A Contingency View of Consolidation Systems

Abstract

A consolidation system is a type of an accounting information system that aims to facilitate the consolidation process of organisations that are comprised of a collection of entities, but that are required to produce one set of consolidated financial statements. Contingency theory postulates that organisational sub-systems should be designed in accordance with the contextual variables and that performance will result if a match is achieved between these contextual variables and the characteristics of the sub-systems.

The aim of this research is to explain variations in the performance of the consolidation system of listed companies in terms of the relationships between a contingency variable and the characteristics of the consolidation system. The contingency variable that was used by this research is the extent of company decentralisation, while the characteristics of the consolidation system are integration; formalisation; and sophistication. The performance of the consolidation system has been measured by means of the number of accountant days that are required to complete the consolidation at the financial year-end.

The quantitative data was collected by means of self-completion questionnaires. Four hypotheses were assessed by means of Pearson correlation coefficients and a research model was evaluated by means of a structural equation model. The qualitative data collected by means of semi-structured interviews provided a more in-depth view of the manner in which consolidation systems are used at an organisational level.

It was shown that organisational decentralisation is positively related to consolidation system integration, sophistication and formalisation. It is contended that the findings of this research provide some support for contingency theory‘s central tenet of no universally appropriate consolidation system. The structural equation model that was developed fits the quantitative data very well, but the results were not entirely consistent with theoretical expectations, with only the system integration shown to influence the resources that are required to complete the year-end consolidation. This research extended contingency theory to this relatively new type of system and provided practitioners with evidence regarding the type of consolidation system that is appropriate to different organisations.