that different deci
sions and different decision makers 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
41
users."
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
* j ,,43
reported upon."
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.
ASOBAT, p. 22.
43.

70
qualitative standards.
(2) Total information needs of the various users are
not precisely known.
' (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
44
described and evaluated below.
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).

71
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
tion.
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
information^ 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

72
of decision models used by external users of accounting
information. Examples 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.^ 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.^
(instead of money amounts), graphs, charts, and other
visual aids.
46. American Accounting Associations 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 nas 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.

73
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-
f
plate changes within the basic historical-cost-based
accounting which would broaden the measurement and recog-
48
mtion criteria. 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,
49
information theory, and statistical decision theory.
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.

74
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 the 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

75
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 becomes
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
f
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."
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.

76
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-
f
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
channels.
Specialized skill and expertise of accountants include
accounting techniques, an appropriate attitude toward work,
professional judgment, and a facility in noninformational
functions.
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

77
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
ment .

CHAPTER IV
MANAGEMENT INFORMATION SYSTEMS
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.
78

79
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
2
of business, they have also become more and more complex.
2. David M. Sage, "Information Systems: A Brief Look
Into History," Datamation, XIV (November, 1968), p. 64.

80
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,
3
and most recently by the use of the computer.
The term "management information system" originated in
the late 1950s or early 1960s.^ 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, Comnuters and Management (New
York: McGraw-Hill Book Co. 1970) pp. 13-18.
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.

81
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
obj ectives.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
management areas,
from
7
the various functional
Colbert--..an 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.

82
information is to be presented to him in such a
way so as to stimulate behavior that will lead
to the attainment of the goals established for
the entire management process.9
Toan--.a computer-based, integrated, accessible,
timely and/or interactive as well as important
to the essential functions of management.10
Godfrey and Prince-a computer-based informa
tion network encompassing 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.H
Stern--..an automated system which presents
information, both internal and external to the
business, that aids in making a specific set
of routine decisions.12
Kennevan--..an 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
process.13
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
him.

83
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-
14
lated, 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.^ 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.

84
their assigned responsibility at all levels.^ Integration
involves taking a wide variety of information and blending
17
it into a meaningful whole. It is possible to have
degrees of integration depending upon the design of the
18
system. u An integrated system may even be conceived of as
19
a combination of a number of interdependent subsystems.
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
, ,20
may be made.
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.

85
21
"total systems" is probably dead or dying. Toan observes
that the notion of "total" is now seen to be ridiculous in
22
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
2 3
integrated systems is, however, found to be on the increase,
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, Holden, 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.^
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), pi 37.
22. Toan, p. 78.
23. For example, see Neal J. Dean, "The Computer Comes
of Age," Harvard Business Review, XLVI (January-February,
1968), pp7 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. 17117

86
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
25
system. 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 part of this chapter.

87
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
2 6
by-product. 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
27
purpose.
26. See John G. Burch, Jr., "An Independent Information
System," Journal of Systems Management, XXIII (March, 1972),
pp. 36, 371
James D. Gallagher, Management Information Systems
and the Computer, AMA Research Study"ff5'l (New York: American
Management Association, 1961), p. 62.
27. Schoderbek and Schoderbek, p. 27.

88
Structure of MIS
In order to serve its purpose and to carry out its
process, an MIS has several elements: a data base, elec
tronic data processing devices and communication links, pro
grams and routines library, a standardized report system,
2 8
operations research, and programmed decision rules. This
structure may be considered to consist broadly of the com
puter and operations research, where the term "computer" is
used in a broad sense to include all EDP and communication
equipment, the data base, and the programs and routines
library. Human beings are, of course, required to install,
maintain and operate the system as well as to make improve
ments and changes as required by changes in the environment.
Insofar as the routine operation of the MIS is concerned,
man may be seen as the helper of the machine; only in the
design and development of MIS does he have the dominant role.
Input of MIS
The input of MIS is data. For computer-based systems
a distinction must be made between data capture and data
entry which are two separate operations. Data are meaning
ful to the person who originally captures them. This oper
ation is performed in the majority of instances by pencil
29
and paper. Their entry into the system requires
28. Rubin, p. 110.
29. Edward M. Bennett, "Data Entry Through Distributed
Data Processing," Journal of Systems Management, XX
(September, 1969),p^ 3"!

89
man/machine interface. In order to increase the accuracy
of the input, it has been suggested by some writers that the
two operations of capture and' entry may be unified and
30
carried out by the same person. Accuracy alone, however,
would not ensure reliability which requires a correspondence
between the data captured and state or event represented.
It seems that this aspect of the data input has not received
as much attention from writers in the field of systems
management as it deserves. Milano considers the question of
the responsibility for the integrity of the data base and
thinks that the person who shoulders this responsibility
should have some form of control over all aspects of the
* 31
system.
Process of MIS
This consists primarily of storage, retrieval, and
programmed operations; and interfaces with the entry of
input and communication of output. The level of technology
and the degree of sophistication play an important part in
the process of MIS; but the human involvement in its design
and development is the decisive factor in the efficient use
of the system. Model building, programmed decision making,
30. For example, see ibid., p. 30;
31.
Rubin, Vol. 4, pp. 1-2.
Milano, p. 20.

90
and problem solving form an important part of the process
of MIS.
Output of MIS
The output of MIS is information which is communicated
to the users. Earlier, it was indicated that providing the
totality of all the information is not now considered to be
an achievable objective. If the system is to be of any
value, the output should be designed using strict standards
32
and with the using environment in mind. Study of the user
needs which the output of the system must satisfy is one of
the important aspects of the design and development of MIS.
Dynamic Development of MIS
An MIS operates in a dynamic environment, and in order
to maintain its usefulness it should undergo continuing
modification and improvement. Moreover, since the MIS will
never be able to provide all the information required for
decision making, there always is scope for an expansion of
its activities. Restructuring the system by adding or sub
tracting elements and by adding or subtracting rules (rela-
33
tionships) is the very essence of the systems concept.
Operations research (hereafter referred to as OR) plays the
32. Norman H. Carter, "Introduction to This Data Gather
ing Issue," Journal of Systems Management, XX (September,
1969), p. 11.
33. Martino, p. 25.

91
crucial role in the dynamic development of the MIS by dis
covering new relationships and improving those under use.
A Model of MIS
A management information system as described above may
be represented by the diagram shown in Figure 2 on page 92.
After the input has entered into the system, it may either
be stored, or processed immediately. If stored, it may be
retrieved later on and then processed. After processing,
the information may again be stored, or immediately communi
cated as output. Stored information may be communicated
later on through retrieval. There may be various levels of
sophistication in these activities. Some examples are:
storage with sequential access, random access or on line,
batch processing or real time processing, and use of inter
active devices by users on a time-sharing basis. It is
essential that the OR section keep in touch with the infor
mation needs of the users and any changes therein. New or
better programs are developed with the help of OR, which may
be incorporated in the processing subsystem adding to, or
substituting, the older programs in use. Users may receive
some data directly or through other sources, and may also
contribute data as an input to the system.

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

93
Specialized Skills Required for MIS Operations
An MIS needs specialized skills of several different
disciplines. Its techniques and tools are borrowed prin
cipally from management science, accounting, computer tech
nology, operations research, systems engineering, economics,
statistics, information science, and behavioral sciences.
These disciplines lend to MIS a developed expertise in
problem solving. Several of the fields included in this
list are in themselves of an interdisciplinary character,
and hence, it may be regarded as repetitive. This is par
ticularly true of operations research which is sometimes
considered to be synonymous with management science and
adopts techniques from many disciplines. The skill
requirements for MIS may conveniently be summarized by
*7
including only computer technology and OR methods. This
is consistent with the structure of MIS mentioned in the
preceding section of this chapter. The role of computer
and OR will be further considered in this section.
MIS and the Computer
The term "computer" is being used in this study in a
very broad and undefined sense. It includes all electronic
34. Rubin, Vol. 5, p. 173.
35. E. Leonard Arnoff, "Operations Research and
Decision-Oriented Management Information System," Management
Accounting, LII (June, 1970), p. 12.
36. Holden et al., p. 166.

94
data processing and communication devices and techniques.
There are many levels of sophistication in the related tech
nology, and the term "computer" as used here covers any such
level.
It has been indicated earlier that the concept and
applications of MIS have evolved along with the development
of the computer and its commercial applications. The rela-
f
tionship between these two is so close that many writers
consider them to be almost synonymous, while others specific
37
ally state that they are not identical. Use of computers
is not considered necessary for the operation of MIS by some
3 8
of the authors. A more realistic view is expressed by
Beyer, who thinks that while a computer has little to do with
the concept of the systems, it is obviously essential to
39
their functional effectiveness. As pointed out in Chapter
40
I, this study relates primarily to those organizations
37. Among those who think they are synonymous is
Leonard W. Hein, "The Management Accountant and the Inte
grated Information Systems," Management Accounting, XLIX
(June, 1968), pp. 34-38;
Those who think they are not synonymous include
Toan, pp. 77-78;
Harry Stern, "Information Systems in Management
Science," Management Science, XIV (December, 1967), p. B-255
38. For example, see Robert S. Stich, "Pitfalls to
Systems Management," Management International Review, X
(1970/1), p. 20.
39. Robert Beyer, "Management Information Systems:
Who'll Be in Charge?" Management Accounting, XLVIII (June,
1967), p. 6.
40.See p. 13.

95
which use computers as an element of their information sys
tems. Hence, computer technology will be considered as a
necessary part of the skill requirements for MIS operations
The computer offers a number of advantages to business
organizations: (1) it is extremely fast and accurate;
(2) it can carry out arithmetic and logic functions; (3) it
has capacity to store and handle large volumes of informa
tion; (4) its costs are at an acceptable level; and (5) it
greatly improves accessibility of information to users by
integrated and centralized data files, retrieval systems
and interactive devices.^ In theory, the computer can
perform any specified task that does not involve physical
M 2
impossibilities or logical contradictions. However, tech
nological development has not quite reached that stage.
Time-sharing, table-top display units and other interactive
devices, remote data entry systems and terminals, on line
real time systems, computer output microfilm, and computer
instructions in ordinary language are among the techniques
which have been or are being developed to improve the com
puter's usefulness. However, for the effective and profit
able use of the computer, operations required to develop
41. See Beyer (1967), p. 6;
Arthur B. Toan, Jr., Using Information to Manage
(New York: Ronald Press Co., 1968), pp. 112-117.
42. Ira G. Wilson and Marthann E. Wilson, Information,
ComDUter,and System Design (New York: John Wiley and Sons.
IncT,' 1967), p. 19.

96
information should have the following characteristics:
(1) a number of interacting variables, (2) reasonably accu
rate values, (3) consideration of speed as an important
factor, (4) requirement of accuracy, (5) repetitive applica-
4 3
tions, and (6) large volume of input and output. It may
44
be noted that, except in certain limited ways, the com
puter has no capability to process nonquantitative data.
f
Such data, however, often play a part in the outcome of
decisions.^ Because of these constraints, it is difficult
to use computers in the area of top level decision making
to generate new information in new forms.^ Moreover, being
a highly sophisticated tool, the computer needs to be prop
erly controlled. As stated by May, "... without adequate
control it is entirely possible that the computer will be
4 7
the weakest link in an information processing system."
43. John Dearden, "Can Management Information be Auto
mated," Harvard Business Review, XLII (March-April, 1964),
pp. 130-131.
44. Examples of the handling of nonquantitative data
that can be performed on the computer are the storage,
indexing, and retrieval of such data.
45. Ernest Dale, "A Plea for Coalition of the Quanti
fiable and the Non-Quantifiable Approaches to Management,"
Academy of Management Journal, XII (March, 1969), p. 16.
46. James W. Taylor and Neal J. Dean, "Managing to
Manage the Computer," Harvard Business Review, XLIV
(September-October, 1966) p. 105.
47.Phillip T. May, Jr., "System Control: Computers
the Weak Link?" Accounting Review, XLIV (July, 1969), p. 592.

97
MIS and Operations Research
Operations research is the systematic study of the
basic structure, characteristics, functions and relation
ships of an organization. It is based on the assumption
that economic systems, like the physical world, contain a
4 8
good deal of orderliness and regularity. Hartley defines
it in the following words:
Operations research is a collective effort of
many types of talent concentrating on the appli
cation of the scientific method to the develop
ment of predictive models which describe the
stable patterns of order underlying certain
business operations and thereby enabling the
provision of quantitative information which is
helpful in solving executive type problems.49
Many OR problems are generated from the need to examine
or model operational subsystems for use in the MIS. Model
ing, in this context, is the development of a mathematical
or statistical formulation to act as a replica of the opera
tion to be examined. Some of the widely used techniques of
OR are: linear programming, network techniques, dynamic pro
gramming, queuing theory, simulation, games and decisions,
and statistical tools.^ An MIS may adopt either the stand
ard models which have been developed and are extensively
48. Arnoff, p. 12.
49. Ronald V. Hartley, "Operations Research and Its
Implications for the Accounting Profession," Accounting
Review, XLIII (April, 1968), p. 321.
50. For a brief discussion of these techniques and
their applications, see Rubin, Vol. 5, pp. 173-178.

98
used, such as inventory models, statistical decision theory
models, PERT/CPM, and capital budgeting models; or ad hoc
models developed to fit the specific requirements of a
problem.^
OR gives consideration to a practical solution of a
problem as contrasted to the purely mathematical, or theoret
52
ical, solution. A solution control process is an essen
tial part of OR. It is necessary for evaluating and making
a decision about the validity, usefulness and need for
changes in any model that is being used repetitively. In
terms of MIS, the model development process of OR will be
required in the original design and subsequent expansion of
the system, while the solution control process is necessary
for its proper control and modification needed to keep it
consistent with the changing internal and external environ
ment.
For a successful solution by the application of OR tech
iques, a problem should meet several conditions: (1) It
must be possible to represent the important aspects of the
situation by well-defined mathematical variables. (2) The
estimates of its parameters should have sufficient accuracy.
(3) It should fit the available mathematical tools. (4) It
51. Hartley, p. 324.
52. Arnoff, p. 13.
53. Hartley, pp. 323-324.

99
should be small enough for calculation to be made in a reason
able time and with reasonable cost.^
Limitations and Deficiencies of MIS
A number of empirical and other studies reported in the
literature bear out the fact that expectations concerning
MIS have met only with partial success in most organizations
f
and that it has not been possible to utilize in full the
potential of the computer. ^ The face.tious definition of
MIS coined by Newlin, which is quoted at the beginning of
this chapter, conveys this situation very forcefully. Some
important deficiencies in the operations of MIS are listed
below.
54. Herbert A. Simon, The New Science of Management
Decision (New York: Harper and Brothers Publishers, IWO) ,
p. 17.
55. For example, see Russell L. Ackoff, "Management
Misinformation Systems," Management Science, XIV (December,
1967) p. B-147;
William M. Zani, "Blueprint for MIS," Harvard
Business Review, XLVIII (November-December, 1970) p. 95;
Frank P. Cougdon, Jr., "Advance Planning for the
Systems Function," Journal of Systems Management, XXI
(August, 1970), p. 13;
Sollenberger, p. 30;
Donald S. Feigenbaum, "The Engineering and Manage
ment of an Effective System," Management Science, XIV
(August, 1968), pp. 722-724;
Ward A. Fredericks, "A Manager's Perspective of
Management Information Systems," MSU Business Topics

100
Overabundance of irrelevant information.--In many
organizations with computer-based MIS, managers often suffer
from an information overload.^ "it is so easy to get so
much information so fast from the computer files that tempt-
ation [to supply all of it] overcomes." There is a
tendency to communicate all the data that anybody might
5 8
need. The overabundance relates to information that is
irrelevant to the needs of the users. Managers must spend
a great deal of time separating the relevant from the irrele
vant, and searching for the kernels in the relevant docu-
59
ments. In the colorful words of Martino: "We are drown
ing in a sea of facts while dying of thirst for information.'
(Spring, 1971) pp. 7-12;
John T. Garrity, "The Management Information Dream
-- The End or a New Beginning?" Financial Executive, XXXII
(September, 1964), p. 11;
John Diebold, "ADP -- The Still-Sleeping Giant,"
Harvard Business Review, XLII (September-October, 1964),
P- 60
Edward M. Tolliver, "Myths of Data Automation,"
Journal of Systems Management, XXI (August, 1970), p. 37.
56. Ackoff, pp. B-147-148.
57. Ronald A. Bridges, "The Mad, Mad World of Informa
tion," Journal of Systems Management, XXIII (January, 1972),
p. 17.
58. Elmer B. Staats, "Information Needs in an Era of
Change," Management Accounting, L (October, 1968), p. 14.
59. Ackoff, p. B-148.
60. Martino, p. 31.
,60

101
Inadequate knowledge of information needs.- Information
is not always tailored to users needs, presumably because
of the failure to ascertain their specific requirements.^
Systems people are often unaware of the exact needs of the
6 2
management. One author thinks this factor to be of such
importance that he considers the practical imaginative deter
mination of the information needed as responsible for 901
r A 3
of the successful utilization of the computer.
A communication gap between the systems people and
users of information.--This is perhaps the one deficiency
which has attracted the attention of the largest number of
64
researchers, and is at the root of many other deficiencies
in the operations of MIS. The communication gap exists not
merely between the systems people and the users of informa
tion, but among systems people also. Stuart describes the
situation very vividly and effectively:
61. Staats, p. 14.
62. Gallagher, p. 13.
63. Tolliver, p. 38.
64. For example, see John B. Wallace, "Improving Com
munication Between Analysts and Users," Data Management,
X (June, 1972), p. 21;
William L. Kelly, "General Management's Understand
ing and Use of MIS," Data Management, VIII (September, 1970)
pp. 102 104 ;
Walter J. Stuart, "An Experiment in DP Management
-- Revisited," Datamation, XV (November, 1969), p. 151;
Joseph Poindexter, "The Information Specialist:

102
... systems accomplishment involves a great deal
of communication, and very difficult communica
tion at that. It seems that those concerned all
speak in different languages, not only with
reference to the user but even right there in
the computer complex. Input/output staff are
thinking about the source data and the tables
or graphs which they must review and approve.
Operators tend to deal with the hardware, the
dials, buttons and routines of processing.
Analysts speak a jumble of fast-changing com
puterese and what little they have come to under
stand of the substance of their projects. Pro
grammers actually begin to think, and I have
heard at least one habitually sneak in languages
like COBOL. Data librarians are involved with
reel numbers, disc packs, dirty tapes, reten
tion dates, and that painful round of data
journals. Users, of course, find themselves
unable to speak to or understand anyone in the
complex, except perhaps the review clerks who
are really in no position to help them. These
are simply variations of the communications
problem which has been beaten to death in
modern management literature.65
i
Moore also provides a graphic description of the hopeless
ness of the situation:
A user nresumably knows what he wants, but he
typically cannot communicate with the machines
and has great difficulty in explaining his need
to the man who can make the machines talk. The
EDP analyst-programer presumably can make the
From Data to Dollars," Dun's Review, XCIII (June, 1969),
p. 36 ;
C. F. Tilstra, "Communicating MIS," Journal of
Systems Management, XXIII (June, 1972), pp. 36 38.;
Michael D. Moore, "Communication Between Manu
facturing and Systems Groups," Journal of Systems Manage
ment, XXI (October, 1970), pp. 22-24 ;
William Exton, Jr., "The Information Systems
Staff: Major Obstacles To Its Effectiveness, And a Solution,"
Journal of Systems Management, XXI (July, 1970), p. 34.
65. Stuart, p. 151.

103
machine sing if he wants to, but he typically
has a problem scoring the music because he
can't figure out the user's composition.66
Inability of decision makers to specify their informa
tion needsInadequate knowledge of the information needs
of decision makers exists not solely because of the failure
on the part of systems analysts to ascertain the same.
Often, the decision makers themselves are not sure of the
information they require. For a manager to know what infor
mation he wants, he must be aware of each type of decision
he would make and have an adequate model of each. These
6 7
conditions are seldom satisfied. Schoderbek and Schoder-
bek state that there is much weighty evidence that managers
can not identify the important variables involved in deci
sion making and can not reduce the decision process to
quantifiable expressions. Most managers do not know
nearly as well as they think they do the way in which they
actually make decisions.
Exclusion of judgmental factors.--In an earlier chapter
it was pointed out that decision making involves the use of
subjective knowledge and subjective judgment of the decision
66. Michael R. Moore, "Pitfalls in Planning an EDP
Installation," Management Services, V (September-October,
1968) p. 29.
67. Ackoff, p. B-149.
68. Schoderbek and Schoderbek, p. 28.
69. George F. Weinwurm, "Managing Management Informa
tion," Management International Review, X (1970/1), p. 43.

104
70
maker. These, by definition, can not be supplied by a
computer-based information system. The computer requires
only unequivocal instructions, and it is not possible to
communicate undocumented judgment and interpretations to
71
the computer.
Inadequate control over inputComputer input is given
less thought than programs. This situation arises because
of the attitude that even a poor method of creating input
works, the fact that source materials are created in areas
outside the MIS, and the tendency to consider that the "world
72
ends at the door of the computer room." Sollenberger
found that assigning responsibility for the quality of input
73
data is a relatively new problem. May considers the con
trol of input data as one of the most critical areas in the
MIS and thinks that such control should apply both to the
methods of capturing data and to the accuracy of the data
captured.^
70. See pr>. 33-34.
71. Charles L. Long, "Needed: A New Profession," Journal
of Systems Management, XXII (June, 1971), p. 33.
72. Rubin, Vol. 4, p. 1.
73. 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), p. 72.
74.May, p. 589.

105
Lack of flexibility in MIS.--A large computer project
75
is always a one-time job. An MIS lacks flexibility and
7 6
is difficult to change.' Prince thinks that in a dynamic
setting where short-run objectives may change frequently,
77
MIS may not be suitable or feasible. The Committee on
Information Systems points out the need for flexible infor-
7 8
mation systems.
Incompatibility of sophisticated information with
management capabilities.--An MIS produces highly sophis
ticated information. The OR specialists are trained to
avoid suboptimization and hence create "grand schemes."
The management, however, has not prepared itself to use such
79
analyses. It does no good to install systems of a high
order if managers at all levels are unable to interpret and
8 0
make use of their output. The quality of information can
be upgraded much more rapidly than the quality of the
75. J. E. Connor, "On-Time Systems Management," Data
mation XV (April, 1969), p. 60.
76. Toan (1970), p. 80.
77. Thomas R. Prince, Information Systems for Management
Planning and Control (Homewood, Ill..Richard D. Irwin, Inc..
woy, pP: 43-44.
78. 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. 195.
79. Robert F. Vandell, "Management Evolution in the
Quantitative World," Harvard Business Review, XLVIII
(January-February, 1970), p. 84.
80.Sanders, p. 149.

