Impact of Information Technology on Accounting - Essay Example

?IMPACT OF INFORMATION TECHNOLOGY ON ACCOUNTING Information technology is the tag with which people refer to this era and Information technology has given a new dimension to this era of struggle. Only that country is considered to be developed which has done its best in maintaining the race in sector of technology. INTRODUCTION Information technology has also had its impact on the field of accounting as new software and ideas of enhancing the way the conventional accounting goes about are brought up and a new dimension is given to modernize the way accounting used to be conducted in the past. BACKGROUND Accounting is as old as mankind and people used accounting to settle their scores even when the barter system was in place. People used different methods of keeping records of their transactions and claims to settle their exchanges as monetary transactions. When accounting was revolutionized, people brought up several new ways of book keeping which were beneficial and easy to go about. Different rules and principles came in to being when people gave rise to concepts of accounting such as accrual, matching, fair presentation and consistency etc. With progress in this field, people adopted the use of profit and loss statements as well as balance sheets to conduct their accounting but even then paper records were maintained. This was a hectic exercise which required a lot of time and tracking of records to keep them up-to-date with their daily transactions. This need of time gave rise to Information technology to come and level up the score where the requirement of time saving and keeping track of records could be maintained. Not just that, the way conventional accounting used to take place could also be revolutionized and new and easy ways of book keeping can be brought up where standards and ease are both maintained simultaneously. BEGINNING ERA In the beginning era when information technology was introduced in the field of accounting, people started opting soft databases in place of hard copies of their records for the purpose of book keeping and tracking the transactions. This not only helped the hectic procedures of keeping the accounting records secure but also helped in the reduction of storage cost. The use of software that can calculate the results better and more accurately were used to make the calculations simpler and quick. Presentation was shifted from paper based presentation to soft copy presentation which required little time to make and edit the changes. New software was developed to cope up with the requirements as new standards of accounting came into play and the level on complexity was increased. Both accountants and auditors started relying on the information technology far more than the paper work as it gave them time and cost saving and thus a new era on information technology was introduced in the field of accounting as well as that of auditing. CURRENT STATE OF INFORMATION TECHNOLOGY IN ACCOUNTING The current state of information technology in the field of accounting is very diversified and wide as the companies and information technology agencies have developed several ways of countering the needs and requirements of today’s fighting era. As the information technology has grown up in today’s era, it has persuaded the managers to implement it in their companies to manage their duties and responsibilities in a more appropriate and designed manner. The current state of accounting involves the use of following accounting software and techniques: Database management systems Spreadsheets Audit technique software Word processing and graphic presentations Tax assessment software Decision support systems Inventory and sales management systems Data evaluation and management software etc These are the major software that is implemented today in the field of accounting and management which have given this era of advancement a new dimension. The new era of accounting has also given rise to the in-house development of software and the companies have started their own software houses in order to make tailor-made software in turn to meet their own requirements as their company requires. This has given mount to new challenges to compete with other companies that have better software integration and therefore new technologies and advancements are witnessed. IMPACT ON PRODUCTIVITY The influence of information technology in accounting has had its impact on the productivity as well. People who are investment oriented can get better access to data as well as justification of the data. Where a manager needs to get a certain approval on any investment, he needs to report to his upper line of managers in order to justify the investment. The manager can use the currently available accounting software which provide the justification and analysis of a certain investment proposal which will not only provide the incremental profit or loss but it will also provide additional information regarding the viability of the proposal if it will benefit the company in the long-term as well. (Kao) This way the productivity of a firm can be enhanced as the company can have better options available in just a nick of time along with the future viability of the options. ADVANTAGES OF INFORMATION TECHNOLOGY Since the involvement of information technology in the field of accounting, numerous benefits have flown to this sector as simplicity and ease have increased and costs have been reduced. Some advantages are discussed below. Computerization of Systems of Accounting: The first and foremost benefit of the information technology is that computerized systems have been established in order to record and keep track of the transactions as well as balances. The computerized systems have converted and translated all the paper based ledgers and spreadsheets into computerized systems and which have taken a better and more presentable shape. Tailor-made accounting systems: The accounting software for conducting the accounting of companies of different industries have been made to be tailored as per the requirements of the company such as inventory systems have been designed for manufacturing and production industry, payroll journals have been made for the labour industry and appropriate systems for the other service industries as per their requirements. Functionality: The accounting systems have increased functionality of the accounting departments and sectors of the business with the provision of timely information as well tailor-made reports to fulfil their accounting needs. The systems of accounting have been integrated with different compatibility reports as per the industry needs. Accuracy and rapid processing: Another advantage of the information technology in the field of accountancy is that of the accurate and quick processing of the