Islamic University-Gaza

Faculty of Commerce

The relationship between accounting information system

and the effective performance measurement in PALTEL

company

This research submitted for partial fulfillment of the requirements of

bachelor degree in accounting department.

By

Hani Al-Ramlawy

Mustafa Kafina

Supervised by: Mr. Salah shubair

2011

بسم الله الرحمن الرحيم

} وقـــــال رب أوزعـنـي أن أشكــــرنعـمـتـــك الـــــــتي أنـعـمـــت عــلي

وعــــلى والــــــــدي وأن أعمـــــــلصــــــالحـــا تـــرضــــــاه وأدخــــلــني بـــرحـمـتـــك فـــي عـــبـــــــادك

الصــــــــالحـــين {

صدق اللهالعظيم

19سورة النمل

1

Dedication بسم الله الرحمن الرحيم

)قل أعملوا فسيرى الله عملكم ورسوله والمؤمنون)

صدق الله العظيم

We dedicate this work to our parents, who

sacrificed everything in their life for us,

and also we thank them for pushing us to

success.

2

Acknowledgement

We want to thank everyone help and participated in

making this study starting from our honorable:

Mr. salah shubair

Who put a lot of faith in our capabilities and

encouraged us to complete this study … Also we want

to thank:

Paltel Company

And all of our teachers in the faculty of commerce

3

Table of Contents

6Abstract

71 Introduction

91.1 Statement of the Problem

91.2 Objective

101.3 Research Questions

101.4 Significance of the project

111.5 Hypotheses

121.6 Scope and limitations of the project

131.7 Research methodology

131.8 State of The Art

141.9 Time table and budget

141.10 Duration and length of the research

151.11 previous studies

151.11.1 Ismail and king (2007)

161.11.2 Huang and liu (2005),

171.11.3 Jamoos Study (1991),

181.11.4 Al-Sarhan Study (1995),

192 Accounting Information System

202.1 introduction

212.2 Accounting Information Systems – Definition

232.3 Technology of the Accounting Information System

262.4 Financial Accounting

272.5 Real-Time Reporting

282.6 managerial accounting

4

282.7 auditing

302.8 taxation

302.9 Accounting information system for (PALTEL CO.)

363 Effective Performance Measurement

373.1 introduction

383.2 Effective performance system

383.3 Organizational and employee objectives

403.4 Conducting the performance appraisal

413.5 Legal issues

423.6 The Performance-Based Management Handbook

463.7 What Is Performance Measurement

463.8 What are Performance Measures

483.9 Performance Measurement Terminology

483.10 Conclusion

504 Results and Recommendations

514.1 Results

534.2 Recommendations

55References

5

ABSTRACT

The aim of this study is to identify the applicability of the accounting

information system (AIS) on the Palestinian major privet sector leading

company. Organization context, organizational coordination and control

(OCC) are so important to affect the quality of information, which is

produced from AIS of the company.

Accounting Information among subunits, electronic data interchange

across organizations will used to investigate the consequences of AIS on

the effective performance that will influence competitive advantage.

In this study the effectiveness of accounting information systems in

PalTel Company will evaluate. The expected results will indicate that

implementing accounting information systems at this company in order to

improve the managers’ decision-making process, internal controls, and

the quality of the financial reports and facilitated the process of the

company’s transactions.

6

1 Introduction

Accounting information system is one of the first things a business must

think about. Without an adequate information system, the company

would soon find themselves in chaos. Strategic importance of accounting

system in organizational plans and models is one of the core success

factors that effectively support the achievement of accounting and

financial objectives.

Most businesses must staff their operations. This involves bringing new

people into the business and making sure they are productive additions to

the enterprise. Effective accounting information matches and develops

the abilities of job candidates and employees with the needs of the firm.

The accounting Information System (AIS) is a system of records usually

computer based which combines accounting principle and concepts with

the benefits of an information system and which is used to analyze and

record business transaction or the purpose to prepare financial statement

and provide accounting data to the users.

An effective accounting information system lead to make their

accounting activities easier , quicker and more accurate since accounting

records are analyzed and financial statement are prepared within the

system which allows to safe time of employees and avoid mistake ,

provides information about financial position of the company.

7

Every company in every industry can benefit greatly from an accounting

software package. Not only will accounting software help improve the

way critical financial-related processes are managed across the business –

resulting in increased efficiency and smoother execution of core business

operations – it can help companies avoid the risks and severe penalties

associated with non-compliance with financial reporting laws and

guidelines.

PalTel is the national telecommunications provider in Palestine. With the

pace of technology rapidly changing, PalTel today leads Palestine into the

new era of communications through its state-of-the-art technology and

advanced services

8

1.1 Statement of the Problem

This study is to examine the impact of accounting information systems

(AIS) on the effective performance in PalTel Company. The question to

address in this study therefore is "How can accounting information

system affect the effective performance?"

Fig. 1. Focus of the study of the research.

The impact of AIS

1.2 Objective/

Main objective/

The applicability of the accounting information system (AIS) on the

Palestinian major privet sector leading company .

Specific objective/

9

AIS

The effective performance

1. Identify the effectiveness and efficiency accounting application

that PalTel uses.

