January 29, 2022


Accounting + Finance Blog

The Value of Information in an Accounting Information System (AIS)

The Value of Information in an Accounting Information System (AIS)

Value or Information (VOI) depends on if it will aid the decision of the users of an accounting information system (AIS). Certain information may be relevant but may come at the wrong time. Others may be clear and comprehensive but lack relevance to the user. What makes information valuable? What attributes must be considered on this? This article focuses on these main points.

What makes information valuable?

In a previous article, I have defined information. In an accounting Information system, the term means processed data that makes a decision maker take action. If decision maker doesn’t make any move, then such data is mere facts. Value of information depends on information reliability to the decision maker. If it lacks reliability it is valueless. Unreliable information can lead to bad desired outcomes.

For example, the treasury manager relying on the firm’s information system believes that cash will be disbursed to pay a debt on a particular date. But, later on, the manager notices that the cash that will be available on that date will not be enough to pay the debt. And it is not possible to convert other liquid assets to cash on the slated date. More to it, failure to meet the deadline may attract overdraft interest from the bank.

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From here, the treasury manager relies on junk information. And such information leads to failure to meet obligation on the date. This result to additional fines to be paid by the firm. This shows the importance of reliable information. It also shows that when unreliable data can lead to waste of resources and dysfunctional decisions.

Attributes of Reliable Information

The following attributes improved reliability and therefore the value of information.

Relevant. Information is reliable if and only if it is relevant to the user. A sales manager requires information relating to the number of the products available for each day, so he can meet sales orders on time. However, giving a sales manager an account payable schedule is irrelevant information. In such cases, the value of information is zero to him or her.

Accuracy. This is also an important aspect of reliability for the VOI. If it lacks accuracy it can lead to dysfunctional decisions. Like in the example given about the treasury manager, the officer has inaccurate information about cash. And this causes a bad decision.

Completeness. If it lacks completeness it means it is junked. And would mislead the user. An AIS should provide all necessary data required by the user to take desired action.

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Summarization. It should not be ambiguous to the users. A one page information with charts and diagrams is easier to graph than a 10 page information. It should also avoid wordiness and big grammer. The value of information improves when the data is well summarized.

Timeliness. This is another important aspect of the VOI. The correct data should be provided on time. That is, the time the user needs it. This will help avoid dysfunctional decisions. Reliable information is time bound. In the example of the treasury manager, if the accurate data came up on time, he or she may have met the deadline by making necessary steps to get the cash required to pay the bank.

Constrain to reliable information

The aforement attributes have constraints that may affect the overall reliability of the data. A relevant information may lack accuracy in other to be timely. Also, while trying to summarize information, the data provided may lack completeness. This makes information to lack perfection. However information should be 70 percent reliable according to some school of thought to improve the value of information.

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Conclusion to Value of Information

In final words, the value of information affect users desired actions. Reliable information leads to better decision making. However, certain attributes affects reliability. This includes relevance, accuracy, completeness, summarization and timeliness. These attributes are affected by leads leading to imperfect VOI. Therefore, some schools of thought believe that if a data is 70 percent reliable, then it is useful.