Risk and organizational effectiveness: The role of accounting systems as a managerial process

Abstract

Purpose

The purpose of this paper is to explore how risk management is supported by and interacts with process or transactions “technologies” to inform and influence organizational behavior as it changes in the face of risk. Accounting systems represent a collection of processes that are designed to support broader organizational or firm activities. As such, they represent information processes that help inform finance management and control, strategy, and risk management.

Design/methodology/approach

The paper synthesizes work relating to transaction cost economics that describes the nature of the organization and indicate how this perspective may be developed to incorporate the dynamic forces that change an organization’s approach to risk. From a practical perspective, the value, relevance and limitations of accounting information may be more clearly determined.

Findings

The information perspective of accounting helps practitioners understand and decide how activities within their organization have impact and are related with one another. In this sense, accounting is not merely a book keeping system, nor a payments process, nor merely a narrow functional device that seeks to minimize tax liabilities, for example. Instead, accounting-based information conveys the importance of context and of viewing the organization as a whole as an open system within the organization that both transmits and receives information, including accounting information, and then adapts and co-evolves with whole-organizational forces to shape how the firm responds to environmental factors, such as risk.

Practical implications

The paper raises challenges to the conceptualization and compartmentalization of risk as typified in risk management frameworks such as COSO and provides direction and focus to identify how accounting systems can contribute to risk management.

Originality/value

The paper offers a perspective that allows us to synthesize our understanding of how management can seek to manage risk by seeing risk as part of a broader range of “transactions technologies” with which a firm engages. It identifies how accounting technologies interact with risk in shaping organizational or whole firm, architecture as an adaptation that mitigates or embraces risk.

Citation

Brookfield, D. (2018), "Risk and organizational effectiveness: The role of accounting systems as a managerial process", Journal of Organizational Effectiveness: People and Performance, Vol. 5 No. 2, pp. 110-123. https://doi.org/10.1108/JOEPP-01-2018-0005