106
81
management. Hence, the need to educate managers is con
sidered to be a vital step in attaining an efficient system.
Basic Reasons of the Deficiencies of MIS
Because of the deficiencies just discussed, management
information systems have not been able to adequately achieve
their purpose of providing information to the other systems
of the organization. It is not suggested here that all such
systems suffer uniformly from all these deficiencies. This
discussion does, however, imply that for a computer-based
information system to be successful, care must be taken to
avoid the possibility of their occurrence.
Though some shortcomings may be caused by the poor
design or poor implementation, the following appear to be
the basic causes of the observed deficiencies of MIS:
(1) Limitations of the computer and OR methods
which constitute the structure of MIS.
(2) A lack of people within the system who can
effectively communicate with and understand
the needs of management and other users of
information.
(3) Unbalanced development of managerial skills
and information processing techniques.
81. Donald F. Cox and Robert E. Good, "How to Build a
Marketing Information System," Harvard Business Review, XLV
(May-June, 1967), p. 152.
82. Sollenberger (1968), p. 92;
Also see Sanders, p. 149.
82

107
Improvements in MIS Suggested in Literature
A number of suggestions have been made in the litera
ture to improve MIS. These suggestions revolve around a few
basic ideas which are briefly described and evaluated below.
Introduction of a New Human Element in MIS
Various writers have recommended the addition of a new
f
human element in the system, which would eradicate some of
the deficiencies observed in its operations. However, the
functions specified for this new agency in the various pro
posals vary widely.
83
Brown has urged the creation of an information agency
consisting of representatives from all departments of the
organization. This agency would integrate, evaluate, and
compare the various kinds of information coming into the
organization, and would have no departmental bias. However,
the search for information and its codification would be
carried out by the intelligence mechanisms under the control
of the various levels of management. Under Brown's sugges
tion, the information agency would be merely a clearinghouse.
Not much advantage would be taken of functional specializa
tion, and the organization would not receive the benefits of
progressive segregation of its subsystems.
83. Warren B. Brown, "Systems, Boundaries, and Informa
tion Flow," Academy of Management Journal, IX (December,
1966) pp. 318-32 7.

108
8 4
Rubin would like to introduce a data control and
design authority under the implementation manager of MIS.
It would have absolute authority over the data itself and
how it is used.
8 5
Cox and Good suggest the use of information coordina
tors who would be capable of understanding both the informa
tion needs of the management and the systems problems.
Long*^ finds the need for a new profession -- that of
information engineers. There would be an information engi
neering office in each major functional area responsible for
analyzing and defining in noncomputer terms the systems
objectives and requirements of the staff and operating
managers. Information engineers must be developed from
people with analytical expertise and an ability to logically
define complex conditions, parameters, and constraints. This
suggests that they should come from professions such as
management analysis or industrial engineering. The members
of the new profession suggested by Long would tackle only
one of the problems faced by MIS -- that of understanding
the information needs of the decision makers. If a distinct
profession has to be introduced into the business organiza
tion, it may be worthwhile to investigate whether the
84. Rubin, Vol. 5, p. 136.
85. Cox and Good, pp. 150-151.
86. Long, p. 33.

109
information system may be improved in other areas also by a
proper and expanded definition of the functions of such a
profession.
Acquisition of Skills in EDP and Functional Areas
Several authors have suggested that skills relating to
EDP as well as those relating to functional areas of the
business should be acquired by the same set of people so
that they may communicate with each other better and under
stand the needs and problems of each other. This would,
hopefully, remove several of the deficiencies in the opera
tion of MIS.
8 7
May recommends that the systems personnel should
possess technical ability as well as a comprehensive knowl
edge of business areas being automated. On the other hand,
8 8
Kelly thinks that the functional managers should be ade
quately informed about the MIS. Kelly has made this sugges
tion on the basis of the results of his empirical study in
which he found the following means of dialogue between the
systems specialists and decision makers: the question and
answer technique (where the systems man asks the questions);
assignment of a systems man to the functional user group; or
assigning a man from the user group to the systems depart
ment. He did not find any of these approaches to be adequate
and therefore made the suggestion mentioned earlier.
87. May, pp. 587, 588.
88. Kelly, p. 103.

110
Some other writers, however, have expressed serious
doubts about the feasibility of the implementation of such
89
suggestions. Dearden asserts that no man can possess a
broad enough set of special skills, and that the "true MIS
9 0
expert" does not and can not exist. Similarly, Long
thinks that to expect even the most capable individual to
be both an expert systems designer and a functional expert
f
is unrealistic, except in the case of fairly standard func
tions such as payroll accounting.
Source Data Automation
Mechanization of the input process has been suggested
by several writers to control the input to the system.
91
Bennett distinguishes between the operations of data cap
ture and data entry, and suggests the unification of the
two, giving the same people who capture data the capability
of entering them into the system in computer usable form.
This would involve a man/machine interface at the data cap
ture position.
92
Rubin specifies three types of source data automation.
In a fully automated system, a machine produces the original
89. John Dearden, "MIS Is a Mirage," Harvard Business
Review, L (January-February, 1972), p. 93.
90. Long, p. 33.
91. Bennett, pp. 30-31.
92. Rubin, Vol. 4, pp. 7-14.

Ill
information. In a nartially automated system, the machine
would accept a part of the input in some "machinable" form
and merge it with manual information. In a manual system,
a manually operated mechanism would be used to encode data
into digital form.
Fractionalization of MIS
In order to make an MIS more manageable and to improve
its efficiency, several alternative models of such a system
have been suggested in the literature. These proposals
amount to a division of MIS into several systems having
certain common links.
9 3
Moravec has proposed a "fundamental information sys
tem." This system would contain only that part of data
which is considered "absolutely essential" to the operation
of the organization. All other data would be kept outside
the system. However, data would be recorded only once at a
central location.
94
Dearden suggests the breaking down of the MIS hori
zontally and vertically. According to his scheme, the func
tion of systems specification (e.g., information to be
93. Moravec, pp. 37-45.
94. John Dearden, "How To Organize Information Systems,"
Harvard Business Review, XLIII (March-April, 1965),
pp. 65-73;
Also see John Dearden and F. Warren McFarlan,
MIS: Text and Cases (Homewood, Ill.: Richard D. Irwin. Inc.,
W66Y.

112
developed, its timing, and the format of inputs and outputs)
should be decentralized to the operating management, while
data processing and programming should be centralized. A
business organization would have several information systems,
major among them being the financial information, personnel
data, and logistics information systems, and the minor sys
tems including marketing, research and development, strategic
planning, and executive observation. All the major systems
and some of the minor systems would use the centralized data
base and EDP facilities, while other minor systems would
carry out their own data processing. According to Dearden,
this model would have the advantage that the information
actually needed by users would be developed; different kinds
of skills in specifying information needs would be fully
utilized; and the centralization of the technical processing
aspects would lend to economy and use of specialized knowl
edge and skill.
An Evaluation of the Proposals
The individual suggestions made in the literature are
directed at, or appear to be adequate for, the solution of
particular problems only. If any fundamental changes must be
made, they should be such as to be capable of eradicating all
or most of the observed deficiencies of MIS. Proposals for
improvements should be evaluated keeping this situation in
mind.

113
Introduction of a new human element within MIS may be
a good way to solve many of the problems. Its functions
should, however, not be confined to those suggested in
individual proposals discussed earlier. This possibility
will be further explored in Chapter VI of this study, and
an investigation will be made as to what functions such a
new agency may be expected to carry out successfully so as
to eliminate the observed deficiencies of MIS.
The acquisition of expertise in diverse fields of func
tional areas of business and EDP by the same set of people
is a doubtful proposition and does not seem to be a realis
tic solution to the problems of MIS. Similarly, the proposal
for source data automation might not be found to be feasible
if the reliability and accuracy of the input must be assured
by prior verification and validation.
A fractionalization of the MIS would prevent organiza
tions from taking advantage of advanced technical capabili
ties such as integrated systems, interactive devices, model
building, problem solving, and programmed decision making
tools. Mere automation of existing information systems would
not prove to be an advantageous utilization of computers and
other advanced technological developments.

114
Summary of the Chapter
A management information system is an integrated system
which uses data as its input, processes them with the aid of
electronic data processing 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 infor
mation needs. There are no specific constraints on its
input, output and process. The process includes model
building, programmed decision making, and problem solving.
Since the "total systems" concept is no longer considered to
be an achievable objective, it is not referred to in this
description of MIS.
An MIS consists primarily of the computer and opera
tions research methods and specialized skills and expertise
in these areas are required for its successful operation.
The computer has the capability of processing large volumes
of data accurately and extremely fast, but it is suitable
for developing only certain types of information. Operations
research is based on the assumption that economic systems
contain a good deal of orderliness and regularity. Its
techniques are helpful in solving various types of problems
which meet certain conditions.
It has been observed that in many empirical and other
studies most organizations are unable to employ their manage
ment information systems effectively. The following prin
cipal deficiencies have been pointed out by researchers in

115
this field:' (1) an overabundance of irrelevant information,
(2) inadequate knowledge of information needs, (3) a communi
cation gap between systems people and users of information,
(4) an inability of the decision makers to specify their
information needs, (5) exclusion of judgmental factors,
(6) inadequate control over input, (7) a lack of flexibility
in MIS, and (8) an incompatibility of sophisticated informa
tion and management capabilities. These deficiencies can be
related to the basic limitations of the structure of MIS, a
lack of people within such systems who can communicate with
and understand the needs of users, and an unbalanced devel
opment of managerial skills and information processing tech
niques .
Suggestions made in the literature for improvements in
MIS revolve around ideas of introducing a new human agency
within MIS, requiring acquisition of specialized knowledge
both of functional areas of business and of EDP by the same
set of people, mechanizing the input process, and fraction
alizing the MIS. It seems that the inclusion of a new human
element within MIS has the greatest potential of eradicating
the deficiencies of such systems. However, the functions of
such an agency need to be clearly indicated.

CHAPTER V
A SUGGESTED MODEL: THE CONTROLLED
INFORMATION SYSTEM
Purpose and Organization of the Chapter
This study has so far considered the need for and
importance of information for a business organization and
the two alternative systems which are used in practice to
generate information. It was determined that neither of
these was able to fulfill adequately the information needs
of the various users in the modern environment. Also, none
of the suggestions given in the literature for their im
provement appear to be capable of leading to the achievement
of this end. The purpose of this chapter is to suggest a
model of a computer-based information system which would not
suffer from the problems faced by the existing systems. The
suggested model will be referred to as the controlled infor
mation system.
The characteristics of a good information system will
first be considered. The new model, as well as its elements
and specialized skill requirements, will then be described.
Finally, difficulties anticipated in the operation of the
suggested model will be investigated, and the model will be
116

117
evaluated on the basis of the criteria developed in this
chapter as well as some of the criteria proposed in the
literature.
Characteristics of a Good
Information System
Before developing a model of an information system it
is necessary to determine the characteristics of such a
system which may be used as criteria to evaluate its sound
ness. These characteristics may be derived from the purpose
of the information system and from the deficiencies observed
in the operation of various systems which it should try to
avoid. These matters have been discussed in some detail in
the preceding chapters of this study. Utilizing the ideas
gleaned from these discussions, the characteristics of a
good information system may be briefly described as follows.
Capability to Develop Various Types of Information
An effective information system should have the capacity
to accept and process all types of data (such as quantita
tive, nonquantitative, internal, external, past, present or
projected) and to utilize all appropriate techniques and
procedures to develop the required information (including
the modern model building, problem solving and programmed
decision making techniques).

118
Capability to Communicate the Required Information
An efficient information system should have the capacity
to fulfill the informational requirements of the decision
making and operations systems of the organization and of
the people outside the organization. In order to have this
capability, the needs of the users must be known, and the
system should have adequate filters to ensure that informa-
f
tion is communicated in accordance with such needs. If the
recipients of information are themselves not sure of their
requirements, the information system should be able to
furnish information which may be reasonably expected to be
used by the recipients and should keep in constant touch
with their actual needs. It must avoid supplying informa
tion which is either not needed or is unused. The level of
sophistication of the information supplied must be in keep
ing with the level of sophistication of the users. Where
interactive devices are to be used by the decision makers,
the system should provide adequate facilities for the same,
such as a proper and constantly updated data base and an
appropriate programs library.
Flexibility
The system should be amenable to change in accordance
with the changing needs of the users of information. To
accomplish this, it will be necessary to determine changes
required and to be able to give effect to them.

119
Feasibility
- i...
The model should be capable of being put into actual
practice, both technically and economically. The principal
economic aspect of the system would be the outcome of a
cost/benefit analysis. Such an analysis may be carried out
at two levels -- total cost and total benefits of the sys
tem as a whole and the incremental cost and incremental
benefits of any additions or modifications in the system.
It may be noted that these characteristics relate to
the information system and not to any particular item of
information developed and supplied by such a system. The
standards relating to information as such will be considered
in the later parts of this chapter and in Chapter VI.
Necessity of a Man/Machine System
In order to be able to acquire the characteristics
mentioned in the foregoing section, the information system
must be a man/machine system. Both men and machines have
their capabilities and limitations. Advantages of utilizing
computers and limitations on the types of information that
can be developed with the use of computers were mentioned
in Chapter IV.'*' Human beings have the capacity of creative
thinking, use of judgment, and flexibility in their approach;
but they have low channel capacity, lack of reliability, and
1. See pp. 95-96.

120
2
poor computational ability. A proper combination of men
and machines may be expected to have a mutually reinforcing
effect and overcome the deficiencies of both.
Man has a role to play in any system, and "full auto
mation" can never be achieved. Human beings must always
supply the initiative, design the system, set criteria of
satisfactory performance, operate the system, make constant
adjustments in keeping with changing conditions, and take
3
action if an unforeseen crisis arises. However, in a man/
machine system, man must be recognized as one of its essen
tial parts and must be integrated into the system.^ The
functions which are best handled on a computer can be
mechanized, and those which are best handled manually should
be left for men.^
In the literature, initially, emphasis had been placed
upon the technical aspects of information systems. Only
2. Chadwick J. Haberstroh, "Organization Design and
Systems Analysis," in Handbook of Organizations, Ed. J. G.
March (Chicago: Rand McNally and Co., 196 5 3 p. 1176.
3. John A. Beckett, Management Dynamics: The New
Synthesis (New York: McGraw-Hill Book Co.,1971), pp. 204-205
Ira G. Wilson and Marthann E. Wilson, Information,
Computers, and System Design (New York: John Wiley and
Sons, Inc. 1967), p. 97
4. Martin L. Rubin, Handbook of Data Processing
Management (New York: Auerback Publishers, 19 71) Vol. 5,
p. 132.
5. R. L. Martino, Information Management: The Dynamics
of MIS (IVayne, Pa.: Management Development Institute,
Division of Information Industries, Inc., 1968), p. 77.

121
recently consideration is being given toward blending the
technical and human elements with a view of attaining a
greater degree of both effectiveness and efficiency through
integration.^ One of the important characteristics of the
model developed in this study is an effective functional
integration of man/machine elements of the system.
The Model of Controlled
Information System
The suggested model of the controlled information sys
tem is presented diagrammatically in Figure 3 on page 123.
In this system data must meet certain standards before they
are accepted into the system. Two channels are provided for
the processing of data. Programmed manipulation of quanti-
7
tative data is carried out on the computer. Nonprogrammed
manipulation of quantitative data and processing of non-
quantitative data are handled manually (with or without the
aid of some mechanical devices). Results of the two pro
cedures are combined by manual input into the computer and
stored for reporting as output. However, before communica
tion to users, the information must also meet certain
standards. The dynamic development of the system is
6. Tribhowan N. Jain, "Liveware Approach to Informa
tion Design," unpublished paper, p. 2.
7. Some nonquantitative data may also be processed by
the computer, particularly for storage, indexing and
retrieval.

1. STANDARDS FOR INPUT
2. DATA FOR MANUAL PROCESSING
3. MANUAL PROCESSING (STORAGE, RETRIEVAL,
MANIPULATION)
4. DATA FOR COMPUTER PROCESSING
5. COMPUTER PROCESSING (STORAGE,
RETRIEVAL, MANIPULATION)
6. COMBINATION
7. INFORMATION AVAILABLE FOR REPORTING
8. STANDARDS FOR OUTPUT
9. DEVELOPMENT (FEEDBACK AND OPERATIONS
RESEARCH)

123
Figure 3. A model of controlled information system.

124
ensured by continuing operations research which utilizes
feedback from users, persons controlling input and output,
and persons manipulating data. New techniques and procedures
developed on the basis of such research are added to, or
modify, the existing techniques and procedures. Users of
information may receive some information either directly
from the sources of data or through other channels and may
f
also contribute to the data input of the system. The vari
ous elements of this system are described below in some
detail.
Input Subsystem
It was indicated in Chapter II that the input to an
information system is data. Data are defined in this study
as symbolic representations of some real world state or
event which when communicated to an individual add to his
knowledge. It has also been stated that data may be of
various types, such as internal, external, quantitative,
O
nonquantitative, past, present or projected.
The responsibility of the input subsystem of the con
trolled information system will be to decide what data to
accept into the system. One guideline for this purpose
would be the type of data being currently used. But there
may be some new type of data which has the potentiality of
being used in the future,and should, therefore, be accepted
8. See p. 41.

125
into the system. This will require exercise of subjective
judgment. Moreover, when some such data are observed, a
feedback should be made to the developmental subsystem so
that adequate consideration may be given to their use in
the system. Such feedback must include not only the descrip
tion of the new type of data, but also the reasons why and
how such data may conceivably be used. Changes in the
r
nature of data collected on a routine basis should also be
similarly dealt with.
Reliability of input is a precondition to the relia
bility of output of the system. It was indicated in Chapter
III that accountants take great care to ensure that only
9
reliable input enters the accounting system. On the other
hand, while systems specialists in management information
systems seem to have considerable concern for the accuracy
of data, they generally do not consider other aspects of their
reliability.^ Reliability of data may be defined as the
certainty that the data correspond with the real world state
or event they seek to represent. Reliability may be thought
of as a continuum, and data available may have various
levels of reliability. It is suggested that several levels
of reliability may be specified, and all data accepted into
the system should be categorized accordingly. A record
9. See pp. 61-62.
10. See pp. 88-89.

126
should be kept of the reliability level of data being used
in the development of information,and, if appropriate pro
cedures have been used, such information should also be
considered to have the same reliability level. If several
categories of data are used in the development of a particu
lar piece of information, the reliability level of such
information will be the same as that of the data with the
lowest reliability level used in the process. For routine
and repetitive data, it is possible to establish standard
rules or procedures to categorize them according to their
level of reliability. But for other types of data, the
reliability level of each item must be determined individu
ally. In such cases, rules may be laid down for general
guidance. But for truly exceptional items, the person in
charge of the input subsystem will have to make a decision
about their reliability level, which in turn may require
consultation with the other systems of the organization.
Data entering into the system should be properly
authorized. For internal and routine data the authorization
may be in the form of appropriate validation or verification.
External data and projected data often may not be verifiable
and should, therefore, be expressly authorized to enter into
the system.The question as to which particular person
11. An example would be the projection of national in
come over the next several years which may be required as
input into the model building programs of the organization.
A number of predictions are made by economists and others
regarding the expected amounts of national income. Which

127
should authorize the data entry is a matter of managerial
hierarchy of the organization.
To summarize, the functions of the input subsystem will
be to accept all data which may conceivably be used in the
system and which have been properly authorized, to determine
their level of reliability, and to make feedback to the
developmental subsystem when necessary. Some of these func-
l
tions will require exercise of subjective judgment of the
person in charge of the subsystem.
Processing Subsystem
The processing subsystem will be responsible for the
storage, retrieval, and manipulation of the data accepted
into the system. It will be subdivided into two sections.
One section will use the computer to carry out these tasks
This section will be concerned with quantitative data and
its manipulation in accordance with programs which form part
12
of the subsystem. The second section will be concerned
with nonquantitative data and with nonprogrammed manipula
tion of quantitative data. This section will be operated
by people who may or may not utilize mechanical devices.
Because of the inherent flexibility of human beings, this
section will lend a certain amount of flexibility to the
particular figure should be used in the information system
of the organization is a matter of some importance and
should receive appropriate consideration.
12. See footnote #7, p. 121.

128
information system as a whole. For instance, if some new
type of data becomes available to the system, it may be
processed manually by this section pending the development
of appropriate computer programs. This section will also
follow standardized techniques and procedures, or general
guidelines, in its processing activities. The results of
the manipulations by the two sections must be combined
before the information developed is considered ready for
reporting to users. This may be done by manual input into
the computer.^ ^
The computer programs, techniques and procedures, and
general guidelines used in the processing subsystem are laid
down when the information system is originally set up. Sub
sequently, these may be added to or modified by the develop
mental subsystem as and when considered necessary. There
would be continuous interaction between the processing sub
system and the developmental subsystem. People in the
former should provide feedback about any difficulty in the
processing and also make suggestions for improvement.
The procedures and techniques used in the system should
be compatible with the requirements of the users, particu
larly with respect to the level of sophistication and
13. The manual input may consist of information which
should be reported along with the information developed by
the computer, or it may specify the format in which the
computer-processed information should be reported. The com
puter program may contain instructions that further proces
sing, or reporting of the output, should be carried out only
if some manual input has been received at a particular stage
and in a particular form.

129
understandability of the information developed. Many of the
techniques of scientific management will be incorporated in
the system, and the processing will include model building
and programmed decision making. The use of such techniques
will enable the system to be helpful in problem solving at
the higher levels of management.
As far as possible, the processing should be carried
out in an integrated manner. Data once entering into the
system should be used to develop or update various types of
information including financial, personnel, logistics,
marketing and so on.
Output Subsystem
Responsibilities of the output subsystem are to ensure
that: (1) information of the correct reliability level is
supplied to a particular user or for a particular purpose;
(2) only the information actually needed is reported; and
(3) only properly authorized information is communicated to
people who are authorized to receive the same. The problem
of reliability of information is similar to the problem of
reliability of input data. Information will be subdivided
into several classes in accordance with the lowest level of
the reliability of data used in its development. These
classes will need to be related to the purposes for which,
or to the persons for whom, the information is supplied.
In regard to the second aspect of output control
reporting only the information actually needed -- information

130
requirements of users must be known with some precision.
Several problems may arise in ascertaining such needs,
particularly when the information is for use in decision
making. The decision situation may not be well structured
with the result that the information required in making the
decision may not be specified. Even where structuring is
possible, the decision model in use might not be explicitly
f
stated. This may occur either because the decision maker
is not clear about his own decision making process, or
because no attempt has been made to formalize the model.
In such case also, the information required to make a deci
sion would be difficult to ascertain. Different decision
makers might use different information in similar decision
situations because of differences in their decision models,
or in the relative importance given by them to the various
types of information, or in their subjective knowledge. It
is thus extremely difficult to achieve the ideal of provid
ing custom-made information for each individual decision
maker and for each individual decision. To the extent that
information reporting is not standardized and users have
made no specification of their information needs, the person
in charge of the output subsystem must use his judgment to
determine what information should be provided to whom. In
order to be able to do this effectively, he would need to
be familiar with the operations of the business, the decision
areas, and the controllable and noncontrollable variables
that have an impact on the situation.

131
The information system should not provide information
indiscriminately to anybody who may want or need it. From
the point of view of the organization as a whole, it may
sometimes be necessary to withhold some information from
certain users. This would be particularly true in connection
with the people at lower rungs of managerial hierarchy and
those outside of the organization. Therefore, the output
subsystem must communicate only authorized information to
users who are authorized to receive the same.
Where interactive devices are in use, enabling the
users to retrieve information directly from the system, the
problem of output control is less formidable. Since the
decision maker has to specify the exact information he needs,
only the information to be actually used is supplied to him.
The already established relationships ensure compliance with
the requirement of appropriate reliability levels of infor
mation to be provided to particular users. Similarly, use
of such techniques as code words precludes the possibility
of giving out information to unauthorized people.
The output subsystem will be in constant contact with
users of information and their needs. It may help the
developmental subsystem by providing feedback about the
information actually needed but not being supplied, informa
tion being provided but not used, and changes in the infor
mation needs.