2. To what extent PalTel is applying the international accounting

stander.

3. Identify the tools of the internal control system and the

effectiveness of that tools performance of PalTel employee.

4. To measure impact of use (AIS) on the decision making level.

1.3 Research Questions

What is the role that accounting information system plays in the

firm tasks, if any?

Do accounting information system are used in support of the firm

tasks?

Is accounting information system an enabling technology?

Will accounting information system be used more in support of

quality of financial reports in organizations in the future?

Does accounting information system be used to facilitate financial

transaction process?

1.4 Significance of the project

The study aims to explore the role of accounting information

system in the organization performance. It attempts to identify the

main causes of using accounting information system.

10

This research will help us (As a researchers) to have an overlook to

the accounting department in one of the finest company in

Palestine that will help us in our future career.

This research can be taken into consideration from the PalTel

Company to evaluate their accounting system.

This research can be a great benefit to the society specially

inventors of PalTel Company and those who are interesting in

business world to keep an eye on their investment corporation

performance.

It attempts to examine how accounting professionals and managers

see the effects of AIS on the tasks and job roles; also it tries to

develop recommendations to improve accounting system.

1.5 Hypotheses

The following research hypothesis formulated to fulfill the aim of this

study:

H1: There is relationship between accounting information system and

decision making in PALTEL company .

H2: There is a relationship between accounting information system and

effective internal system in PALTEL company.

H3: There is a relationship between accounting information system and

Quality of financial reports in PALTEL company.

H4: There is a relationship between accounting information system and

improve the performance measures in PALTEL company.

11

H5: There is a relationship between accounting information system and

financial transaction process in PALTEL company.

Dependent variable:

Effective performance

Independent variables:

Decision making

Internal system

Quality of financial reports

Performance measures

Financial transaction process

1.6 Scope and limitations of the project

There is lack of time available to implement the research so we

need more time.

All information that related to our research is so important

according to the policies and regulation that restrict a full

disclosure; we expect that we can attain limited information.

Little research that had been implemented in the local market.

This research need more than two researchers to study the

relationship between accounting information system (AIS) and

company performance.

12

1.7 Research methodology:

Secondary sources: to address the theoretical framework of the

study, the researchers tended to sources of secondary data,

including English , Arabic books and related- foreign references,

journals, periodicals, articles, reports, researches, and previous

studies on the subject of study, and reading from various websites.

Primary sources: to address the analytical aspects of the subject of

study, the researchers will tend to collect primary data through a

questionnaire as a main research tool, which will specifically

design for this purpose and will distribute to the staff of the PalTel

company

.

1.8 State of The Art

The main advantages of an optimal use of accounting information

system (AIS) in small and medium enterprises (SMEs) are: better

adaptation to a changing environment, better management of arm's

length transactions and a high degree of competitiveness. There is

also a boost to the dynamic nature of firms with a greater flow of

information between different staff levels and the possibility of

new business on the network and. With the existence of more

intercommunication there are increased chances for diversification

of traditional businesses. Nonetheless, excessive use of these tools

13

may decouple the quality of interaction between workers and

customers with a consequent reduction in productivity.

1.9 Time table and budget

TaskJuly Augest

W1 W2 W3 W4 W5 W6 W7 W8

Prepare and writing the proposal                

Collecting data for accounting information system                

 Writing chapter (2)                

 Collecting data for performance measurement                

 Writing chapter (3)                

 Writing results                

 Writing recommendations                

 Writing references                

1.10 Duration and length of the research:

14

The study will be carried out in Gaza city. The study will start at

26/06/2011 and end at 20/08/2011.

1.11 Previous study

1- Ismail and king (2007), "factors influencing the alignment of

accounting information system in small and medium sized

Malaysian manufacturing"

This study aims to know the influential factors of accounting information systems in small and medium-sized enterprises industrial companies in Malaysian, the study was conducted on 214 companies, it's included a questionnaire distributed to nineteen of the properties of accounting information for each of the needs and capacity to explore the factors affecting the status of accounting information systems. 

The study results:

There are several factors that affect the accounting information systems are as follows: 

Technology and the level of information technology. 

Accounting level and the extent of their knowledge about information technology. 

Technical expertise gained from government agencies and accounting firms and internal IT staff and efforts. 

This study recommends that:

There is a need to increase and promote the use of information technology. 

15

Enhance accounting capacity and use of information technology. 

2- Huang and liu (2005), "exploration for the relationship between

innovation, IT and performance"

This study aims to answer the following questions:

Is there a non-linear relationship between investment in capital and information technology on the performance of the company.

Is the interaction between capital and information technology has a significant impact on the performance of companies and the study conducted on companies operating in Taiwan .

The study found many results:

There is a non-linear relationship between the interaction of investment in capital and corporate performance.

There is a non-linear relationship between the interaction of investment in information technology and corporate performance.

There is a strong influence of the interaction between investment in capital, information technology and corporate performance.

The study recommendations including:

That the increase in investment in capital is not the key factor in improving the performance of companies, but companies must find a good consistency in the use of increased investment in capital and corporate performance.

16

3- Jamoos Study (1991), "Review Accounting Systems that Rely on

Computer Use"

This study aims to introduce the information systems of accounting

mechanism, the audit process by focusing on the usage of computers as

an essential means to implement the audit process.

