Determining the quality of the accounting system
By Marjolijn Tetteroo
Utrecht, May 2005
Determining the quality of the accounting system
Author: Marjolijn Tetteroo Student number: 1172190
Supervisors: Drs. M.P. van der Steen Drs. A. Smeenge, RA University of Groningen Faculty of Management and Organization
Place/date: Utrecht, May 2005
‘The author is responsible for the content of this thesis. The copyright of this thesis is held by the author.’
Preface
The last stage of the study Management and Organization includes a research of six months within a company and writing a finalizing thesis about that research. In my case I moved to New York for six month to complete this last stage of my study at Company X Y. Although I was a bit scared to work and live in such a big city far away from family and friends, I realized that it would be a fantastic experience. And now almost nine months later, I can endorse that it was really one of the best experiences I ever had.
Working at Company X Y gave me the opportunity to experience the business of banking. I knew from the beginning that it would not be easy to develop a model with which the quality of an accounting system can be determined, and without the assistance, coaching and critical feedback of several people, this thesis would have never come around.
Therefore I would especially like to thank Drs. M.P. van der Steen, who monitored this research on behalf of the Faculty of Management and Organization of the University of Groningen. His support and critical feedback have been of crucial importance for the outcome of this research. I also want to thank Drs. A. Smeenge, RA, for his support and feedback in the final phase of writing this thesis.
I also want to thank all my colleagues at the Tax and Finance department of Company X Y.
I was immediately accepted as one of the group and they were always available for
questions and discussions. I especially want to thank Maria Grande for being my supervisor at Company X Y.
I want to thank Hans en Marjolijn Hannaart too, they were always there for me and gave me a place which felt like home.
Finally I want to thank all my friends and family who have always supported me during this period.
Marjolijn Tetteroo Utrecht, May 2005
Executive Summary
This research is carried out within the Tax and Finance Department of Company X Y New York. The background of this research is that within Company X Y they did not know how to determine the quality of their accounting system. This is probably also a problem for other organizations since there is not one independent standard for determining the quality of an accounting system at this moment. In order to make this research of value for every organization, a general model is designed which can be used to determine the quality of an accounting system.
The following main research question is constructed for this research: How can an organization such as Company X Y determine the quality of its accounting system?
A literature study is done on the general term ‘quality’. There is not one clear definition of quality, but to make the term usable for this research, it can be seen from two different perspectives. First, quality is meeting and/or exceeding customer expectations / the User- based Approach; meaning that quality depends on the preferences of the customer. The second definition/approach is: quality is conformance to specifications / the Product - based approach; meaning that quality can be seen as a measurable variable. Based on this a next step is taken to define quality of an accounting system by using 11 studies mainly based on information systems. These studies are used to indicate the 20 most important characteristics that should be measured. Three main categories are identified under which all characteristics can be placed:
Technical level which refers mainly to the software system and the performance of the system;
Information level which refers to the information that is produced by the system;
User influence level which is relative to the experience and influence users have on the system.
Interviews at Company X Y are used to indicate if the characteristics identified by literature are also relevant for an organization as Company X Y. Literature, interviews and personal observations, are the three methods used to identify the relationships between the categories and to identify other factors that are of influence on the quality of an accounting system.
The designed model consists of three blocks, two separate factors and a final part to show what the model measures. The blocks are connected with each other by arrows, to show a way of thinking: from an abstract first block to a classification of categories in the third block. Each category and the respective characteristics together form the first block of the model. The second block of the model shows a triangle with a category in each corner, meaning that there should be a relationship between the three categories. The classification of categories is shown in block three and since this is influenced by the industry in which a company operates, ‘industry’ is shown as a separate factor. Before the actual quality is determined, ‘perception’ is the last factor that can have an influence on quality. The influence of the factor ‘perception’ is acknowledged by researchers and it is part of an assumption that the hierarchy in the organization influences ones perception of quality.
Company X Y wanted to know the quality of their accounting system. An application of the model is needed to give recommendations to them and to test the model. A questionnaire based on the designed model is used to apply and test the model. The questionnaire is only
given to the users of one part of the accounting system, the People Soft General Ledger (PSGL), because the complete accounting system was too comprehensive to measure.
The results of the application are mainly based on the following four constructs:
Quality Technical level = functionality + reliability + portability + integration + usability + efficiency + maintainability + reusability
Quality Information level = accuracy + format + relevance + timeliness + completeness + consistency + accessibility + effectiveness
Quality User influence level = utilization + training + user satisfaction + perceived usefulness
Quality PSGL = technical level + information level + user influence level
The results show that the total quality of the PSGL of Company X Y can be improved on several points. Using the four constructs enables me to identify the category and the characteristics that have the biggest influence on the quality of the PSGL.
The user influence level has the lowest mean of all categories, but by raising the total mean of quality, the user influence level will have the biggest influence on this total increase.
Within the user influence level, training has the lowest total mean, and also a relative high influence on the quality of the user influence level. As a result of this, I recommend improving the user influence level first, starting with the training characteristic. This can be accomplished by asking the users what kind of training they are missing and why, by giving training on the complete accounting system and create a document based on this training, and finally by giving training when something is changed in the system.
