British Acrorrnting Review (1988) 20, 520

THE CONTRIBUTION OF COGNITIVE

PSYCHOLOGY TO THE DESIGN OF
ACCOUNTING INFORMATION SYSTEMS
PETER FERGUSON”
University of Lancaster

1. INTRODUCTION
Cognitive Psychology (hereafter ‘CP’) studies the way in which man takes
in, stores, retrieves and uses information. It views man as an information
processing system. This paper explores the application of the insights of
CP to the design of Accounting Information Systems (hereafter AIS).
The core of the organisational accountant’s role is to design and select
information systems to improve organisational performance. An AIS
contributes to organisational performance through its effect upon the
behaviour of individual organisational participants. The role of the AIS is
to provide them with information. Thus, if one is to understand the way
in which AIS’s affect individuals it is necessary to understand how the
individuals use the information which is provided by the AIS. CP studies
the ways in which individuals use information and this paper relates that
knowledge to the area of concern to accountants.
The objective of the accountant is to design and select the AIS which
will contribute most to organisational performance. The evaluation of
alternative AIS’s is a very complex problem. So far the only approach
which has been developed to handle this problem is Demski’s Information
Analysis (Demski, 1980). This is so abstract, technical and restrictive in its
assumptions as to offer no possibility of practical application. Other bran-
ches of accounting literature have addressed parts of this problem but they
are either so general as to be of little practical help at present (see e.g.
Otley (1980) reviewing Contingency approaches) or they deal with a part
of the whole problem e.g. how fixed overheads could or should be
reported.
If a practical method of evaluating alternative AIS’s is to be developed
and used to guide the design of such systems, it is desirable to examine the
contributions of a variety of approaches, explore the application of them to
AIS design and selection and attempt to synthesise them into an operational

*The author would like to acknowledge the helpful comments of anonymous psychologist and
accounting reviewers.

0890-8939 /88/010005+ 16 SO3.00/0 0 1988 Academic Press Limited

6 P. FERGUSON

procedure. It is suggested that CP is an essential element in such a synthesis

and one which is compatible with other approaches derived from Organ-
isational Sociology, Social Psychology, and Systems design. It is note-
worthy that CP is already being extensively applied in other areas where
men and electronic systems interact with each other (see e.g. Card, Moran
& Newell, 1983).
The paper begins by examining the role of the AIS in assisting a manager
to do his job, identifying certain themes to which CP is particularly
relevant. The paper then provides a general introduction to CP and goes
on to explore the obstacles to information intake by individuals. It then
examines areas where CP’s insights could influence AIS design. CP is a
developing discipline and the application of it to AIS problems will require
considerable ‘bridging’ research, so these ideas are suggestive rather than
exhaustive. Finally the paper indicates the way in which the CP con-
tribution can be related to other approaches in the pursuit of an overall
procedure for evaluating the effect of alternative AIS’s upon organisational
performance.

2. THE MANAGER’S USE OF INFORMATION

A manager is unable to observe all that happens in his area of responsibility.
Even if he could do so he would benefit from a system of recording events
so that he could avoid storing them himself and could refer back to it if
necessary. Thus a manager needs a system which is an extension of his
own information processing system i.e. crudely, his senses, brain and
memory.
The manager’s job is to maintain the section of the organisation for
which he is responsible in a satisfactory state which contributes to the
achievement of desired organisational performance. To do this he needs
to receive information about what is happening in his ‘patch’; interpret
that information into a picture of what is happening ‘on the ground’;
decide how this situation is likely to develop; judge whether the present
and forecast situation is acceptable, and if it is not, work out what he can
do to improve the situation, choosing the action which will be most
helpful. This series of processes, if translated into appropriate language,
would reflect the main chapter headings in a text on CP (see e.g. Glass,
Holyoake & Santa, 1979).
CP is clearly relevant to many aspects of the way a manger uses infor-
mation in doing his job. However, we can identify certain areas in which
CP is particularly relevant to the design and use of AIS’s to assist him.
These are:
 CONTRIBUTION OF COGNITIVE PSYCHOLOGY 7
(a) The novel perspective on the manager/AK5 as a pair of interacting
information systems whose behaviour is strongly influenced by the
characteristics and limitations of the manager as an information
system to which the AIS needs to be adapted.
(b) The specific issue of the way in which information from an AIS
report is taken in and how CP’s results might influence report
contents, design and method of use.
(c) The problems of helping managers to develop a sufficiently wide
range of hypotheses about the real world situation evidenced by the
AIS report and the ways in which AIS design and use could assist
this.
(d) Problems associated with the standards used for judging whether a
hypothesised situation is acceptable or not. This is an issue of par-
ticular relevance to budgetary control.
We now turn to a very brief review of the central ideas of CP.

