Critical Analysis of IT's Impact on Financial Accounting (ACCT6007)

This report offers a critical analysis of an academic article exploring the impact of information technology on financial accounting processes, viewed through the lenses of institutional and legitimacy theories. The analysis begins with an executive summary, followed by an introduction that defines accounting and highlights the transformative influence of IT within the sector. The core of the report delves into institutional and legitimacy theories, examining how they explain the adoption of IT in accounting and its effects on organizational structures and legitimacy. The report evaluates the article's propositions regarding IT's impact on accounting practices, organizational legitimacy, and firm performance, agreeing or disagreeing with each. Strengths and weaknesses of the article are then discussed, followed by a conclusion summarizing the key findings. The report provides a comprehensive overview of the article's content, critically assessing its arguments and contributions to the understanding of IT's role in financial accounting.

Running head: FINANCIAL ACCOUNTING AND PRACTICE
FINANCIAL ACCOUNTING AND PRACTICE
Name of the Student
Name of the University
Authors note

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Executive Summary
The primary purpose of the project is to comprehend the model of financial accounting and
practice. The following section of the project discusses on Institutional Theory and Legitimacy
Theory of Accounting. The project also focuses on the adoption of Information Technology in
Accounting. The project critically evaluates the propositions made by the authors and explains
the point of view with the help of the other academic resources. Lastly, the project concludes the
strengths and weaknesses of the article.

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Table of Contents
Introduction..........................................................................................................................3
Discussion............................................................................................................................3
Institutional Theory and Legitimacy Theory of Accounting...........................................3
Evaluate and assess the adoption of Information Technology in Accounting.................4
Agree or disagree with the four propositions in the article.............................................6
Strengths and weaknesses of the article...........................................................................7
Conclusion...........................................................................................................................8
References............................................................................................................................9

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Introduction
Accounting can be defined as the process of recording, analysing and summarising every
financial activity of an organisation using various tools. It serves as the backbone of the finance
of an organisation. The efficiency and effectiveness of accounting will have a direct impact on
the performance of the firm in the market. The introduction of information technology into the
accounting sector has created significant transformations in the way it is performed. The
introduction of IT, how it changed the face of accounting, making it more effective and efficient
than ever before, fast, accurate and utmost reliability(Belfo, Trigo & Estébanez, 2015).
Discussion
Institutional Theory and Legitimacy Theory of Accounting
The institutional theory of accounting is built upon a set of constituents that forms a
formal structure, which is socially accepted as proper, appropriate and necessary to legitimise the
organisation. These types of legal structures are developed and shaped from the exposure that the
organisations receive from their internal and external environments through an appropriate
amount of pressure. It makes the formal structure, thus formed as an acceptable one in society.
This legal structure includes a bunch of rules, instructions, procedures and processes that decide
the form of accounting system to be used in the organisation(Zhuk, 2017).
The institutional theory is all about the theory of isomorphism, where the structure and
outlook of the organisation are formed by the pressure exerted by its internal and external
environments. It is further divided into competitive and institutional isomorphism where
competitive isomorphism deals with resources and customers while institutional isomorphism is
all about power and economic strength of the organisation.

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The institutional isomorphism is further divided into Coercive, Mimetic and Normative.
The legitimacy theory of accounting is formed upon a set of beliefs that accounting provides the
firm with the power of organisational visibility, and only that provides legitimacy to the
organisation. The legitimacy theory is highly bound by the norms, values, beliefs and definitions
of the society and wants the organisation to perform in proper accordance with these(Lamboglia,
Mancini & Paolone 2017).
According to legitimacy theory, the organisation should imply adequate and accurate
accounting practises and make a voluntary disclosure of these to gain legitimacy. These financial
statements prove the coherence and clarity of the organisation to the society. It makes sure that
the accounting practises employed are appropriate ones with proper transparency too. It is
dependent on the society's approval to prove its legitimacy, and thus it encourages accurate and
perfect accounting practises to provide legitimacy to the organisation(Deegan, 2019).
Unlike the formal structure discussed by institutional theory, legitimacy theory is more
about proper disclosure of accounting entries to ensure legitimacy.
Evaluate and assess the adoption of Information Technology in Accounting
Information technology has revolutionised a lot of sectors and accounting was not an
exception. It was a giant leap towards the progress with implying information technology
methods to old school accounting which relied on physical bookkeeping and records. IT made it
much easier for the accountants to record, analyse, summarise and classify data recorded and was
less time-consuming. The adoption of IT made the whole accounting process more accurate and
reliable(Widuri, Handoko & Prabowo, 2019).