132
Developmental Subsystem
This subsystem may be divided into two sections: one
receiving and interpreting the feedback and the other carry
ing out operations research, and developing or modifying
procedures and programs used by the processing subsystem.
Both of these functions must be carried out by men. The
feedback section indicates the areas in which development
is needed, and the research section carries out the search
for new or better procedures and programs. The work per
formed by the developmental subsystem may be considered to
be an extension of the work done when the information system
was originally established. Even where the expansion of the
scope of the information system is not envisaged, the major
role of this subsystem is to maintain the information system
in keeping with changing needs of users. Furthermore, this
subsystem will make continuing efforts to refine the exist
ing techniques and procedures so as to make the information
system increasingly more useful to the organization.
An important aspect of the introduction or modification
of a procedure is a cost/benefit analysis of such a proced
ure. While it may be comparatively easy to determine the
cost of introducing or modifying the procedure, it will be
extremely difficult to assess the benefits in terms of money.
Two types of cost/benefit analyses may be required for the
success of the system. The total cost of the system should
be related to the total benefits received from the same.

133
This may be necessary before the initial establishment and
any subsequent expansion of the system. For introduction
or modification of particular procedures, an incremental
cost/benefit analysis would be called for.

Specialized Skill Requirements
For ithe successful operation of the information system
suggested in this chapter, it will be necessary to have
people with skills in the following specialized areas.
Information control.--People who can control the input
and output of the system, process nonquantitative data and
nonprogrammed aspects of- quantitative data, combine the
manually processed information with computer-processed
information, and receive and interpret the feedback. The
basic skill necessary for such people will be an understand
ing of the information needs of various users of information
and relating these back to the sources of data. This, in
turn, will require a familiarity with the operations of the
business and its environment. Information controllers should
be able to look at the organization as a whole, relate the
information needs of various users on a comparative basis,
and evaluate costs and benefits in financial terms. In
accordance with the present state of knowledge, the only
common denominator of information needed and utilized by
various users is money, and, therefore, an understanding of

134
the financial aspects of information will be necessary for
information controllers.
Computer operations-People who can program, operate
and maintain computers and other related devices, and can
manage the data base and the programs library.
Operations researchPeople who can develop and im
prove the techniques and procedures used in the system.
This will involve basically an understanding of the various
relationships in operations and of the decision making pro
cesses and an ability to make mathematical models. The
methods of operations research may be used to achieve this
end.
It has been observed in Chapter IV that the principal
components of management information systems are the computer
and operations research methods. Their roles were discussed
there in some detail.^ In the controlled information sys
tem suggested in this chapter, similar roles are assigned to
them. The function of information control is newly intro
duced, and it is suggested that this be performed by members
of a distinct discipline. Further consideration will be
given to this matter in Chapter VI.
14. See pp. 93-99.

135
Anticipated Problems
Certain basic causes of the deficiencies of MIS were
mentioned in Chapter IV.^ In the suggested model of the
controlled information system these causes have been elimi
nated, and hence it should not suffer from such deficien
cies. An effective integration of man/machine elements
would have a mutually reinforcing effect and remove the
limitations of both. The information controller would serve
as the communication link with the users, and it will be his
responsibility to ensure that only usable information is
supplied to them. Several difficulties may, however, be
anticipated in the operation of the suggested model. These
difficulties and the ways to overcome them are discussed
below.
Feasibility of the Discipline
of Information Control
One of the points repeatedly made in this study is that
an individual can not ordinarily fully acquire expertise in
several disparate areas. For information control the exper
tise to be developed will principally be an understanding of
the information needs of the various users and relating them
back to the sources of data. Control of the input and out
put, integration of computer-processed and manually pro
cessed information, and interpretation of feedback are multi
dimensional applications of this expertise.
15. See p. 106.

136
There will be numerous interfaces between information
control and the other two elements of the system -- the
computer and operations research. Interface with the com
puter will occur at the point of data entry, integration of
manually processed and computer-processed information and
communication of information. Feedback will be used by
operations research people, and the information controller
may also be one of the participants in the operations
research team. These interfaces will necessitate a general
familiarity with these elements, but the information con
troller need not be an expert in these areas. Similarly,
it will also be necessary for the information controller to
be generally familiar with the operations of the business,
but he need not be an expert in the functional areas. In
view of these observations, it seems that the training and
education of a person as an information controller should
not present any insurmountable difficulties.
Communication Gap Between Systems People
and Decision Makers
Under the controlled information system, the systems
people will include the information controller who will be
familiar with the operations and information needs of the
business and should be able to communicate with the decision
makers. He will also be familiar with the computer and
operations research, enough so as to be able to communicate
with the experts in these fields. Thus the information

137
controller will serve as a communication link between the
functional managers and other systems experts.
Time Dimension of the System
It has been mentioned earlier that for routine and
repetitive matters,standard procedures and rules may be laid
down for input acceptance and output reporting. These should
be designed and implemented in such a way that the time
dimension of the system is not disturbed. For other types
of information, some time will be used up, particularly at
the stage of input control. But in such cases, generally,
the time dimension is not expected to be a critical factor.
Furthermore, concern is expressed in the literature as to
the desirability of placing all the information on an on
line real-time basis.^ The adoption of the system suggested
in this chapter may present one additional constraint on the
use of the on-line real-time facility. It will, however,
not prevent such use.
Controlled Information System and
Total Systems Concept
It has been stated earlier that the controlled informa
tion system will have the capability to develop all types of
16. For example, see John Dearden, "Myth of Real-Time
Management Information," Harvard Business Review, XLIV
(May-June, 1966), pp. 123-132;
Edward M. Tolliver, "Myths of Data Automation,"
Journal of Systems Management, XXI (August, 1970), p. 37.

138
information and supply the same to the various users, both
internal and external. This may be taken as an indication
that the objective of the proposed system is to develop and
supply all such information and qualify to be described as
a total information system. It was noted in Chapter IV that
the concept of total information is not considered to be an
achievable objective, and in fact the idea of supplying the
totality of information is sometimes seen as ridiculous.
In view of this background, the purpose of the controlled
information system needs to be further explained.
Under the concepts used in this study, an information
system is needed (or is indeed possible) only in an organi
zation which can be subdivided into a decision making sys
tem, an operations system, and an information system on the
basis of functional specialization. If specialized skills
are not found necessary to carry out these functions in an
organization, then that organization does not require the
establishment of a controlled information system. An
example would be a one-man business in which the same person
makes all the decisions, carries out all the operations, and
handles all the information. It is argued here that if it
were possible to establish a total information system in an
organization, its information system and decision making
system would not remain separate but would merge into one
system. The basis for this argument is that the inputs to
the decision making system are: information, subjective

139
knowledge, and subjective judgment. The last two (subjec
tive knowledge and subjective judgment) may be substituted
for by information -- information about the problem situa
tions, available alternative courses of action and their
expected consequences, and previously laid out rules and
procedures. When the totality of information is available
from the information system, the decision maker will not
need to use his direct observations or other sources of
knowledge (which constitute his subjective knowledge), nor
will there be any undefined rules or procedures or any
missing information (which require the use of subjective
17
judgment). In such an instance, all decision making will
become programmed decision making, which is considered to be
a part of the information system. This would, however,
require predetermination of all possible decision situations
and the decision rules or models to be followed in each of
them and a mechanism to collect all the information neces
sary for making the decisions. Since the internal and
external environment of a business organization is suscepti
ble to continuous, and often unexpected, change, such pre
dictions may be considered to be impossible; Hence, the
establishment of total information systems would also be an
impossibility.
However, all information systems, particularly computer-
based information systems, are making progress toward
17. See pp. 33-34.

140
developing and supplying more and more information and are
utilizing problem solving and programmed decision making
techniques to an ever-increasing degree. Thus, the ulti
mate aim of such systems is the total information system,
even though the achievement of that end is an impossibility.
This observation applies also to the model of the con
trolled information system developed in this study. Thus,
while a controlled information system will have the capacity
to develop and communicate all types of information, and
will encompass in its scope more and more information, it
will never achieve the status of a total information system.
Evaluation of Controlled Information System
Criteria of a Good Information System
At the outset of this chapter certain characteristics
of a good information system were mentioned, and it was
indicated that these could be used as criteria in evaluating
the soundness of such a system. The model of the con
trolled information system is evaluated below in terms of
these characteristics.
Capability to develop various types of information.- -
The controlled information system will have the required
capacity to accept and process all types of data. The two
channels within the system will be able to handle both quan
titative and nonquantitative data and to utilize both pro
grammed and nonprogrammed procedures.

141
Capability to communicate the required information.- -
The control of the output of the system aims at providing
only the information actually needed by users. The feedback
mechanism is provided to keep in constant touch with such
needs. The information controller will have to use his
judgment in supplying information where the information
requirements can not be known precisely.
Flexibility.--The duality of the processing channels
and the provision of manual input into the computer before
a piece of information is considered to be ready for report
ing will enable the system to have a sufficient degree of
flexibility to change in keeping with the changing environ
ment. When computer programs can not be revised or added
to in appropriate time to carry out the modified, or newly
required, procedures, such procedures may be temporarily
performed by the information controller manually, and the
results thereof combined with the other information devel
oped by the computer.
Feasibility.--There does not seem to be any technical
problem in giving effect to the suggested model of the con
trolled information system. Economic feasibility depends
largely on the measurement of the costs and benefits aris
ing because of the introduction of the system. The develop
mental subsystem of the suggested model is required to carry
out the cost/benefit analysis before any changes or addi
tions are made. Hence, the system as a whole should be
fully feasible at all times.

142
Dearden's Five Questions
In a recent article, Dearden raised serious doubts
18
about the very concept of management information systems.
He put five questions which, in his view, the proponents of
MIS ought to ask themselves. The suggested model of the
controlled information system is examined below in the
light of these questions.
"Which information systems are to be included in the
MIS?"--Under the concept of the controlled information sys
tem, there will not be several information systems, but only
one integrated system. This will cover all the information
which is developed from the data arising within, or received
from outside, the organization and communicated to the
decision making and operations systems of the organization
and to people outside the organization in accordance with
their needs and authority. Personal knowledge and judgment
of the executives of the organization do not make part of
the information system unless they are formally entered into
the system after having met the standards of input acceptance.
The controlled information system will employ not only the
procedures similar to those used by accounting and other
traditional information systems but also such advanced tech
niques as model building, programmed decision making, and
problem solving. There are no constraints on the types of
18. John Dearden, "MIS Is a Mirage," Harvard Business
Review, L (January-February, 1972), p. 99.

143
data that may be accepted into the system or on the types
of information that may be developed.
"What kinds of experts are to be included in an MIS
group, and what training shall they have?"--Three types of
expertise are required for the operation of the controlled
information system: information control, computer opera
tions, and operations research. Some details of these
three areas have been indicated earlier.
"Where is this group to fit into the corporate organi
zation? In particular, what will happen to the staff groups
from the controller's office, the legal department, the
marketing research department, and so forth?"--The controlled
information system will have a distinct organization of its
own and will be under the jurisdiction of a senior executive.
Its task will consist only of developing and supplying infor
mation. Except in unusual circumstances, the staff groups
which presently perform this function will no longer be
required after the establishment of the controlled informa
tion system. The controller (and his staff) may be expected
19
to serve as the information controller in the new set up.
However, the noninformational functions usually carried out
by the controller, such as financial management and taxation,
would be entrusted to people with requisite expertise. Other
staff groups, such as the legal department and the marketing
19. Further consideration will be given to this matter
in Chapter VI.

144
research departments, which have different skill require
ments than those for the information function, will retain
their present positions.
"What authority is the MIS group to have? Is it to
have authority to design and implement systems, or is it
to serve in an advisory function only?"--The group of ex
perts as envisaged in the suggested model of the controlled
f
information system will be responsible for the operations
of the system. The original design of the system may be
developed by a larger group which would include people from
the various other functional and managerial areas.
"What can this group accomplish that cannot be better
accomplished by placing information specialists under func
tional groups?"--Placing information specialists under func
tional groups will lead to the fractionalization of the
2 0
system, the disadvantages of which were indicated earlier.
The suggested model of the controlled information system
will further the use of modern techniques of model building,
problem solving, and programmed decision making, which is
not possible in a fractionalized system.
Summary of the Chapter
In view of the purpose of the information system of a
business organization and in order to avoid the deficiencies
20. See p. 113.

145
observed in the operations of accounting and management
information systems, a good information system should
possess the following characteristics: capability to develop
various types of information, capability to communicate the
required information, flexibility, and feasibility. To
acquire these characteristics such a system needs to be a
man/machine system in which man is integrated as an essen
tial element. It was suggested that the model of the con
trolled information system meets these objectives. In this
model, the input (data) and output (information) of the sys
tem must meet certain standards (usability, reliability and
authority). Two channels are provided for processing the
data -- one on the computer and the other manually. The
developmental subsystem receives feedback from users of
information and the other subsystems of the system; it
develops and modifies the techniques and procedures used in
processing. The operation of this model will need people
with specialized skills in three areas: information control,
computer operations, and operations research. The functions
of information control will consist of the control of input
and output, manual processing of data, and receiving and
interpreting of feedback and will be carried out by members
of a distinct discipline. Though the system will have the
capacity to develop and communicate all types of information,
it will not achieve the status of the total information sys
tem. The model of the controlled information system was

146
evaluated in two ways: it was appraised on the basis of
the criteria developed in this chapter and also on the basis
of criteria-like questions posed by Dearden. In either in
stance, the system apparently scores well.
f

CHAPTER VI
THE SUGGESTED ROLE OF ACCOUNTING
IN CONTROLLED INFORMATION SYSTEMS
Purpose and Organization of the Chapter
It was suggested in Chapter V that in a controlled
information system the function of information control may
be performed by the controller and his staff. The purpose
of this chapter is to explore this suggestion further and
to study its implications, particularly as regards the
education and training of accountants.
This chapter will begin with a brief description and
evaluation of the suggestions made in the literature regard
ing the role of accounting in computer-based management
information systems. It will be shown why the function of
information control is considered to be an appropriate role
for an accountant. Implications of the suggested role as
regards the education and training of accountants will then
be investigated. Finally, certain suggestions will be made
to help the accountant carry out the new tasks.
147

148
Role of Accounting Suggested in Literature
Accounting may have three possible positions in an
organization:
(1) It may be the sole or major information system.
This position was studied in Chapter III, and it was found
that accounting did not seem to be capable of adequately
carrying ,out this role in the modern environment.
(2) It may serve as one of the several independent
information systems of the organization. This situation
was discussed in Chapter IV. Upon examination, it was found
that the implementation of such a proposal would prevent
the organization from taking advantage of many of the
developments in computer technology and problem solving
techniques.
(3) It may serve as an integral part of management
information systems. Suggestions made in the literature
utilizing this idea are examined below.
Joplin^ suggests that an accountant is a good choice
to become the manager of MIS. The accountant should, how
ever, enlarge his scope to cover all information, whatever
its use. He may perform a valuable function by incorporat
ing currently acceptable classification techniques (with
1. Bruce Joplin, "Can the Accountant Manage EDP?"
Management Accounting, XLIX (November, 1967), pp. 3-7;
, "The Accountant's Role in Management
Information Systems," Journal of Accountancy, CXXI (March,
1966) pp. 43-46.

149
which managers are familiar) into the system. He may be of
great help in instituting proper controls, such as an ade
quate audit trail and control over confidential data.
Joplin proposes specific functions for the accountant during
the designing stage of MIS but does not clarify what his
functions should be as the manager of MIS except that,
because of his experience with the information system of
the organization, he may have an adequate knowledge of its
information needs. What other functions the accountant may
perform in the operation of MIS need to be further inves
tigated.
2
Gynther has suggested that the management accountant
must carry out a role within the "total MIS/management
science area" in association with other professionals who
have a better grasp of many of the newer relevant techniques.
His task would be to supply information (mainly of an eco
nomic nature) from the integrated information system for
use in the various planning activities, decision making
models, and for various control mechanisms. He would
arrange for the necessary inputs to be made to the system,
for the creation of necessary data files or banks, and for
the installation of speedy retrieval systems. The specific
functions suggested by Gynther for management accountants
are somewhat vague. He seems to think that accountants
2. Reg S. Gynther, "The Management Accountant of the
Future," Accountant's Journal (New Zealand), LI (August,
1972), pp7 '2-11.

150
should be responsible for the input, storage, retrieval,
and output with respect to the particular type of informa
tion and for certain identified purposes mentioned earlier.
Presumably, the other professionals within the "total MIS/
management science area" would have similar responsibilities
for information of other types or for other uses, and that
the processing of all the information would be integrated
f
in the computer. It seems that the adoption of this sugges
tion would prevent functional specialization within the
"total MIS/management science area" and might lead to its
fractionalization into several independent subsystems having
as a link the use of computers for integrated processing of
their data.
Churchill and Stedry^ suggest that the routine proces
sing of data may be left to the computer, and that the
accountant concentrate on its verification at the minute
"bits" level, refinement of the objectivity criteria in
these new terms, classification of the basic primitive trans
action, and quantification of events now accorded only quali
tative description. This suggestion seems to propose a
fundamentally different role for accounting from what it has
been traditionally carrying out, for, in order to accomplish
it, accountants would have to develop expertise in newer
areas. Should the accountants be able in fact to accomplish
3. Neil C. Churchill and Andrew C. Stedry, "Extending
the Dimensions of Accounting Measurement," Management Services,
IV (March-April, 1967), p. 21.

151
these functions, the advantages would relate to an assurance
of reliability in the inputs to the system and to the
dynamic development of the system. Other deficiencies, such
as the overabundance of irrelevant information, observed in
the operations of MIS would still remain unresolved. More
over, functions relating to the dynamic development of the
system are presently discharged by operations research, and
an incursion of this field by accounting might raise the
problem of the selection of the most suitable person for the
j ob.
An Overall Evaluation of the Proposals
From a perusal of the various proposals regarding the
role of accounting within MIS, it seems that accountants are
not quite clear in their own minds as to what functions
should be discharged by accounting as an integral part of a
computer-based information system. They seem unable to
decide as to just how to utilize their specialized skill and
expertise within such systems.
Role of Accounting in
Controlled Information Systems
In contrast to the vagueness of the proposals found in
the literature, the role suggested for accounting in the
controlled information system is quite clear. It will con
sist of information control and participation in operations
research. These functions can be carried out successfully

152
by members of the accounting discipline. The reason for
this assertion is that the work traditionally performed by
accountants includes tasks similar to these functions, and
accountants have developed specialized skill and expertise
in these areas. No other discipline seems to be better
suited for this purpose.
Control of Input
In the suggested model of the controlled information
system the functions of the input subsystem would be to
accept all data which may conceivably be used by the system
and which have been properly authorized, to determine their
level of reliability, and to make feedback to the develop
mental subsystem when necessary. Some of these functions
will require exercise of subjective judgment of the person
in charge of the subsystem.^
The accountant has extensive training and background in
data collection.^ Both quantitative and qualitative data
are used in accounting and, before acceptance into the
accounting system, they must meet appropriate qualitative
standards, such as reliability.^ Expertise of accountants
4. For further details of these functions, see pp.
124-127.
5. Joplin (1966), p. 44.
6. See pp. 61-62 .This situation is in sharp contrast to
that obtained in management information systems. One of
the deficiencies of such a system is an inadequate control
over input. See p. 104.

153
in this field can be adopted in the information requirements
7
presented by new management techniques. It is observed
that in practice procedures for data collection followed in
computer-based integrated information systems are similar
g
to those followed by controllers/ It seems logical, there
fore, that accountants should carry out the task of input
control in controlled information systems.
In order to perform this function effectively, it would
be necessary to expand the scope of the work which is pres
ently done by accountants. Input of the controlled informa
tion system consists of all types of data (such as quanti
tative, nonquantitative, internal, external, past, present
or projected), while input of accounting is limited to reli
able financial data. The accountant would, therefore, need
to acquire an understanding of various other types of data
also. This requirement is in keeping with the current
developments in accounting, and similar suggestions are also
found in accounting literature. For example, Firmin has
suggested that the scope of accounting may be broadened to
include nonmonetary information, and the concept of "trans
action" may be revised to include data for immediate use and
7. Neil C. Churchill and Andrew C. Stedry, "Some
Developments in Management Science and Information Systems
with Respect to Measurement in Accounting," in Research in
Accounting Measurement, Eds. Robert K. Jaedicke, Yuji Ijiri
and Oswald Nielsen [American Accounting Association, 1966),
p. 30.
8. Neil C. Churchill and Myron Uretsky, "Management
Accounting Tomorrow," Management Accounting, L (June, 1969),
p. 52.

154
9
for future use. The suggestion made by Churchill and
Stedry referred to earlier is also consistent with the func
tion of input control. According to these authors, accoun
tants ought to be able to verify data at the level of minute
data bits and to refine the objectivity criteria in these
. 10
new terms.
A discussion of the various qualitative standards which
f
the input to the controlled information system ought to meet
is contained in a later part of this chapter.^
Manual Processing of Data
Two processing channels are contemplated in a con
trolled information system, one using the computer and the
other relying upon the manual processing of data. Manual
processing is included in the function of information con
trol. This would consist of procedures and techniques which
can not be carried out on the computer. Characteristics
which make certain operations suitable for being performed
effectively and profitably on the computer were mentioned
12
in Chapter IV. Procedures and techniques which do not
9.Peter A. Firmin, "The Potential of Accounting as
a Management Information System," Management International
Review, VI (1966/2), pp. 49-53.
10. Churchill and Stedry (1967), p. 21.
11. See pp. 166-170.
12. See p. 96. It may be noted also that one of the
deficiencies of MIS is the exclusion of judgmental factors.
See pp. 103-104.

155
possess these characteristics would be executed manually and
would include those in which interacting variables do not
have reasonably accurate values, those which are not repeti
tive, and those with small volumes of input and output.
Operations requiring use of judgment would necessarily be
carried out by human beings.
Accountants have historically processed data manually
using compatible mechanical devices as and when they became
available. But the techniques and procedures used by them
are confined to financial accounting and management account
ing and those utilized for certain noninformational func
tions. In the controlled information system the processing
subsystem would employ various other techniques, such as
model building, problem solving and programmed decision
making, as well as procedures to develop nonfinancial infor
mation (such as that relating to personnel, logistics, market
ing and so on). Even though such procedures and techniques
would normally be carried out on the computer, an efficient
information controller should acquire a basic understand
ing and general familiarity with them. It is expected
that accountants can acquire such an understanding without
any insurmountable difficulty, primarily because of the
15
general attitude developed by them toward their work. They
take a wholistic view of the organization, and the accounting
13. See pp. 57-60.

156
system itself is considered to be a model thereof. Models
of organization in other media (such as mathematics) should,
therefore, be compatible with their way of thinking. This
would be further helped by the fact that accountants account
primarily in financial terms; all states and events of
interest to various users possess some financial aspects,
and hence accountants come in contact with all or most of
them.
Manual processing of data would require the use of a
certain amount of judgment, such as in the application of
general guidelines in developing information or in the treat
ment of nonrepetitive items of data. Accountants make fre-
14
quent use of judgment in their work and should be able to
adapt their professional judgment to the needs of the con
trolled information systems.
Computer-processed and manually processed information
must be combined before being considered available for com
munication to users. This combination may be effected by
manual input into the computer and should be done by the
information controller. In accounting, similar combinations
are frequently required. For example, finaiicial statements
contain both quantitative information and nonquantitative
information, the latter often included in footnotes. Accoun
tants can perform this function in controlled information
14. See pp. 60-61.