3. RELEVANT RESULTS FROM COGNITIVE PSYCHOLOGY

CP seesman in an evolutionary perspective. He has evolved certain abilities
to suit his environment as an animal. This has left him with a set of mental
and physical equipment which is not necessarily ideally suited to his current
way of life. Within the resulting limitations man has developed ways of
operating which sometimes appear inefficient or irrational to an onlooker,
but which may well be the most efficient way of operating, given his
limited abilities and the types of environment that he has to face now, or
has had to face in the past (see e.g. Glass et al., 1979, Ch. 1).
Man takes in information, stores it and then retrieves it later on. He
relates new information to stored information and uses stored information
as the subject of thought. CP analyses this process in terms of input
channels (broadly speaking, the senses) and memory (the storage, retrieval
and thinking processes). All the information handling processes have
capacity limitations and these (with other limitations) are discussed later.
Memory, its structure and operation, is at the heart of CP’s analysis of
man. Memory consists of various types of information. The most impor-
tant characteristic of memory is its connectedness. The units of information
are linked together in various structures. The shape of these structures and
the strength of the connections between units of information inside the
structures, are crucial to an understanding of how people use information
and how it will affect their thinking and behaviour.
The information which is received will be interpreted in the light of
the knowledge already held in memory. This knowledge consists of
8 P. FERGUSON

concepts in connected structures. The crucial issues to which CP directs

our attention are the pattern of these structures and the fact that the
effect of information is determined by its relation to these structures. The
important aspects of the structures are:
(a) what concepts they contain,
(b) the ‘shape’ ofthe structure (hierarchical network, ordered list, analog
scale etc.),
(c) the paths between concepts in the structure,
(d) the strength of path between concepts in the structure,
(e) the way the structures relate to each other to form higher level
structures and patterns.
As the role of memory structure is so important in CP, it is necessary
to be clear on the status of knowledge in this area. The memory is a black
box and theories about its operation and structure have to be induced
from observations of the way in which inputs are related to outputs. This
has given rise to a number of theories of memory structure, particularly
related to language processing. All these theories agree on the con-
nectedness of the memory, but offer different models of the detail of its
content and operation. For our present purposes the description follows
the ‘consensus’. However, as with any developing scientific discipline, this
may well be modified and revised in the light of later work.
Information has different effects. Firstly it acts as a cue (or group of
cues) to trigger a particular concept or group of concepts in a structure,
e.g. falling sales, customer complaints, high stock levels may trigger the
concept “distribution problems” for a manager. Secondly, it permits a
historical record to be updated-“the current situation on stock levels,
customer complaints and sales volume is this”. Thirdly information has a
constructive effect. It creates new concepts, links concepts in new ways,
and strengthens pathways between concepts.
Information has its effects on individual performance through its relation
to existing memory structures. Information also creates and modifies
memory structures. The AIS therefore needs to be studied:
(a) as an influence upon structure, and
(b) as a producer of cues which, to be effective, need to match existing
structures.
This statement is rather abstract. More concretely, the AIS provides
concepts (e.g. ‘sales value per month’, ‘ allocation of Head Office expenses’)
which can be adopted by a manager, and given a meaning by him in terms
of other concepts which he already holds. At one extreme, a manager’s
view of his job may include all the AIS concepts, linked together in a
logical way (this would be the model held by many accountants). At the
 CONTRIBUTION OF COGNITIVE PSYCHOLOGY 9
other extreme, a manager may either have adopted no accounting
concepts, or may hold them in a structure completely isolated from other
structures which contain concepts relating to his experience of doing his
job.
When an AIS report is received by a manager the titles of lines and
columns will cue whatever concepts correspond to those verbal descrip-
tions. The numbers in the rows and columns will update a historical record
and may also (either alone or in combination) produce a cue to trigger
further situational concepts (Felker, 1980).
The manager needs to form a diagnosis of real world conditions in
terms of his own concepts, formed from his complete career experience.
He therefore needs to use the AIS information to provide a set of cues to
activate appropriate concepts and paths and hence bring to consciousness
one or more hypotheses about the real world situation which they reflect.
Each hypothesis will be a concept which reflects the manager’s own
experiences of different situations in the past. It is most unlikely to be an
accounting concept.
The message to the AIS designer, therefore, is that AIS’s must be seen
both as creators of cognitive structure and as matchings of cognitive
structure. The objective is to ensure that AIS reports are recognised (match
a concept) and produce clusters of cues which trigger appropriate struc-
tures, paths and hypothesis concepts. We will explore the application of
this view of AIS in a later section when we discuss some practical sugges-
tions for altering AIS design in the light of CP’s insights. We turn now
to the limitations of man as an infotmation processor and their relevance
for AIS design.

