The AR's low accuracy comes from its massive kick and high rate of fire. Even Spartans can't hold it straight. The SMG has a lighter frame which is easier to steady, but its high rate of fire causes it to climb.
The SMG's barrel is a lot longer than you give it credit for.
That's a good many inches from the barrel tip. About 6 inches, that barrel. Not a LONG barrel, but it's an ICWS. It's meant for very short-range combat, and that's where it excels. Any further than a few tens of feet, and it's useless. It's only got what little accuracy it has, because it's easy to steady.
The MA-5 series has a much larger round, and a much heavier weapons system, therefore producing a lot of recoil in a high-inertia frame, which is harder to steady. So, while each round travels farther, and, in short bursts, it's more accurate, the spread you get from full-auto negates this.
Keep in mind, the .197 caliber round of the M7 is a tiny bugger, both in caliber, and in length. It therefore has low recoil, because its mass is proportionately low, and high accuracy at short range because it loses less velocity to drag.
My point is, round-for-round at medium-long range, the MA5 is a more accurate weapon system than the M7. Fitting, because each fulfills a different role.