157
systems also; but this would necessitate a sufficient famil
iarity with the operations of the computer.
Control of Output
In the controlled information system, responsibilities
of the output subsystem are to ensure that (1) information
of the correct reliability level is supplied to a particular
user or for a particular purpose, (2) only the information
actually needed is reported, and (3) only properly author
ized information is communicated to people who are author
ized to receive the same."^ These functions are similar to
those performed by accountants with respect to accounting
information.^ Accountants may, therefore, be expected to
effectively control the output of the controlled information
system. However, they would need to extend the area of
their interest so as to encompass all types of information
developed by such a system. The various qualitative stan
dards which the output of the controlled information system
17
ought to meet are discussed in a latter part of this chapter.
A common deficiency of accounting and MIS is the lack of
a precise understanding of the information required by users.
15. See p. 129.
16. See pp. 62-64. On the other hand, several of the
deficiencies of MIS relate to an inadequate control over
output, such as an overabundance of irrelevant information
and an incompatibility of sophisticated information with
management capabilities. See pp. 100, 105-106.
17.See pp. 166-170.

158
As indicated in Chapter V, the basic skill necessary for
information control is an understanding of the information
needs of various users and relating these back to sources
of data. Though accountants do try to keep in touch with
changes in such needs, they need to make a greater effort
18
in this direction. In a later part of this chapter,
certain guidelines are provided to ascertain the informa
tional requirements of decision makers which may be helpful
in the performance of this function by accountants.
Receipt and Interpretation of Feedback
In the controlled information system, the developmental
subsystem is divided into two sections: one receiving and
interpreting the feedback and the other carrying out opera
tions research. Functions of the former section are in
cluded in information control and hence would be performed
by accountants. Feedback is received from users, persons
controlling input and output, and persons manipulating data.
Since the functions of input and output control and the
manual processing of data would be carried out by the infor
mation controller, feedback from these sources would be the
utilization of his own ideas arising in these areas. Feed
back from persons in charge of computer operations would
relate mostly to technical matters, such as difficulties
faced in processing and suggestions for improvements.
18. See pp. 171-172.

159
Feedback from users would play the most important part in
keeping the system consistent with user needs.
As mentioned earlier, accountants try to keep in touch
with changes in the information needs of users and make
19
necessary modifications in the accounting system. In con
trolled information systems, the making of any changes would
be a difficult and costly affair; hence, great care must be
f
taken in interpreting the feedback from users. Such feed
back may sometimes point out the necessity of educating
users rather than making changes in the information system.
20
In a latter part of this chapter, certain guidelines are
provided in regard to the feedback from users of information.
These may help accountants in the discharge of this function.
Participation in Operations Research
In addition to the function of information control, it
is suggested here that accountants may also participate in
operations research in the developmental subsystem of the
controlled information system. As defined in Chapter IV,
operations research is the systematic study of the basic
structure, characteristics, functions and relationships of
an organization as well as the collective effort of many
types of talent concentrating on the application of the sci-
21
entific method to the development of predictive models.
19.
See
P-
64.
20.
See
P-
170-171.
21.
See
p.
97.

160
An information controller can make a contribution to opera
tions research in several areas. Since he would be familiar
with the various operations and decision processes of the
organization, he might occupy the ideal position with
respect to identifying problems which ought to be solved by
the operations research section. He would also be capable
of building verbal models which may be translated into
f
mathematical models by experts in the fields of mathematics
and statistics. Because he attempts to keep in constant
contact with users of information and receives feedback from
them, he might be of great help in the solution control pro
cess, that is, in the detection of significant changes in
parameter values which would necessitate a change in the
decision rules. Furthermore, changes in the processing sub
system of the controlled information system would be made
after an'incremental cost/benefit analysis, and the informa
tion controller may contribute to an understanding of the
financial implications of such changes.
The functions of the information controller in opera
tions research suggested in the foregoing paragraph are
similar to some of the functions suggested by Hartley for
22
accountants. To perform these functions, accountants
would need to acquire sufficient familiarity with operations
research to recognize its possible applications.
22. Ronald V. Hartley, "Operations Research and Its
Implications for the Accounting Profession," Accounting
Review, XLIII (April, 1968), pp. 324-326.

161
Who'll Be in Charge?""^
A favorite theme of writers in accounting is to specu
late as to who should be in charge of the organization's
computer-based information system, and most often the
answer found by them is "the accountant" (with or without
some qualifications) In view of the fact that the func
tions of the various participants in the controlled informa
tion system have been specified in some detail, it does not
seem necessary to find a definitive answer to this question.
So long as they perform their designated roles effectively,
any of the participants (information controllers, computer
experts and operations research experts) may be the head of
the system. However, the information controller would
occupy a unique position in that he would be in touch with
both the sources of data and users of information, and would
have an understanding not only of the information system
but also of the operations and decision processes of the
organization. Because of this, he may be considered to have
an edge in his favor over the other participants to take
charge of the system.
23. This heading has been inspired by Robert Beyer's
article: "Management Information Systems: Who'll Be in
Charge?" Management Accounting, XLVIII (June, 1967), pp. 3-8.
24. For a brief discussion and references, see pp.4-5.

162
Implications for Accountants'
Training and Education
Since accountants would work as information controllers
and participate in operations research under the suggested
model of the controlled information system, their education
and training should emphasize the functions they would
actually carry out. From this viewpoint, accounting as a
f
discipline for information control should include a study
25
of the following matters.
(1) Analysis of the information needs of decision
makers and other users. This would involve a general famil
iarity with the operations of the business, decision areas,
decision making processes, effects of alternative methods of
processing or presenting information on decisions, and infor
mation required to be reported under various laws and author
itative rules and regulations (such as those of the Securi
ties and Exchange Commission, stock exchanges, and financial
institutions). Levels of reliability of information to be
provided to different users for different purposes and
behavioral aspects of the supply and use of information
would also need to be understood.
25. No attempt has been made here to specify the mate
rial which may be borrowed from different fields of knowl
edge for the training and education of information control
lers. Since information control is expected to emerge as
a distinct discipline, all such material should be devel
oped from its own viewpoint and ought to be well integrated.

163
(2) Understanding of the data needed to develop vari
ous types of information. This would involve a general
familiarity with the techniques of processing data, knowl
edge of data sources within and outside the organization,
and analysis of the reliability of various sources and of
data provided by them.
(3) Ability to carry out manual processing of data as
may be needed and to combine such data with computer-
processed information by manual input into the computer.
(4) Familiarity with operations research sufficient to
recognize its potential, its limitations, and possible
applications.
(5) Familiarity with computers sufficient to understand
their potential, their limitations, and possible applica
tions .
Training and education which help accountants primarily
in the discharge of other functions should be de-emphasized.
This would include the routine processing of quantitative
information and the noninformational functions traditionally
carried out by accountants. Giving up of the noninformational
functions is important because information controllers have
to remain without any departmental or functional bias. How
ever, an expertise in the financial aspects of states and
events would continue to be useful and should receive suffi
cient attention.

164
In addition to specialized skills, information con
trollers would need an appropriate attitude toward their
work. Two important aspects of this attitude would be:
(1) the taking of a wholistic view of the organization and
(2) a disinterestedness in the information developed.
Some Standards and Guidelines
f
? f)
Standards for Data and Information
In the controlled information system, data and infor
mation must meet certain standards before they can be
accepted into the system or reported to users. A brief dis-
27
cussion of these standards is contained in Chapter V.
Many references are found in literature about similar
standards or qualitative objectives, and there appears to
be no unanimity of opinion among the various writers in
regard to them. In view of such diversity of ideas, a
further consideration of the standards advocated in this
study seems to be called for.
The following standards or qualitative objectives have
26. Before the preparation of this section, a brief
reference was made to certain draft notes of the proceedings
of American Accounting Association's Committee on Concepts
and Standards -- Internal Planning and Control, 1972-73.
These notes were made available by Professor Lawrence J.
Benninger, a member of the Committee, and were helpful in
the crystallization of ideas contained in this section.
27. See pp. 126-127 and 129-131.

165
2 8
been suggested by various writers:^
Accuracy
Adequate disclosure
Clarity
Comparability
Completenes s
Conciseness
Consistency
Correspondence
Economic feasibility
Freedom from bias
Meaningfulness
Neutrality
Objectivity
Quant ifiabi1ity
Realism
Reliability
Relevance
Sensitivity
Significance
Sufficiency
Timeliness
Under st andabil.ity
Uni fo.rmity
Usefulness
Validity
Verifiability.
Several authors have arranged the qualities specified by
them in hierarchical order -- where some qualities are con
sidered to be more important than the others, or where qual
ities of a lower order are supposed to lead to the attain
ment of qualities of a higher level. Furthermore, in
several schemes substitution or trade-off among the suggested
standards is also permitted.
From a perusal of the various objectives listed in the
foregoing paragraph, it appears that while most of them do
28. This list has been prepared from a survey of the
literature in accounting and systems analysis and is believed
to be fairly comprehensive. Several of the items appear to
express identical or closely related ideas.

166
represent the qualities that information ought to possess,
there are some which are either undesirable or not inherent
in the information as such. In terms of the scheme followed
in this study, the various desirable qualities are included
as follows:
Characteristics of the information system.--An efficient
information system should have the capability to develop
various types of information and to communicate them in
accordance with users' requirements. It is the responsi
bility of the information system to supply complete or ade
quate information on a timely basis. Adequacy and timeliness
thus need not be considered to be the properties of informa
tion as such. Similarly, an information system should be
technically and economically feasible, and economic feasi
bility need not be related directly with individual items of
information.
Specialized skill and expertise of information control
lers .- In addition to technical skill, information control
lers must develop a certain attitude toward their work which
includes a disinterestedness in the information supplied.
Such an attitude would make it possible to develop informa
tion which is free from bias.
Standards for input and output.--Three standards have
been suggested in this study with regard to both data and
information. They are: reliability, usability and author
ity. Reliability is considered to be one of the higher

167
level qualities by some writers. Several of the other
qualities mentioned in the literature lead to reliable
information; in particular, verifiability, objectivity,
accuracy, and correspondence. Realism suggests that there
could be several levels of reliability, and not all informa
tion can or needs to attain the highest level.
Usability means the potentiality of being used by the
f
recipient. In the case of data, this indicates that they
could be used in accordance with the techniques and proced
ures being followed currently or which may be reasonably
expected to be adopted in the future. For information this
implies that the information is needed by the user for some
specific purpose, for example, it would be an input to his
decision model; is understood by him; and is in keeping with
his level of sophistication. Several of the qualities
listed earlier would lead to usability of information, in
particular, uniformity, consistency, understandability,
meaningfulness, significance and sensitivity. The term
"usability" has been employed in this study in preference
to the more popular term "relevance" because of two reasons.
Firstly, usability is a broader term than relevance (though
not so broad as to be vague or imprecise, as is the case
29. For example see Accounting Principles Board,
Statement #4, Basic Concepts and Accounting Principles
Underlying Financial Statements of Business Enterprises
(Niew York: American Institute of Certified Public Accoun-
tants, 1970), paragraphs 77 and 107.

168
with "usefulness"). Secondly, usability does not indicate
the suggestion of a prior commitment on the part of the
information supplier to a particular course of action or a
particular result,which is sometimes implied in explana
do
tions of the concept of relevance.
It appears that in the literature authority (or author
ization) is not considered to be a necessary quality of
information. However, references to it are found in some
31
of the writings. It seems that the concept of authority
marks one of the differences between theoretical desirability
and practical availability of information. Since this study
is concerned with developing an operational model of the
information system, authority is considered to be one of
the essential characteristics of information.
30. For example, see the definition of relevance in
A Statement of Basic Accounting Theory (Evanston, Ill.:
American Accounting Association, 1966, p. 9): "For infor
mation to meet the standard of relevance, it must bear upon
or be usefully associated with the action it is designed
to facilitate or the result it is desired to produce."
31. For example, see Louis Goldberg,An Inquiry Into the
Nature of Accounting (American Accounting Association,
1965). On p. 55 he states: ". . the purpose of account
ing reports, it would seem, is to inform persons entitled
to information." [Emphasis added ];
A similar idea is expressed by American Accounting
Association's Committee on External Reporting: "The social
interests may be served by permitting the withholding of
relevant information in those cases where it would not be
in the public interest to make full disclosure even though
such withholding might make the reports biased or lacking
in relevant data. For example, the disclosure of certain
information might give competitors an undue advantage or it
might be in conflict with public security requirements."
See "An Evaluation of External Reporting Practices: A
Report of the 1966-68 Committee on External Reporting,"
Accounting Review, Supplement to Volume XLIV (1969) p. 96.

169
There does not seem to be any reason why quantifia-
bility and conciseness should be considered to be among the
necessary attributes of information. Quantifiability does
add to the usefulness of information, but this does not
imply that nonquantifiable information is always useless
and should not be provided. Similarly, if information
possesses other essential qualities, it need not necessarily
be concise. However, the information system has the respon
sibility to ensure that no unnecessary information is sup
plied to users.
There is no trade-off among the standards suggested in
this study in the sense that one can be substituted for
another, or that an increase in the adherence to one can
compensate for a decrease in the compliance with another.
Adherence to these standards in different degrees may make
information suitable for reporting for. different purposes
or to different users. In particular, reliability may be
considered as a continuum, and it was suggested earlier that
several levels of reliability may be fixed for categorizing
data and information. A possible scheme of such categori
zation could be as follows:
Category I -- Information with the highest reliability.
This would include information that has been validated by
competent physical verification.
Category II -- Highly reliable information. This would
include information that has been verified by means of a
cross check against other independent information.

170
Category ITT -- Reliable information. This would in
clude information which has not been independently verified
but has been received from competent sources and has internal
validity.
Category IV -- Information with low reliability. This
would include information that is not verifiable (such as
expectations about the future) but has been received from
competent experts.
Category V -- Information with the least reliability.
This would include unverifiable information received from
32
nonexperts (such as layman's guesses about the future).
Guidelines for Receiving Feedback from Users
The concept of feedback has been used in the literature
mostly in the technical sense of a statement of differences
between actual occurrences and pre-set standards for pur
poses of control. In this study, however, it is used in
the broader sense of users' reactions to the information
system in general and to any particular information. It is
suggested that the controller of information make efforts to
receive feedback from recipients of information with respect
to the following matters:
32. An item of general interest would be the future
plans of an organization. In the sense of a prediction
about the future, they might be considered to have low, or
the least, reliability. But in the sense of a decision
made by appropriate officials of the organization, they
might be considered to have high, or the highest, relia
bility.

171
(1) Differences between information supplied by the
information system and direct observations made by users in
regard to the real world state or event represented by that
information.
(2) Differences between information supplied by the
information system and information received by users from
other sources and an indication as to which of them was con
sidered, or found to be, more reliable by the users.
(3) Information supplied by the information system but
not actually used by recipients.
(4) Information, or particular aspects of it, not sup
plied by the information system but actually needed by
persons authorized to receive such information.
Guidelines for Analyzing Information Needs
Information needs of the decision making system may
be ascertained in many ways. One of the ways to analyze
such needs which is of particular use in the controlled
33
information systems is briefly described below.
The first step would be to prepare an operations flow
chart. This chart would indicate the physical flow of money,
materials, and services required in the performance of the
33. A practice frequently adopted by writers in this
regard is to specify a set of questions which may be asked
of decision makers. However, the method suggested in this
section may be expected to lead to a deeper and more compre
hensive understanding of the information needs. Somewhat
similar methods have been suggested by some authors, such
as the data network analysis of A. F. Moravec, "Basic Con
cepts for Designing a Fundamental Information System,"
Management Services, II (July-August, 1965), pp. 41-45.

172
operations of a business. It should be prepared in such a
way as to indicate the decision areas, that is, the points
where alternative courses of action are actually available.
The second step would be to analyze and understand the deci
sion making process followed by the persons who decide upon
the particular course of action to be adopted. It is, how
ever, not essential that the exact decision model be known
(which would be the case when the decision making itself
had to be programmed); a general indication of the factors
taken into consideration while making the decisions may be
sufficient for the purpose of ascertaining the information
needs. The hierarchy of objectives and goals of the organi
zation and its operations subsystem, constraints placed by
the environment and internal conditions, and criteria of
success would normally be taken into account in decision
making. The last step would be to specify the information
actually needed. All types of information should be con
sidered, such as quantitative, qualitative, and so on.
Besides the information supplied by the information system,
the decision makers may also use their own knowledge and
direct observations, information received from other sources,
and subjective judgment where no adequate information is
available. A clear understanding of these will greatly
help in the development of the information system.

173
Summary of the Chapter
Several suggestions have been made in the literature
regarding the role of accounting in computer-based informa
tion systems. They are, in general, rather vague, and it
appears that accountants are still looking for a proper
place in this new setting. The role recommended here for
accounting in controlled information systems is quite clear.
It would consist of information control and participation in
operations research. This role has been suggested for
accountants because the functions involved in it are similar
to those traditionally carried out by them. Functions
included in information control consist of the control of
input, manual processing of data, control of output, and
receipt and interpretation of feedback. In order to perform
these tasks effectively, accountants should expand the scope
of their expertise beyond financial information to cover all
types of information. In operations research, they may help
in the identification of problems requiring solution and
the making of verbal models, as well as in the solution
control process and cost/benefit analysis.
The education and training of accountants should empha
size an analysis of users' information needs, an understand
ing of data needed to develop information, and skill required
to process different types of data manually. Accountants
should also acquire familiarity with computers and operations
research sufficient to understand their potential,

174
limitations and possible applications. Training for the
functions not included in the suggested role (particularly
the noninformational functions generally performed by
accountants) may be de-emphasized. Their general attitude
toward work should include a wholistic approach toward the
organization and a disinterestedness in the information
developed.
As a part of information control, data and information
must meet standards of reliability, usability and authority
(among which no trade-off is possible). These standards,
together with some of the characteristics of information
systems and the attitude of information controllers toward
their work, are compatible with most of the qualities of
information advocated in the literature. These standards
are explained in this chapter, and certain guidelines are
provided for receiving feedback from users and for analyzing
their information needs.

CHAPTER VII
SUMMARY AND CONCLUSIONS
A business organization consists of three systems:
one concerned with decision making, another with operations,
and a third with information, all of which are interdependent
and work in conjunction with each other. The first two use
information as one of their inputs; and people outside the
organization also need it. The purpose of the third system
is to develop and communicate information to the various
users. According to the concepts developed in this study,
information may be defined as a symbolic representation of
some real world state or event which when communicated to
an individual adds to his knowledge. Additionally, the
making of some decisions which are well structured and which
can be handled in accordance with previously laid out pro
cedures is also delegated to the information system.
Traditionally, accounting has been the only or major
information system in business organizations, but in recent
years many institutions have set up computer-based manage
ment information systems as an alternative to it. There is
no specialized function assigned to accountants in these
systems. Their growing use is, therefore, a matter of grave
175

176
concern to the future of accounting as a distinct discipline
and a number of suggestions have been made in the literature
to prepare accountants to face this challenge. On examina
tion it seems, however, that none of these makes quite clear
as to how the accountant can continue to render useful ser
vices to business organizations in the modern environment.
The present study addressed itself to the problem of deter-
f
mining the role which accountants can perform effectively
and profitably, as specialists in their own rights, in
computer-based information systems.
In order to resolve the problem posed, it was first
necessary to determine why organizations are finding it
necessary to seek an alternative to accounting. This re
quired an analysis of the capabilities as well as deficien
cies both of accounting and management information systems.
An inquiry of this nature could have been made on the basis
of an empirical study of one or a few organizations; but
such a study would have been too limited in scope to permit
adequate generalization. Reliance was, therefore, placed
upon the numerous findings reported in the literature.
The capacity and limitations of accounting are related
directly to those of accountants. They utilize a number of
techniques and procedures of financial accounting and manage
ment accounting to develop information. In this function,
accountants are helped by their general attitude toward
their work which encourages them to take a wholistic view

177
of the organization, to seek financial aspects of states
and events that may be reported, and to remain disinterested
in the information produced. They also make frequent use of
professional judgment in the performance of their duties.
The accounting system is able to generate information which
meets with certain qualitative standards, such as relia
bility. The information is communicated to people entitled
to receive the same. An attempt is also made to ensure that
only usable information is so supplied and to make modifi
cations in the system in keeping with the changing needs of
various users. However, the scope of accounting is gener
ally limited to financial information with the result that
the users have to resort to other sources in order to obtain
other types of information. Moreover, accountants are not
usually versatile in the various techniques of scientific
management -- and it may not be practicable for them to
acquire expertise in all of the related areas. Because of
this, they are unable to develop much of the sophisticated,
quantitative information required by modern decision makers
and other users.
In sharp contrast to accounting, the capabilities and
deficiencies of management information systems are related
to those of computers and operations research methods which
are the principal constituents of such systems. These sys
tems utilize various mathematical techniques to produce
vast quantities of information with great speed and accuracy

178
and make it accessible to users by means of integrated and
centralized data files, retrieval systems, and interactive
devices. The procedures used include techniques such as
model building, programmed decision making, and problem
solving. However, such systems operate on the basis of
established programs and lack a certain amount of flexi
bility. Moreover, in the absence of a proper integration
r
of men and machines, there is no adequate insistence on the
qualitative aspects of information (such as reliability),
and there is a lack of people who can effectively communi
cate with and understand the needs of various users. One
of the results is the production of an overabundance of
irrelevant information. In many organizations, there is
also an unbalanced development of managerial skills and
information handling techniques so that the sophisticated
information provided by MIS is not actually put to use by
the recipients.
A major conclusion that may be drawn from the fore
going is that in the modern environment neither accounting
nor MIS as presently established is able to serve as an
effective information system. There is still a need to
evolve a model which would have the capability to develop
various types of information and communicate them as per
users' requirements. It should also have sufficient flexi
bility to modify itself in keeping with changing needs and
be technically and economically feasible at all times.

179
This study has, therefore, attempted to develop a model,
referred to as the controlled information system, which
should be able to achieve these objectives.
In the suggested model, the information system is
divided into several subsystems. The input and output sub
systems control the acceptance of data and the communica
tion of information to users. The processing subsystem has
f
two channels: one using the computer to perform the pro
grammed manipulation of quantitative data and the other to
perform the nonprogrammed manipulation of such data as well
as to manipulate nonquantitative data manually. The results
of these two operations must be combined before they may be
considered ready for reporting. The developmental subsystem
utilizes feedback from users and from other subsystems,
carries out operations research, and modifies the system as
and when considered necessary. For a successful operation
of the suggested model, it would be necessary to have people
with specialized skills in three areas: computer operations
operations research, and information control. Information
controllers would have the responsibility to control the
input and output subsystems, to carry out the manual manipu
lation of data as well as to combine them with the computer-
processed information, and to receive and interpret feedback
The tasks included in information control are quite
similar to those performed by accountants in accounting
systems except that the former would encompass a larger

180
variety of data and information. This study therefore con
cludes that in order to survive as members of a distinct
discipline accountants should perform the functions of infor
mation controllers in the suggested model of controlled
information systems. Additionally, they may make useful
contributions to operations research, particularly in the
identification of problems to be solved and the making of
verbal models as well as in the solution control process
and cost/benefit analyses.
In order to successfully carry out the suggested role,
the education and training of accountants would need to be
such as to enable them to analyze the informational require
ments of various users, understand the data required to
develop such information, and manipulate quantitative and
nonquantitative data manually. They should also acquire
sufficient familiarity with operations research and com
puters to understand the limitations and applications
thereof. Their attitude should include a wholistic approach
toward the organization and a lack of bias toward the infor
mation developed. A general interest in the financial
aspects of states and events would be helpful in the per
formance of their duties.
The responsibilities of information controllers include
the function of ensuring that data and information meet with
appropriate standards. For this purpose, three standards
were suggested in this study: reliability, usability, and

181
authority (among which no trade-off is possible). Relia
bility is the certainty created in the mind of the user that
the information corresponds with the state or event it seeks
to represent. It may be thought of as a continuum, and
information with various degrees of reliability may be
reported for different purposes or to different users. To
achieve this end, several levels of reliability may be estab-
f
lished, and data and information categorized accordingly.
Usability refers to the potentiality of being understood and
utilized by the recipient. Authority implies that only
properly authorized data may be accepted into the system and
that only authorized information may be supplied to people
entitled to receive the same.
To understand the informational needs of the decision
making system it would be helpful to visualize the physical
flow of money and goods and services so as to ascertain the
decision points in that flow, and to determine the informa
tion required to make decisions at these points in accor
dance with the decision models adopted by the decision
makers.
Feedback from users would play an important part in
keeping the system consistent with their needs. Recipients
of information should, therefore, be encouraged to provide
feedback relating to: (1) the differences between the infor
mation supplied by the system and that obtained by them from
other sources or by direct observation, (2) information

182
supplied but not used, and (3) information needed but not
supplied.
Areas for Further Research
Before the suggested model of the controlled informa
tion system can be adopted in practice and before accoun
tants can begin to be trained to act as information control
lers, considerable research still needs to be done. The
following areas seem to be in the greatest need of further
research effort:
(1) Determination of the various levels of reliability
of data and information and relating them to various uses
and users.
(2) Determination of the effects of the various pro
cessing techniques on the reliability of information.
(3) Development of techniques to ascertain informational
needs of various users and to study behavioral aspects of
such needs.
(4) Development of verification and authorization tech
niques and procedures for data and information of various
types.
(5) Development of concepts and techniques for carrying
out cost/benefit analyses of information systems.
(6) Development of concepts and techniques to deter
mine the desirability of programming the decisions.