4. MAN’S LIMITATIONS AS AN INFORMATION

PROCESSOR
We can identify three broad areas in which man’s limitations as an infor-
mation processor are apparent and influence the manager’s use of infor-
mation. These are:
(a) intake of information,
(b) retrieval of information,
(c) use of information in problem solving.
We look first at input limitations.
Man’s input channels and his central processes have limited capacity and
can soon be overloaded. They therefore need rules for selecting the most
important data for transmission and processing. These rules are not gen-
erally under conscious control and therefore they can produce biases in
10 P. FERGUSON

the selection ofinformation for attention. The system also adopts strategies
for handling detail in larger ‘chunks’, e.g., patterns and recognisable
‘shapes’. These various processes mean that information submitted to a
manger will be subject to selection, not necessarily on a ‘rational’ basis,
and also to reconstructive processes which force it into recognisable and
manageable whole patterns, which may not correctly reflect its message.
Limitations on input channels also cause loss of attention over time. This
produces unrecognised gaps in input processing. There are methods of
countering this.
Input data may be held in Short Term Memory (STM) but the capacity
of this memory is very limited and it retains information for only a very
short period. To be useful, information normally needs to be stored in
Long Term Memory (LTM) and be retrievable from it. Storage in LTM
takes time and effort. If a lot of information is being received there will
be insufficient time for it to be stored in LTM.
Most of the limits on the reliable intake of information are related to
the speed with which the input can be processed and stored. However,
boredom and failure to recognise that the data are meaningful are other
factors. To what extent will these factors apply to a manager receiving
AIS data?
It is a common complaint of managers that they are overwhelmed with
data (not necessarily all relevant or needed) and management time has
frequently been identified as a crucial bottleneck in company resources.
Consequently, despite the fact that managers can control their own speed
of moving from one piece of information to another (e.g. scanning col-
umns of figures etc.) it may be assumed that they will normally feel
themselves under pressure to absorb data as quickly as possible. In addition,
accounting reports are frequently designed so that many pieces of data
need to be compared with each other or seen as part of a total picture.
The manager is therefore likely to be faced with both time pressure in
absorbing information and overload in terms of the total which he needs
to hold at one time. Thus, the limitations on input identified above can
be expected to affect his absorption of AIS reports.
In addition, the reports are usually of a standard format. This is likely
to be the same from period to period. An individual manager may also
receive similar reports for a number of reporting units. This is likely to
emphasise the similarity rather than the diversity of the data supplied to
him and thus produce the flagging attention identified in other tasks
involving monitoring similar information.