The study concluded the following results:

Audit process followed by the auditors of the Central Agency for

Financial Control in Syria does not rise to a reasonable level of

sophistication in the use of a computer.

The lack of specialized computer-integrated departments in most

companies of sample study.

All computers owned by the sample study of companies obsolete

technically and do not achieve the economic feasibility of it.

Limited use of computers in the sample study of companies to

implement very simple mathematical operations such as charging

salaries and wages of employees.

17

4- Al-Sarhan Study (1995), " The relationship between technology

and organizational structure - a field study in industrial

companies Jordanian public shareholding"

The study aims to determine the correlation and the impact of technology

on the degree of centralization and formal and complex, As well as to

know the interest of Jordanian companies, the impact of technology on

the various organizational elements, And specially the humanitarian

component.

It also aimed to come up with results that will add to general knowledge

in organization theory helps to understand the impact of technology on

the organizational structure clearly.

And one of its objectives is the completion of studies conducted in

Jordan on the organizational structure, and its various relationship and its

determinants, and that is through the study of the impact of technology as

one of the dimensions that may have a significant impact on the

organizational structure of industrial companies in the Jordanian public

shareholding.

The study concluded the following results:

A relationship between technology and the degree of centralization.

A relationship between technology and the degree of the official.

A relationship between technology and the degree of complexity as

a whole.

There is no relationship between technology and the degree of

geographical variation, that mean the number of geographic

18

locations in which the institution operate is not affected by the

extent of approaching the degree of technology-oriented

technology for huge production.

Chapter Two

Accounting Information

System

19

Accounting Information System

2.1 Introduction

Despite the commonality of subject in the study , the content of AIS

courses continues to vary widely from school to school . for example ,

use their AIS courses to teach accounting student how to use

computer .in the other colleges and universities , the courses focus on

business processes and data modeling .

yet other courses emphasize transaction processing and accounting as

communication system, and have little to do with the technical aspects of

how underling accounting data are processed or stored. Business process

and software solution for improving those processes are gaining in

importance in today businesses .

The study of accounting information system (AIS) IS, in large part , the

study of the application of information technology (IT) to accounting

systems .We begin by answering the question (what are accounting

information systems?)

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2.2 Accounting Information Systems – Definition

(Kieso and etal, 2009)

An accounting information system is a collection of data and processing

procedures that creates needed information for its users.

Let us examine in greater detail what this definition really means. We’ll

examine each of the words in the term “ accounting information systems

“ separately.

Accounting

The systematic recording, reporting, and analysis of financial transactions

of a business. The person in charge of accounting is known as an

accountant, and this individual is typically required to follow a set of

rules and regulations.

21

Accounting : consist of three basic activities it identifies , record and

communication the economic events of an organization to interested users

.

Information

Is data that have been organized and processed to provide meaning to a

user.

Usually, more information and better information translates into better

decisions.

Benefits of the information

– Reduction of uncertainty

– Improved decisions

– Improved ability to plan and schedule activities

Characteristics that make information useful

– Relevance

– Reliability

– Completeness

– Timeliness

– Understandability

– Verifiability

– Accessibility

Information is provided for both

1- External users

2- Internal users

First-External users

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External users primarily use information that is either :

– MANDATORY INFORMATION—required by a governmental

entity

– ESSENTIAL INFORMATION—required to conduct business

with external parties, such as purchase orders

Second-Internal users

Internal users primarily use discretionary information :

The primary focus in producing this information is ensuring that

benefits exceed costs, i.e., the information has positive value.

(Romney, 2008)

System

A system is a set of interrelated component that interact to achieve the

goal (Romney, 2008 )

2.3 Technology of the Accounting Information System

You can break the AIS technology into 3 separate categories:

23

(Romney, 2008 )

Input - These are the devices that input the data into the accounting

system. Typically, these include standard personal computers or

workstations that are running applications. Data can also be input from

scanning devices, electronic communication devices for electronic data

interchange (EDI) and e-commerce. More recently, many financial

systems come "Web-enabled" to allow devices to connect to the Internet.

Process - This includes the basic processing of the data and it is achieved

through computer systems ranging from individual personal computers to

large-scale company servers. The primary processing model is still the

"double-entry" accounting system that was initially used in the fifteenth

century.

Output - Typical output devices include computer displays or monitors,

impact and nonimpact printers, and electronic communication devices for

EDI and e-commerce. The output content may encompass all types of

financial reports that range from budgets and tax reports to international

financial statements.

In the past, most accounting systems consisted of notebooks and ledgers.

With the advent of the computer, those accounting books have been

replaced with accounting software programs. The AIS has greatly

changed the way accountants perform their jobs and has improved

accounting effectiveness and efficiency.

24

An accounting information system must by definition have a target

system. The target system must be related to operations of the business.

Other non-accounting aspects of business operations are covered by

information systems such as Human Resources Information System,

Management Information System, Production Planning/Scheduling

System, Strategic Planning System, and so on.

The target system for an accounting system has to do with the aspects of

business operations that have to do with accountability for the

assets/liabilities of the enterprise, the determination of the results of

operations that ultimately leads to the computation of comprehensive

income, and the financial reporting aspects of business operations.