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It kept the data relevant, developed the right amount of sources of information, helped in
developing e-business models which enabled quick business decisions.
The employability of Information technology goes good with the principles of the theory
of institutional accounting. Since it deals with a formal structure of the organisation, which is
formed out of the exposure from the internal and external environments, even at the case of
Information technology adoption, the institutional theory sees it as a result of the aftermath of the
changing business environment. It believes that the introduction of information technology in
accounting makes the theory more stable and balanced and most importantly adds to the
advantage of ensuring the legitimacy of the organisation(Aswar & Saidin, 2018).
The legality of the organisation as per the principles of the legitimacy theory of
accounting relies highly on accurate and proper accounting methods and clear and transparent
disclosure of financial statements to gain the advantage of legitimacy. The employment of
Information technology, according to the theory of legitimacy, will help in better and more
accurate disclosure of information in order to gain legitimacy. Accounting methods using IT
techniques are more reliable and fewer chances of a mistake. Hence it improves the visibility of
the public that results in more legitimacy for the data released by the organisation(Eng, Lin, &
Neiva De Figueiredo, 2019).
Take an example of Turkey's public accounting system, which was not proud of its
performance. Still, after employing information technology on the basis of the institutional
theory of accounting, it completely reformed the public accounting system of Turkey(Uyar,
Gungormus, & Kuzey, 2017).

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Agree or disagree with the four propositions in the article
The four propositions suggest the impacts of information technology in accounting based
on the two theories, Institutional and Legitimacy.
The first proposition indicates that the changes made to the accounting practices after
employing information technology increase the role of accounting in the institutionalisation of
the organisation. It appears correct, as the accounting system is the backbone of the finance of
the organisation after the adoption of information technology is capable of doing better things for
the organisation. It can create digital projections of data; more number of analyses can be done at
a time and makes the essential functions of accounting easier(Agyekum & Singh, 2018).
The second proposition at this moment is that the changes in accounting practices due to
the employment of Information technology will result in improving the legitimacy of the
organisation. This proposition is partially true, as it will be easier for the accountants to generate
results from the collected data after a proper analysis. It will depend upon the accuracy of data
released by the accountants to the society since it is vulnerable to human intervention. If the
statistics presented is accurate, it will improve the legitimacy of the organisation after the
adoption of the information technology(Lamboglia, Mancini, & Paolone, 2017).
The third proposition deals with the statement that the adoption of information
technology will have a positive impact on the performance of the firm. Without any doubt, this
proposition is accurate to its core as it is evident that the adoption of information technology has
been extremely beneficial for accountants in performing their day to day tasks. Not just that it
made things easy for them, it was less time consuming and highly accurate too. It resulted in

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faster completion of accounting functions and gave enough time for the accountants to research
other essential matters.
Last but not least, the fourth and previous proposition suggests that the changes in the
accounting sector due to the adoption of information technology has changed the entire field of
accounting(Linsley, 2017). This statement is almost right as the employment of Information
technology has contributed a lot to the area of accounting. Keeping the principal concepts and
functions of accounting the same, information technology has taken accounting to a whole new
level of expertise which was unexplored. Instead of just creating records of transactions,
analysing it and submitting reports, information technology enabled the field of accounting to
grow into a much important segment of the organisation which also dealt with future financial
projections, faster and laudable solutions to financial problems, which accounting missed out in
the old physical bookkeeping system(Aswar & Saidin, 2018).
Strengths and weaknesses of the article
This article on the impact on accounting processes due to technology on the basis of
institutional and legitimacy theories by Agyekum & Singh (2018) of Morgan State University is
a well written and highly informative one. It has defined the accounting theories of institutional
and legitimacy accounting finely, and the conclusions it found after a detailed analysis of these
were insightful.
Four propositions or four categorisations of the impacts of technology in the accounting
practices was arguable but well defined. Even though some of the propositions appeared like
quite debatable ones, there were enough points and facts to back it. It is evident that the research
for this article was thorough and pretty evident(Sutheewasinnon, Hoque & Nyamori 2016). It has