The discussion so far has referred to regular formal reports, but increas-
ingly AIS data is being retrieved and formatted by users. However, one
cannot assume that this will eliminate the above problems. The data
available for retrieval and the display formats are usually dictated by
 CONTRIBUTION OF COGNITIVE PSYCHOLOGY 11
the packages used and users are likely to continue to be influenced by
‘authoritative’ formats being used for formal reporting.
We turn now to problems of information retrieval. Availability of
information in memory depends among other things on the number of
different structures in which it is stored, as this increases its chances of
retrieval and also the ability of similar information to produce multiple
associations, i.e., a piece of information could suggest a wide range of
possible hypotheses if that kind of information cues a concept stored in
many different structures (‘contexts’). Multiple storage is encouraged if the
individual has to think about the information at the time he receives it.
Other factors influencing ease of retrieval are the recency with which
information has been stored, how frequently and recently it has been
retrieved in the past, the ‘centrality’ of it (i.e. it is involved in thinking
about a lot of other topics) and the extent to which search for it can be
guided i.e. purposive rather than random search.
A separate problem in the cueing and retrieval of information is that,
accounting data may trigger an incorrect operational concept, or a concept
not regarded as important by the manager, or possibly, no concept at all.
Finally we consider limitations in the way information is used in prob-
lem solving. In using information to diagnose a situation, a number of
effort-saving strategies are apparent. Poor diagnosis is commonly caused
by the individual gathering a very limited range of alternative hypotheses
and particularly, by his opting for one of these too soon and in the light
of inadequate evidence. This tends to be followed by a “refusal to disturb
my conclusion” (i.e. subsequent information which supports the con-
clusion is accepted and stored but information which might re-open the
search for hypotheses is ignored or discounted). Thus, evidence may be
handled in an ‘irrational’ way. Volume of evidence is influential even if
the evidence is simply repetitious or even irrelevant. Kahneman & Tversky
(1982) have also identified a series of ‘Heuristics’ which can reduce cog-
nitive effort, but can also produce biases in favour of familiar or typical
or causually imaginable situations.
Finally, Simon (1970) has identified a range of strategies used in problem
solving (i.e. the construction of diagnostic hypotheses followed by the
generation and selection of ‘treatments’) which once again reduce cog-
nitive strain but produce biases. These emphasise the preference for search-
ing for precedents and thinking ‘out from the cue’ and thus reflect once
again the crucial role of mental structure and appropriate cue selection in
improving performance.
These limitations provide the framework within which AIS output will
be used. CP can offer guidance to the AIS designer about some of the
results of different patterns of reported information and can suggest ways
of minimising some of the limiting and biassing effects.
12 P. FERGUSON