The technical level has the second highest influence on the total quality and within this category I first recommend investigating the ability of the PSGL to be reused, and if so, increase this ability. Second I recommend improving the functionality of the PSGL by making the user list and the applications of the users up to date.
The information level has the lowest influence on the total quality of the three categories;
therefore it should be the last category to which attention is paid to. But in order to increase the quality of this category, I recommend asking the users how the system can be understood, learned and used easier. After that, make sure that the information that already exists in the PSGL can be retrieved more quickly and easily.
The analyses show that except one disputable characteristic (consistency) all characteristics in block one of the model are relevant to measure. The analysis of the last construct (Quality PSGL) shows a significant relationship between all categories. This means that the relationships shown in block two of the model are correct. According to the users of the PSGL is the industry of importance to the classification of categories; therefore this factor should be part of the model. It is indisputable that perception has its influence on the way quality is measured, but at Company X Y, hierarchy is not of influence on this perception.
By applying the model to the Company X Y case, the model is tested and the results show that there is no need for redesigning the model and therefore can be used by organizations who want to determine the quality of their accounting system.
Table of contents
Preface ... 3
Executive Summary ... 4
Table of contents... 6
Chapter 1 Introduction ... 8
Chapter 2 Research Design ... 9
§ 2.1 Research background ... 9
§ 2.2 Problem Statement ... 9
§ 2.3 Conceptual Model... 11
§ 2.4 Methodology... 13
§ 2.4.1 Type of research... 13
§ 2.4.2 Research process ... 13
§ 2.4.3 Research methods ... 13
§ 2.4.4 Clarification of terms ... 15
§ 2.4.5 Plan of data analysis ... 17
§ 2.5 Conclusion... 17
Chapter 3 Company X... 18
§ 3.1 Company X Group... 18
§ 3.2 Research Background... 18
§ 3.3 Primary (sub) systems of accounting system at Company X Y... 19
§ 3.3.1 Introduction ... 19
§ 3.3.2 Description of primary (sub) systems ... 19
§ 3.4 Conclusion... 22
Chapter 4 Developing the model ... 23
§ 4.1 Introduction ... 23
§ 4.2 Characteristics of IS quality ... 23
§ 4.2.1 Introduction ... 23
§ 4.2.2 Technical Level ... 24
§ 4.2.3 Information Level... 29
§ 4.2.4 User influence level... 33
§ 4.2.5 Conclusion ... 36
§ 4.3 Quality at Company X Y... 37
§ 4.3.1 Introduction ... 37
§ 4.3.2 Technical Level ... 38
§ 4.3.3 Information level... 39
§ 4.3.4 User influence level... 40
§4.3.5 Conclusion ... 40
§ 4.4 Relationships and importance of the categories ... 41
§ 4.4.1 Relationships... 41
§ 4.4.2 Importance of categories... 42
§4.4.3 Conclusion ... 43
§ 4.5 Influence of Hierarchical level and Span of control ... 43
§ 4.5.1 Hierarchical level and span of control from a literary perspective ... 44
§4.5.2 Hierarchical level and span of control at Company X Y ... 45
§ 4.5.3 Conclusion ... 46
§ 4.6 Designing the model ... 46
§ 4.6.1 Cause of the model ... 46
§ 4.6.2 Presenting the model... 47
§ 4.7 Conclusion... 48
Chapter 5 Applying the model to the Company X Y case ... 50
§ 5.1 Background... 50
§ 5.2 Measurement Instrument... 51
§ 5.3 Questionnaire... 53
§ 5.3.1 Design... 53
§ 5.3.2 Respondents ... 55
§ 5.3.3 Scale ... 56
§ 5.4 Data analysis method ... 57
§ 5.5 Data processing... 59
§ 5.6 Conclusion... 60
Chapter 6 Results ... 62
§ 6.1 Remarks... 62
§ 6.2 General information results ... 63
§ 6.3 Technical Level ... 64
§ 6.4 Information Level ... 67
§ 6.5 User influence level ... 70
§ 6.6 Total Quality PSGL ... 71
§ 6.7 Hierarchical level and Span of control... 73
§ 6.8 Remarkable results... 74
§ 6.9 Redesigning the model ... 75
§ 6.10 Conclusion... 75
Chapter 7 Recommendations... 77
§ 7.1 Recommendations to Company X Y ... 77
§ 7.2 Recommendation for further research... 80
§ 7.3 Conclusion... 80
Chapter 8 Conclusions and Reflection ... 81
§ 8.1 Conclusions ... 81
§ 8.2 Reflection ... 83
References... 85
Chapter 1 Introduction
Quality is a word everybody knows and uses in all different parts of society. Total Quality Management is a term organizations use as part of their strategy, and systems and products need to be of high quality, but what does quality mean and how can it be determined? These questions form the foundation of this research.
This research is carried out within the Tax and Finance Department of Company X Y New York. This branch is part of the wholesale division of the Company X Group which is based in The Netherlands. The Company X Group operates in the financial service industry. In short, this research has to result in recommendations to Company X Y about the quality of their accounting system.