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touched almost every aspect where the introduction of information technology is going to create
an impact on the usual accounting methods and practises. The four propositions covered all the
major impacts the information technology has created, and a detailed analysis of each of them
proves the fact.
It lacked the backing which could have been provided by a real-life example showing the
impact of technology in accounting practices, and to each proposition. Such examples were not
part of this article anywhere but considering other major contents, it served its purpose and
delivered what was needed(Goddard et al., 2016).
Conclusion
Technology, with its broad and deep hands, has captured almost every field, and it has
created remarkable changes and transformations in every sector. In accounting, it transformed it
to a powerful segment which put forward and played a major role in taking all financial decisions
from being a mere record of day to day transactions. The approach towards the topic with the
help of two of the core concepts of accounting, the institutional theory and legitimacy theory was
successful as it helped in providing a good insight to the impact that the adoption of information
technology created in the accounting practices.

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References
Agyekum, A. A., & Singh, R. P. (2018). How Technology is Changing Accounting Processes:
Institutional Theory and Legitimacy Theory Perspective. Journal of Accounting &
Finance (2158-3625), 18(7).
Aswar, K., & Saidin, S. Z. (2018). The Influencing Factors On The Level Of Accrual
Accounting Adoption: A Conceptual Approach. Romanian Economic and Business
Review, 13(2), 22-28.
Belfo, F., Trigo, A., & Estébanez, R. P. (2015). Impact of ICT innovative momentum on real-
time Accounting. Business Systems Research Journal, 6(2), 1-17.
Deegan, C. M. (2019). Legitimacy theory. Accounting, Auditing & Accountability Journal.
Eng, L. L., Lin, J., & Neiva De Figueiredo, J. (2019). International Financial Reporting
Standards adoption and information quality: Evidence from Brazil. Journal of
International Financial Management & Accounting, 30(1), 5-29.
Goddard, Andrew, Mussa Assad, Siasa Issa, John Malagila, and Tausi A. Mkasiwa. "The two
publics and institutional theory–A study of public sector accounting in
Tanzania." Critical Perspectives on Accounting 40 (2016): 8-25.
Lamboglia, R., Mancini, D., & Paolone, F. (2017, September). The Relationship between
Information Technology and Integrated Reporting. A Theoretical Framework. In The
European Conference on Information Systems Management (pp. 148-156). Academic
Conferences International Limited.

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Linsley, P. M. (2017). The application of neo-Durkheimian institutional theory in accounting
research (Doctoral dissertation, University of York).
Sutheewasinnon, P., Hoque, Z., & Nyamori, R. O. (2016). Development of a performance
management system in the Thailand public sector: Isomorphism and the role and
strategies of institutional entrepreneurs. Critical Perspectives on Accounting, 40, 26-44.
Uyar, A., Gungormus, A. H., & Kuzey, C. (2017). Impact of the accounting information system
on corporate governance: Evidence from Turkish non-listed companies. Australasian
Accounting, Business and Finance Journal, 11(1), 9-27.
Widuri, R., Handoko, B. L., & Prabowo, I. C. (2019, May). Adoption of Information Technology
in Public Accounting Firm. In Proceedings of the 2019 4th International Conference on
Big Data and Computing (pp. 198-202).
Zhuk, V. (2017). Institutional theory of accounting: new opportunities and scales of
profession. Zarządzanie Finansami i Rachunkowość, 5(1), 53-76.