ACCOUNTING AN INFORMATION SYSTEM

 ACCOUNTING AS AN INFORMATION SYSTEM

Every individual or group in  the society must make economic decision concerning the future.The future though is uncertain but efforts must made to forcast its possible outcome rather than sitting on the fence. For instance, the Manager of a company needs to know which product or section within the organization is not performing as expected. With this information the management can take  decision on how best to manage the product or this section of the organization.

Other stakeholders, other than the management also requires Accounting information for decision making, the regulatory authorities, the various tiers of government, investors competitors, industrial regulators and other interest group within and outside the organization.

Of recent the demand for accounting information is on the rise, investors, government, non governmental organisation. Every sector within the economy irrespective of the profession, needs this important information for decision that help them reposition their firms for performance. Others requires meaningful and easy to understand economic information for them to venture into any financial and non financial related activities that may reshape their organizations. For the facts that Accountants were trained in this line of information generation and interpretation, The American Institute of Certified Public Accountants (AICPA) stated that the primary role of accounting is "to provide quantitative information, primarily financial about economic entities that is intended to be useful in making economic decision"

The modern Accountant is concerned not only with record keeping (book-keeping) but also with a whole range of activities involving planning, and problem solving; control and attention directing; evaluation reviews and auditing. Today accountant focuses on the ultimate needs of users of accounting information, whether  these users were outside or inside the entity which the Accountant represent or not.

To this end accounting can be referred to as " an information system that measures,  process and communicate financial information about an identifiable economic entity. 

This modern view of Accounting is seen as a service activity. It is a link between business activities and decision makers. First, it measures business activities by recording data about them for future use. Second, through data processing, the data are stored untill needed, then processed in such a way as to  become useful information. Third, the information is communicated through reports to those who can use it in making decisions.

The major goal of accounting is the analysis, interpretation and use of information. Accountants look for important relationships in the information they produce. They are interested in finding trends and studying the effects of the different alternatives, it includes systems design, budgeting, cost analysis, auditing and tax preparation and planning.

Accounting information is a tool that can not be of much direct help to those  who are unable or unwill  to use it or misuse it. Its usage can be learned. However, it should provide information that can be used by all professionals as well as  non-professionals who are willing to use it properly.

 The first step in this learning process is to understand how decision are made and how accountants can contribute to the process. When the decision involves business and economic questions, accounting information is essential to the decision making system. It provides quantitative information for three functions: Planning, Control and Evaluation.

Planning is the process of formulating a course of action. It includes settings a goal, finding alternative ways of accomplishing the goal and deciding which alternative is the best. The Accountants should be able to present a clear statement of financial alternative. Accounting information dealing with projections of income and budgets of cash requirements are also important in planning the future.

Control is the process of seeing that activities conform with plans. At this point the accountant is expected to present information that compares actual results with planned (expected result based on planning exercise).

Evaluation, which involves the whole decision system is the process of studying the system to improve it. It asks the question" was the original goal met?"  If not, what were the possible cause, or perhaps a wrong goal was chosen.

In conclusion, Accounting is an information that measures, processes and communicate information, primarily financial in nature, about an entity for the purpose of making economic decisions. It is not an end itself but is a tool to be used in providing the information that is useful in making reasoned choices among alternative uses of scarce resources in the conduct of business and economic activities.

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