Accounting information systems cover all of the business operations from

accounting transaction to sophisticated financial management planning

and processing systems.

Financial reporting begins at the operational levels of the organization,

where the transaction processing systems capture important business

events such as normal production, purchasing, and selling activities.

These events (transactions) are classified and summarized for internal

decision making and for external financial reporting.

Cost Accounting Systems are typically used in manufacturing and service

businesses. These allow companies to track the costs associated with the

production of goods and services. The accounting information systems

can alos provide advanced analyses for improved resource allocation and

tracking of performance.

Management Accounting Systems are used to allow organizational

planning, monitoring, and control for a variety of activities. This allows

25

managerial-level employees to have access to advanced reporting and

statistical analysis. The systems can be used to gather information, to

develop various scenarios, and to choose an optimal answer among

different scenarios. (Romney, 2008 )

ACCOUNTING AND IT

The information age and the IT that created it are influencing all

areas of accounting. the Figure provides an overview of some of

these areas and their relationship to each other. This section

considers the impact of IT on financial accounting, managerial

accounting, auditing, and taxation. (Bagranoff and etal, 2007)

2.4 Financial Accounting

26

(Kieso and etal, 2009)

The major objective of financial accounting information systems

is to provide relevant information to individuals and groups outside

an organization's boundaries e.g., investors, federal and state tax

agencies, and creditors. Accountants achieve these informational

objectives by preparing such financial statements as income

statements, balance sheets, and cash flow statements. Of course,

many managers within a company can also use financial reports for

planning, decision-making, and control activities.

This Figure is an example of a financial accounting audit trail. The

audit trail example in Figure parallels an organization's accounting

cycle, which begins with transaction data recorded on source

documents and ends with outputting financial statements.

In financial AISs, the processing function also includes posting

these entries to general and subsidiary ledger accounts and preparing

a trial balance from the general ledger account balances.

(Bagranoff and etal, 2007)

27

2.5 Real-Time Reporting

Another impact of IT on financial accounting concerns timing.

Financial statements are periodic and most large companies

traditionally issue them quarterly, with a comprehensive report

produced annually. Because IT now captures transactions, AISs can

produce financial statements almost in real time. Of course, some of

the adjustments that accountants must make to the records are not

done minute-by-minute, but a business can certainly track sales and

many of its expenses continually.

(Bagranoff and etal, 2007)

2.6 Managerial Accounting

The principal objective of managerial accounting is to provide

relevant information to a company's managers-i.e., users who are

internal to a company or government agency.

The most important features of managerial accounting are :

Managerial accounting focuses on providing accounting information

for internal parties, such as management, rather than for external

investors and creditors.

Managerial accounting information is mostly forward-looking.

Managerial accounting information is not regulated by generally

accepted accounting principles, nor is it mandatory to prepare it.

Managerial accounting reports include both nonmonetary and

financial data.

Managerial accounting is influenced by many business and non

business disciplines, such as economics, behavioral science, and

quantitative methods.

28

Managerial accounting information is flexible and frequently involves

non routine reporting . (Kieso and etal, 2009)

2.7 AUDITING

Auditing is the accumulation and evaluation of evidence about

information to determine and report on the degree of correspondence

between the information and established criteria .(Arens , 2010)

The traditional role of auditing has been to evaluate the accuracy and

completeness of a corporation's financial statements. In recent years,

however, the individuals working in CPA firms would probably argue

that they are actually in the assurance business-Le., the business of

providing third-party testimony that a client complies with a given

statute, law, or similar requirement. Historically, the growth of such

assurance services can be traced to a conference of the American Institute

of Certified Public Accountants in 1993, which created a Special

Committee on Assurance Services to identify and formalize some other

areas (besides financial audits) in which accountants could provide

assurance services.

Today, there are several new areas in which auditors now perform

assurance work, many involving accounting information systems. One

example is to vouch for a client's compliance with the new HIPAA laws-

e.g., the privacy requirements of the Health Insurance Portability and

Accountability Act. Another example is CPA Trust Services, a set of

professional service areas built around a set of common principles and

criteria related to the risks and opportunities presented by IT

environments. Trust services include online privacy evaluations, security

audits, testing the integrity of information processing systems, assessing

availability of IT services, and systems confidentiality testing.

29

In addition to the auditing and assurance businesses mentioned

above, many CPA firms also perform management consulting tasks-

e.g., helping clients acquire, install, and use new information

systems. (The AIS at Work feature at the end of this chapter

describes one such consulting area.) However, the corporate

accounting scandals mentioned earlier have led members of the

Securities and Exchange Commission and the u.S. Congress to

question whether a CPA firm can conduct an independent audit of

the same systems it recently assisted a client in installing and using-a

concern intensified when audit staff at Arthur Andersen LLP

apparently deliberately destroyed auditing papers for the Enron

corporation that many believe would have documented such doubts.