183
(7) Exploration of the possibility of combining judg
mental factors with mathematical techniques.
(8) Preparation of study materials for the education
of information controllers and development of methods for
their training.
This study attempts to provide direction essential to
a reshaping of the accounting discipline to better meet
modern informational needs. It sees accountants as bring
ing to bear in the information science area some of their
specialized attributes employed to improve the character of
information provided management and others. Aside from its
favorable impact upon information systems, this development
should result in the construction of a base for the renewed
and continued social utility of the accountant.

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BIOGRAPHICAL SKETCH
Surendra Prakash Agrawal was born January 21, 1936,
at Chandausi, U.P., India. In 1950 he was graduated from
Shyamsundar Memorial High School in Chandausi. He received
the degrees of Bachelor of Commerce and Bachelor of Laws
from Agra University in 1954 and 1956, respectively. In
1958 he became an Associate Member of the Institute of
Chartered Accountants of India and was admitted as a Fellow
of the Institute in 1966. In September, 1969, he enrolled
in the Graduate School of the University of Florida, and
received the degree of Master of Arts in March, 1971.
Surendra served his period of apprenticeship from 1954
to 1957 with S. Vaish and Co., at Kanpur, India. He worked
for Price Waterhouse, Peat and Co. at Calcutta, India, from
1958 to 1966, and for the Institute of Chartered Accountants
of India at New Delhi, India, from 1966 to 1969. At the
University of Florida, he worked as a Graduate Research
Assistant during the year 1969-70, received an Earhart
Foundation Fellowship for the year 1970-71, and taught ele
mentary accounting courses from September, 1971, to March,
1973, as a Graduate Teaching Assistant. Since then he has
been working as Assistant Professor at the Florida Inter
national University at Miami, Florida.
195

196
He has numerous publications both in the U.S.A. and
in India and is a member of Beta Gamma Sigma. He is married
to the former Vijaya Gupta and is the father of two children.

I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality,
as a dissertation for the degree of Doctor of Philosophy.
Jr!
'Lawrence J.^Benninger, Chairmaiv
Professor of Accounting
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality,
as a dissertation for the degree of Doctor of Philosophy.
Professor of Economics
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality,
as a dissertation for the degree of Doctor of Philosophy.
This dissertation was submitted to the Department of Account
ing in the College of Business Administration and to the
Graduate Council, and was accepted as partial fulfillment
of the requirements for the degree of Doctor of Philosophy.
June, 1973
Dean, Graduate School




56
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
17
provide information useful to management. 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
18
keeping with today's environment. 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
APBs 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.


163
(2) Understanding of the data needed to develop vari
ous types of information. This would involve a general
familiarity with the techniques of processing data, knowl
edge of data sources within and outside the organization,
and analysis of the reliability of various sources and of
data provided by them.
(3) Ability to carry out manual processing of data as
may be needed and to combine such data with computer-
processed information by manual input into the computer.
(4) Familiarity with operations research sufficient to
recognize its potential, its limitations, and possible
applications.
(5) Familiarity with computers sufficient to understand
their potential, their limitations, and possible applica
tions .
Training and education which help accountants primarily
in the discharge of other functions should be de-emphasized.
This would include the routine processing of quantitative
information and the noninformational functions traditionally
carried out by accountants. Giving up of the noninformational
functions is important because information controllers have
to remain without any departmental or functional bias. How
ever, an expertise in the financial aspects of states and
events would continue to be useful and should receive suffi
cient attention.


120
2
poor computational ability. A proper combination of men
and machines may be expected to have a mutually reinforcing
effect and overcome the deficiencies of both.
Man has a role to play in any system, and "full auto
mation" can never be achieved. Human beings must always
supply the initiative, design the system, set criteria of
satisfactory performance, operate the system, make constant
adjustments in keeping with changing conditions, and take
3
action if an unforeseen crisis arises. However, in a man/
machine system, man must be recognized as one of its essen
tial parts and must be integrated into the system.^ The
functions which are best handled on a computer can be
mechanized, and those which are best handled manually should
be left for men.^
In the literature, initially, emphasis had been placed
upon the technical aspects of information systems. Only
2. Chadwick J. Haberstroh, "Organization Design and
Systems Analysis," in Handbook of Organizations, Ed. J. G.
March (Chicago: Rand McNally and Co., 196 5 3 p. 1176.
3. John A. Beckett, Management Dynamics: The New
Synthesis (New York: McGraw-Hill Book Co.,1971), pp. 204-205
Ira G. Wilson and Marthann E. Wilson, Information,
Computers, and System Design (New York: John Wiley and
Sons, Inc. 1967), p. 97
4. Martin L. Rubin, Handbook of Data Processing
Management (New York: Auerback Publishers, 19 71) Vol. 5,
p. 132.
5. R. L. Martino, Information Management: The Dynamics
of MIS (IVayne, Pa.: Management Development Institute,
Division of Information Industries, Inc., 1968), p. 77.


5
opportunity. "Someone must rise to it. By tradition and
by proven record it ought to be the accountants."^ 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
7
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
8
or in another group. 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. ^
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), V.~3W.
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 (November, 1967), p. 3.
10.Horngren, p. 4.


66
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
ing.
(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.


8
knowledge:
(1) Accounting: financial and managerial
(2) Business, Finance, and Economics
(3) Quantitative Methods: 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, or his
carrying out a role within the total area of information
19
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.


97
MIS and Operations Research
Operations research is the systematic study of the
basic structure, characteristics, functions and relation
ships of an organization. It is based on the assumption
that economic systems, like the physical world, contain a
4 8
good deal of orderliness and regularity. Hartley defines
it in the following words:
Operations research is a collective effort of
many types of talent concentrating on the appli
cation of the scientific method to the develop
ment of predictive models which describe the
stable patterns of order underlying certain
business operations and thereby enabling the
provision of quantitative information which is
helpful in solving executive type problems.49
Many OR problems are generated from the need to examine
or model operational subsystems for use in the MIS. Model
ing, in this context, is the development of a mathematical
or statistical formulation to act as a replica of the opera
tion to be examined. Some of the widely used techniques of
OR are: linear programming, network techniques, dynamic pro
gramming, queuing theory, simulation, games and decisions,
and statistical tools.^ An MIS may adopt either the stand
ard models which have been developed and are extensively
48. Arnoff, p. 12.
49. Ronald V. Hartley, "Operations Research and Its
Implications for the Accounting Profession," Accounting
Review, XLIII (April, 1968), p. 321.
50. For a brief discussion of these techniques and
their applications, see Rubin, Vol. 5, pp. 173-178.


169
There does not seem to be any reason why quantifia-
bility and conciseness should be considered to be among the
necessary attributes of information. Quantifiability does
add to the usefulness of information, but this does not
imply that nonquantifiable information is always useless
and should not be provided. Similarly, if information
possesses other essential qualities, it need not necessarily
be concise. However, the information system has the respon
sibility to ensure that no unnecessary information is sup
plied to users.
There is no trade-off among the standards suggested in
this study in the sense that one can be substituted for
another, or that an increase in the adherence to one can
compensate for a decrease in the compliance with another.
Adherence to these standards in different degrees may make
information suitable for reporting for. different purposes
or to different users. In particular, reliability may be
considered as a continuum, and it was suggested earlier that
several levels of reliability may be fixed for categorizing
data and information. A possible scheme of such categori
zation could be as follows:
Category I -- Information with the highest reliability.
This would include information that has been validated by
competent physical verification.
Category II -- Highly reliable information. This would
include information that has been verified by means of a
cross check against other independent information.


50
which were supposed to be "known and accepted."^ 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
7
for the formulation of dependable judgments." The 1948
Statement made only a slight change, and said that the
financial statements "must supply dependable information for
g
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 essentia] to an understanding of
9
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. Patn and A. C. Littleton, An Introduc
tion to Corporate Accounting Standards (Chicago: American
Accounting Association, 1940) pp. T] 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. S2~. (Emphasis
removed.]
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.


ACKNOWLEDGEMENTS
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 students 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.
11


100
Overabundance of irrelevant information.--In many
organizations with computer-based MIS, managers often suffer
from an information overload.^ "it is so easy to get so
much information so fast from the computer files that tempt-
ation [to supply all of it] overcomes." There is a
tendency to communicate all the data that anybody might
5 8
need. The overabundance relates to information that is
irrelevant to the needs of the users. Managers must spend
a great deal of time separating the relevant from the irrele
vant, and searching for the kernels in the relevant docu-
59
ments. In the colorful words of Martino: "We are drown
ing in a sea of facts while dying of thirst for information.'
(Spring, 1971) pp. 7-12;
John T. Garrity, "The Management Information Dream
-- The End or a New Beginning?" Financial Executive, XXXII
(September, 1964), p. 11;
John Diebold, "ADP -- The Still-Sleeping Giant,"
Harvard Business Review, XLII (September-October, 1964),
P- 60
Edward M. Tolliver, "Myths of Data Automation,"
Journal of Systems Management, XXI (August, 1970), p. 37.
56. Ackoff, pp. B-147-148.
57. Ronald A. Bridges, "The Mad, Mad World of Informa
tion," Journal of Systems Management, XXIII (January, 1972),
p. 17.
58. Elmer B. Staats, "Information Needs in an Era of
Change," Management Accounting, L (October, 1968), p. 14.
59. Ackoff, p. B-148.
60. Martino, p. 31.
,60


183
(7) Exploration of the possibility of combining judg
mental factors with mathematical techniques.
(8) Preparation of study materials for the education
of information controllers and development of methods for
their training.
This study attempts to provide direction essential to
a reshaping of the accounting discipline to better meet
modern informational needs. It sees accountants as bring
ing to bear in the information science area some of their
specialized attributes employed to improve the character of
information provided management and others. Aside from its
favorable impact upon information systems, this development
should result in the construction of a base for the renewed
and continued social utility of the accountant.


TABLE OF CONTENTS (continued)
Page
CHAPTER
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
III ACCOUNTING AS.AN INFORMATION SYSTEM ... 47
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
IV


156
system itself is considered to be a model thereof. Models
of organization in other media (such as mathematics) should,
therefore, be compatible with their way of thinking. This
would be further helped by the fact that accountants account
primarily in financial terms; all states and events of
interest to various users possess some financial aspects,
and hence accountants come in contact with all or most of
them.
Manual processing of data would require the use of a
certain amount of judgment, such as in the application of
general guidelines in developing information or in the treat
ment of nonrepetitive items of data. Accountants make fre-
14
quent use of judgment in their work and should be able to
adapt their professional judgment to the needs of the con
trolled information systems.
Computer-processed and manually processed information
must be combined before being considered available for com
munication to users. This combination may be effected by
manual input into the computer and should be done by the
information controller. In accounting, similar combinations
are frequently required. For example, finaiicial statements
contain both quantitative information and nonquantitative
information, the latter often included in footnotes. Accoun
tants can perform this function in controlled information
14. See pp. 60-61.


133
This may be necessary before the initial establishment and
any subsequent expansion of the system. For introduction
or modification of particular procedures, an incremental
cost/benefit analysis would be called for.

Specialized Skill Requirements
For ithe successful operation of the information system
suggested in this chapter, it will be necessary to have
people with skills in the following specialized areas.
Information control.--People who can control the input
and output of the system, process nonquantitative data and
nonprogrammed aspects of- quantitative data, combine the
manually processed information with computer-processed
information, and receive and interpret the feedback. The
basic skill necessary for such people will be an understand
ing of the information needs of various users of information
and relating these back to the sources of data. This, in
turn, will require a familiarity with the operations of the
business and its environment. Information controllers should
be able to look at the organization as a whole, relate the
information needs of various users on a comparative basis,
and evaluate costs and benefits in financial terms. In
accordance with the present state of knowledge, the only
common denominator of information needed and utilized by
various users is money, and, therefore, an understanding of


126
should be kept of the reliability level of data being used
in the development of information,and, if appropriate pro
cedures have been used, such information should also be
considered to have the same reliability level. If several
categories of data are used in the development of a particu
lar piece of information, the reliability level of such
information will be the same as that of the data with the
lowest reliability level used in the process. For routine
and repetitive data, it is possible to establish standard
rules or procedures to categorize them according to their
level of reliability. But for other types of data, the
reliability level of each item must be determined individu
ally. In such cases, rules may be laid down for general
guidance. But for truly exceptional items, the person in
charge of the input subsystem will have to make a decision
about their reliability level, which in turn may require
consultation with the other systems of the organization.
Data entering into the system should be properly
authorized. For internal and routine data the authorization
may be in the form of appropriate validation or verification.
External data and projected data often may not be verifiable
and should, therefore, be expressly authorized to enter into
the system.The question as to which particular person
11. An example would be the projection of national in
come over the next several years which may be required as
input into the model building programs of the organization.
A number of predictions are made by economists and others
regarding the expected amounts of national income. Which


74
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 the 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


53
(5) information provided to various government
agencies for specific purposes
(6) information to potential investors
B. To people \^ithin 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
v 14
below.
(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.


104
70
maker. These, by definition, can not be supplied by a
computer-based information system. The computer requires
only unequivocal instructions, and it is not possible to
communicate undocumented judgment and interpretations to
71
the computer.
Inadequate control over inputComputer input is given
less thought than programs. This situation arises because
of the attitude that even a poor method of creating input
works, the fact that source materials are created in areas
outside the MIS, and the tendency to consider that the "world
72
ends at the door of the computer room." Sollenberger
found that assigning responsibility for the quality of input
73
data is a relatively new problem. May considers the con
trol of input data as one of the most critical areas in the
MIS and thinks that such control should apply both to the
methods of capturing data and to the accuracy of the data
captured.^
70. See pr>. 33-34.
71. Charles L. Long, "Needed: A New Profession," Journal
of Systems Management, XXII (June, 1971), p. 33.
72. Rubin, Vol. 4, p. 1.
73. 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), p. 72.
74.May, p. 589.


63
relevance, understandability, verifiability, neutrality,
33
timeliness, comparability, and completeness. Snavely
considers relevance, reliability, understandability, sig
nificance, sufficiency, and practicality as the necessary
criteria, and the information meeting these would have use-
34
fulness. While both ASOBAT and APB Statement #4 admit
the possibility of trade-off among the standards or objec-
i 35
tives laid down by them, Snavely rules out any such possi-
7 f.
bility among his criteria.'
Accountants also concern themselves with the authority
37
of the recipients of the information. 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
reporting.
Though accounting provides primarily financial (r
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
criteria.
37. £f. Goldberg: "... the purpose of accounting
reports, it would seem, is to inform persons entitled to
information." Louis Goldberg, An Inquiry Into the Nature
of Accounting (American Accounting Association, 1965),
p~] 5T] [Emphasis added.]


1. STANDARDS FOR INPUT
2. DATA FOR MANUAL PROCESSING
3. MANUAL PROCESSING (STORAGE, RETRIEVAL,
MANIPULATION)
4. DATA FOR COMPUTER PROCESSING
5. COMPUTER PROCESSING (STORAGE,
RETRIEVAL, MANIPULATION)
6. COMBINATION
7. INFORMATION AVAILABLE FOR REPORTING
8. STANDARDS FOR OUTPUT
9. DEVELOPMENT (FEEDBACK AND OPERATIONS
RESEARCH)


7
14
background in understanding EDP applications. 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. ^
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
17
business finance theory.
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. 1
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.


44
materials and services. The inputs and outputs are exchanged
for money and such exchange is also part of the operations
system.
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


91
crucial role in the dynamic development of the MIS by dis
covering new relationships and improving those under use.
A Model of MIS
A management information system as described above may
be represented by the diagram shown in Figure 2 on page 92.
After the input has entered into the system, it may either
be stored, or processed immediately. If stored, it may be
retrieved later on and then processed. After processing,
the information may again be stored, or immediately communi
cated as output. Stored information may be communicated
later on through retrieval. There may be various levels of
sophistication in these activities. Some examples are:
storage with sequential access, random access or on line,
batch processing or real time processing, and use of inter
active devices by users on a time-sharing basis. It is
essential that the OR section keep in touch with the infor
mation needs of the users and any changes therein. New or
better programs are developed with the help of OR, which may
be incorporated in the processing subsystem adding to, or
substituting, the older programs in use. Users may receive
some data directly or through other sources, and may also
contribute data as an input to the system.


34
(3) Subjective judgment -- 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
rand 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 executives have
4 8
to be specially trained to carry out this function. 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. 58.
48. Simon, p. 8.


TABLE OF CONTENTS (continued)
Page
CHAPTER
V (continued)
Anticipated Problems 135
Feasibility of the Discipline
of Information Control 135
Communication Gap Between Systems
People and Decision Makers 136
Time Dimension of the System 137
Controlled Information System and
Total Systems Concept 137
Evaluation of Controlled Information
System 140
Criteria of a Good Information
System 140
Dearden's Five Questions 142
Summary of the Chapter 144
VI THE SUGGESTED ROLE OF ACCOUNTING
IN CONTROLLED INFORMATION SYSTEMS .... 147
Purpose and Organization of the
Chapter 147
Role of Accounting Suggested in
Literature 148
An Overall Evaluation of the
Proposals 151
Role of Accounting in Controlled
Information Systems 151
Control of Input 152
Manual Processing of Data 154
Control of Output 157
Receipt and Interpretation of
Feedback 158
Participation in Operations
Research 159
Who'll Be in Charge? 161
Implications for Accountants'
Training and Education 162
Some Standards and Guidelines 164
Standards for Data and Information . 164
Guidelines for Receiving Feedback
from Users 170
Guidelines for Analyzing Informa
tion Needs 171
Summary of the Chapter 173
vi i


TABLE OF CONTENTS (continued)
Page
CHAPTER
IV (continued)
Inability of Decision Makers to
Specify Their Informational Needs . 103
Exclusion of Judgmental Factors . 103
Inadequate Control over Input .... 104
Lack of Flexibility in MIS 105
Incompatibility of Sophisticated
Information with Management
Capabilities 105
Basic Reasons of the Deficiencies
of MIS 106
Improvements in MIS Suggested in
Literature 107
Introduction of a New Human
Element in MIS 107
Acquisition of Skills in EDP
and Functional Areas 109
Source Data Automation 110
Fractionalization of MIS Ill
An Evaluation of the Proposals .... 112
Summary of the Chapter 114
V A SUGGESTED MODEL: THE CONTROLLED
INFORMATION SYSTEM 116
Purpose and Organization of the
Chapter 116
Characteristics of a Good Information
System 117
Capability to Develop Various
Types of Information 117
Capability to Communicate the
Required Information 118
Flexibility 118
Feasibility 119
Necessity of a Man/Machine System . 119
The Model of Controlled Information
System 121
Input Subsystem 124
Processing Subsystem 127
Output Subsystem 129
Developmental Subsystem 132
Specialized Skill Requirements 133
Information Control 133
Computer Operations 134
Operations Research 134
vi


21
are useful in most circumstances, they are by themselves
7
inadequate in this field. Hall and Fagen think that the
concept of systems is simply not amenable to complete and
g
sharp description. A general idea, however, may be gained
from a consideration of definitions formulated by various
writers.
Ackoff has made an attempt to organize the concepts
and terms commonly used to talk about systems. He defines
9
a system as "a set of interrelated elements." Definitions
quite similar to this have been used by many other writers.
A feiv 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.H
Johnson, Kast and Rosenzweig -- ... an organized
or complex whole; an assemblage or combination
of things or parts forming a complex or unitary
whole.12
7. John A. Beckett, Management Dynamics: The New
Synthesis (New York: McGravT-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.


57
19
such statements. 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 "management 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: American 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.)


72
of decision models used by external users of accounting
information. Examples 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.^ 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.^
(instead of money amounts), graphs, charts, and other
visual aids.
46. American Accounting Associations 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 nas 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.


112
developed, its timing, and the format of inputs and outputs)
should be decentralized to the operating management, while
data processing and programming should be centralized. A
business organization would have several information systems,
major among them being the financial information, personnel
data, and logistics information systems, and the minor sys
tems including marketing, research and development, strategic
planning, and executive observation. All the major systems
and some of the minor systems would use the centralized data
base and EDP facilities, while other minor systems would
carry out their own data processing. According to Dearden,
this model would have the advantage that the information
actually needed by users would be developed; different kinds
of skills in specifying information needs would be fully
utilized; and the centralization of the technical processing
aspects would lend to economy and use of specialized knowl
edge and skill.
An Evaluation of the Proposals
The individual suggestions made in the literature are
directed at, or appear to be adequate for, the solution of
particular problems only. If any fundamental changes must be
made, they should be such as to be capable of eradicating all
or most of the observed deficiencies of MIS. Proposals for
improvements should be evaluated keeping this situation in
mind.


157
systems also; but this would necessitate a sufficient famil
iarity with the operations of the computer.
Control of Output
In the controlled information system, responsibilities
of the output subsystem are to ensure that (1) information
of the correct reliability level is supplied to a particular
user or for a particular purpose, (2) only the information
actually needed is reported, and (3) only properly author
ized information is communicated to people who are author
ized to receive the same."^ These functions are similar to
those performed by accountants with respect to accounting
information.^ Accountants may, therefore, be expected to
effectively control the output of the controlled information
system. However, they would need to extend the area of
their interest so as to encompass all types of information
developed by such a system. The various qualitative stan
dards which the output of the controlled information system
17
ought to meet are discussed in a latter part of this chapter.
A common deficiency of accounting and MIS is the lack of
a precise understanding of the information required by users.
15. See p. 129.
16. See pp. 62-64. On the other hand, several of the
deficiencies of MIS relate to an inadequate control over
output, such as an overabundance of irrelevant information
and an incompatibility of sophisticated information with
management capabilities. See pp. 100, 105-106.
17.See pp. 166-170.


