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Forman Christian College (A Chartered University) : Management Control Systems

This document discusses contingency theory in accounting information systems. It summarizes Gordon and Miller's 1976 contingency framework, which proposes that an accounting information system is contingent upon the organization's environment, structure, and decision-making processes. The document then lists nine hypotheses developed by Gordon and Miller regarding how characteristics of an accounting information system should relate to factors like environmental dynamism, heterogeneity, and the organizational structure. For example, it states that greater environmental dynamism requires more frequent and wide-ranging information processing. The document also notes potential criticisms of expecting an accounting information system to provide too broad of information beyond financial data.

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Adeel Rana
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56 views5 pages

Forman Christian College (A Chartered University) : Management Control Systems

This document discusses contingency theory in accounting information systems. It summarizes Gordon and Miller's 1976 contingency framework, which proposes that an accounting information system is contingent upon the organization's environment, structure, and decision-making processes. The document then lists nine hypotheses developed by Gordon and Miller regarding how characteristics of an accounting information system should relate to factors like environmental dynamism, heterogeneity, and the organizational structure. For example, it states that greater environmental dynamism requires more frequent and wide-ranging information processing. The document also notes potential criticisms of expecting an accounting information system to provide too broad of information beyond financial data.

Uploaded by

Adeel Rana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Forman Christian College

(A Chartered University)

MANAGEMENT CONTROL SYSTEMS

A contingency framework for the design of Accounting


Information System

Syed Nawazish Mehdi Zaidi


Adeel Rana
Asad Khan
Normative modelling: Gordon and Miller (1976) Gordon and Miller's (1976)
modelling or contingency theory from an accounting perspective was influenced
by early organizational and amounting studies. Among others, these include. Burns
and Stalker (1961), Woodward (1965), Perrow (1970), Khandwalla (1972), Bruns
and Waterhouse (1975) and Waterhouse and Tiessen (1978). Gordon and Miller's
framework encompasses four variables: environment, organization, decision-
making style and accounting information system (AIS). They articulated that.
While. MS and organization interact with each other, environment. Affects
organization, accounting information system and decision making style, and
organization affects decision-making style. Even though there can be effects of
decision-making style on organization and MS, (Ionian and Miller did not make an
attempt. to elaborate. In brief, their perspective is that the designing of MS is
contingent upon three variables: environment, organization and decision-making
style. In order to substantiate the contingent effects of these variables, several
characteristics of MS have been pinpointed: information load, centralization
reporting, cost allocation methods, frequency of reporting, and method of
reporting, time element. Of information, performance evaluation, measurements of
events and valuation methods. Also, they defined environment in terms of three
key dimensions: dynamism, heterogeneity and hostility.

Following the usual characteristics of environmental dynamism, such as changing


nature of consumer demands, rapidly changing technologies, etc., Gordon and
Miller developed certain hypotheses. By reviewing these hypotheses, what we
learn is that a contingency perspective can lead us to develop certain practical
guides for managerial purposes and for theoretical guides for further studies.
Drawing out Gordon and Miller, some of these hypotheses are summarized below:
1. The more environmental dynamism, the more frequent and wide-ranging is the
information processing that is required.

2. High environmental heterogeneity, characterized by environmental diversity in


terms of consumer characteristics, production technologies, etc., would enhance
the effectiveness of MS if such systems could respond to those environmental
diversities.

3. In respect of environmental hostility, managers may tend to engage in frequent


information processing to combat dangers, and employ somewhat sophisticated
cost accounting and control systems.

4. With environmental dynamism, heterogeneity and hostility, organizations would


develop decentralized and divisionalized structures and adopt sophisticated and
frequent information processing.

5. When the organizations have different sub-units, AIS would provide information
suitable for their specific needs.

6. When sub-unit differentiation is present, there is a need for integration, and AIS
would provide information for an integrative mechanism: for example, better
coordination through a proper budgetary control system.

7. When the organizations are highly bureaucratic: it would provide information


for the needs of hierarchical authorities.
8. When some resources have been abandoned or are not fully utilized, AIS would
provide information for creating avenues for using them effectively.

9. Concerning decision-time horizon, AIS would provide information for multiple


periods, including long-term ones.

Organizations are complex entities, both socially and psychologically. There is


also a broad biological element given the neurology of the diversity of humans
involved. This bio-psycho-social milieu makes each organization unique, yet they
all seem to operate following common patterns of behaviour. Strategic plans,
Management by Objectives (MBOs), career development plans, performance
reviews, budgets, project plans, employee meetings and a host of other practices
can be found across most enterprises. Teamwork, consensus, entrepreneurship,
bureaucracy, power play, gossiping, scapegoating, and back-stabbing are also
behaviors that reside in the depths of organizations and either help or hinder their
missions, and either uplift the humans in these organizations or oppress them. So
the environment and organizational attributes have an important role to make AIS
successful.

AIS is also very important for the company because if there is an increase of
product in public demand, the production will have to be increased. For this more
raw material will be purchased and accounts payable will have to be prepared by
the accounting team then when the product is being sold, the sale invoices will be
prepared and the accounts receivable too. So that’s why AIS has an important role
in the company and organization.
However, there is a criticism on this paper that why there is so much that AIS is
supposed to do in an organization? If AIS has to provide the data regarding the
competitors then what is marketing doing? Isn’t AIS only supposed to look after
financials? What if your AIS system goes wrong and your majority of other
departments work is dependent on AIS?

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