Through the years a lot of standards for determining quality were created, but there are as much different standards as researchers since definitions of ‘quality’ are not clear. In order to make this research of value for other organizations as well a new model was designed with which the quality of an accounting system can be determined. This resulted in the following main research question: How can an organization such as Company X Y determine the quality of its accounting system?
In order to come to the answer of this question, nine sub-questions were formulated. When these sub-questions are answered I should be able to answer the main research question and meet the research objective of this research: To design a model with which an organization such as Company X Y can determine the quality of its accounting system in order to recognize and solve problems on time and to give recommendations to Company X Y as a result of the application of the model.
In chapter two the research design will be presented that has guided me during this research. As mentioned before, the definition of quality is not clear, and therefore it has to be defined in such a way it can be used in this research. In chapter two the general term quality will be described as part of the clarification of terms. Chapter three describes the Company X Group and Company X Y. Since the accounting system is too comprehensive to measure at once, the designed model was applied to the People Soft General Ledger as part of the accounting system. Therefore is the second part of chapter three used to give an overview of the primary (sub) systems of Company X Y’s accounting system. This, in order to make the comprehensiveness of the accounting system clear.
Chapter four will present the model with which the quality of an accounting system can be determined. To come to this model, an extensive literature study is done in § 4.2 to identify the categories and characteristics that can measure the quality of an accounting system.
After this, in § 4.3 - § 4.5 insights from a Company X Y perspective and personal observations are used to identify the relevant characteristics and other factors that can have an influence on the quality of an accounting system. Also the relations between the categories are discussed. The model is presented in § 4.6.
Chapter five describes the research method which can be used to apply the model. Applying the model should give me insight into the situation of Company X Y’s People Soft General Ledger at this moment and it will test the model at the same time. The results of the application will be presented in chapter six and based on that, recommendations will be given to Company X Y and for further research in chapter seven. To conclude this research, the final chapter, chapter eight, will give the conclusions and a reflection on this research.
Chapter 2 Research Design
Before presenting the main research objective and research question by answering the question: who wants to know what and for what reason? And dividing the research conditions into product and process conditions in § 2.2, the background of this research is described in § 2.1. Based on the information from § 2.1 and § 2.2, a conceptual model and sub-questions is created, which will be presented in § 2.3. Finally, I will describe the approach of this research including type of research (§2.4.1), research process (§2.4.2), research methods (§2.4.3), explanation of important terms (§2.4.4) and a plan of data analysis (§2.4.5).
§ 2.1 Research background
Organizations such as Company X Y are working with information systems on a daily basis. Therefore it is very important that their systems work perfectly, but when is a system working perfectly and where can improvements be made? These questions will probably be unanswered in a lot of companies because they are not capable of determining the quality of their system. At Company X Y too they had a problem with determining the quality of their accounting system. They knew that the quality of their accounting system was not perfect, but how to come to that perfect situation was not clear either. There are a lot of standards for determining quality created through time, but there is not one independent standard for determining the quality of an accounting system and since companies want to improve continuously, something had to be created. My task was to resolve this problem of not being capable to determine the quality of an accounting system.
In the following paragraph I will present the problem statement which includes the research objective, research question and the research constraints. This problem statement will form the basis to resolve the problem described above.
§ 2.2 Problem Statement
A problem statement contains three components (De Leeuw, 1996):
• Research objective
• Research question
• Research constrains (product and process) Research Objective
The research objective specifies the relevance of the research and for whom the research is done (De Leeuw, 1996). The objective of this research is:
To design a model with which an organization such as Company X Y can determine the quality of its accounting system in order to recognize and solve problems on time and to give recommendations to Company X Y as a result of the application of the model.
Although this research is focused on Company X Y’s accounting system, it also should be seen as a template for other organizations as well as who wants to determine the quality of their accounting system.
Research Question
The research question specifies the main question. It has to be linked to the research objective but formulated in research assessable terms and therefore linked to the conceptual model (De Leeuw, 1996). The research question of this research is:
How can an organization such as Company X Y determine the quality of its accounting system?
Research Conditions
Research conditions show the conditions of the research results and methods that are chosen to conduct the research and are divided in process- and product conditions (De Leeuw, 1996).
Process conditions
• The research mainly focuses on the accounting system;
• Systems quality needs to be related with the users of the system;
• The People Soft General Ledger (part of the accounting system), is used for the application of the model at Company X Y.
Product conditions
• Research is done on behalf of Company X Y New York Branch;
• Presentation of the applied model and recommendations are given to Company X Y at the end of February 2005;
• A thesis will be written on behalf of the Faculty of Management and Organization from the University of Groningen and will also be given to Company X Y. The thesis will be ready at the end of May 2005.
§ 2.3 Conceptual Model
Relevant theoretical insights on quality of an
accounting system (3)
Characteristics that influence the quality of an accounting system
(4)
Primary systems of Company X Y’s accounting system (1)
Redesign the model (8) Application of the model to the specific Company X Y case (7)
Recommendations to Company X Y based on the applied model
(9)
Designing a model for determining the quality of an
accounting system (6) Relationships and importance of
the main categories (5) Relevant theoretical insights on
quality (2)
Fig. 2.1 Conceptual Model
Explanation conceptual model
At Company X Y the accounting system consists of various primary systems. To give insight into the relations between these primary systems, I will describe the primary systems of Company X Y. This is part of the conceptual model because the model will be applied to Company X Y’s General Ledger and the General Ledger is one of the primary systems.