149
which managers are familiar) into the system. He may be of
great help in instituting proper controls, such as an ade
quate audit trail and control over confidential data.
Joplin proposes specific functions for the accountant during
the designing stage of MIS but does not clarify what his
functions should be as the manager of MIS except that,
because of his experience with the information system of
the organization, he may have an adequate knowledge of its
information needs. What other functions the accountant may
perform in the operation of MIS need to be further inves
tigated.
2
Gynther has suggested that the management accountant
must carry out a role within the "total MIS/management
science area" in association with other professionals who
have a better grasp of many of the newer relevant techniques.
His task would be to supply information (mainly of an eco
nomic nature) from the integrated information system for
use in the various planning activities, decision making
models, and for various control mechanisms. He would
arrange for the necessary inputs to be made to the system,
for the creation of necessary data files or banks, and for
the installation of speedy retrieval systems. The specific
functions suggested by Gynther for management accountants
are somewhat vague. He seems to think that accountants
2. Reg S. Gynther, "The Management Accountant of the
Future," Accountant's Journal (New Zealand), LI (August,
1972), pp7 '2-11.


138
information and supply the same to the various users, both
internal and external. This may be taken as an indication
that the objective of the proposed system is to develop and
supply all such information and qualify to be described as
a total information system. It was noted in Chapter IV that
the concept of total information is not considered to be an
achievable objective, and in fact the idea of supplying the
totality of information is sometimes seen as ridiculous.
In view of this background, the purpose of the controlled
information system needs to be further explained.
Under the concepts used in this study, an information
system is needed (or is indeed possible) only in an organi
zation which can be subdivided into a decision making sys
tem, an operations system, and an information system on the
basis of functional specialization. If specialized skills
are not found necessary to carry out these functions in an
organization, then that organization does not require the
establishment of a controlled information system. An
example would be a one-man business in which the same person
makes all the decisions, carries out all the operations, and
handles all the information. It is argued here that if it
were possible to establish a total information system in an
organization, its information system and decision making
system would not remain separate but would merge into one
system. The basis for this argument is that the inputs to
the decision making system are: information, subjective


99
should be small enough for calculation to be made in a reason
able time and with reasonable cost.^
Limitations and Deficiencies of MIS
A number of empirical and other studies reported in the
literature bear out the fact that expectations concerning
MIS have met only with partial success in most organizations
f
and that it has not been possible to utilize in full the
potential of the computer. ^ The face.tious definition of
MIS coined by Newlin, which is quoted at the beginning of
this chapter, conveys this situation very forcefully. Some
important deficiencies in the operations of MIS are listed
below.
54. Herbert A. Simon, The New Science of Management
Decision (New York: Harper and Brothers Publishers, IWO) ,
p. 17.
55. For example, see Russell L. Ackoff, "Management
Misinformation Systems," Management Science, XIV (December,
1967) p. B-147;
William M. Zani, "Blueprint for MIS," Harvard
Business Review, XLVIII (November-December, 1970) p. 95;
Frank P. Cougdon, Jr., "Advance Planning for the
Systems Function," Journal of Systems Management, XXI
(August, 1970), p. 13;
Sollenberger, p. 30;
Donald S. Feigenbaum, "The Engineering and Manage
ment of an Effective System," Management Science, XIV
(August, 1968), pp. 722-724;
Ward A. Fredericks, "A Manager's Perspective of
Management Information Systems," MSU Business Topics


SELECTED BIBLIOGRAPHY
Accounting Trends and Techniques, 1970, 1971, and 1972.
American Accounting Association. Accounting and Reporting
Standards for Corporate Financial Statements and
Preceding Statements and Supplements. Iowa City:
American Accounting Association, 195 7 .
, Committee to Prepare a Statement of Basic Account
ing Theory. A Statement of Basic Accounting Theory.
Evanston, Ill.-: American Accounting Association, T966.
, 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) 78-123.
, Committee on Foundations of Accounting Measure
ment. "Report of the Committee on Foundations of
Accounting Measurement." Accounting Review, Supplement
to Volume XLVI (1971), 1-JW.
, Committee on Information Systems. "Accounting and
Information Systems." Accounting Review, Supplement
to Volume XLVI (1971) 287- 350 .'
, Committee on Information Systems. "Report of the
Committee on Information Systems." Accounting Review,
Supplement to Volume XLVII (1972), 187-213.
, Committee on Research Methodology in Accounting.
,fReport of the Committee on Research Methodology in
Accounting." Accounting Review, Supplement to Volume
XLVI I (19 72) ~T5"9 ~52 0.
, Committee on Managerial Accounting. "Report of
the 1969-70, 1970-71 Committee on Managerial Account
ing." Accounting Review, Supplement to Volume XLVII
(1972), 317-335.
, Committee on Internal Measurement and Reporting,
1971-72. "Report of the Committee on Internal Measure
ment and Reporting." Mimeographed pamphlet.
184


181
authority (among which no trade-off is possible). Relia
bility is the certainty created in the mind of the user that
the information corresponds with the state or event it seeks
to represent. It may be thought of as a continuum, and
information with various degrees of reliability may be
reported for different purposes or to different users. To
achieve this end, several levels of reliability may be estab-
f
lished, and data and information categorized accordingly.
Usability refers to the potentiality of being understood and
utilized by the recipient. Authority implies that only
properly authorized data may be accepted into the system and
that only authorized information may be supplied to people
entitled to receive the same.
To understand the informational needs of the decision
making system it would be helpful to visualize the physical
flow of money and goods and services so as to ascertain the
decision points in that flow, and to determine the informa
tion required to make decisions at these points in accor
dance with the decision models adopted by the decision
makers.
Feedback from users would play an important part in
keeping the system consistent with their needs. Recipients
of information should, therefore, be encouraged to provide
feedback relating to: (1) the differences between the infor
mation supplied by the system and that obtained by them from
other sources or by direct observation, (2) information


83
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-
14
lated, 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.^ 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.


LIST OF FIGURES
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 123
X


49
Purpose of Accounting
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-
4
lyzed to determine the same.
f
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."^ A rationale of
these practices was given in Patn 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. Fl.


88
Structure of MIS
In order to serve its purpose and to carry out its
process, an MIS has several elements: a data base, elec
tronic data processing devices and communication links, pro
grams and routines library, a standardized report system,
2 8
operations research, and programmed decision rules. This
structure may be considered to consist broadly of the com
puter and operations research, where the term "computer" is
used in a broad sense to include all EDP and communication
equipment, the data base, and the programs and routines
library. Human beings are, of course, required to install,
maintain and operate the system as well as to make improve
ments and changes as required by changes in the environment.
Insofar as the routine operation of the MIS is concerned,
man may be seen as the helper of the machine; only in the
design and development of MIS does he have the dominant role.
Input of MIS
The input of MIS is data. For computer-based systems
a distinction must be made between data capture and data
entry which are two separate operations. Data are meaning
ful to the person who originally captures them. This oper
ation is performed in the majority of instances by pencil
29
and paper. Their entry into the system requires
28. Rubin, p. 110.
29. Edward M. Bennett, "Data Entry Through Distributed
Data Processing," Journal of Systems Management, XX
(September, 1969),p^ 3"!


182
supplied but not used, and (3) information needed but not
supplied.
Areas for Further Research
Before the suggested model of the controlled informa
tion system can be adopted in practice and before accoun
tants can begin to be trained to act as information control
lers, considerable research still needs to be done. The
following areas seem to be in the greatest need of further
research effort:
(1) Determination of the various levels of reliability
of data and information and relating them to various uses
and users.
(2) Determination of the effects of the various pro
cessing techniques on the reliability of information.
(3) Development of techniques to ascertain informational
needs of various users and to study behavioral aspects of
such needs.
(4) Development of verification and authorization tech
niques and procedures for data and information of various
types.
(5) Development of concepts and techniques for carrying
out cost/benefit analyses of information systems.
(6) Development of concepts and techniques to deter
mine the desirability of programming the decisions.


162
Implications for Accountants'
Training and Education
Since accountants would work as information controllers
and participate in operations research under the suggested
model of the controlled information system, their education
and training should emphasize the functions they would
actually carry out. From this viewpoint, accounting as a
f
discipline for information control should include a study
25
of the following matters.
(1) Analysis of the information needs of decision
makers and other users. This would involve a general famil
iarity with the operations of the business, decision areas,
decision making processes, effects of alternative methods of
processing or presenting information on decisions, and infor
mation required to be reported under various laws and author
itative rules and regulations (such as those of the Securi
ties and Exchange Commission, stock exchanges, and financial
institutions). Levels of reliability of information to be
provided to different users for different purposes and
behavioral aspects of the supply and use of information
would also need to be understood.
25. No attempt has been made here to specify the mate
rial which may be borrowed from different fields of knowl
edge for the training and education of information control
lers. Since information control is expected to emerge as
a distinct discipline, all such material should be devel
oped from its own viewpoint and ought to be well integrated.


117
evaluated on the basis of the criteria developed in this
chapter as well as some of the criteria proposed in the
literature.
Characteristics of a Good
Information System
Before developing a model of an information system it
is necessary to determine the characteristics of such a
system which may be used as criteria to evaluate its sound
ness. These characteristics may be derived from the purpose
of the information system and from the deficiencies observed
in the operation of various systems which it should try to
avoid. These matters have been discussed in some detail in
the preceding chapters of this study. Utilizing the ideas
gleaned from these discussions, the characteristics of a
good information system may be briefly described as follows.
Capability to Develop Various Types of Information
An effective information system should have the capacity
to accept and process all types of data (such as quantita
tive, nonquantitative, internal, external, past, present or
projected) and to utilize all appropriate techniques and
procedures to develop the required information (including
the modern model building, problem solving and programmed
decision making techniques).


48
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
f
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
environment.
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.


75
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 becomes
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
f
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."
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.


62
Projected data based upon 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
32
accounting information. APB Statement #4 lays down the
following qualitative objectives for financial accounting:
32. ASOBAT, pp. 7, 3.


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


154
9
for future use. The suggestion made by Churchill and
Stedry referred to earlier is also consistent with the func
tion of input control. According to these authors, accoun
tants ought to be able to verify data at the level of minute
data bits and to refine the objectivity criteria in these
. 10
new terms.
A discussion of the various qualitative standards which
f
the input to the controlled information system ought to meet
is contained in a later part of this chapter.^
Manual Processing of Data
Two processing channels are contemplated in a con
trolled information system, one using the computer and the
other relying upon the manual processing of data. Manual
processing is included in the function of information con
trol. This would consist of procedures and techniques which
can not be carried out on the computer. Characteristics
which make certain operations suitable for being performed
effectively and profitably on the computer were mentioned
12
in Chapter IV. Procedures and techniques which do not
9.Peter A. Firmin, "The Potential of Accounting as
a Management Information System," Management International
Review, VI (1966/2), pp. 49-53.
10. Churchill and Stedry (1967), p. 21.
11. See pp. 166-170.
12. See p. 96. It may be noted also that one of the
deficiencies of MIS is the exclusion of judgmental factors.
See pp. 103-104.


54
(5) Developments in the management science
techniques and electronic data processing
equipment
(6) Changes in general price level and their
impact on business, such as wage and price
controls
The noninformational functions carried out by accoun
tants are 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.^ 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
responsibilities.
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.


4
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 developments, and
new information departments would evolve.^ Swyers thinks
that, as a result of the implementation of an integrated
management information system, the accounting information
2
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~2'0'6';
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, "Ot)erations Research and Its
Implications for the Accounting Profession," Accounting
Review, XLIII (April, 1968), p. 327.


106
81
management. Hence, the need to educate managers is con
sidered to be a vital step in attaining an efficient system.
Basic Reasons of the Deficiencies of MIS
Because of the deficiencies just discussed, management
information systems have not been able to adequately achieve
their purpose of providing information to the other systems
of the organization. It is not suggested here that all such
systems suffer uniformly from all these deficiencies. This
discussion does, however, imply that for a computer-based
information system to be successful, care must be taken to
avoid the possibility of their occurrence.
Though some shortcomings may be caused by the poor
design or poor implementation, the following appear to be
the basic causes of the observed deficiencies of MIS:
(1) Limitations of the computer and OR methods
which constitute the structure of MIS.
(2) A lack of people within the system who can
effectively communicate with and understand
the needs of management and other users of
information.
(3) Unbalanced development of managerial skills
and information processing techniques.
81. Donald F. Cox and Robert E. Good, "How to Build a
Marketing Information System," Harvard Business Review, XLV
(May-June, 1967), p. 152.
82. Sollenberger (1968), p. 92;
Also see Sanders, p. 149.
82


148
Role of Accounting Suggested in Literature
Accounting may have three possible positions in an
organization:
(1) It may be the sole or major information system.
This position was studied in Chapter III, and it was found
that accounting did not seem to be capable of adequately
carrying ,out this role in the modern environment.
(2) It may serve as one of the several independent
information systems of the organization. This situation
was discussed in Chapter IV. Upon examination, it was found
that the implementation of such a proposal would prevent
the organization from taking advantage of many of the
developments in computer technology and problem solving
techniques.
(3) It may serve as an integral part of management
information systems. Suggestions made in the literature
utilizing this idea are examined below.
Joplin^ suggests that an accountant is a good choice
to become the manager of MIS. The accountant should, how
ever, enlarge his scope to cover all information, whatever
its use. He may perform a valuable function by incorporat
ing currently acceptable classification techniques (with
1. Bruce Joplin, "Can the Accountant Manage EDP?"
Management Accounting, XLIX (November, 1967), pp. 3-7;
, "The Accountant's Role in Management
Information Systems," Journal of Accountancy, CXXI (March,
1966) pp. 43-46.


128
information system as a whole. For instance, if some new
type of data becomes available to the system, it may be
processed manually by this section pending the development
of appropriate computer programs. This section will also
follow standardized techniques and procedures, or general
guidelines, in its processing activities. The results of
the manipulations by the two sections must be combined
before the information developed is considered ready for
reporting to users. This may be done by manual input into
the computer.^ ^
The computer programs, techniques and procedures, and
general guidelines used in the processing subsystem are laid
down when the information system is originally set up. Sub
sequently, these may be added to or modified by the develop
mental subsystem as and when considered necessary. There
would be continuous interaction between the processing sub
system and the developmental subsystem. People in the
former should provide feedback about any difficulty in the
processing and also make suggestions for improvement.
The procedures and techniques used in the system should
be compatible with the requirements of the users, particu
larly with respect to the level of sophistication and
13. The manual input may consist of information which
should be reported along with the information developed by
the computer, or it may specify the format in which the
computer-processed information should be reported. The com
puter program may contain instructions that further proces
sing, or reporting of the output, should be carried out only
if some manual input has been received at a particular stage
and in a particular form.


177
of the organization, to seek financial aspects of states
and events that may be reported, and to remain disinterested
in the information produced. They also make frequent use of
professional judgment in the performance of their duties.
The accounting system is able to generate information which
meets with certain qualitative standards, such as relia
bility. The information is communicated to people entitled
to receive the same. An attempt is also made to ensure that
only usable information is so supplied and to make modifi
cations in the system in keeping with the changing needs of
various users. However, the scope of accounting is gener
ally limited to financial information with the result that
the users have to resort to other sources in order to obtain
other types of information. Moreover, accountants are not
usually versatile in the various techniques of scientific
management -- and it may not be practicable for them to
acquire expertise in all of the related areas. Because of
this, they are unable to develop much of the sophisticated,
quantitative information required by modern decision makers
and other users.
In sharp contrast to accounting, the capabilities and
deficiencies of management information systems are related
to those of computers and operations research methods which
are the principal constituents of such systems. These sys
tems utilize various mathematical techniques to produce
vast quantities of information with great speed and accuracy


161
Who'll Be in Charge?""^
A favorite theme of writers in accounting is to specu
late as to who should be in charge of the organization's
computer-based information system, and most often the
answer found by them is "the accountant" (with or without
some qualifications) In view of the fact that the func
tions of the various participants in the controlled informa
tion system have been specified in some detail, it does not
seem necessary to find a definitive answer to this question.
So long as they perform their designated roles effectively,
any of the participants (information controllers, computer
experts and operations research experts) may be the head of
the system. However, the information controller would
occupy a unique position in that he would be in touch with
both the sources of data and users of information, and would
have an understanding not only of the information system
but also of the operations and decision processes of the
organization. Because of this, he may be considered to have
an edge in his favor over the other participants to take
charge of the system.
23. This heading has been inspired by Robert Beyer's
article: "Management Information Systems: Who'll Be in
Charge?" Management Accounting, XLVIII (June, 1967), pp. 3-8.
24. For a brief discussion and references, see pp.4-5.


CHAPTER I
INTRODUCTION
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
1


158
As indicated in Chapter V, the basic skill necessary for
information control is an understanding of the information
needs of various users and relating these back to sources
of data. Though accountants do try to keep in touch with
changes in such needs, they need to make a greater effort
18
in this direction. In a later part of this chapter,
certain guidelines are provided to ascertain the informa
tional requirements of decision makers which may be helpful
in the performance of this function by accountants.
Receipt and Interpretation of Feedback
In the controlled information system, the developmental
subsystem is divided into two sections: one receiving and
interpreting the feedback and the other carrying out opera
tions research. Functions of the former section are in
cluded in information control and hence would be performed
by accountants. Feedback is received from users, persons
controlling input and output, and persons manipulating data.
Since the functions of input and output control and the
manual processing of data would be carried out by the infor
mation controller, feedback from these sources would be the
utilization of his own ideas arising in these areas. Feed
back from persons in charge of computer operations would
relate mostly to technical matters, such as difficulties
faced in processing and suggestions for improvements.
18. See pp. 171-172.


118
Capability to Communicate the Required Information
An efficient information system should have the capacity
to fulfill the informational requirements of the decision
making and operations systems of the organization and of
the people outside the organization. In order to have this
capability, the needs of the users must be known, and the
system should have adequate filters to ensure that informa-
f
tion is communicated in accordance with such needs. If the
recipients of information are themselves not sure of their
requirements, the information system should be able to
furnish information which may be reasonably expected to be
used by the recipients and should keep in constant touch
with their actual needs. It must avoid supplying informa
tion which is either not needed or is unused. The level of
sophistication of the information supplied must be in keep
ing with the level of sophistication of the users. Where
interactive devices are to be used by the decision makers,
the system should provide adequate facilities for the same,
such as a proper and constantly updated data base and an
appropriate programs library.
Flexibility
The system should be amenable to change in accordance
with the changing needs of the users of information. To
accomplish this, it will be necessary to determine changes
required and to be able to give effect to them.


159
Feedback from users would play the most important part in
keeping the system consistent with user needs.
As mentioned earlier, accountants try to keep in touch
with changes in the information needs of users and make
19
necessary modifications in the accounting system. In con
trolled information systems, the making of any changes would
be a difficult and costly affair; hence, great care must be
f
taken in interpreting the feedback from users. Such feed
back may sometimes point out the necessity of educating
users rather than making changes in the information system.
20
In a latter part of this chapter, certain guidelines are
provided in regard to the feedback from users of information.
These may help accountants in the discharge of this function.
Participation in Operations Research
In addition to the function of information control, it
is suggested here that accountants may also participate in
operations research in the developmental subsystem of the
controlled information system. As defined in Chapter IV,
operations research is the systematic study of the basic
structure, characteristics, functions and relationships of
an organization as well as the collective effort of many
types of talent concentrating on the application of the sci-
21
entific method to the development of predictive models.
19.
See
P-
64.
20.
See
P-
170-171.
21.
See
p.
97.


19
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."^
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.


143
data that may be accepted into the system or on the types
of information that may be developed.
"What kinds of experts are to be included in an MIS
group, and what training shall they have?"--Three types of
expertise are required for the operation of the controlled
information system: information control, computer opera
tions, and operations research. Some details of these
three areas have been indicated earlier.
"Where is this group to fit into the corporate organi
zation? In particular, what will happen to the staff groups
from the controller's office, the legal department, the
marketing research department, and so forth?"--The controlled
information system will have a distinct organization of its
own and will be under the jurisdiction of a senior executive.
Its task will consist only of developing and supplying infor
mation. Except in unusual circumstances, the staff groups
which presently perform this function will no longer be
required after the establishment of the controlled informa
tion system. The controller (and his staff) may be expected
19
to serve as the information controller in the new set up.
However, the noninformational functions usually carried out
by the controller, such as financial management and taxation,
would be entrusted to people with requisite expertise. Other
staff groups, such as the legal department and the marketing
19. Further consideration will be given to this matter
in Chapter VI.


73
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-
f
plate changes within the basic historical-cost-based
accounting which would broaden the measurement and recog-
48
mtion criteria. 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,
49
information theory, and statistical decision theory.
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.


176
concern to the future of accounting as a distinct discipline
and a number of suggestions have been made in the literature
to prepare accountants to face this challenge. On examina
tion it seems, however, that none of these makes quite clear
as to how the accountant can continue to render useful ser
vices to business organizations in the modern environment.
The present study addressed itself to the problem of deter-
f
mining the role which accountants can perform effectively
and profitably, as specialists in their own rights, in
computer-based information systems.
In order to resolve the problem posed, it was first
necessary to determine why organizations are finding it
necessary to seek an alternative to accounting. This re
quired an analysis of the capabilities as well as deficien
cies both of accounting and management information systems.
An inquiry of this nature could have been made on the basis
of an empirical study of one or a few organizations; but
such a study would have been too limited in scope to permit
adequate generalization. Reliance was, therefore, placed
upon the numerous findings reported in the literature.
The capacity and limitations of accounting are related
directly to those of accountants. They utilize a number of
techniques and procedures of financial accounting and manage
ment accounting to develop information. In this function,
accountants are helped by their general attitude toward
their work which encourages them to take a wholistic view


60
of neutrality in APB Statement #4 and the standard of freedom
from bias in ASOBAT are reflections of this attitude. 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
31
information to outsiders.
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
acceptance.
(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 CMarch,
1967), p. 3 ;
Bertram A. Colbert, "Pathways to Profit: The
Management Information System," Management Services, IV
(September-October, 1967), p. 19.


194
White, K. K. Understanding the Company Organization Chart.
AMA Research Study #56. New York: American Management
Association, 1963.
Wilson, Ira G. and Wilson, Marthann E. Information, Com-
puters, and System Design. New York: John Wiley and
Sons',' 'l9Fr
Young, Stanley. "Organization as a Total System." California
Management Review, X (Spring, 1968), 21-32.
Zani, William M. "Blueprint for MIS." Harvard Business
Review, XLVIII (November-December^ 19 70), 95-100.


189
Haberstroh, Chadwick J. "Organization Design and Systems
Analysis," in Handbook of Organizations. Ed. J. G.
March. Chicago! Rand McNally and Co., T965.
Hall, A. D. and Fagen, R. E. "Definition of System." General
Systems, I (1956), 18-28.
Hartley, Ronald V. "Operations Research and Its Implications
for the Accounting Profession." Accounting Review,
XLIII (April, 1968), 321-332.
Haslett, J. W. "Total Systems -- A Concept of Procedural
Relationships in Information Processing," in Total
Systems. Eds. E. D. Meacham and V. B. Thompson.
Detroit: American Data Processing, Inc., 1962.
Head, Robert V. "Management Information Systems: A Critical
Appraisal." Datamation, XIII (May, 1967), 22-27.
Hein, Leonard W. "The Management Accountant and the Inte
grated Information Systems. Management Accounting,
XLIX (June, 1968) 34-38.
Heise, David R. "How Do .1 Know My Data? Let Me Count the
Ways." Administrative Science Quarterly, XVII (March,
1972), 58-61.
Holden, Paul E., Pederson, Carlton E. and Germane, Gayton E.
Top Management. New York: McGraw-Hill Book Co., 1968.
Horngren, Charles T. "The Accounting Discipline in 1999."
Accounting Review, XLVI (January, 1971), 1-11.
Jasper, Harold W. "Future Role of the Accountant." Manage
ment Services, III (January-February, 1966), 51-56.
Johnson, Richard A., Kast, Fermont E. and Rosenzweig,
James E. "Systems Theory and Management." Management
Science, X (January, 1964), 367-384.
Joplin, H. Bruce. "The Accountant's Role in Management Infor
mation Systems." Journal of Accountancy, CXXI (March,
1966) 43-46.
. "Can the Accountant Manage EDP?" Management Account
ing XLIX (November, 1967), 3-7.
Journal of Accountancy. "AICPA Adopts Wheat Report on
Accounting Standards Board." CXXVII (June, 1972), p. 10
Kelly, William L. "General Management's Understanding and
Use of MIS." Data Management, VIII (September, 1970),
102-104.