Thus, the Sarbanes-Oxley Act of 2002 expressly forbids such

potential conflicts of interest by disallowing CPA firms from

simultaneously acting as "management consultants" and

"independent auditors" for the same firms. Despite this requirement,

however, there are still many areas in which CPA firms provide

consulting services to clients. Examples include business valuations,

litigation support, systems implementation, personal financial

planning, estate planning, strategic planning, health care planning,

making financing arrangements, and performing forensic (fraud)

investigations.(Kieso and etal, 2009)

2.8 Taxation

Although some individuals complete their income tax returns

manually, many others now use computer programs for this task. like

spreadsheets, tax preparation software are examples of AlSs that

enable users to create and store copies of trial tax returns, examine

30

the consequences of alternate tax strategies, print specific portions of

a return, and even transmit complete copies of a state or federal tax

return to the appropriate government agency. (Kieso and etal, 2009)

2.9 Accounting information system for (PALTEL CO.)

Corporate information

Palestine Telecommunications Company P.L.C. (PALTEL) is a limited

liability public shareholding company registered and incorporated in

Nablus - Palestine on August 2, 1995. PALTEL commenced operations

on January 1, 1997. PALTEL operates under the Telecommunication

Law No. (3) of 1996 decreed by the Palestinian National Authority

(PNA). PALTEL is engaged in providing, managing, and rendering wire

line and wireless services.

The consolidated financial statements of Palestine Telecommunications

Company P.L.C. for the year ended December 31, 2009 were authorized

for issuance in accordance with a resolution of the Board of Directors on

March 10, 2010.

Significant accounting policies

The consolidated financial statements have been prepared under the

historical cost basis, except for financial assets held for trading and

available-for-sale investments that have been measured at fair value. The

consolidated financial statements have been presented in Jordanian

Dinars ,and all values except when otherwise indicated, are rounded to

the nearest thousand (JD ‘000s).

31

Statement of compliance

The consolidated financial statements of Palestine Telecommunications

Company Plc. and all its subsidiaries have been prepared in accordance

with International Financial Reporting Standards as issued by the

International Accounting Standards Board.

Revenue recognition

Revenues are recognized to the extent that it is probable that the

economic benefits will flow to the Group and the revenue can be reliably

measured. Revenues are measured at the fair value of the consideration

received, excluding discounts. The following specific recognition criteria

must also be met before revenue is recognized:

Rendering of services

Revenues from wire line, wireless, and data services are recognized

when the outcome of the transaction can be estimated reliably, by

reference to the stage of completion of the transaction.

Revenues from media and IT services are recognized when the

outcome of the transaction can be estimated reliably, by reference to

the stage of completion of the transaction according to the progress

reports.

Revenues from prepaid cellular phone and payphone cards are

recorded as deferred revenues and are recognized based on the units

used.

32

Sale of goods

Revenues from sale of cellular phone sets and other electrical equipment

are recognized when the Significant risks and rewards of ownership of

the goods have passed to the buyer.

Interest income

Interest revenue is recognized as the interest accrues using the effective

interest method ,under which the rate used exactly discounts estimated

future cash receipts through the expected life of the financial asset to the

net carrying amount of the financial asset.

Dividends

Dividend revenue is recognized when the right to receive the dividend is

established.

Expenses recognition

Expenses are recognized when incurred based on the accrual basis of

accounting.

Finance costs

Finance costs are recognized as the interest accrues using the effective

interest method.

Income tax

The Group provides for income taxes in accordance with the Palestinian

Income Tax Law and IAS 12 which requires recognizing the temporary

differences ,at the date of financial statements between the tax bases of

assets and liabilities and their carrying amounts for financial reporting

purposes , as deferred taxes. Such temporary differences might result in

recognizing deferred tax assets .However, the Group’s management

33

elected not to recognize such deferred taxes due to uncertainty of

benefiting from their future outcomes.

Income tax expense represents the accrued income tax which is calculated

based on the Group’s taxable income. Taxable income may differ from

accounting income as the later includes non-taxable income or non-

deductible expenses. Such income/expenses might be taxable/deductible

in the following years.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated

depreciation and any impairment in value. Land is not depreciated.

Depreciation is calculated on a straight line basis over the estimated

useful lives of the assets

Materials and inventories

Materials are stated at cost while inventories are stated at the lower of

cost or net realizable value using the weighted average method. Costs are

those amounts incurred in bringing each product to its present location

and condition.

The carrying values of materials are reviewed for impairment when

events or changes in circumstances indicate that the carrying value may

not be recoverable. If any such indication exists and where the carrying

values exceed the estimated recoverable amount, the materials are written

down to their recoverable amount.

34

Foreign currencies

Transactions denominated in currencies other than Jordanian Dinar (JD),

occurring during the year, are translated to JD using the exchange rate at

the date of the transaction. Monetary assets and liabilities, which are

denominated in foreign currencies are translated into JD using the rate of

exchange at the reporting date. Gains or losses arising from exchange

differences are reflected in the consolidated income statement.

The assets and liabilities of subsidiaries with functional currencies other

than Jordanian Dinars are translated into the presentation currency of the

Group at the rate of exchange ruling at the reporting date and, their

income statements are translated at the weighted average exchange rates

for the year. The exchange differences arising on the translation are

recorded as a separate component of the consolidated statement of

changes in equity.