5. APPLICATIONS OF CP TO AIS DESIGN AND

SELECTION
The application of CP to AIS design (and use) is examined in connection
with the following issues identified in Section 2:
(a) The novel perspective which it offers of the role of the AIS.
(b) The implications for design of the AIS concentrating on the contents
and format of AIS reports and the situation in which they are used.
(c) The use of AIS information in the process of diagnosis.
(d) The use of AIS information for evaluation and judgement of the
acceptability of the diagnosed and forecast situation.
(a) CPperspective on AIS
CP views the individual as an information processing system (IPS). The
AIS is also an IPS and can be regarded as an extension of that of the
individual manager. It observes things that he is not able to observe. It
processes and records more data then he could handle and stores it, doing
all these things with (probably) greater reliability than he could do. The
manager’s own IPS is however much more wide ranging in its contents,
more complex in its models and their interconnections, and far more
adaptable.
The AIS reports provide input to the manager’s memory which is
interpreted in terms of the concepts and models which he possesses.It also
modifies the existing structure in two significantly different ways, viz., it
may alter concepts and connections, and it may update historical records
(“the story so far”).
The brain is constantly monitoring its surroundings, even though the
individual is not conscious of this. Thus he is continually receiving infor-
mation through his input channels. In addition he receives information
intentionally from many sources; reading reports, talking, looking etc.
Not all of this information is relevant to the circumstances of the manager’s
job, but (at least during working hours) much of it will be. Thus the AIS
is only one data source amongst many others and its effects must be seen in
that context, recognising the potential for interference and reinforcement.
The novelty of this perspective lies in (a) its emphasis on the need to
design an information system with regard for its interaction with the
cognitive contents and structure of the manager’s memory, which will
both modify the sense made of data and be modified by them, and (b) in
its locating the AIS in an ‘information soup’ consisting of many other
elements, many of much greater emotional impact than the AIS.
(6) Implications for the design and use of the AIS
Clearly, if CP indicates that the contents and format of the AIS need to
be modified this could have implications for all stages of the AIS, affecting
 CONTRIBUTION OF COGNITIVE PSYCHOLOGY 13
the selection of events to be observed and recorded as well as the methods
of processing and recording the data and the way in which it is presented
and used.
The most crucial insight of CP for our purpose is that data are interpreted
in terms of existing concepts and structure. However, concepts are formed
from and for the living experiences of the individual. Their salience and
accessability is strongly influenced by the frequency of their use in daily
life and by the emotional strength of the experiences associated with them.
In general, for a line manager, the majority of concepts and the most salient
ones will be related to the daily experiences of his job and his career
experiences to date. (This is an area which cries out for research). Therefore
the impact of an AIS report is very dependent upon the extent to which
its data link up to central operational concepts used by the manager. We
turn now to discuss some specific issues about the presentation of AIS
reports many of which will be seen to relate to this central issue.
There are many possible sources of difficulty in the absorption of
AIS report data. Some relate to the manager’s perceptual and cognitive
‘hardware’ and some to the memory structure. Data presented in one form
(e.g. columns of numbers) can produce a tiring of that channel of input.
This can lead to unnoticed gaps in attention which means that crucial
information may pass unnoticed. Some channels seem to be more able to
take in multiple data at one time (pictorial or facial perception). There is
evidence that in continuing to scan a format, certain predictable and limited
paths are followed and the scanning quite soon goes on to ‘automatic pilot’
and simply repeats the same route over and over again (Felker, 1980).
Although the manager can apparently control the rate at which he scans
the data, there are reasons for thinking that he may still face time pressures
leading to overload of his input channels both in volume of input and
duration of input. There is some evidence that different arrangements of
data may be more helpful when two pieces are intended to be related to
each other.
While the implications of this need to be considered in relation to a
particular job, and the characteristics both personal and cognitive of an
individual manager, it suggests the need to design AIS reports to guide
attention, and avoid tiring of one sense. Instead of columns of figures they
could consist of the same data supplied through various media and different
methods of presentation could be mixed together. Reports could be
designed (like works of art) to have a ‘scanning path’ which will provide
variety and slow up the process of rushing on to new data before one lot
of data has been absorbed.
Data needs to be taken in and stored (not necessarily in its raw form).
It also needs to be stored in a richly connected way to avoid inflexible
thinking patterns. Information is retained more effectively and stored
14 P. FERCUSON