131
The information system should not provide information
indiscriminately to anybody who may want or need it. From
the point of view of the organization as a whole, it may
sometimes be necessary to withhold some information from
certain users. This would be particularly true in connection
with the people at lower rungs of managerial hierarchy and
those outside of the organization. Therefore, the output
subsystem must communicate only authorized information to
users who are authorized to receive the same.
Where interactive devices are in use, enabling the
users to retrieve information directly from the system, the
problem of output control is less formidable. Since the
decision maker has to specify the exact information he needs,
only the information to be actually used is supplied to him.
The already established relationships ensure compliance with
the requirement of appropriate reliability levels of infor
mation to be provided to particular users. Similarly, use
of such techniques as code words precludes the possibility
of giving out information to unauthorized people.
The output subsystem will be in constant contact with
users of information and their needs. It may help the
developmental subsystem by providing feedback about the
information actually needed but not being supplied, informa
tion being provided but not used, and changes in the infor
mation needs.


171
(1) Differences between information supplied by the
information system and direct observations made by users in
regard to the real world state or event represented by that
information.
(2) Differences between information supplied by the
information system and information received by users from
other sources and an indication as to which of them was con
sidered, or found to be, more reliable by the users.
(3) Information supplied by the information system but
not actually used by recipients.
(4) Information, or particular aspects of it, not sup
plied by the information system but actually needed by
persons authorized to receive such information.
Guidelines for Analyzing Information Needs
Information needs of the decision making system may
be ascertained in many ways. One of the ways to analyze
such needs which is of particular use in the controlled
33
information systems is briefly described below.
The first step would be to prepare an operations flow
chart. This chart would indicate the physical flow of money,
materials, and services required in the performance of the
33. A practice frequently adopted by writers in this
regard is to specify a set of questions which may be asked
of decision makers. However, the method suggested in this
section may be expected to lead to a deeper and more compre
hensive understanding of the information needs. Somewhat
similar methods have been suggested by some authors, such
as the data network analysis of A. F. Moravec, "Basic Con
cepts for Designing a Fundamental Information System,"
Management Services, II (July-August, 1965), pp. 41-45.


36
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.^ 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
52
"the opposite of uncertainty." 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
5 3
actual state of affairs of concern to the user. Bedford
54
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. TOO.
52. James G. Miller, "Living Systems: Basic Concepts,"
Behavioral Science, X (July, 1965), p. 194.
i
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.


124
ensured by continuing operations research which utilizes
feedback from users, persons controlling input and output,
and persons manipulating data. New techniques and procedures
developed on the basis of such research are added to, or
modify, the existing techniques and procedures. Users of
information may receive some information either directly
from the sources of data or through other channels and may
f
also contribute to the data input of the system. The vari
ous elements of this system are described below in some
detail.
Input Subsystem
It was indicated in Chapter II that the input to an
information system is data. Data are defined in this study
as symbolic representations of some real world state or
event which when communicated to an individual add to his
knowledge. It has also been stated that data may be of
various types, such as internal, external, quantitative,
O
nonquantitative, past, present or projected.
The responsibility of the input subsystem of the con
trolled information system will be to decide what data to
accept into the system. One guideline for this purpose
would be the type of data being currently used. But there
may be some new type of data which has the potentiality of
being used in the future,and should, therefore, be accepted
8. See p. 41.


144
research departments, which have different skill require
ments than those for the information function, will retain
their present positions.
"What authority is the MIS group to have? Is it to
have authority to design and implement systems, or is it
to serve in an advisory function only?"--The group of ex
perts as envisaged in the suggested model of the controlled
f
information system will be responsible for the operations
of the system. The original design of the system may be
developed by a larger group which would include people from
the various other functional and managerial areas.
"What can this group accomplish that cannot be better
accomplished by placing information specialists under func
tional groups?"--Placing information specialists under func
tional groups will lead to the fractionalization of the
2 0
system, the disadvantages of which were indicated earlier.
The suggested model of the controlled information system
will further the use of modern techniques of model building,
problem solving, and programmed decision making, which is
not possible in a fractionalized system.
Summary of the Chapter
In view of the purpose of the information system of a
business organization and in order to avoid the deficiencies
20. See p. 113.


35
and/or subjective judgment of the decision maker.
The Information Svstem
-
Characteristics of the information system are as
follows.
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
49
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."^ 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.


3
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 computer 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


174
limitations and possible applications. Training for the
functions not included in the suggested role (particularly
the noninformational functions generally performed by
accountants) may be de-emphasized. Their general attitude
toward work should include a wholistic approach toward the
organization and a disinterestedness in the information
developed.
As a part of information control, data and information
must meet standards of reliability, usability and authority
(among which no trade-off is possible). These standards,
together with some of the characteristics of information
systems and the attitude of information controllers toward
their work, are compatible with most of the qualities of
information advocated in the literature. These standards
are explained in this chapter, and certain guidelines are
provided for receiving feedback from users and for analyzing
their information needs.


23
functional unity, and high internal interdependence as the
r 17
criteria of a system.
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-
18
sisting of variables which affect their state. Such sys-
f
terns have, inputs and outputs. They exchange materials,
19
energy or information with their environment. 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), pT 1174.
18. Ackoff, p. 663.
19. Hall and Fagen, p. 23.


68
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.^
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.


77
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
ment .


129
understandability of the information developed. Many of the
techniques of scientific management will be incorporated in
the system, and the processing will include model building
and programmed decision making. The use of such techniques
will enable the system to be helpful in problem solving at
the higher levels of management.
As far as possible, the processing should be carried
out in an integrated manner. Data once entering into the
system should be used to develop or update various types of
information including financial, personnel, logistics,
marketing and so on.
Output Subsystem
Responsibilities of the output subsystem are to ensure
that: (1) information of the correct reliability level is
supplied to a particular user or for a particular purpose;
(2) only the information actually needed is reported; and
(3) only properly authorized information is communicated to
people who are authorized to receive the same. The problem
of reliability of information is similar to the problem of
reliability of input data. Information will be subdivided
into several classes in accordance with the lowest level of
the reliability of data used in its development. These
classes will need to be related to the purposes for which,
or to the persons for whom, the information is supplied.
In regard to the second aspect of output control
reporting only the information actually needed -- information


Ill
information. In a nartially automated system, the machine
would accept a part of the input in some "machinable" form
and merge it with manual information. In a manual system,
a manually operated mechanism would be used to encode data
into digital form.
Fractionalization of MIS
In order to make an MIS more manageable and to improve
its efficiency, several alternative models of such a system
have been suggested in the literature. These proposals
amount to a division of MIS into several systems having
certain common links.
9 3
Moravec has proposed a "fundamental information sys
tem." This system would contain only that part of data
which is considered "absolutely essential" to the operation
of the organization. All other data would be kept outside
the system. However, data would be recorded only once at a
central location.
94
Dearden suggests the breaking down of the MIS hori
zontally and vertically. According to his scheme, the func
tion of systems specification (e.g., information to be
93. Moravec, pp. 37-45.
94. John Dearden, "How To Organize Information Systems,"
Harvard Business Review, XLIII (March-April, 1965),
pp. 65-73;
Also see John Dearden and F. Warren McFarlan,
MIS: Text and Cases (Homewood, Ill.: Richard D. Irwin. Inc.,
W66Y.


LIST OF TABLES
Table Page
1 Characteristics of Systems Within
a Business Organization 45
IX


84
their assigned responsibility at all levels.^ Integration
involves taking a wide variety of information and blending
17
it into a meaningful whole. It is possible to have
degrees of integration depending upon the design of the
18
system. u An integrated system may even be conceived of as
19
a combination of a number of interdependent subsystems.
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
, ,20
may be made.
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.


155
possess these characteristics would be executed manually and
would include those in which interacting variables do not
have reasonably accurate values, those which are not repeti
tive, and those with small volumes of input and output.
Operations requiring use of judgment would necessarily be
carried out by human beings.
Accountants have historically processed data manually
using compatible mechanical devices as and when they became
available. But the techniques and procedures used by them
are confined to financial accounting and management account
ing and those utilized for certain noninformational func
tions. In the controlled information system the processing
subsystem would employ various other techniques, such as
model building, problem solving and programmed decision
making, as well as procedures to develop nonfinancial infor
mation (such as that relating to personnel, logistics, market
ing and so on). Even though such procedures and techniques
would normally be carried out on the computer, an efficient
information controller should acquire a basic understand
ing and general familiarity with them. It is expected
that accountants can acquire such an understanding without
any insurmountable difficulty, primarily because of the
15
general attitude developed by them toward their work. They
take a wholistic view of the organization, and the accounting
13. See pp. 57-60.


61
needs of the users of information. Accountants, therefore,
have to use their judgment 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.


192
Scott, William G. "Organization Theory: An Overview and an
Appraisal," in Organizations: Structure and Behavior.
Ed. Joseph A. Litterer. New York: John Wiley and Sons,
1967.
Shannon, Claude E. and Weaver, Warren. The Mathematical
Theory of Communication. Urbana, Ill. : University of
Illinois Press, 1949.
Shull, Fermont A., Jr., Delbecq, Andre L. and Cummings, L. L.
Organizational Decision Making. New York: McGraw-Hill
kook Co. 19 70.
Simon, Herbert A. The New Science of Management Decision.
New York: Harper and Brothers, 1960.
Snavely, Howard J. "Accounting Information Criteria."
Accounting Review, XLII (April, 1967), 223-232.
Sollenberger, Harold M. Major Changes Caused by the Imple
mentation of a Management Information System. N.A.A.
kesearch Monograph ff4. New York: National Association
of Accountants, 1968.
. "Management Information Systems in the Real
World.n Management Services, VI (November-December,
1969), 30-37.
Staats, Elmer B. "Information Needs in an Era of Change."
Management Accounting, L (October, 1968), 11-15.
Sterling, Robert R. "On Theory Construction and Verifica
tion." Accounting Review, XLV (July, 1970), 444-457.
Stern, Harry. "Information Systems in Management Science."
Management Science, XIV (December, 1967), B-2S5-258.
. "Management Information System -- What It Is and
~^Why." Management Science, XVII (October, 1970), B-119-
12 3.
Stevens, William T. The Development of a Multi-Dimensional
Concept of Management Information Systems, with Particu
lar Reference to the Conceptual Framework of Management
Accounting. Gainesville, Fla.: University of Florida.
T97in
Stich, Robert S. "Pitfalls to Systems Management." Manage-
ment International Review, X (1970/1) 19-22.
Stuart, Walter J. "An Experiment in DP Management --
Revisited." Datamation, XV (November, 1969), 149-157.


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
research.
It is recommended that in the suggested model accoun-
f
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 therefor, 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.
xiii


76
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-
f
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
channels.
Specialized skill and expertise of accountants include
accounting techniques, an appropriate attitude toward work,
professional judgment, and a facility in noninformational
functions.
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


107
Improvements in MIS Suggested in Literature
A number of suggestions have been made in the litera
ture to improve MIS. These suggestions revolve around a few
basic ideas which are briefly described and evaluated below.
Introduction of a New Human Element in MIS
Various writers have recommended the addition of a new
f
human element in the system, which would eradicate some of
the deficiencies observed in its operations. However, the
functions specified for this new agency in the various pro
posals vary widely.
83
Brown has urged the creation of an information agency
consisting of representatives from all departments of the
organization. This agency would integrate, evaluate, and
compare the various kinds of information coming into the
organization, and would have no departmental bias. However,
the search for information and its codification would be
carried out by the intelligence mechanisms under the control
of the various levels of management. Under Brown's sugges
tion, the information agency would be merely a clearinghouse.
Not much advantage would be taken of functional specializa
tion, and the organization would not receive the benefits of
progressive segregation of its subsystems.
83. Warren B. Brown, "Systems, Boundaries, and Informa
tion Flow," Academy of Management Journal, IX (December,
1966) pp. 318-32 7.


CHAPTER III
ACCOUNTING AS 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
2
decision making. Until the advent of management informa
tion systems, accounting was the only major department
3
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, 19 66) n. 44 ;
Also see William E. Swyers, "Integrated Infor
mation Systems and the Corporate Controllership Function,"
Management Accounting, L (October, 1968), p. 18.
47


101
Inadequate knowledge of information needs.- Information
is not always tailored to users needs, presumably because
of the failure to ascertain their specific requirements.^
Systems people are often unaware of the exact needs of the
6 2
management. One author thinks this factor to be of such
importance that he considers the practical imaginative deter
mination of the information needed as responsible for 901
r A 3
of the successful utilization of the computer.
A communication gap between the systems people and
users of information.--This is perhaps the one deficiency
which has attracted the attention of the largest number of
64
researchers, and is at the root of many other deficiencies
in the operations of MIS. The communication gap exists not
merely between the systems people and the users of informa
tion, but among systems people also. Stuart describes the
situation very vividly and effectively:
61. Staats, p. 14.
62. Gallagher, p. 13.
63. Tolliver, p. 38.
64. For example, see John B. Wallace, "Improving Com
munication Between Analysts and Users," Data Management,
X (June, 1972), p. 21;
William L. Kelly, "General Management's Understand
ing and Use of MIS," Data Management, VIII (September, 1970)
pp. 102 104 ;
Walter J. Stuart, "An Experiment in DP Management
-- Revisited," Datamation, XV (November, 1969), p. 151;
Joseph Poindexter, "The Information Specialist:


127
should authorize the data entry is a matter of managerial
hierarchy of the organization.
To summarize, the functions of the input subsystem will
be to accept all data which may conceivably be used in the
system and which have been properly authorized, to determine
their level of reliability, and to make feedback to the
developmental subsystem when necessary. Some of these func-
l
tions will require exercise of subjective judgment of the
person in charge of the subsystem.
Processing Subsystem
The processing subsystem will be responsible for the
storage, retrieval, and manipulation of the data accepted
into the system. It will be subdivided into two sections.
One section will use the computer to carry out these tasks
This section will be concerned with quantitative data and
its manipulation in accordance with programs which form part
12
of the subsystem. The second section will be concerned
with nonquantitative data and with nonprogrammed manipula
tion of quantitative data. This section will be operated
by people who may or may not utilize mechanical devices.
Because of the inherent flexibility of human beings, this
section will lend a certain amount of flexibility to the
particular figure should be used in the information system
of the organization is a matter of some importance and
should receive appropriate consideration.
12. See footnote #7, p. 121.


102
... systems accomplishment involves a great deal
of communication, and very difficult communica
tion at that. It seems that those concerned all
speak in different languages, not only with
reference to the user but even right there in
the computer complex. Input/output staff are
thinking about the source data and the tables
or graphs which they must review and approve.
Operators tend to deal with the hardware, the
dials, buttons and routines of processing.
Analysts speak a jumble of fast-changing com
puterese and what little they have come to under
stand of the substance of their projects. Pro
grammers actually begin to think, and I have
heard at least one habitually sneak in languages
like COBOL. Data librarians are involved with
reel numbers, disc packs, dirty tapes, reten
tion dates, and that painful round of data
journals. Users, of course, find themselves
unable to speak to or understand anyone in the
complex, except perhaps the review clerks who
are really in no position to help them. These
are simply variations of the communications
problem which has been beaten to death in
modern management literature.65
i
Moore also provides a graphic description of the hopeless
ness of the situation:
A user nresumably knows what he wants, but he
typically cannot communicate with the machines
and has great difficulty in explaining his need
to the man who can make the machines talk. The
EDP analyst-programer presumably can make the
From Data to Dollars," Dun's Review, XCIII (June, 1969),
p. 36 ;
C. F. Tilstra, "Communicating MIS," Journal of
Systems Management, XXIII (June, 1972), pp. 36 38.;
Michael D. Moore, "Communication Between Manu
facturing and Systems Groups," Journal of Systems Manage
ment, XXI (October, 1970), pp. 22-24 ;
William Exton, Jr., "The Information Systems
Staff: Major Obstacles To Its Effectiveness, And a Solution,"
Journal of Systems Management, XXI (July, 1970), p. 34.
65. Stuart, p. 151.


179
This study has, therefore, attempted to develop a model,
referred to as the controlled information system, which
should be able to achieve these objectives.
In the suggested model, the information system is
divided into several subsystems. The input and output sub
systems control the acceptance of data and the communica
tion of information to users. The processing subsystem has
f
two channels: one using the computer to perform the pro
grammed manipulation of quantitative data and the other to
perform the nonprogrammed manipulation of such data as well
as to manipulate nonquantitative data manually. The results
of these two operations must be combined before they may be
considered ready for reporting. The developmental subsystem
utilizes feedback from users and from other subsystems,
carries out operations research, and modifies the system as
and when considered necessary. For a successful operation
of the suggested model, it would be necessary to have people
with specialized skills in three areas: computer operations
operations research, and information control. Information
controllers would have the responsibility to control the
input and output subsystems, to carry out the manual manipu
lation of data as well as to combine them with the computer-
processed information, and to receive and interpret feedback
The tasks included in information control are quite
similar to those performed by accountants in accounting
systems except that the former would encompass a larger


150
should be responsible for the input, storage, retrieval,
and output with respect to the particular type of informa
tion and for certain identified purposes mentioned earlier.
Presumably, the other professionals within the "total MIS/
management science area" would have similar responsibilities
for information of other types or for other uses, and that
the processing of all the information would be integrated
f
in the computer. It seems that the adoption of this sugges
tion would prevent functional specialization within the
"total MIS/management science area" and might lead to its
fractionalization into several independent subsystems having
as a link the use of computers for integrated processing of
their data.
Churchill and Stedry^ suggest that the routine proces
sing of data may be left to the computer, and that the
accountant concentrate on its verification at the minute
"bits" level, refinement of the objectivity criteria in
these new terms, classification of the basic primitive trans
action, and quantification of events now accorded only quali
tative description. This suggestion seems to propose a
fundamentally different role for accounting from what it has
been traditionally carrying out, for, in order to accomplish
it, accountants would have to develop expertise in newer
areas. Should the accountants be able in fact to accomplish
3. Neil C. Churchill and Andrew C. Stedry, "Extending
the Dimensions of Accounting Measurement," Management Services,
IV (March-April, 1967), p. 21.


64
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.
However, 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
3 8
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.


166
represent the qualities that information ought to possess,
there are some which are either undesirable or not inherent
in the information as such. In terms of the scheme followed
in this study, the various desirable qualities are included
as follows:
Characteristics of the information system.--An efficient
information system should have the capability to develop
various types of information and to communicate them in
accordance with users' requirements. It is the responsi
bility of the information system to supply complete or ade
quate information on a timely basis. Adequacy and timeliness
thus need not be considered to be the properties of informa
tion as such. Similarly, an information system should be
technically and economically feasible, and economic feasi
bility need not be related directly with individual items of
information.
Specialized skill and expertise of information control
lers .- In addition to technical skill, information control
lers must develop a certain attitude toward their work which
includes a disinterestedness in the information supplied.
Such an attitude would make it possible to develop informa
tion which is free from bias.
Standards for input and output.--Three standards have
been suggested in this study with regard to both data and
information. They are: reliability, usability and author
ity. Reliability is considered to be one of the higher


33
44
judgment, intuition, and creativity, or rules of thumb.
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 wrhich 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. 11T7 For a discussion of the distinction
between information and knowledge, see p. 40.


193
Swyers, William E. "Integrated Information Systems and the
Corporate Controllership Function." Management Account
ing L (October, 1968), 18-21.
Systems and Procedures Association. Business Systems. Cleve
land, Ohio: Systems and Procedures Association, 1966.
Taylor, James W. and Dean, Neal J. "Managing to Manage the
Computer." Harvard Business Review, XLIV (September-
October, 1966) 98-110.
Tilstra, C. F. "Communicating MIS." Journal of Systems
Management, XXIII (June, 1972) 36-38.
Toan, Arthur B., Jr. Using Information to Manage. New York:
Ronald Press Co. 1968.
. "MIS -- A Status Report on the Concept and Its Imple
mentation." Journal of Accountancy, CXXIX (June, 1970),
77-83.
. "Is Accounting Geared to Today's Needs?" Management
Adviser, VIII (November-December, 1971), 17-22.
Tolliver, Edward M. "Myths of Data Automation." Journal of
Systems Management, XXI (August, 1970), 36-38.
Vandell, Robert F. "Management Evolution in the Quantitative
World." Harvard Business Review, XLVIII (January-
February^ 19 70), 83-9 2.
Vergin, Roger C. "Computer Induced Organization Changes."
MSU Business Topics, XV (Summer, 1967), 61-68.
von Bertalanffy, Ludwig. "General Systems Theory." General
Systems, I (1956), 1-10.
Wallace, John B. "Improving Communication Between Analysts
and Users." Data Management, X (June, 1972), 21-24.
Webster's Third New International Dictionary. Springfield,
Mass. : G"I and C. Merriam Company, 196 8.
Weinwurm, Ernest H. "Preliminaries of the Decision Making
Process." Management International Review, VIII
(1968/2-3), 115-119.
Weinwurm, George F. "Managing Management Information."
Management International Review, X (1970/1), 43-47.


58
(1) Looking at the organization as a whole -- The
20
accounting system is a model of the organization, and
accountants take a wholistic view of the same.
(2) Seeking financial aspects of states and events --
21
Accounting is financially oriented. Its main task is to
2 2
translate all the variables into financial terms. 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
2 3
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
24
the real world state or event it seeks to represent. 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 Cl i f f s 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. ^


CHAPTER II
*>
SOME BASIC CONCEPTS, DEFINITIONS
AND INTERRELATIONSHIPS
Purpose and Organization of the Chapter
; 1
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.'*'
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.
16


153
in this field can be adopted in the information requirements
7
presented by new management techniques. It is observed
that in practice procedures for data collection followed in
computer-based integrated information systems are similar
g
to those followed by controllers/ It seems logical, there
fore, that accountants should carry out the task of input
control in controlled information systems.
In order to perform this function effectively, it would
be necessary to expand the scope of the work which is pres
ently done by accountants. Input of the controlled informa
tion system consists of all types of data (such as quanti
tative, nonquantitative, internal, external, past, present
or projected), while input of accounting is limited to reli
able financial data. The accountant would, therefore, need
to acquire an understanding of various other types of data
also. This requirement is in keeping with the current
developments in accounting, and similar suggestions are also
found in accounting literature. For example, Firmin has
suggested that the scope of accounting may be broadened to
include nonmonetary information, and the concept of "trans
action" may be revised to include data for immediate use and
7. Neil C. Churchill and Andrew C. Stedry, "Some
Developments in Management Science and Information Systems
with Respect to Measurement in Accounting," in Research in
Accounting Measurement, Eds. Robert K. Jaedicke, Yuji Ijiri
and Oswald Nielsen [American Accounting Association, 1966),
p. 30.
8. Neil C. Churchill and Myron Uretsky, "Management
Accounting Tomorrow," Management Accounting, L (June, 1969),
p. 52.


