Effective Accounting Information Systems: Decentralization, Control, and Compatibility

An accounting information system is a process that mimics the needs and requirements of the company using it. Small companies tend to have small accounting information systems while large, complex companies will have large, complex accounting information systems. Decentralization is a process where companies strengthen their accounting information system through the use of responsibility accounting and responsibility centers. Control and compatibility are two other features that help create an effective accounting information system.

Accounting systems use decentralization to place specific activities under those individuals who can best control and complete each task. Revenue generation and cost controls are two common activities placed under specific job positions in responsibility accounting. This decentralized approach insures that a company uses the right person to supervise and control each activity within the organization. The keys to decentralization is to cede authority – the ability to direct employees on given accounting tasks – on multiple individuals and place responsibility, which holds each individual using authority in control and under the company’s greater mission, at multiple levels.

Control – or controllability, in some accounting circles – allows a manager to undergo evaluation for only those items he can actively maintain properly. Again, these items are typically revenues and costs, though a manager may also control a company’s assets for investing into business activities. Under standard decentralized accounting practices, managers face accountability for items under their predominant control rather than absolute control. Though an imperfect system at times, the purpose of this definition is to create the most effective accounting information system possible. Predominant control typically includes any activities in which managers have frequent and/or superior influence over in the accounting information system.

Managers must also consider compatibility in their accounting information systems. Compatibility means the system should allow for the smooth transmission of data through various personnel and organizational constructs. This concept goes back to an earlier statement in this article: small companies have small accounting systems and large companies have large accounting systems. For example, small retail kiosk in the local mall will probably not have the same accounting information system as a cardboard box manufacturing plant. Sometimes, an owner or manager may have delusions of grandeur and set up a complex accounting system when one is note necessary. This can actually retard business growth, as accounting data may not easily flow through the system.

Now, flexibility is also a consideration under the compatibility concept in effective accounting information systems. Though an accounting system needs to currently meet the needs and size of a company, business growth will most likely force the company to alter and expand its accounting information system. Therefore, a company must use a system that responds to growth just as easily as the business grows in revenues, costs, and investments. A good cost/benefit analysis will most likely help an owner or manager decide which accounting information system will be the most effective, now and in the future.