Before I can start designing a model, in order to determine the quality of an accounting system, I have to define what quality is since quality is an important part of the research question which requires further explanation. I will look at different theoretical insights.
When theoretical insights on quality in general are clear a next step can be taken to describe relevant theoretical insights on quality of an accounting system. After identifying the theoretical insights, it is important to identify characteristics that influence the quality of an accounting system, from a literary perspective, a Company X Y perspective, and also from my own observations. This step will be used to create an important part of the model.
Finally, before designing the model, the possible relationships between the identified main categories and the influences on the importance of these categories, should be clear.
After describing the primary systems at Company X Y and identifying the relevant characteristics, influences and relations for an accounting system, I will combine these insights to create a model with which quality of an accounting system can be defined.
Although the model will also be applicable for other organizations than Company X Y, the model will be applied to the People Soft General Ledger of Company X Y by using questionnaires.
After applying the model to the specific Company X Y case, the model will be redesigned depending on the results of the application.
In the last part of this research recommendations will be given to Company X Y based on the analysis of the results on where and how to improve the quality of their General Ledger.
I also want to underline the fact that the model can be applied again on the same General Ledger or on different parts of their accounting system.
Sub Questions
The sub questions are derived from the conceptual model. The numbers in the model correspond to the numbers of the sub questions.
1. How can the primary systems of Company X Y’s accounting system be described?
2. How can quality be defined?
3. How can quality of an accounting system be defined?
4. Which characteristics influence the quality of an accounting system?
From a literary perspective
From a Company X Y perspective
From my own observations
5. What are the relationships between the main categories and how is the importance of these categories influenced?
6. Which model for determining the quality of an accounting system can I design?
7. How can the designed model be applied to the specific Company X Y case?
8. How can the model be redesigned after applying the model to the specific Company X Y case?
9. Based on the analysis, what recommendations can be given to Company X Y as a result of the application of the model?
§ 2.4 Methodology
Methodology is about the approach of the research (De Leeuw, 1996). This paragraph explains type of research, research process, research methods, explanation of important terms and a plan of data analyses.
§ 2.4.1 Type of research
This research can be classified as a policy support type of research. Policy is a system of objectives and measures on behalf of management. The goal of policy support research is concrete knowledge, which is specified in the problem statement, in a specific situation with a certain customer and satisfies in a certain part of the total necessity of knowledge (De Leeuw, 1996). In this research the “certain customer” is a customer of the accounting system within Company X Y. You can call it an internal customer. The concrete knowledge is the recommendations to Company X Y about the quality of its accounting system in order to recognize and solve problems in time. This is part of the total necessity of knowledge because it contributes to the fulfillment of the “best practical” situation of the Tax and Finance department.
Within a policy support type of research a further distinction can be made. Because I will design and apply a model, it is also a design focused research (De Leeuw, 1996).
§ 2.4.2 Research process
The structure of a research can be divided in four phases: Diagnoses, Design, Implementation and Evaluation (De Leeuw, 1996). In the diagnoses phase a better insight is given about important parts of the main questions. It forms the basis for the design phase. In this research the diagnoses phase includes sub questions one, two and three. In the design phase the actual design of the model is made. All categories, characteristics and relations identified in this phase will together form the model that will be applied to the Company X Y case. Sub question four, five and six will represent the design phase. Applying the model to the Company X Y case is the implementation phase and is sub question seven.
Evaluation is the last phase. In this phase a redesign of the model will be made if necessary and recommendations will be given to Company X Y. The evaluation phase is represented in sub questions eight and nine. At the end of § 2.4.3 in table 2.1 the research process will be presented among the used research methods, sub questions and the chapters in which these sub questions will be answered.
§ 2.4.3 Research methods
During this research I will use several data sources. There are 3 ways to collect data (Baarda en De Goede, 1997):
• Studying existing data
• Observation
• Questionnaires and face to face interviews
Studying existing data
Existing data contains internal documents, theories and literature. Internal documents will be most important in the diagnoses stage of this research. They can be used to describe the
primary systems. By using theories and literature regarding “quality”, “quality of accounting systems” and “which characteristics influence the quality”, I found the correct information for designing the model with which the quality of an accounting system can be determined.
Observations
Observations were automatically made during my stay at Company X Y by working in the Tax and Finance department and were important in almost every stage of this research.
They gave me for example more insight into factors that can have influence on an accounting system.
Face to face interviews and questionnaires
Face to face interviews were important in the diagnoses and design face because they gave more information whether the characteristics identified in the literature, also applied for an organization such as Company X Y and they gave information about the primary systems.
Part of face to face interviews were the meetings at Company X Y where I took part in.
Questionnaires were used during the implementation and evaluation phase. In the implementation phase, questionnaires are the method used to get the data needed for the analysis. In the evaluation phase were the results of the questionnaires used to redesign the model and to give recommendations to Company X Y. The questionnaires were given to the users of the People Soft General Ledger. A complete explanation of the used questionnaire will be given in chapter 5.