I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality,
as a dissertation for the degree of Doctor of Philosophy.
Jr!
'Lawrence J.^Benninger, Chairmaiv
Professor of Accounting
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality,
as a dissertation for the degree of Doctor of Philosophy.
Professor of Economics
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality,
as a dissertation for the degree of Doctor of Philosophy.
This dissertation was submitted to the Department of Account
ing in the College of Business Administration and to the
Graduate Council, and was accepted as partial fulfillment
of the requirements for the degree of Doctor of Philosophy.
June, 1973
Dean, Graduate School




188
Exton, William, Jr. "The Information Systems Staff: Major
Obstacles to Its Effectiveness, and a Solution."
Journal of Systems Management, XXI (July, 1970), 32-36
Feigenbaum, Donald S. "The Engineering and Management of an
Effective System." Management Science, XIV (August,
1968), 722-724.
Fertakis, John P. "Toward a Systems-Oriented Concept of
Controllership." Management Accounting, L (December,
1968), 5-10, 23.
Firmin, Peter A. "The Potential of Accounting as a Manage
ment Information System." Management International
Review, VI (1966/2), 45-55.
Firmin, Peter A. and Linn, James J. "Information Systems
and Managerial Accounting." Accounting Review, XLIII
(January, 1968), 75-82.
Fredericks, Ward A. "A Manager's Perspective of Management
Information Systems." MSU Business Topics, XIX (Spring
1971), 7-12.
Gallagher, James D. Management Information Systems and the
Computer. AMA Research Study #51. New York: American
Management Association, 1961.
Garrity, John T. "The Management Information Dream -- The
End or a New Beginning?" Financial Executive, XXXII
(September, 1964), 11-16.
Godfrey, James T. and Prince, Thomas R. "The Accounting
Model from an Information Systems Perspective."
Accounting Review, XLVI (January, 1971), 75-89.
Goldberg, Louis. An Inquiry into the Nature of Accounting.
American Accounting Association, 1965.
Goldschmidt, Yaaqob. Information for Management Decisions.
Ithaca: Cornell University Press, 1970.
Graham, Richard W., Jr. "Total Systems Concept," in Finan
cial Information Systems. Eds. James B. Bower and
William R. Wilke. Boston: Houghton Mifflin Company,
1968.
Gynther, Reg S. "The Management Accountant of the Future."
Accountants' Journal (New Zealand), LI (August, 1972),
TTT.


81
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
obj ectives.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
management areas,
from
7
the various functional
Colbert--..an 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.


51
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-
10
tion."
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."
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.
12


29
(2) an information system, and
33
(3) an operations system.
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
34
which to divide the work elements. The essence of systems
engineering lies in recognizing and understanding constit-
f
uent specialities and allowing these to function only within
35
the context of integrating their efforts into a whole. 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.^
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-
204.
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.


170
Category ITT -- Reliable information. This would in
clude information which has not been independently verified
but has been received from competent sources and has internal
validity.
Category IV -- Information with low reliability. This
would include information that is not verifiable (such as
expectations about the future) but has been received from
competent experts.
Category V -- Information with the least reliability.
This would include unverifiable information received from
32
nonexperts (such as layman's guesses about the future).
Guidelines for Receiving Feedback from Users
The concept of feedback has been used in the literature
mostly in the technical sense of a statement of differences
between actual occurrences and pre-set standards for pur
poses of control. In this study, however, it is used in
the broader sense of users' reactions to the information
system in general and to any particular information. It is
suggested that the controller of information make efforts to
receive feedback from recipients of information with respect
to the following matters:
32. An item of general interest would be the future
plans of an organization. In the sense of a prediction
about the future, they might be considered to have low, or
the least, reliability. But in the sense of a decision
made by appropriate officials of the organization, they
might be considered to have high, or the highest, relia
bility.


14
(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, very little attention seems to have been
given to the role of accounting in the operation of such a
2 8
system; this study will primarily aim at specifying that
role.
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^ 17.A.A.
Res earch Monograph #4 (New York: National Association of
Accountants, 1968);
Roger C. Vergin, "Computer Induced Organization
Changes," MSU Business Topics, XV (Summer, 1967), pp. 61-68.


15
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.


85
21
"total systems" is probably dead or dying. Toan observes
that the notion of "total" is now seen to be ridiculous in
22
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
2 3
integrated systems is, however, found to be on the increase,
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, Holden, 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.^
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), pi 37.
22. Toan, p. 78.
23. For example, see Neal J. Dean, "The Computer Comes
of Age," Harvard Business Review, XLVI (January-February,
1968), pp7 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. 17117


96
information should have the following characteristics:
(1) a number of interacting variables, (2) reasonably accu
rate values, (3) consideration of speed as an important
factor, (4) requirement of accuracy, (5) repetitive applica-
4 3
tions, and (6) large volume of input and output. It may
44
be noted that, except in certain limited ways, the com
puter has no capability to process nonquantitative data.
f
Such data, however, often play a part in the outcome of
decisions.^ Because of these constraints, it is difficult
to use computers in the area of top level decision making
to generate new information in new forms.^ Moreover, being
a highly sophisticated tool, the computer needs to be prop
erly controlled. As stated by May, "... without adequate
control it is entirely possible that the computer will be
4 7
the weakest link in an information processing system."
43. John Dearden, "Can Management Information be Auto
mated," Harvard Business Review, XLII (March-April, 1964),
pp. 130-131.
44. Examples of the handling of nonquantitative data
that can be performed on the computer are the storage,
indexing, and retrieval of such data.
45. Ernest Dale, "A Plea for Coalition of the Quanti
fiable and the Non-Quantifiable Approaches to Management,"
Academy of Management Journal, XII (March, 1969), p. 16.
46. James W. Taylor and Neal J. Dean, "Managing to
Manage the Computer," Harvard Business Review, XLIV
(September-October, 1966) p. 105.
47.Phillip T. May, Jr., "System Control: Computers
the Weak Link?" Accounting Review, XLIV (July, 1969), p. 592.


TABLE OF CONTENTS (continued)
Page
CHAPTER
VII SUMMARY AND CONCLUSIONS 175
Areas for Further Research 182
SELECTED BIBLIOGRAPHY 184
BIOGRAPHICAL SKETCH 195
VI11


123
Figure 3. A model of controlled information system.


CHAPTER VII
SUMMARY AND CONCLUSIONS
A business organization consists of three systems:
one concerned with decision making, another with operations,
and a third with information, all of which are interdependent
and work in conjunction with each other. The first two use
information as one of their inputs; and people outside the
organization also need it. The purpose of the third system
is to develop and communicate information to the various
users. According to the concepts developed in this study,
information may be defined as a symbolic representation of
some real world state or event which when communicated to
an individual adds to his knowledge. Additionally, the
making of some decisions which are well structured and which
can be handled in accordance with previously laid out pro
cedures is also delegated to the information system.
Traditionally, accounting has been the only or major
information system in business organizations, but in recent
years many institutions have set up computer-based manage
ment information systems as an alternative to it. There is
no specialized function assigned to accountants in these
systems. Their growing use is, therefore, a matter of grave
175


THE ROLE OF ACCOUNTING IN
COMPUTER-BASED INFORMATION SYSTEMS
By
SURENDRA PRAKASH AGRAWAL
A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1973


121
recently consideration is being given toward blending the
technical and human elements with a view of attaining a
greater degree of both effectiveness and efficiency through
integration.^ One of the important characteristics of the
model developed in this study is an effective functional
integration of man/machine elements of the system.
The Model of Controlled
Information System
The suggested model of the controlled information sys
tem is presented diagrammatically in Figure 3 on page 123.
In this system data must meet certain standards before they
are accepted into the system. Two channels are provided for
the processing of data. Programmed manipulation of quanti-
7
tative data is carried out on the computer. Nonprogrammed
manipulation of quantitative data and processing of non-
quantitative data are handled manually (with or without the
aid of some mechanical devices). Results of the two pro
cedures are combined by manual input into the computer and
stored for reporting as output. However, before communica
tion to users, the information must also meet certain
standards. The dynamic development of the system is
6. Tribhowan N. Jain, "Liveware Approach to Informa
tion Design," unpublished paper, p. 2.
7. Some nonquantitative data may also be processed by
the computer, particularly for storage, indexing and
retrieval.


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
xxi


18
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
3
theory have been mentioned in the literature.
Developing general modelsLook 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.


151
these functions, the advantages would relate to an assurance
of reliability in the inputs to the system and to the
dynamic development of the system. Other deficiencies, such
as the overabundance of irrelevant information, observed in
the operations of MIS would still remain unresolved. More
over, functions relating to the dynamic development of the
system are presently discharged by operations research, and
an incursion of this field by accounting might raise the
problem of the selection of the most suitable person for the
j ob.
An Overall Evaluation of the Proposals
From a perusal of the various proposals regarding the
role of accounting within MIS, it seems that accountants are
not quite clear in their own minds as to what functions
should be discharged by accounting as an integral part of a
computer-based information system. They seem unable to
decide as to just how to utilize their specialized skill and
expertise within such systems.
Role of Accounting in
Controlled Information Systems
In contrast to the vagueness of the proposals found in
the literature, the role suggested for accounting in the
controlled information system is quite clear. It will con
sist of information control and participation in operations
research. These functions can be carried out successfully


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


167
level qualities by some writers. Several of the other
qualities mentioned in the literature lead to reliable
information; in particular, verifiability, objectivity,
accuracy, and correspondence. Realism suggests that there
could be several levels of reliability, and not all informa
tion can or needs to attain the highest level.
Usability means the potentiality of being used by the
f
recipient. In the case of data, this indicates that they
could be used in accordance with the techniques and proced
ures being followed currently or which may be reasonably
expected to be adopted in the future. For information this
implies that the information is needed by the user for some
specific purpose, for example, it would be an input to his
decision model; is understood by him; and is in keeping with
his level of sophistication. Several of the qualities
listed earlier would lead to usability of information, in
particular, uniformity, consistency, understandability,
meaningfulness, significance and sensitivity. The term
"usability" has been employed in this study in preference
to the more popular term "relevance" because of two reasons.
Firstly, usability is a broader term than relevance (though
not so broad as to be vague or imprecise, as is the case
29. For example see Accounting Principles Board,
Statement #4, Basic Concepts and Accounting Principles
Underlying Financial Statements of Business Enterprises
(Niew York: American Institute of Certified Public Accoun-
tants, 1970), paragraphs 77 and 107.


113
Introduction of a new human element within MIS may be
a good way to solve many of the problems. Its functions
should, however, not be confined to those suggested in
individual proposals discussed earlier. This possibility
will be further explored in Chapter VI of this study, and
an investigation will be made as to what functions such a
new agency may be expected to carry out successfully so as
to eliminate the observed deficiencies of MIS.
The acquisition of expertise in diverse fields of func
tional areas of business and EDP by the same set of people
is a doubtful proposition and does not seem to be a realis
tic solution to the problems of MIS. Similarly, the proposal
for source data automation might not be found to be feasible
if the reliability and accuracy of the input must be assured
by prior verification and validation.
A fractionalization of the MIS would prevent organiza
tions from taking advantage of advanced technical capabili
ties such as integrated systems, interactive devices, model
building, problem solving, and programmed decision making
tools. Mere automation of existing information systems would
not prove to be an advantageous utilization of computers and
other advanced technological developments.


89
man/machine interface. In order to increase the accuracy
of the input, it has been suggested by some writers that the
two operations of capture and' entry may be unified and
30
carried out by the same person. Accuracy alone, however,
would not ensure reliability which requires a correspondence
between the data captured and state or event represented.
It seems that this aspect of the data input has not received
as much attention from writers in the field of systems
management as it deserves. Milano considers the question of
the responsibility for the integrity of the data base and
thinks that the person who shoulders this responsibility
should have some form of control over all aspects of the
* 31
system.
Process of MIS
This consists primarily of storage, retrieval, and
programmed operations; and interfaces with the entry of
input and communication of output. The level of technology
and the degree of sophistication play an important part in
the process of MIS; but the human involvement in its design
and development is the decisive factor in the efficient use
of the system. Model building, programmed decision making,
30. For example, see ibid., p. 30;
31.
Rubin, Vol. 4, pp. 1-2.
Milano, p. 20.


CHAPTER IV
MANAGEMENT INFORMATION SYSTEMS
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.
78


6
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.
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
12
science (effective communication and human activation).
Staat's list includes computers, communication facilities
and techniques, economics, systems analysis and related
mathematical techniques, psychology, and sociology.^ 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.


43
to carry out the cost/benefit analysis of providing the
information.
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
73
scheduling; and process, quality, and inventory control.
Programmed decision making delegated to the operations sys
tem 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-
ciatxon 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.


12
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 model is an important part
of its defense.
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
2 7
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.


CHAPTER V
A SUGGESTED MODEL: THE CONTROLLED
INFORMATION SYSTEM
Purpose and Organization of the Chapter
This study has so far considered the need for and
importance of information for a business organization and
the two alternative systems which are used in practice to
generate information. It was determined that neither of
these was able to fulfill adequately the information needs
of the various users in the modern environment. Also, none
of the suggestions given in the literature for their im
provement appear to be capable of leading to the achievement
of this end. The purpose of this chapter is to suggest a
model of a computer-based information system which would not
suffer from the problems faced by the existing systems. The
suggested model will be referred to as the controlled infor
mation system.
The characteristics of a good information system will
first be considered. The new model, as well as its elements
and specialized skill requirements, will then be described.
Finally, difficulties anticipated in the operation of the
suggested model will be investigated, and the model will be
116


Abstract of Dissertation Presented to the Graduate Council
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy
THE ROLE OF ACCOUNTING IN
COMPUTER-BASED INFORMATION SYSTEMS
By
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
;:i


152
by members of the accounting discipline. The reason for
this assertion is that the work traditionally performed by
accountants includes tasks similar to these functions, and
accountants have developed specialized skill and expertise
in these areas. No other discipline seems to be better
suited for this purpose.
Control of Input
In the suggested model of the controlled information
system the functions of the input subsystem would be to
accept all data which may conceivably be used by the system
and which have been properly authorized, to determine their
level of reliability, and to make feedback to the develop
mental subsystem when necessary. Some of these functions
will require exercise of subjective judgment of the person
in charge of the subsystem.^
The accountant has extensive training and background in
data collection.^ Both quantitative and qualitative data
are used in accounting and, before acceptance into the
accounting system, they must meet appropriate qualitative
standards, such as reliability.^ Expertise of accountants
4. For further details of these functions, see pp.
124-127.
5. Joplin (1966), p. 44.
6. See pp. 61-62 .This situation is in sharp contrast to
that obtained in management information systems. One of
the deficiencies of such a system is an inadequate control
over input. See p. 104.


165
2 8
been suggested by various writers:^
Accuracy
Adequate disclosure
Clarity
Comparability
Completenes s
Conciseness
Consistency
Correspondence
Economic feasibility
Freedom from bias
Meaningfulness
Neutrality
Objectivity
Quant ifiabi1ity
Realism
Reliability
Relevance
Sensitivity
Significance
Sufficiency
Timeliness
Under st andabil.ity
Uni fo.rmity
Usefulness
Validity
Verifiability.
Several authors have arranged the qualities specified by
them in hierarchical order -- where some qualities are con
sidered to be more important than the others, or where qual
ities of a lower order are supposed to lead to the attain
ment of qualities of a higher level. Furthermore, in
several schemes substitution or trade-off among the suggested
standards is also permitted.
From a perusal of the various objectives listed in the
foregoing paragraph, it appears that while most of them do
28. This list has been prepared from a survey of the
literature in accounting and systems analysis and is believed
to be fairly comprehensive. Several of the items appear to
express identical or closely related ideas.


191
Newlin, Clarke R. "The Changing World of the Data Processing
Administrator." Data Management, X (February, 1972),
35-38.
Nichols, Gerald E. "On the Nature of Management Informa
tion." Management Accounting, L (April, 1969), 9-13, 15.
. "Accounting and the Total Information System."
lETanagement Accounting, LII (March, 1971), 27-30.
Orden, Alex. "Man-Machine-Computer Systems," in Management
Organization and the Computer. Eds. George PT Shultz
and Thomas L. Whisler. Chicago: Graduate School of
Business, University of Chicago, 1960.
Patn, William A. and Littleton, A. C. An Introduction to
Corporate Accounting Standards. Chicago: American
Accounting Association, 1940.
Poindexter, Joseph. "The Information Specialist: From Data
to Dollars." Dun's Review, XCIII (June, 1972), 34-37.
Pondy, Louis R. "A Systems Theory of Organizational Con
flict." Academy of Management Journal, IX (September,
1966), 246-256. '
Prince, Thomas R. Information Systems for Management Plan
ning and Control. Homewood, Ill. : Richard D. Irwin,
Inc., 1970.
Rappaport, Alfred (ed.). Information for Decision Making:
Quantitative and Behavioral Dimensions. Englewood
Cliffs, N.J.: Prentice-Hall, Inc., 1970.
Robinson, Leonard A. and Alexander, Milton J. "Are Accoun
tants Adjusting to Change?" Management Accounting, LIII
(November, 1971), 11-14, 19.
Rubin, Martin L. (ed.). Handbook of Data Processing Manage
ment Princeton: Auerback Publishers, 1971.
Sage, David M. "Information Systems: A Brief Look Into
History." Datamation, XIV (November, 1968), 63-69.
Sanders, David H. Computers and Management. New York:
McGraw-Hill Book Co., 1970.
Schoderbek, Peter P. and Schoderbek, Stephen E. "Integrated
Information Systems -- Shadow or Substance?" Manage
ment _Advisejr, VIII (November-December, 1971), 27-32.


46
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.
i


115
this field:' (1) an overabundance of irrelevant information,
(2) inadequate knowledge of information needs, (3) a communi
cation gap between systems people and users of information,
(4) an inability of the decision makers to specify their
information needs, (5) exclusion of judgmental factors,
(6) inadequate control over input, (7) a lack of flexibility
in MIS, and (8) an incompatibility of sophisticated informa
tion and management capabilities. These deficiencies can be
related to the basic limitations of the structure of MIS, a
lack of people within such systems who can communicate with
and understand the needs of users, and an unbalanced devel
opment of managerial skills and information processing tech
niques .
Suggestions made in the literature for improvements in
MIS revolve around ideas of introducing a new human agency
within MIS, requiring acquisition of specialized knowledge
both of functional areas of business and of EDP by the same
set of people, mechanizing the input process, and fraction
alizing the MIS. It seems that the inclusion of a new human
element within MIS has the greatest potential of eradicating
the deficiencies of such systems. However, the functions of
such an agency need to be clearly indicated.


17
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
2
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-
I
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.


42
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-
tive. 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
72
information to be submitted to them.
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.


39
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
6 3
the event substituted in some sense stands for the other."
Martino also finds implicit in the term information the con
cept of flow. It moves from one person to another. When
f
it is absorbed, it is no longer information, but is knowl-
64
edge. Kostetsky thinks that information should be capable
of being perceived into an increase in knowledge by the
decision maker.^ Ewing takes the reverse route. He defines
knowledge as piles of information reposing in the executive's
66
memory.
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.


59
25
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
2 6
specified by it enhances such reliability. The standard
of verifiability laid down by ASOBAT is a necessary attri-
2 7
bute of accounting information to make it reliable.
2 8
(4) Disinterestedness in the information supplied
The functions of accounting are neither in operations nor
29
in management. 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. He 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 "disinterestedness" 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
ferent ."
29. John P. Fertakis "Toward a Systems Oriented Con
cept of Controllership," Management Accounting, L (December,
1968), p. 6.


BIOGRAPHICAL SKETCH
Surendra Prakash Agrawal was born January 21, 1936,
at Chandausi, U.P., India. In 1950 he was graduated from
Shyamsundar Memorial High School in Chandausi. He received
the degrees of Bachelor of Commerce and Bachelor of Laws
from Agra University in 1954 and 1956, respectively. In
1958 he became an Associate Member of the Institute of
Chartered Accountants of India and was admitted as a Fellow
of the Institute in 1966. In September, 1969, he enrolled
in the Graduate School of the University of Florida, and
received the degree of Master of Arts in March, 1971.
Surendra served his period of apprenticeship from 1954
to 1957 with S. Vaish and Co., at Kanpur, India. He worked
for Price Waterhouse, Peat and Co. at Calcutta, India, from
1958 to 1966, and for the Institute of Chartered Accountants
of India at New Delhi, India, from 1966 to 1969. At the
University of Florida, he worked as a Graduate Research
Assistant during the year 1969-70, received an Earhart
Foundation Fellowship for the year 1970-71, and taught ele
mentary accounting courses from September, 1971, to March,
1973, as a Graduate Teaching Assistant. Since then he has
been working as Assistant Professor at the Florida Inter
national University at Miami, Florida.
195


109
information system may be improved in other areas also by a
proper and expanded definition of the functions of such a
profession.
Acquisition of Skills in EDP and Functional Areas
Several authors have suggested that skills relating to
EDP as well as those relating to functional areas of the
business should be acquired by the same set of people so
that they may communicate with each other better and under
stand the needs and problems of each other. This would,
hopefully, remove several of the deficiencies in the opera
tion of MIS.
8 7
May recommends that the systems personnel should
possess technical ability as well as a comprehensive knowl
edge of business areas being automated. On the other hand,
8 8
Kelly thinks that the functional managers should be ade
quately informed about the MIS. Kelly has made this sugges
tion on the basis of the results of his empirical study in
which he found the following means of dialogue between the
systems specialists and decision makers: the question and
answer technique (where the systems man asks the questions);
assignment of a systems man to the functional user group; or
assigning a man from the user group to the systems depart
ment. He did not find any of these approaches to be adequate
and therefore made the suggestion mentioned earlier.
87. May, pp. 587, 588.
88. Kelly, p. 103.


110
Some other writers, however, have expressed serious
doubts about the feasibility of the implementation of such
89
suggestions. Dearden asserts that no man can possess a
broad enough set of special skills, and that the "true MIS
9 0
expert" does not and can not exist. Similarly, Long
thinks that to expect even the most capable individual to
be both an expert systems designer and a functional expert
f
is unrealistic, except in the case of fairly standard func
tions such as payroll accounting.
Source Data Automation
Mechanization of the input process has been suggested
by several writers to control the input to the system.
91
Bennett distinguishes between the operations of data cap
ture and data entry, and suggests the unification of the
two, giving the same people who capture data the capability
of entering them into the system in computer usable form.
This would involve a man/machine interface at the data cap
ture position.
92
Rubin specifies three types of source data automation.
In a fully automated system, a machine produces the original
89. John Dearden, "MIS Is a Mirage," Harvard Business
Review, L (January-February, 1972), p. 93.
90. Long, p. 33.
91. Bennett, pp. 30-31.
92. Rubin, Vol. 4, pp. 7-14.


134
the financial aspects of information will be necessary for
information controllers.
Computer operations-People who can program, operate
and maintain computers and other related devices, and can
manage the data base and the programs library.
Operations researchPeople who can develop and im
prove the techniques and procedures used in the system.
This will involve basically an understanding of the various
relationships in operations and of the decision making pro
cesses and an ability to make mathematical models. The
methods of operations research may be used to achieve this
end.
It has been observed in Chapter IV that the principal
components of management information systems are the computer
and operations research methods. Their roles were discussed
there in some detail.^ In the controlled information sys
tem suggested in this chapter, similar roles are assigned to
them. The function of information control is newly intro
duced, and it is suggested that this be performed by members
of a distinct discipline. Further consideration will be
given to this matter in Chapter VI.
14. See pp. 93-99.