Advances in International Accounting, Volume 16 (Advances in International Accounting)

Chapter One ORGANIZATIONAL CONTEXT AND SELECTION OF INTERNATIONAL ACCOUNTING SOFTWARE: AN EXPLORATORY STUDY Ajay Adhikari and Hao Zhang ABSTRACT The demand for accounting software with international functionality has risen significantly with the increasingly global nature of business transactions. Our study, based on a survey of international U.K. firms, explores the possible relationship between organizational context and international attributes considered important by these firms in selecting international accounting software. Our results show significant influences of organizational size, structure, and maturity on the perceived need for international features of accounting software. Moreover, there is also evidence that U.K. firms consider technical multi-currency and multi-reporting functionality as the most important international features of accounting software. The implication from our results is that organizational context should be an important consideration in the selection and design of international accounting software. INTRODUCTION Global competition, free-trade zones, and the revolution in information technology (IT) are among the factors that have contributed to unparalleled opportunities for firms with an international outlook. Competing in the global marketplace, however, entails a new set of accounting challenges. Instead of dealing in a single currency and a single set of accounting principles, firms may have to deal with multiple currencies and follow a myriad of accounting and tax rules. More importantly, the timely collection of relevant financial/managerial information via well-chosen Management Information Systems (MIS) becomes essential when a firm is to operate successfully in a global environment and with multi-country trading partners. As a result, there is an increasing demand for suitable accounting software packages to be integrated into the overall MIS that are capable of handling international issues and meeting users' needs. Within the European context, the political and economic uncertainty in relation to Monetary Union and Enlargement engenders additional accounting and MIS challenges now and in the future. However, there is a great deal of confusion regarding: (1) the choice of international attributes to be considered in designing international accounting software; and (2) the criteria by which the choice is made. Part of the confusion stems from a lack of informed understanding of user needs with respect to designing international accounting software packages and the relative scarcity of analytical frameworks by which to analyze the information when collected. The result is that a large number of products with considerable variation in functionality and attributes can be argued to fall under the umbrella of international accounting software. Additionally, users often lack the experience and the opportunity to define their requirements for an international accounting software package. Many firms, especially small and medium-size firms, are relatively new to the international arena and, therefore, may not fully appreciate all of the international accounting and system issues involved. Given the above dynamics and the pace of IT revolution in relation to MIS of firms, how well system capabilities match user requirements (or system fit) is a serious concern in the selection and design of international accounting software. A number of decision tools are now available to aid in the selection process for domestic accounting software reflecting the significant research conducted in this area (Bagranoff & Simkin, 1992; Borthick & Scheiner, 1988, for the U.S.; Haddleton, 1998; Meall, 1998, for the U.K./Europe). Several decision support software such as Requirements Analyst and Accounting Decision Maker have been designed to help firms to select among different domestic accounting software. In contrast, little research has been conducted to: (1) assess user needs in relation to international accounting software; and/or (2) develop assessment criteria to evaluate different international accounting software packages. While some checklists and general guidelines have been proposed (Lebow & Adhikari 1995; O'Brien, 1995, for the U.S.; Ralph, 1998, for the U.K./Europe), they are largely anecdotal and ad hoc in nature. Moreover, it is fair to say that these studies have not attempted to address the issues of selecting international accounting software within a theoretical framework. Thus, a gap in knowledge exists in view of the growing need and demand for international accounting software and the increasing number of software designers responding to this demand. The gap may be especially acute for the U.K./European firms for two reasons. First, U.K./European firms have to operate in a more international environment than their U.S. counter-parts due to the much smaller domestic markets. Second, there is virtually no academic research conducted in the areas of user needs and assessment criteria in relation to international accounting software. Without an informed understanding of users' needs, any evaluation scheme developed to assess different international accounting software products is unlikely to be effective. This in turn will impact the quality of the selection process resulting in a sub-optimal and expensive search process. Consequently, the chances of a good system fit between the needs of the user and the features of the international accounting software package will be substantially diminished. Ours is an exploratory study in the form of a survey of U.K. firms, which seeks to expand the limited knowledge base in relation to selecting international accounting software. There are two principal objectives. The first is to address the question of whether the organizational context of a firm impacts user needs with reference to international accounting software, which is part of a firm's MIS. The second and related objective is to use the preliminary results to shed light on the empirical design of international accounting software. While preliminary, the results of the study should be useful not only to future academic research in this area but also to both users and developers of international accounting software. It will not only provide a flexible analytical framework in which to evaluate different international accounting software packages, but also should inform the international accounting or system issues. Additionally, such information can also be of help to software developers in identifying the gaps in their product offerings and thus, enabling them to more effectively target their products to fit user needs. ACCOUNTING SOFTWARE, MIS AND ORGANIZATIONAL CONTEXT In their seminal paper on MIS, Mason and Mitroff (1973) proposed