The approaches used in this research are described and it is time to present the research planning. Table 2.1 presents this research planning and processes. Next to the planning and processes the research methods are presented that were used to get the answers to the sub questions that finally lead to answering the main question.
Sub Question Chapter Phase Research Method
1 3 Diagnoses Interviews
Observations Internal documents
2 2 Diagnoses Literature review
3 4 Diagnoses Literature review
4 4 Design Literature review
Observations Interviews
5 4 Design Literature review
Observations Interviews
6 4 Design Literature review
Observations Interviews 7 5 + 6 Implementation Literature review
Questionnaires Personal analyses
8 6 Evaluation Questionnaires
Personal analyses
9 7 Evaluation Questionnaires
Personal analyses
Table 2.1 Research planning
In the following two sub-paragraphs a clarification of terms and a plan of data analysis method will be given.
§ 2.4.4 Clarification of terms
The problem statement contains several concepts that will play a central role in this research. Verschuren (1986) names this the ‘key concepts’. These concepts have to be defined more closely. Define is specifying what is meant by a certain term (Verschuren, 1986). Below the key concepts of the problem statement and other important terms are specified.
Quality
The literature gives no clear definition of quality. Reeves and Bednar (1994): “The search for a universal definition of quality has yielded inconsistent results. Such a global definition does not exist; rather, different definitions of quality are appropriate under different circumstances.”
As a result of this they made four definitions of quality.
1. Quality is excellence 2. Quality is value
3. Quality is conformance to specifications
4. Quality is meeting and/or exceeding customer expectations
Garvin (1984) agreed that despite the interest of managers, the academic literature on quality has not been reviewed extensively. He said that there are five approaches to the definition of quality that can be defined. These approaches are based on four disciplines:
philosophy, economics, marketing and operations management. And each discipline has wrestled with the same questions: Is quality objective or subjective? Is it timeless or socially determined?
1. The Transcendent Approach (philosophy)
Quality is synonymous with “innate excellence”. It is both absolute and universally recognizable, a mark of uncompromising standards and high achievement. Here quality can not be defined precisely; you have to learn to recognize it through experience.
2. The Product-based Approach (economics)
Quality is viewed as a precise and measurable variable. Differences in quality reflect differences in the quantity. Because quality reflects the presence or absence of measurable product attributes, it can be assessed objectively, and it is based on more than preferences alone.
3. The User-based Approach (marketing)
Quality “lies in the eyes of the beholder”. Individual consumers have different needs or wants. The goods that satisfy their preferences best, has the highest quality. In this approach, quality is personal and thus highly subjective.
4. The Manufacturing-based Approach (operations management)
Quality is identified as “conformance to requirements”. Like the user-based approach, this approach recognizes the consumer’s interest in quality, but its focus is internal on engineering and manufacturing practice. Improvements in quality lead to lower costs.
5. The Value-based Approach (operations management)
Quality is defined in terms of costs and prices. A quality product from a user’s perspective is one, which provides performance at an acceptable price or conformance at an acceptable cost.
In this research emphasizes will be on two different views on quality. The first one is on Quality is meeting and/or exceeding customer expectations from Reeves and Bednar (1994) and the User-based Approach from Garvin (1984). Macdonald (1994) recognized that customers are becoming more knowledgeable and demanding and that the financial service sector has to adopt a customer-oriented strategy if they want to differentiate themselves from others. The quality of service is becoming the ultimate factor that determines whether or not they survive. Juran’s (1979) definition of quality is “fitness-for-use” and expanded the conceptualization of the customer to include the needs of the internal customer, whose needs must also be met. Since Company X Y is a service company and an accounting system is user based, must be fitness for use and has to meet the needs of several internal customers, this research can be seen from the approaches named above.
The second view on Quality is conformance to specifications from Reeves and Bednar (1994) and the Product - based approach from Gavin (1984). There will be emphasizes on these approaches too, because with applying the model to the Company X Y case, quality will be used as a measurable variable. The different variables of quality will be tested to the accounting system and therefore it is close to these approaches.
Information
“Data that have been shaped into a form that is meaningful and useful to human beings.”
(Laudon and Laudon, 2000)
Shannon and Weaver (1949) quoted by DeLone and McLean (1992) explain information as the output of an information system or the message in a communication system, and can be measured at different levels, including the technical level (accuracy and efficiency of the communication system that produces information), the semantic level (the success of the information in conveying the intended meaning) and the effectiveness level (the effect of the information on the receiver).
Information System (IS)
An IS is generally understood as “a set of interrelated components that collect (or retrieve), process, store, and distribute information to support decision making and control in an organization” (Laudon & Laudon, 2000).
Accounting System
An accounting system is a form of an information system. Among other things it makes a compilation of information in order to present it to management for control purposes. Also information for external purposes can be obtained by an accounting system.
In this research, the model was applied to a part of the accounting system but the literature on which the model is mainly based, is about the quality of information systems. The advantage of using mainly studies about information systems is that the model is in general applicable for other organizations and other information systems as well. Although we must keep in mind that there will be some influences from an accounting system perspective, since the model was applied for this kind of information system. But in general, when I talk about information system an accounting system can be placed instead and visa versa.