more connectedly if its significance is recognised and if effort is devoted

to thinking about it. Storage also requires time and effort, suggesting once
more that AIS reports need to be designed both to facilitate information
intake, but also to slow up too rapid rushing on to the next item under
the mistaken impression that one lot of data has already been adequately
absorbed.
This suggests that either the design of AIS reports or the situation in
which they are used should cause managers to think about the data and
consider its possible implications rather than merely scan it. One might
describe this as positive scanning (assumed significant unless rejected) as
opposed to negative scanning (assumed insignificant unless seen to be
important). This could be helped both by showing the information in
different ways (symbols, numbers, etc.) but also by linking the same data
together in different combinations and by linking the accounting data to
other non-accounting data in the same report.
The most important element in ensuring that reported data is recognised
as significant is to ensure that its connection to important job-related
operational concepts is recognised by the manager. This requires the data
to be expressed as far as possible in terms which relate to the way he does
his job. It could mean eliminating or reducing accounting terms and
numerical data and expressing results in e.g. visual terms such as symbolic
columns of cartons etc. and using measures which are defined in the
manager’s rather than the accountant’s terms (this ties in with an important
issue discussed in the section on budgeting and standard setting). Reco-
gnising that data both interact with existing cognitive structures and modify
them, it may be possible to use a report designed along the above lines to
help managers to give operational meaning to accounting concepts thus
gradually preparing them for accounting concept based reports. However,
it is still debatable whether such pure accounting reports are advantageous.
The above discussion is quite contrary to the usual method of avoiding
information overload by using ‘management by exception’ techniques so
that managerial attention is directed at only those areas requiring it and
the manager is not bogged down in detail which is of no significance.
It appears that the above recommendations involve piling more and
more data on the wretched manager, some of it duplications of data in
alternative forms. Surely this is a certain recipe for information overload
and all the difficulties of data absorption described above? This is not
necessarily the case. In certain circumstances the brain is able to scan and
evaluate large amounts of data very quickly and efficiently e.g. recognition
of a friend by part of his back or the speed and trajectory of an approaching
cricketball. If data are appropriately chosen and displayed, the scanning
process may actually be speeded up and made less demanding as well as
being more efficient. Clearly, however, there is the possibility of a trade
 CONTRIBUTION OF COGNITIVE PSYCHOLOGY 15

off here and both aspects of the problem need to be considered. This is in
fact an area in which research directed to applying CP to AIS design could
begin.
A contribution to the achievement of the above objectives could be
made by influencing the way in which the AIS reports are used. The
recognition of the significance of information is affected by other infor-
mation supplied at the same time. If the AIS gives a signal and no other
report or information source seems to carry a similar message, the AIS
signal may pass unnoticed. However, if signals with a similar import are
presented from a number of different sources they will reinforce each
other. Once again this suggests the need for multiple aspects reports. It
could also be assisted by repetition of information either in different
reports, or by giving data on trends over time, so that one period’s data
is seen again and again. There may even be an argument for the heretical
notion that delay in reporting could be helpful to allow other data on the
topic to accumulate and thus provide a more emphatic and noticeable
signal.
Finally, the problem of assisting managers to pick up significant signals
could use procedural methods to influence the way data are handled. Their
taking in of data can be interfered with by distracting noises etc. On the
other hand, a low level of distraction appears to be positively helpful in
increasing attention and avoiding boredom. Similarly, a moderate level
of arousal seems to be more helpful than either severe anxiety or complete
relaxation. There is also some evidence that recall of information is helped
if it takes place in the same situation in which the information was taken
in. These requirements could be met if arrangements were made for
managers to review their period reports for an agreed period of time in a
situation away from the hubbub of their job but not so far removed as to
create a sense of detachment. The need for inducing thinking about the
data and its implications was referred to above. This helps its significance
to be recognised and allows it to be stored in multiple situations thus
making it likely that it will be recalled in a wide range of different contexts.
It could be encouraged by requiring managers to give an explanation of
the operational implications of the AIS results in non-accounting terms to
other parties e.g. peers or staff personnel selected for the purpose. The
same effect could be encouraged by requiring managers to examine and
comment on reports on areas other than those for which they are re-
sponsible. This also relates to an issue discussed in connection with
budgeting.

(c) Avoidance of narrow and inflexible diagnoses

The third major area is the use of AIS reports to assist in the generation
of hypotheses about the operational situation reflected in the report and
16 P. FERGUSON

its future development. In terms of a medical analogy this is diagnosis.