that "an information system consists of at least one PERSON of a certain PSYCHOLOGICAL TYPE who faces a PROBLEM within some ORGANIZATIONAL CONTEXT for which he needs some EVIDENCE to arrive at a solution and the evidence is made available to him through some MODE OF PRESENTATION." In terms of selecting international accounting software, the PERSON may be construed as the financial director, the EVIDENCE financial well being of the firm, the PROBLEM making financial, managerial, strategic decisions in a global environment, the MODE OF PRESENTATION the chosen international accounting software. While the Person, Evidence, Problem, and Mode Of Presentation are conceptually well-defined variables, it can be argued that the Organizational Context is less obvious but most relevant to the selection of the Mode of Presentation (e.g. international accounting software). The reason is that the notion of system fit implies a sufficient degree of compatibility between organizational context and mode of presentation. Thus, the mode of choice must be sensitive to the organizational context at the outset. A later paper by Ein-Dor and Segev (1978) went on to explore organizational context variables and their empirical measures. They conceptually divided organizational context into three categories: uncontrollable, partially uncontrollable, and controllable. Uncontrollable variables are those taken as given because they are not under the direct control of the firm even in the long run. The uncontrollable variables include organizational size and organizational structure. The empirical implication for firms (software designers) is that they must be particularly sensitive to the uncontrollable variables in the selection (design) of international accounting software in order to ensure compatibility between organizational context and mode of presentation and thus MIS efficiency. Partially controllable variables are the ones that cannot be changed at will by the firm but are susceptible to change in the long run. As such, both firms and software designers must be sensitive to these variables at the outset in the selection and design of international accounting software. The partially uncontrollable variables include organizational resources and organizational maturity. Finally, controllable variables are those under the control of the firm. They include rank/location of the responsible executive and the steering committee. A number of organizational context characteristics have been examined in relation to system selection and use (Cheney & Dickson, 1982; Raymond, 1985). In this study, we focus on two uncontrollable variables (organizational size and organizational structure) and one partially controlled variable (organizational maturity) in relation to the selection of international software. While we accept that the selection of these three variables does not imply that other variables may not be equally relevant within the analytical framework presented above, the exploratory nature of the study and operational problems common in international Organizational Context and Selection of International Accounting Software 5 business research often constrain the choice of variables selected. The three variables selected, along with the empirical measurement for each, are defined and discussed below. The relationship between these variables and selection of international accounting software are presented in the form of non-directional research questions. ORGANIZATIONAL SIZE While it may not be the case at the outset that small organizations should have more difficulties selecting international accounting software and that software designers should have more difficulties designing software for small organizations, it is not implausible that firms of different organizational size face different types of problems in relation to international accounting software. The differences are likely to find their expressions in resource availability and the degree of organizational formalization. The implication is that the methodologies used by larger organizations for software selection may not be entirely satisfactory for smaller ones. Smaller firms may be different from larger firms in that they may undertake fewer and less complex transactions than larger ones. In the context of international accounting, this would suggest that smaller firms would have a lower need for sophisticated international accounting software. If faced with a few, uncomplicated foreign currency transactions, the small firm could manually adjust for international accounting issues or use spreadsheets to make foreign currency reconciliation. (Continues...) Excerpted from ADVANCES IN INTERNATIONAL ACCOUNTING Copyright © 2003 by Elsevier Ltd.. Excerpted by permission of JAI Press. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site. ADVANCES IN INTERNATIONAL ACCOUNTING......Page 4 Copyright Page......Page 5 CONTENTS......Page 6 LIST OF CONTRIBUTORS......Page 8 EDITORIAL BOARD......Page 10 REVIEWER ACKNOWLEDGMENT......Page 12 CHAPTER 1. ORGANIZATIONAL CONTEXT AND SELECTION OF INTERNATIONAL ACCOUNTING SOFTWARE: AN EXPLORATORY STUDY......Page 13 CHAPTER 2. THE TIMELINESS OF CORPORATE REPORTING: A COMPARATIVE STUDY OF SOUTH ASIA......Page 29 CHAPTER 3. THE ROLE OF LOAN LOSS PROVISIONS IN EARNINGS MANAGEMENT, CAPITAL MANAGEMENT, AND SIGNALING: THE SPANISH EXPERIENCE......Page 57 CHAPTER 4. THE ROLE OF ACCOUNTING INFORMATION IN STOCK MARKET LIBERALIZATION: EVIDENCE FROM KOREA......Page 79 CHAPTER 5. PREDICTING CONSOLIDATED EARNINGS IN JAPAN: THE INCREMENTAL USEFULNESS OF SUBSIDIARY EARNINGS......Page 97 CHAPTER 6. INTERIM REPORTING PRACTICES BY COMPANIES IN BAHRAIN: PREPARATION OF INTERIM ACCOUNTS AND EARLY ADOPTION OF IAS 34......Page 117 CHAPTER 7. ATTRIBUTES AND TECHNIQUES OF HIGHLY EFFECTIVE ACCOUNTING EDUCATORS: A MULTINATIONAL STUDY......Page 135 CHAPTER 8. ASSESSING CURRENCY EXCHANGE RATE EXPOSURE USING GEOGRAPHIC SEGMENT DISCLOSURES: THE IMPORTANCE OF CURRENCY-SPECIFIC TYPE AND DEGREE OF EXPOSURE......Page 151 CHAPTER 9. THE CHINESE SECURITIES REGULATORY COMMISSION AND THE REGULATION OF CAPITAL MARKETS IN CHINA......Page 165 CHAPTER 10. THE ENTERPRISE ACCOUNTING SYSTEM OF VIETNAM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: A COMPARISON......Page 187 Front Cover; ADVANCES IN INTERNATIONAL ACCOUNTING; Copyright Page; CONTENTS; LIST OF CONTRIBUTORS; EDITORIAL BOARD; REVIEWER ACKNOWLEDGMENT; CHAPTER 1. ORGANIZATIONAL CONTEXT AND SELECTION OF INTERNATIONAL ACCOUNTING SOFTWARE: AN EXPLORATORY STUDY; CHAPTER 2. THE TIMELINESS OF CORPORATE REPORTING: A COMPARATIVE STUDY OF SOUTH ASIA; CHAPTER 3. THE ROLE OF LOAN LOSS PROVISIONS IN EARNINGS MANAGEMENT, CAPITAL MANAGEMENT, AND SIGNALING: THE SPANISH EXPERIENCE; CHAPTER 4. THE ROLE OF ACCOUNTING INFORMATION IN STOCK MARKET LIBERALIZATION: EVIDENCE FROM KOREA.