Company X Y
This research is carried out within Company X Y in New York. This office, Company X Y Americas, is responsible for North and South America, but also has her own businesses in Company X Y New York Branch. When I mention Company X Y in this thesis I actually mean Company X Y New York since my research was carried out within this office and my analyses and recommendations are based on their accounting system.
§ 2.4.5 Plan of data analysis
Most analyses in the diagnoses and design phase will follow a very qualitative, non- statistical approach. This is the consequence of using literature, observations, face to face interviews and internal documents in a qualitative manner to describe the primary systems and designing the model, which can also be used by other organizations as well, with which the quality of an accounting system can be determined. Providing a qualitative understanding is important when designing such a model. However, when the model is designed it will be applied to the People Soft General Ledger of Company X Y’s accounting system by sending out questionnaires. The analysis of the questionnaire will follow a quantitative and statistical approach to present the results and the recommendations. This will facilitate and increase the understanding of the qualitative analysis. Besides, these analyses should give insight into the value of the designed model.
§ 2.5 Conclusion
This research was carried out within Company X Y. They wanted to know the quality of their accounting system. Since they did not know how to determine the quality of their accounting system, my task was to design a model for determining the quality of the accounting system. Because this problem does probably not only apply to Company X Y, the model should also be applicable to other organizations. As a result of this problem, the research objective used in this research was: To design a model with which an organization such as Company X Y can determine the quality of its accounting system in order to recognize and solve problems on time and to give recommendations to Company X Y as a result of the application of the model.
Based on this objective the research question, conceptual model and sub-questions were formulated. The final paragraph was about the approach of this research including type of research, research process, research methods, explanation of important terms and a plan of data analysis. The following chapter will give insight into the Company X Group, Company X Y and the primary systems of Company X Y’s accounting system.
Chapter 3 Company X
Before moving further into the research a description will be given of the Company X Group in § 3.1. Next the background of this research will be explained in § 3.2. Since the accounting system of Company X Y plays an important role in this research, the primary (sub) systems of their accounting system are described in § 3.3.
§ 3.1 Company X Group
Company X is a company that operates in the financial service industry. Company X is one of the largest financial service providers in The Netherlands, its domestic market. The Company X Group also has an extensive network of international offices. The Company X Group is the complete entity including Company X Y. Company X Y is part of the wholesale division of the Company X Group and is the international division of the Company X Group.
§ 3.2 Research Background
This research was carried out from the finance part of the Tax and Finance department from Company X Y in New York. “The finance department is responsible for Head office-, regulatory- and local management reporting. The finance department supports the bank’s various businesses while ensuring proper accounting treatment for all transactions” (intranet Company X Y). Improvements are done continually on the accounting system and her environment. These improvements contain upgrades and adjustments that are not only made to the programs but there are also reorganizations within the department when necessary.
With these changes, they want to reach a best practical situation. As showed in figure 3.1 an accounting system has many (sub) systems and because these systems are relying on each other, every system has to work perfect. In § 2.1 I mentioned that this research was carried out because Company X Y does not know how to determine the quality of their accounting system. As will be explained in chapter 4, I designed a model with which the quality of an accounting system can be determined by measuring several categories and their respective characteristics. This model is mainly based on literature on information systems and not specified to the Company X Y case. Because of this, the model can be applied to other organizations as well. Although I recognize generalizing the model could be misleading since Company X Y has had its influence on the model, I assume that this model can give interesting information about the quality of someone’s information system. To test the model and to give recommendations to Company X Y concerning their accounting system, the model was applied to a part of their accounting system. Only one part of the accounting system was taken to apply and test the model because the accounting system contains of many (sub) systems and (sub) legers that it was too comprehensive to apply it to the complete accounting system. In the following paragraph the primary systems of Company X Y’s accounting system are described to make clear how complex an accounting system is and to explain the different parts of an accounting system before moving further to chapter 4 in which the model will be designed.
§ 3.3 Primary (sub) systems of accounting system at Company X Y
In this paragraph the accounting system of Company X Y will be described. The accounting system at Company X Y is extensive and therefore describing all different (sub) systems is going beyond this research. This is why only the primary (sub) systems are described. By describing the primary (sub) systems, sub question 1: How can the primary (sub) systems of Company X Y’s accounting system be described? will be answered.
§ 3.3.1 Introduction
The term ‘accounting’ can be described as recording, estimating, organizing and summarizing financial data (Garrison et.al, 2003). Atkinson et.al (2001) and Garrison et.al (2003) both said that accounting can be seen from two different perspectives: financial accounting and management accounting. “Financial accounting is concerned with providing information to shareholders, creditors and others who are outside an organization.”
(Garrison et.al, 2003) “This process is heavily constrained by standard-setting, regulatory, and tax authorities and the auditing requirements of independent accountants.” (Atkinson et.al, 2001) “Management accounting is concerned with providing information to managers - that is, people inside an organization who direct and control its operations.” (Garrison, 2003) It is “a value adding management process of planning, designing, measuring and operating non financial and financial information systems” (Atkinson et.al, 2001).