The research in this area has indicated that the major problem is ‘premature
closure’ and failure to consider a sufficiently wide range of possible hypoth-
eses. This requires AIS report data to be seen in as many different contexts
and connections as possible. The methods described in the above section,
although designed primarily to encourage efficient intake of the infor-
mation, could also be helpful in this respect. The presentation of AIS data
in operational terms in more than one format and in the context of other
data would all be helpful in encouraging the consideration of a wider
range of diagnoses. This could also be helped by the process of having
to review other colleague’s reports and present to other colleagues the
operational interpretation of a manager’s own reports. The process could
‘fertilise’ him with ideas from related areas and challenge him to see
implications before his reviewer. The procedure would of course depend
for its success on the development of the appropriately supportive yet
game-like atmosphere. This would be in contrast to the situation where a
manager has to present his story to a superior manager. However this also
could encourage hypothesis generation which would probably be most
effective under a ‘profit conscious’ assessment style (Hopwood, 1973). This
term describes one way in which a superior may use a budget in appraising
a subordinate’s performance. The superior does not insist on rigid con-
formity to the budget provided the subordinate can offer good reasons
for actions which have caused a divergence. ‘Good reasons’ means that the
actions were in the better interests of the organisation than following the
original budget.

(d) Budgetary control and the use ofstandards to judge acceptability

The final topic to be considered is the implications of CP for the evaluation
of hypothesised situations-“Is it acceptable or not? Do I need to inter-
vene?”
The question of interest is “How do managers apply standards to judge
the acceptability or otherwise of the diagnosed situation?” This clearly
relates directly to budgetary control and the use of cost standards. It is a
wide area and the insights from CP must of course be fitted in to the
insights obtained from other disciplines.
Research in cognitive social psychology indicates that standards tend to
‘creep’ as they are used (Eiser, 1980). As information about actual results
is received the standard moves towards the actual, though with inertia.
This is consistent with the picture of information both interacting with
and modifying cognitive structure. Generally this phenomenon will not
be intended or recognised by budget setters. Any movement of this kind
is intended to be handled formally by budget revision.
 CONTRIBUTION OF COGNITIVE PSYCHOLOGY 17
The major part of a line manager’s job-related cognitive structure is
likely to consist of experientially derived concepts which will tend to be
regularly reinforced, more concrete than accounting concepts and more
significant and readily accessed. Whether formal standards are set for the
manager or not, he will possess a wide range of operational standards
related to all aspects of his job. Given the richness, detail, concreteness and
experiential reinforcements of these concepts, they are likely to be far
more significant than any accounting based standards. The decision about
the acceptability of a diagnosed situation involves putting it into one of
two (or more) categories viz. acceptable or not acceptable. The formation
and use of categories has been an important area of research in CP. It
indicates that categories may be induced from individual examples of
things found to be in or out of the category. The resulting rule consists
oE a knowledge of the various dimensions along which examples may
vary, the degree of variability along these dimensions, and an ideal cate-
gory member or ‘prototype’. Whether or not a particular example should
be included in the category is judged on the basis of attribute distances
from the ideal type modified by the known variability of each attribute.
The result of the above is that budget standards run the risk of being
ineffective for a number of reasons. They are in competition with experi-
entially derived (and thus more influential), more detailed multiattribute
standards. Even if they are adopted they will be modified by actual results.
This raises the question whether budgetary control and AIS reporting
against budget is a feasible way of establishing and explaining standards.
If the budget standards are to compete with self generated operational
standards, they need to be formulated in the same (operational) terms and
with the same richness of attributes as those standards possessed by the
manager. In addition, the judgement about whether or not they have been
met also needs to draw upon the same richness of attributes used by the
manager.
This analysis needs to be considered in the light of the extensive research
into budget use, but it suggests that budgets need to be formulated in
discussion with managers in the form of concrete operational plans, visu-
alised in terms meaningful to the budget holder. The relation of the budget
to his personal standards needs also to be recognised (and if necessary
efforts made to get him to articulate and revise them). Given the richness
of detail (at least in the manager’s mind) of the resulting budget, assessment
of acceptable performance on the basis of AIS data alone would be futile
and liable to produce a feeling of injustice and inadequate understanding.
However, if multiattribute reports are being used, it may be more feasible
to use them as a basis for such assessment. This picture suggests that,
except in very simple and financially orientated situations, AIS data
should form only a small part of assessment of acceptability i.e. it
18 P. FERGUSON

supports what Hopwood calls a ‘profit conscious’ appraisal style (de-

scribed on p. 17).

