The Determinants of Cost Information Value: An Illustrative Analysis

Accountants have increasingly recognized their role as evaluators of information. Given an array of alternative information systems, the accountant strives to select the optimal one for the users of the system. This view of accounting has stimulated research into the nature and generation of information. The most comprehensive normative theory of information is information economics, which is designed to facilitate the selection of an optimal information system by explicitly taking into account the decision maker's preferences and beliefs about uncertain events. A major concept in information economics is the value of an information system. The purpose of this paper is to identify factors which jointly determine the value of information and to illustrate the role played by some of these factors in a cost-volume-profit (CVP) decision setting. Increased understanding of the role these factors play in determining information value and the relationship of various information system characteristics, as well as environmental and technological factors, to the usefulness of the output from an accounting information system should facilitate decisions about the acquisition and alteration of accounting information systems.