At Company X Y the accounting system contains a main ledger, a data warehouse and several (sub) systems. Some (sub) systems are (sub) ledgers others are reporting tools. The (sub) systems must have the capability of transferring their information to another (sub) system without problems. This means the (sub) systems must have a good information flow.
The primary (sub) systems of Company X Ys accounting system are: Devon, IBS, ACBS, Camra, People Soft General Ledger (PSGL), EPM Data warehouse, MARS, Reg Reports and E-Reports. Next a description of the primary (sub) systems will be given, starting with the People Soft General Ledger and EPM Data warehouse since these are the basis of the accounting system and therefore plays a crucial role as can be seen in figure 3.1 since the People Soft General Ledger is the main ledger, some other (sub) systems are called (sub) ledgers. Figure 3.1 gives an overview of the primary (sub) systems of the accounting system, including the relationships between the systems. The left side of the figure shows the (sub) ledgers, the right side shows the reporting tools, and in the middle are the crucial systems of the accounting system shown.
§ 3.3.2 Description of primary (sub) systems PSGL
PSGL is the short name for People Soft General Ledger. Company X Y uses People Soft as the General Ledger system. People Soft is actually the brand name, but within Company X Y it mostly refers to the General Ledger. A general ledger summarizes all of the financial transactions, through offsetting debit and credit accounts. With summaries, it is still very detailed since the accounts, products, currency etc. are shown, but on a higher level than the
data that is going into the EPM data warehouse1. The data warehouse shows for example all the separate items of all loans from a business unit instead of the general ledger that only shows the summaries of the total loans from a business unit. Within the general ledger everything is updated daily and several balances and other things can be derived:
• The balance sheet which summarizes the general ledger.
• A trial balance which gives you a summary without any detail, and only the main components and totals are shown.
• A Chart of account (COA) certification. It comprises of the loan (ACBS) and money market (IBS) information from the EPM data warehouse to the general ledger. This is why there is an arrow from the EPM data warehouse directly into COA within the PSGL in figure 3.1. Account certification is verifying that all the information that is in one account is correct.
• The monthly statement (At Company X Y they use the Dutch term ‘Maandstaat’) is produced through the general ledger which contains the balance sheet and Profit &
Lost (P&L) reports to provide management with the company’s financial results on a monthly, quarterly, and yearly basis. It's being broken down by different sections (how much in securities, loans, etc).
IBS
ACBS
CAMRA DEVON
EPM Data Warehouse
MARS Reg Reporter
PS GL
COA
E-Reports
Figure 3.1 accounting system Company X Y
All information produced by the (sub) ledgers on the left side of figure 3.1 is going into the PSGL but as mentioned before on a summarized level. This is why there is an arrow from the different (sub) ledgers to PSGL. There is an arrow going from PSGL to the EPM data
1 EPM(Enterprise Performance Management)data warehouse is “an analysis and reporting platform that is supported by an advanced data warehousing environment.Operational data from different systems is extracted, transformed and loaded into the data warehouse so as to provide an integrated view.”(intranet Company X Y)
warehouse, because the balances made within the general ledger must be checked against the detailed information in the EPM data warehouse. This is why from every (sub) ledger an arrow is going to the EPM data warehouse and to the PSGL. From the PSGL arrows are going to Reg reporting and MARS. These two tools are used for producing internal and external reports.
EPM
EPM stand for enterprise performance management. At Company X Y they use the data warehousing part of EPM. “The EPM data warehouse is an analysis and reporting platform that is supported by an advanced data warehousing environment.
Operational data from different systems is extracted, transformed, and loaded into the data warehouse so as to provide an integrated view. This will let you analyze transactional data from all internal and external data sources, on a consolidated basis to help maximize profitability at every level within the organization, and plan in a collaborative manner. The data warehouse is considered as a repository of data and no reporting should be done from this layer.” (Intranet Company X Y) The data that is loaded into the data warehouse from the different (sub) ledgers is mostly on a transactional basis. This means on a detailed level.
Every single item produced by a (sub) ledger is going into the data warehouse. The same arrows are going from the EPM data warehouse to MARS and Reg reporting as from the PSGL to these reporting tools.
DEVON
“Devon is a fully integrated front and back office derivatives trading and processing system that uses one common database. It comprises of various products like interest rate swaps, interest rate futures, interest rate agreements, options on interest rate futures and US treasuries. This system includes the complete life cycle of each product” (Intranet Company X Y). There is an arrow from DEVON to the EPM data warehouse and the PSGL because DEVON is a source system for both and is used before the final reports are being made.
IBS
IBS means Investment Banking System. “It is Company X Y’s transaction processing system and it is a major back office source system for the EPM data warehouse” (Intranet Company X Y). Data is also transferred into the PSGL, but as mentioned before on a more summarized level than the information going into the EPM data warehouse. Products such as deposits placed and deposits taken represent the funding component of the business. An example found in IBS is the money market system.
ACBS
ACBS stand for Advanced Commercial Banking System. On the intranet of Company X Y ASBS is described as a system that is used for commercial lending and loan trading. The transactional data about loans and commitments is sent to the EPM data warehouse and also more summarized data is sent to the general ledger. This is the reason why there are arrows going from ACBS to the EPM data warehouse and the PSGL.