35

Chapter Three

Effective Performance

Measurement

36

37

3.1 Introduction

All high-performance organizations, whether public or private, are, and

must be, interested in developing effective performance measurement and

performance management systems, since it is only through such systems

that they can remain high-performance.

In organizations Performance appraisals system reflect employee

performance is a difficult task. Performance appraisal systems are not

generic or easily passed from one company to another. Performance

measures quantitatively tell us something important about our products,

services, and the processes that produce them. They are a tool to help us

understand, manage, and improve what our organizations do.

Performance measurement is the “heart and soul” of the performance-

based management process. Flowing from the organizational mission and

the strategic planning process, it provides the data that will be collected,

analyzed, reported, and ultimately used to make sound business

decisions.

The PBM adapted the Performance Measurement Process Model into a

performance-based management process model and used this model to

structure The Performance-Based Management Handbook.

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3.2 Effective performance system

Developing an appraisal system that accurately reflects employee

performance is a difficult task. Performance appraisal systems are not

generic or easily passed from one company to another; their design and

administration must be tailor-made to match employee and organizational

characteristics and qualities.

Performance appraisals are most commonly undertaken to let an

employee know how his/her performance compares with the supervisor’s

expectations and to identify areas that require training or development.

Employees have a legitimate need to know how their performance is

viewed. At a basic level, without adequate communication between the

employee and the supervisor, undesirable work habits may be formed or

good work habits may be modified. Lack of such communication may be

viewed by the employee as approval of their current work habits and

performance.

All high-performance organizations, whether public or private, are, and

must be, interested in developing and deploying effective performance

measurement and performance management systems, since it is only

through such systems that they can remain high-performance

organizations.(Henderson, 2005)

3.3 Organizational and employee objectives

One of the first steps in developing an effective performance evaluation

system is to determine the organization’s objectives. These are then

translated into departmental and then individual position objectives –

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working with employees to agree their personal performance targets. This

allows the employee to know “up front” the standards by which his/her

performance will be evaluated.

This process involves clarifying the job role, job description and

responsibilities – explaining how the role and responsibilities contribute

to wider goals, why individual and team performance is important and

just what is expected within the current planning period. Objectives

developed in this way should be reflective of the organizational goals and

provide linkages between employee and organizational performance.

Within a given department some (and in some cases, many) objectives

will be shared within a team or standardized across a number of similar

employees. However, it is important to ensure that, where necessary, an

individual focus is maintained : within any group of employees

performing the same job function there may be wide gaps in experience

and technical knowledge. In order to keep each individual employee

motivated and committed to performing at his/her best, some objectives

need to be customized to allow for continued growth. A significant

portion of an employee’s performance should be based on these jointly

supervisor and employee developed objectives.(Kellogg,2007)

It is important that the process ensures that employees understand how

their personal job performance contributes to the overall performance of

the company. This direct linkage helps to create team working and shared

responsibility. Team effort stems from shared objectives reflecting

organizational goals and clarification and understanding of the roles and

responsibilities of each member. Within such a framework, performance

appraisal has higher acceptability. Although (at least some of the)

performance objectives should be individual and agreed between

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employee and supervisor, this does not mean that they should be easy to

attain.

Once an individual rater has been through the necessary training, periodic

refresher courses will be required to help the rater maintain necessary

skills in performance assessment. Raters involved in the appraisal process

should also be evaluated on how they conduct performance appraisals.

This will help to make sure that evaluations are performed in a similar

and consistent manner throughout the organization. (Evans,2004)

3.4 Conducting the performance appraisal

In many systems, the front-line supervisor is responsible for conducting

the performance review. However, a multiple rater system should be

considered. Multiple rater systems provide a form of “triangulation’ that

results in ratings in which employees and managers have greater

confidence. It may also be necessary to restrict the number of employees

rated by any one individual. (Edwards,2003)

With large spans of control, several supervisors may work with an

individual employee. The input from all supervisors about the employee’s

performance is required to complete a thorough performance review.

Multiple rater systems can be computerized to allow statistical analysis to

identify bias – this can be particularly important where an organization is

keen to avoid real or perceived bias with respect to race, gender or age.

Another advantage of multiple rating systems is that they can shift the

supervisor’s role from that of judge to performance coach. An individual

supervisor will no longer be responsible for a single employee’s review.

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Some multiple rater systems go as far as involving the use of

subordinates in the evaluation process.

This is especially effective in a work environment which is self-

governing. Subordinate evaluations have generally shown to be more

accurate than supervisors in truly reflecting employee performance. This

system of evaluation allows employees to participate in the decisions that

affect them directly. As part of the overall process, employee self-

appraisals should be encouraged. This helps the employee to be less

defensive and passive in the appraisal review. (Goff and Longenecker,

2006)

Self-appraisals can lead to self-improvement. The employee’s self

appraisal can also be helpful for the supervisor in opening a

communication link and allowing for comparison of performance results.

Self-appraisals give the supervisor helpful insight as to how the employee

views his/her performance. Generally speaking people will be at least as

tough on themselves as the formal rater. A proper process of employee

and supervisor (or multiple rater) review can help employees agree on

areas for development and how the organization can help. (Gates,2006 )

3.5 Legal issues

While the basic intent of developing an effective performance appraisal

system is to make a company more productive, profitable and to let

employees know their level of performance, there are also legal reasons

for developing an effective performance appraisal system. Failure to

conduct appraisal “properly” (failing to maintain adequate records, for

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example) may result in employees (or their trades unions) taking legal

action.

