ACCOUNTING QUALITY INFORMATION SYSTEM

Both financial
accounting and managerial
accounting depend upon a
strong information system to
reliably capture and summarize
business transaction data.
Information technology has
radically reshaped this mundane
part of the practice of
accounting during the past 30
years. The era of the "green
eye-shaded" accountant has
been relegated to the annals of
history. Now, accounting is more
of a dynamic, decision-making
discipline, rather than a
bookkeeping task.
INHERENT LIMITATIONS:
Accounting data is not absolute
or concrete. Considerable
amounts of judgment and
estimation are necessary to
develop the specific accounting
measurements that are reported
during a particular month,
quarter, or year (e.g., how much
pension expense should be
reported now for the future
benefits that are being earned by
employees now, but the
amounts will not be known with
certainly until many years to
come?). About the only way
around the problem of utilizing
estimation in accounting is to
wait until all facts are known
with certainty before issuing any
reports. However, by the time
any information could be
reported, it would be so stale as
to lose its usefulness. Thus, in
order to timely present
information, it is considered to
be far better to embrace
reasonable estimations in the
normal preparation of ongoing
financial reports.
In addition, accounting has not
yet advanced to a state of being
able to value a business (or a
business's assets). As such, many
transactions and events are
reported based upon the
historical cost principle (in
contrast to fair value). This
principle holds that it is better to
maintain accountability over
certain financial statement
elements at amounts that are
objective and verifiable, rather
than opening the door to
random adjustments for value
changes that may not be
supportable. For example, land
is initially recorded in the
accounting records at its
purchase price. That historical
cost will not be adjusted even if
the fair value is perceived as
increasing. While this enhances
the "reliability" of reported data,
it can also pose a limitation on its
"relevance."