(BUSINESS
AND TECHNOLOGY – ACADEMIC ARTICLE)
THE CONSEQUENCES OF INFORMATION TECHNOLOGY CONTROL WEAKNESSES ON MANAGEMENT INFORMATION SYSTEMS: THE CASE OF SARBANES-OXLEY INTERNAL CONTROL REPORTS
b) Systems access and security, and
c) System structure and usage.
THE CONSEQUENCES OF INFORMATION TECHNOLOGY CONTROL WEAKNESSES ON MANAGEMENT INFORMATION SYSTEMS: THE CASE OF SARBANES-OXLEY INTERNAL CONTROL REPORTS
The
article studies the relation between the information technology systems present
in the organization and its effect on decision making. The research is done to find the relationship
between information technology systems and management information systems
within the organization. The research
further, proceeds to explain the relationship between the management
information system and the forecasting ability of the information developed by
using such systems in an organization.
The
article examines the accuracy of the forecasts based on the information systems
prevalent in the organization. The
Sarbanes Oxley Act of 2002, with an objective of enhancing the accuracy,
reliability, and correctness of the information to its users (both internal management
and external stakeholders) requires management and external auditors of the
organization to report annually regarding the effectiveness of the current
internal information control system, and its effects on the financial
reporting. The management uses the
information from financial reports for the purpose of forecasting earnings of
the organization. The external
stakeholders directly use the forecasts done by organization’s management or do
calculations on their own based on the numbers of the financial reports.
According
to the article, the organization’s with material weaknesses in their information
technology system lead the management to less accurate forecasts regarding the
earnings of the organizations. The stronger
information technology system implies the high quality information in the
financial reports of the organization and vice versa. The article examines three kinds of material
weaknesses in the information technology systems:
a) Data
processing integrity,b) Systems access and security, and
c) System structure and usage.
As per
the article, “the results of the research reveal that forecasting regarding the
earnings for firms with any material weaknesses in their information technology
system is less accurate than the firms with effective information technology
control system or the firms with no material weaknesses in their information system”. The firms with material weaknesses in their
information technology systems are not only responsible for less accurate
forecasts but also take longer time for correcting their problems in the
information system.
The
result shows that the errors in the management forecasts are especially highly linked
with ‘data processing integrity’ form of material weaknesses in information
technology control system. The study
also explains the results from financial point of view, in terms of the effect
of material weaknesses in the organization, in its information technology
control system on revenue and cost of goods sold. These two terms, revenue and cost, are
important as well as major part of all earnings forecast of an organization, undertaken
by the management.
No
doubt, the study has some limitations regarding coding of material weaknesses
of information technology, innate volatility and lack of consensus regarding
categorization of information technology controls, but it is the first study to
co-relate the level of management decision making and the standard of
information technology system in the organization and is backed by proper
statistics and research. The article
explains the importance of information system within the organization and how
the systems can be enhanced to develop the quality of the management decision
making by improving the accuracy of earnings forecast. The article provides a suitable ground for
further research in the direction.
Source: Article “The consequences of
information technology control weaknesses on Management Information Systems:
The case of Sarbanes-Oxley internal control reports” by Chan Li,
Gary F. Peters, Vernon J. Richardson and Marcia Weidenmier Watson – MIS
Quarterly Vol. 36 No. 1pp. 179-203/March 2012
The article makes a good point that firms with well constructed and monitored IT systems can make better financial estimates and decisions. Being able to accurately predict your business's financials are a major benefit to upper management. At my place of work, i am directly responsible for making all estimates on our government contracts. The more accurate I am, the better decisions my CFO can make.
ReplyDeleteI agree, this article emphasizes the importance of technology information systems in the organization, and how the effectiveness of prevalent information systems affects the organization’s decision making.
ReplyDeleteNo doubt that Information technology system plays a big role in the decisions of management in an organization. However in many organizations IT systems are in place but not implemented in a right way. When IT system is not implemented in the way that was targeted to achieve certain objective such as to make the data analysis process easier, errors in the management forecast is more likely to be the outcome of misimplemention
ReplyDeleteI completely agree that the appropriate usage of information technology in an effective and timely manner is a condition, towards the achievement of successful decisions by an organization's management.
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ReplyDeleteThis article provides great implications for IT managers. It is apparent from the results of this article that weaknesses in IT systems can negatively affect the projections determined by executives and midlevel managers. Not only does a good IT system make data management more managable, but it also makes the data obtained more reliable. Some of the weaknesses listed like slow data processing, security issues, and bad structures for using the system can all negatively impact data inputs. The role of the IT manager is thus highlighted in this article. Since Sarbanes-Oxley (SOX) requires internal controls that enhance the quality and accuracy of financial and external reports, it is reasonable that analyses of IT systems followed.
ReplyDeleteI agree that this article is important for the managers because it highlights the importance of IT systems in an organization. The current effective IT systems prevailing in the organization provide managers with timely, accurate and reliable information which helps them to take purposeful decisions for the success of the organization.
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