Where an employee handbook makes reference to performance appraisal

or review, they must be carried out to acceptable levels of details. Many

states have recognized statements in employee handbooks as implied

contracts of employment. If an employer states annual performance

reviews will be conducted and then fails to do so, the employer could find

him/herself liable for breach of an implied promise. Employers must

ensure, therefore, that they adhere to their commitments to conduct such

reviews.

It is extremely important that all strengths and weakness be clearly

documented in the performance review and follow up action on

unsatisfactory performance pursued. This is especially important in the

case of termination of an unsatisfactory employee. (Nobile, 2004)

3.6 The Performance-Based Management Handbook

The PBM adapted the Performance Measurement Process Model into a

performance-based management process model and used this model to

structure The Performance-Based Management Handbook. The PBM

Performance-Based Management Process/Handbook Model is shown in

Figure PBM below. Topics covered by each volume are listed after the

figure.

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Establishing and Maintaining a Performance-Based Management

Program

An Introduction to Performance-Based Management

Step 1: Define Organizational Mission and Strategic Performance

Objectives

Step 2: Establish an Integrated Performance Measurement System

Step 3: Establish Accountability for Performance

Step 4: Establish a System/Process for Collecting Data to Assess

Performance

• Step 5: Establish a System/Process for Analyzing, Reviewing,

and Reporting Performance Data

Step 6: Establish a System/Process for Using Performance

Information to Drive Improvement

Maintaining a Performance-Based Management Program

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Establishing an Integrated Performance Measurement System

Understanding Performance Measurement

Establishing an Integrated Performance Measurement System

Choosing a Performance Measurement Framework

Developing Performance Measures—Getting Organized

Developing Performance Measures—Sample Approaches

Maintaining an Integrated Performance Measurement System

Establishing Accountability for Performance

The Concept of Accountability

Establishing Accountability for Performance

Accountability Tools

Collecting Data to Assess Performance

Determining Data Needs

Components of a Data Collection Plan

Data Collection Considerations

Data Collection Methods

Suggestions for Measuring R&D Activities

Analyzing, Reviewing, and Reporting Performance Data

Introduction to Data Analysis

Training Your Organization in Analysis Skills

Generating Useful Information - Step 1: Question Review

Generating Useful Information - Step 2: Data Collection and

Organization

Generating Useful Information - Step 3: Data Analysis

Generating Useful Information - Step 4: Data Presentation

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Using Performance Information to Drive Improvement

Using Performance Information to Drive Improvement

Benchmarking

Reengineering

Continuous Improvement

Process Improvement

Performance measurement is the “heart and soul” of the performance-

based management process. Flowing from the organizational mission and

the strategic planning process, it provides the data that will be collected,

analyzed, reported, and ultimately used to make sound business

decisions. It directs the business function by justifying budgetary

expenditures, documenting progress towards established objectives,

identifying areas of both strength and weakness, providing an on-going

assessment of the current “organizational climate,” and driving business

improvement.

In a nutshell, performance measurement supports organizational

existence. Performance measurement systems succeed when the

organization’s strategy and performance measures are in alignment and

when senior managers convey the organization’s mission, vision, values

and strategic direction to employees and external stakeholders. The

performance measures give life to the mission, vision, and strategy by

providing a focus that lets each employee know how they contribute to

the success of the company and its stakeholders’ measurable

expectations.

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Integration places performance measures where they are the most

effective: integrated with the strategic, business activity. It makes it

possible for the measures to be effective agents for change. If the

measures quantify results of the activity, one only need compare the

measured data with the desired goals to know if actions are needed. In

other words, the measures should carry the message. (Crane, 2001)

3.7 What Is Performance Measurement?

In Performance Measurement and Evaluation: Definitions and

Relationships, the U.S. General Accounting Office (GAO) provides the

following definition:

Performance measurement is the ongoing monitoring and reporting of

program accomplishments, particularly progress towards reestablished

goals. It is typically conducted by program or agency management.

Performance measures may address the type or level of program activities

conducted (process), the direct products and services delivered by a

program (outputs), and/or the results of those products and services

(outcomes). A “program” may be any activity, project, function, or policy

that has an identifiable purpose or set of objectives.(Sahl, 2007)

3.8 What Are Performance Measures?

Performance measures quantitatively tell us something important about

our products, services, and the processes that produce them. They are a

tool to help us understand, manage, and improve what our organizations

do. Effective performance measures can let us know:

• How well we are doing,

• If we are meeting our goals,

• If our customers are satisfied,

• If our processes are in statistical control,

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• If and where improvements are necessary.

They provide us with the information necessary to make intelligent

decisions about what we do. A performance measure is composed of a

number and a unit of measure. The number gives us a magnitude and the

unit gives the number a meaning.

Performance measures are always tied to a goal or an objective (the

target). Performance measures can be represented by single-dimensional

units like hours, meters, nanoseconds, dollars, number of reports, number

of errors, number of certified employees, length of time to design

hardware, etc. They can show the variation in a process or deviation from

design specifications. Single-dimensional units of measure usually

represent very basic and fundamental measures of some process or

product.

