The boundaries of an information system
An important aspect of the study of accounting as an information system is the definition of its boundaries. A system exists as an independent entity in an environment, and the nature of its relationship with that environment is clearly very important. We have already made reference to the distinction which exists between 'open' and 'closed' systems. We must now turn our attention to a closer examination of the boundaries of a system, by which we mean identifying a system in such a way that we are able to distinguish it from its environment.
In the previous section, we mentioned that the accountant selected from raw data that data which is relevant to his purpose. The filtering process by which he selects accounting data is provided by the conventions of accounting, which play a deterministic role in defining accounting information. This filtering process may be taken as one boundary between the accounting system and its environment; that point at which raw data becomes input data. The data which is so selected forms, as we have seen, the input into the processing system which produces accounting information. The information output is used by a group of decision makers, which we are able to identify, and it is evident that a decision-oriented information system should produce information which meets the needs of its users. Clearly, these needs should be specified in accordance with a theory of users' requirements. We may say, therefore, that the other boundary to an accounting information system is established by the specific information needs of its users.
This analysis of accounting as an information system enables us to make some important deductions. First, the goal of the system is to provide information which meets the needs of its users. If we can sufficiently and correctly identify these needs, we are then able to specify the nature and character of the output of the system. Second, the output requirements should determine, therefore, the type of data which is selected as the input for processing into information output. Third, welfare considerations may be taken into account in the selection of data, in accordance with the objective of accounting stated..
In this connection, the idea of control which has been indicated on the diagram above shows that users' needs not only should determine the nature of data input but that the extent of the data input should be determined by a cost-benefit analysis related to users' needs and the impact of their decisions on society.
An important application of the concept of an information system's boundaries will be seen in Part 4, where we examine the problems of financial reporting in the context of investors' needs for information which is not really provided by the accountant. By ignoring users' needs, accounting information is deprived of the objectives which otherwise would enable us to validate accounting practices in the area in terms of the theoretical frameworks.
Accounting as an information system
The term 'system' is commonly used today, and we read much about environmental systems, ecological systems, economic systems and political systems. Indeed, we live in the age of systems. Reduced to its utmost simplicity, a system is a set of elements which operate together in order to attain a goal.
From the foregoing illustrations, we may see that systems vary considerably in their appearance, their attributes, their elements and their basic goals. They have certain characteristics in common, however, for they consist of parts which interact together... see: Accounting As An Information System