6. HOW CP CONTRIBUTES TO SOLVING THE OVERALL

AIS DESIGN PROBLEM
The final issue which we need to confront is the place of CP in the
development of an organisation wide procedure for AIS design and evalu-
ation. Other attempts to develop guidance about the design of AIS’s have
taken an organisation-in-the-market-environment view (Contingency
Theory) or an individual differences view (Cognitive Style). Does CP
exclude, conflict with, encompass or fit in with these views? As so little
progress has been made in this area it would be unfortunate if one view
precluded the use of insights derived from other approaches. It appears
that CP is an approach which is a necessary part of a total analysis of AIS
design, and is compatible with the other approaches as described below.
Analyses which are relevant to an understanding of the use of infor-
mation in organisations can be divided into macro (organisation wide)
and micro (individual level) approaches. Within this division, different
disciplines seek to make statements of greater or less generality. Thus
CP makes statements about the way all men handle information. The
psychology of individual differences studies the way in which individuals
vary along specific dimensions.
The design of an AIS is invariably a situation specific activity and must
therefore take account of knowledge of the situation for which the AIS is
intended as well as knowledge of the way all men behave and of the way
the intended users of the AIS fall into more general patterns.
The AIS achieves its organisational impact through its effect upon
individuals. However, the AIS and its users exist in an organisational
context. The AIS is one information input amongst others. The individual
influences organisational performance by his interaction with other indi-
viduals. Thus a group and organisation level of analysis is essential in
analysing AIS design and selection. The individual level is essential in
understanding how the AIS affects individuals. The organisational level
of analysis is needed to study the way the individual effects interact to
produce ‘emergent phenomena’.
If an operational procedure is to be developed it must span the individual
and organisational levels and include the situation specific knowledge
relating to particular individuals and organisations. CP is clearly an essen-
tial part of this overall approach and it appears to be compatible with the
other approaches. For example, the study of ‘Cognitive Style’ (Driver &
Mock, 1975) allows individuals to be categorised in terms of their infor-
 CONTRIBUTION OF COGNITIVE PSYCHOLOGY 19
mation processing styles and ‘Cognitive Mapping’ (Axelrod, 1976) allows
the specific concepts used by one manager to be studied.

7. CONCLUSIONS
This paper has reviewed those aspects of CP which are felt to offer useful
insights to AIS designers. CP is a comparatively new discipline and while
a consensus exists about some issues, others are still contentious and being
revised. Consequently, one needs to be somewhat tentative about making
too strong assertions about what CP says or proves. The results outlined
in this paper are typical of textbook statements in CP but some could be
revised in the light of new evidence. None the less, it seems worthwhile
to explore the application of these insights to accounting while being
appropriately tentative.
CP is already being applied practically in a number of areas (e.g. Card
et al., 1983) and these indicate that a considerable amount of work is
required to bridge the gap between pure theory and a body of applied
knowledge. There seems a great need for work of this kind to be under-
taken in connection with AIS design and use.
CP is only one approach to the understanding of the organisational
effects of accounting data and it needs to be used to assist and to com-
plement other approaches to move towards a global synthesis.
The main purpose of this paper is to draw attention to the discipline of
CP and its primafacie relevance to AIS design issues. To this end relevant
areas of CP have been (very) briefly summarised and possible applications
indicated. In general, the implications of CP for AIS design emphasise the
need to recognise the weakness of links between the important operational
concepts of a manager and the concepts used in AIS reports. The inte-
gration of these two classes of concepts is then the primary problem of
the AIS designer and a field in which practical research is urgently needed.

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Demski, J. (1980). Information Analysis, (2nd edn), Addison-Wesley.
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20 P. FEKGUSON

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