CAMRA
“CAMRA is a back office system for bond and mortgages based securities trading system.
Various transactions (buy, sell, close, maturity and withdrawals) are fed into the CAMRA system” (Intranet Company X Y). The files produced by the system are going directly into the general ledger and the EPM data ware house.
MARS
MARS is the management accounting reporting system. This is a management accounting system and therefore for internal use only. It can “efficiently and accurately report the income and expenses for all activities of Company X Y by business view” (Intranet Company X Y). Examples produced by MARS are: daily profit and loss reporting, customer profitability, allocations and budget reports. To produce the reports, information from the EPM data warehouse and information from the PSGL is used. Also information besides these two systems is used to create reports.
Reg Reporter
“The reg reporter is an outbound interface for the regulatory reporting. Daily feed from the EPM data warehouse will be sent over to the Reg reporter database, and also the balances created in the general ledger are used to create the reports” (Intranet Company X Y). This is why there are arrows from the two systems to the Reg reporter. The reports are created for external purposes as the Federal Reserve System. This is because Company X Y is part of the financial service industry and has very strict rules concerning reporting. Everything needs to be checked by the Federal Reserve System.
E-reports
E-reports is an application that houses all the reports of the entire accounting system. This is primarily used as a common environment to access these reports. There is an arrow going from the circle around the system to E-reports because all reports produced within Company X Y are stored in E-reports.
This paragraph described the primary systems of Company X Y’s accounting system. Since the model, which will be designed in the following chapter, will be applied to the PSGL, the quality of the accounting system at Company X Y, as a result of the application, will only be based on the PSGL. By ‘accounting system’ in chapter four I mean the complete accounting system and by ‘accounting system’ in chapter five, six and seven, I mean the PSGL, since this is the part of the accounting system to which the model is applied.
§ 3.4 Conclusion
In this chapter Company X Y has been described. This research was carried out within the Finance part of the Tax and Finance department of Company X Y in New York. They want their accounting system to work perfectly in order to come to a best practical situation. To reach that situation the quality of their system has to be determined. At this moment they are do not know how to measure the quality of their system and therefore I designed a model, which will be explained in chapter 4, which can be used to define the quality of their accounting system. At the same time the model was made in such a way that it could be applied to other organizations as well since Company X Y is probably not the only organization that has problems with determining the quality of their accounting system.
Because in this research the model will be applied to one part of Company X Y’s accounting system, the rest of the chapter was used to answer sub-question 1: How can the primary (sub) systems of Company X Y’s accounting system be described? The primary (sub) systems identified are Devon, IBS, ACBS, Camra, People Soft General Ledger (PSGL), EPM Data warehouse, MARS, Reg Reports and E-Reports.
Chapter 4 Developing the model
§ 4.1 Introduction
In this chapter a model for determining the quality of an accounting system will be developed. Meanwhile sub-questions 3, 4, 5 and 6 will be answered. Sub-questions 3, 4 and 5 are necessary to be able to answer sub-question 6: Which model for determining the quality of an accounting system can I design? Several theoretical studies were used as well as my observations and interviews I did within Company X Y to develop the model that will also be of value to other organizations. Before the model could be designed several steps needed to be taken. In § 4.2 three main categories are identified which includes the different views of Information System quality (IS quality). A variety of articles about the quality of an information system (IS) have been studied to identify the main characteristics with which a system can be measured. Interviews at Company X Y were done to see if these characteristics identified by literature, were also relevant for an organization such as Company X Y. This is described in § 4.3. In § 4.4 the relationships between the three main categories and the importance of the categories is described. The characteristics are identified, from a literary perspective and from a Company X Y perspective, but are there more factors that can be of influence on the quality of a system? During my stay at Company X Y I noticed that somebody’s level in an organization can have its influence on their perception of quality. In § 4.5 the hierarchical level and span of control are described as possible elements that can have influence on the perception of quality. Finally in § 4.6 is the designed model presented and explained.
§ 4.2 Characteristics of IS quality
§ 4.2.1 Introduction
Through the years information systems became more and more computer based. At this moment you can not imagine a company that has not automated her systems. The same applies to accounting systems. What first started as a small system for balance sheet purposes has now grown to a system with many interrelationships. Because the (sub) systems are interrelated, it is important that the quality of the system is good. But when is the quality of a system good? When research about this topic started, researchers were mainly focused at the software and hardware technologies to measure quality. But after a few years, people realized that IS quality represents a broader perspective, including people that utilize the system and the quality of the information a system produces.
As mentioned in Chapter 2 Research design, an accounting system can be seen as an Information System (IS). Like general definitions of quality (see § 2.4.4), definitions of IS quality are not clear either. Braa (1995): “Quality of information systems is a complex matter” and “Quality of IS depends very much on which point of view it is regarded from.”
The information that is coming out of a system can also be measured on different levels.
With this information in mind, you can imagine that there are as much different characteristics that can measure IS quality as there are researchers who have studied IS quality. The different researchers also have different focuses. One is more focused on the system quality, while others are more focused on the user influence on the system. On the other hand there are also researchers who have a more integrated view on defining the