According to (Sahl, 2007) , performance measures should be expressed in

units of measure that are the most meaningful to those who must use or

make decisions based on those measures. Most performance measures

can be grouped into one of the following six general categories. However,

certain organizations may develop their own categories as appropriate

depending on the organization’s mission:

1. Effectiveness: A process characteristic indicating the degree to

which the process output (work product) conforms to requirements.

(Are we doing the right things?)

2. Efficiency: A process characteristic indicating the degree to which

the process produces the required output at minimum resource cost.

(Are we doing things right?)

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3. Quality: The degree to which a product or service meets customer

requirements and expectations.

4. Timeliness: Measures whether a unit of work was done correctly

and on time. Criteria must be established to define what constitutes

timeliness for a given unit of work. The criterion is usually based on

customer requirements.

5. Productivity: The value added by the process divided by the value

of the labor and capital consumed.

6. Safety: Measures the overall health of the organization and the

working environment of its employees.

3.9 Performance Measurement Terminology

Performance measurement terminology is tricky. For example, some

people equate performance measures and performance indicators as being

one and the same. Others look at the two as being entirely different. Or

some use goals, objectives, and targets interchangeably, while others do

not. Then there’s the statutory definitions, the agency definitions, and

those used in the private sector.

The object for you is to pick the terminology that best fits your

organization and your performance measurement system and to ensure

that all players are in alignment with and using that terminology. In other

words, before you start, everyone needs to be on the same page and

speaking the same language. (Gates, 2006)

3.10 Conclusion

Developing an effective performance appraisal system requires strong

commitment from top management: if the system does not provide the

49

linkage between employee performance and organizational goals, it is

bound to be less than completely effective.

To build linkages employees must have individualized objectives and

performance criteria which allow them to relate directly to the

organization. Objectives should be developed jointly between the

supervisor and the employee. Once the objectives are determined,

appraisals should be performed frequently to help build the direct

communication link. Support documentation for performance should be

maintained by both the employee and supervisor in order for the appraisal

process to be conducted in a productive manner.

Organizations operating in this time of continual change and global

competition cannot afford unmotivated and uncommitted employees. An

effective system of performance appraisal is a major component of an

organization that allows every employee to feel that his/her contribution

has contributed to the success of the organization and a desire to add to

that success.

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Chapter Four

Results and

Recommendations

51

Results

1. accounting information systems Output have the ability to meet and

satisfy the needs of the viewers activity of the bank of information and

this is attributed to the adoption of corporate accounting systems

based on information and communication technology as an integral

part of the structure of the company. which was instrumental in the

ability of these systems to produce output that characterized by

precision, reliability and periodic and regularity.

2. The important role of accounting information systems to activate the

activities of the company through:

Integration of accounting information systems with sub-

information systems applied in the company to integrate and

coordinate between the tasks , functions and different sections of

the company, which increases the effectiveness of activities.

Provide accounting information systems integrated with other sub-

systems to get the needs of the beneficiaries of various

information, and thus contributing to reduce the time and effort.

Achieve accounting information systems for the company in the

proper flow of data and information between departments and

branches of the company at the appropriate time and form.

3. The important role of accounting information systems to achieve the

control and administrative control of the company through:

These systems can monitor and keep up with the implementation of

plans and policies in the company and follow-up and report on the

efficiency and effectiveness.

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In addition to securing control system to the degree of confidence

required in the financial reports prepared that represent the outputs

of these systems, as well as providing the information required for

compliance and instructions enabling the administration to stand on

the reality of the situation and take appropriate measures in order to

achieve the highest degree of efficiency of the service in the

company.

These systems provide adequate protection for the assets and

records of the company.

Accounting information systems provide the required information

about the company's commitment to the laws and instructions

issued by the regulatory bodies, which let the administration and

regulatory bodies to stand on the reality of the situation and take

appropriate action.

4. There is an important role for accounting information systems in

reducing the risks to the company and contribute to the management

through:

Accounting information systems applied Contribute to find the

information network long-term that generate a constant flow of

information about the activities of the company.

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Recommendations

1. Need to develop accounting information systems to produce

information in the company where the criteria are based International

Accounting Standards (IAS) and International Financial Reporting

(IFRS), which earns accounting information systems output in the

company more credibility and justice not only in the local level but

globally.

2. Consider the process of development of accounting information

systems is an ongoing process in the company did not stop at the

completion of specific stages and that because of the continued

development of information technologies and multiple applications.

3. Continuous training of human resources in the company, particularly

in the areas of informatics.

4. Adoption of corporate for accounting information systems as an

essential element of the company and to consider the outputs of these

systems are an important source from the company's resources ,which

supports control procedures and provides confidence in the various

reports that provides, which makes it imperative to the company to

Exploit it for efficiency and effectiveness.

5. Insurance the services, human resources and organizational

requirements to supplement the information systems in the company

and thus achieve the integration and coordination between the systems

of accounting information and other information systems applied in

54

the company, which increases the efficiency of the information

produced by these systems and support the information network

within the company, and assist in the ongoing assessment of the risks

of the company.

55

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