A systems approach to the study of accounting
The study of the firm as an organization consisting of several systems, for example, an operating system, a financial system, a personnel system and a marketing system, enables one to see the accounting system as one element of an interacting whole. This manner of seeing the nature of the various elements of an organization is known as the systems approach.
The accounting system is the most important element of an organization's information system, for the following reasons:
(1) The accounting information system is the only one which enables management and external information users to get a picture of the whole organization.
(2) The accounting information system links other important information systems such as marketing information, personnel, research and development and production information, in that the information which is produced by these other systems may ultimately be expressed in financial terms in planning strategy to attain organizational goals.
Moreover the systems approach to the study of accounting permits the integration of accounting into a coherent framework in which its role is concerned with the provision of information for decision making.
This kind of approach allows accounting information to be viewed as ultimately affecting all members of society having connections with business organizations, in terms of the welfare theory of accounting. Furthermore, the systems approach requires that account be taken of all the sources of information available to an individual. For example, as we shall see in Part 4, investors receive information from sources other than financial reports. The Stock Exchange is often able to anticipate the information contained in such reports. Therefore, in considering the changes which ought to be made to the kind of accounting information disclosed to investors, the systems approach requires the informational content of the other sources of information available to investors to be considered.
The systems approach also enables us to integrate modern technological developments into the study of accounting. With the development of the computer, for example, rapid advances have been made in electronic data processing. These advances have affected accounting in a number of ways. Firstly, information systems have been formalized, so that information may be fed directly from the computer to decision makers without the intervention of accountants. Secondly, computers have made possible the merger of accounting and non-accounting information, leading to the centralization of information services and reductions in duplication and hence information costs. Thirdly, there has been an increase in the accuracy of the information provided, resulting directly from the reduction of duplication.
Finally, the systems approach widens the possible applications of information. Thus, one of the developments which has influenced management decision making in recent years is operational research, which is concerned with the study of the behaviour of the various parts or sub-systems of an organization in such a way that all its activities may be analysed as a whole. Operational research uses mathematical techniques for solving business problems, and its growing importance is reflected in the increasing use of management decision models which attempt to predict and compare the predicted outcome of alternative strategies. Traditionally, mathematicians have specialized in the expression and the solution of complex logical problems, and although the techniques which they had evolved had a potential use for decision making in organizations, they were not employed in business situations because of the time-lag which existed in the processing of data. The advent of the computer has closed the technological gap, and has greatly contributed to the increased importance of quantitative methods in management. The information required for operational research studies is often not the type which is handled by traditional accounting systems. The systems approach, therefore, not only coincides with the manner of studying organizations by operational research scientists, but by encouraging the integration of accounting and non-accounting information into integrated information systems, it increases the range of applications of the information produced by such systems.
Behavioural aspects of decision making
The central purpose of accounting is to produce information which will influence behaviour. Unless accounting reports have the potential to influence decisions and actions, it is difficult to justify the cost of preparing such reports. Traditionally, accounting reports have been addressed to shareholders and investors. In Part 4, the behavioural aspects of investor decision making will be discussed and the role of accounting information in that context will be examined. In particular, the response of the Stock Exchange to the disclosure of accounting information... see: Behavioural Aspects of Decision Making