transactions as well as recording which saves both time and cost. (E-how) A transaction once posted in the ledger can be easily posted in all the ledgers where the basic accounting would require. For example the sales transaction will be posted in the sales journal as well as the subsidiary account of the customer while being shown in the income statement to reflect the current position of the company simultaneously. This saves the time which is required by a person who manually posts the entry in all the journals one at a time. On the other hand, larger amount of data can be processed and made available in any kind of way that the accountant requires. Cost saving: One of the main advantages that have accrued to the accounting field is that of cost saving and the work which was done by several individuals can now be done by fewer as only posting of the transaction in required and the other postings are carried out by the system itself. This way, not only the company has overcome most of their costs which were taken up by salaries but lot of human errors have also been avoided which can happen due to lack of efficiency therefore the computerized accounting is both efficient and cost saving. Better reporting: The reporting requirements of the companies have also been overcome by the accounting systems as they any kind of report whether it is from the sales point of view, purchase point of view, investor’s point of view, budgeting and future viability report can be extracted by the accounting software. DRAWBACKS OF INFORMATION TECHNOLOGY IN FIELD OF ACCOUNTING Apart from the many advantages that have accrued to the accounting systems, there are numerous disadvantages that have also resulted due to the information technology’s arrival in this field. Some of the drawbacks are discussed in detail below. Rise of corporate frauds: The rise of information technology has also given rise to corporate frauds as well both internally and externally. People within the organization try to use the company’s records for their own benefits which can be profit making etc. Many frauds have also come to light that occurred through the use of information technology such as posting of incorrect entries, raising the expenses through accounting systems for tax savings and profit manipulation etc. This was easier to tack in manual accounting but has become difficult in the new era. Manipulation: Since the accounting records are maintained electronically, data manipulation has also come into play as individuals, such as hackers, try to access that data which is confidential and therefore manipulate the company or the representatives of the company through that data. Secrets of the company are also being disclosed due to the data that is available online. Costly systems: Due to the use of automated accounting systems, cost of the licence of accounting system has also been increased which is because the companies acquire better and more reliable software in order to cope up with the latest challenges. Maintenance cost and running cost also needs to be incurred along with the cost to train the employees with the new use of new systems. PRESENT CONSTRAINTS TO COPE UP WITH CURRENT STATE OF TECHNOLOGY In order to cope up with the current state of information technology, both the individuals as well as the companies are required to maintain a reasonable know how of the accounting systems that are integrated with information technology. Requirements for Individuals: The individuals who adopt the accounting profession are required to have the appropriate information technology knowledge to stay competitive. This requirement of information technology gave growth to the use of information technology in the present state and even the accountants were required to have adequate IT education. The American Institute of Chartered Public Accountants has stressed on the fact the present accountants are required to have the following basic knowledge (Chen): Knowledge of accessing and operating the electronic databases in order to acquire information that is decision supporting. Usage of tools that are technology assisted to consider the risks as well as simulation of accounting software. Knowledge of exchange of information using the current technologies such as video conferencing and discussion boards. Recognition of electronic commerce as well as information architectures which are currently in use. Appropriate knowledge of the query generation or certain software that they are required to deal with, within their area of scope. Requirements of companies to cope up with present challenges: Not only the individuals but the corporate lions also have to keep themselves up-to-date with the current requirements of information technologies such that they are equipped with the finest Information Technology environment to stay competitive and alive in the market. Some of the requirements for the companies that they need to meet in order to stay competitive are stated below: Companies need to integrate their basic processes with appropriate accounting systems and hire employees that have a reasonable knowledge and skills to operate those accounting systems (Thomas W. Dillon) The executives as well as managers that are making the decisions also need to make sure that they are using the best available systems on which their decisions are based. For organizations that are based on manufacturing and production, should be integrated with appropriate sales and inventory management systems which provide them the much needed support to track the inventory and sales reports for cash and inventory management. The system should be designed to meet the internal as well as external requirement of the organization such as documentation, report generation, query generation and data conversion as and when the management requires it. While the design and implementation stage of the accounting system, the management should be aware whether adequate benefits will accrue to the organization so as to be cost effective and efficient. CONCLUSION Since the arrival of the era of technology, it has had its influence on almost every aspect of the life including the field of accountancy and to cope up with the new challenges and heights that the information technology has brought for us, the individuals as well as corporate players have to come up with new ways to keep themselves in the game. The companies should integrate themselves with new software and well skilled individuals who have the knowledge and knowhow of the field and the accounting software so that they can gain all the advantage that there is from the software. The companies should also look for in-house production which can fulfil their internal requirements of sales and purchase system, decision support system, inventory management systems and payroll systems. In the emerging circumstances, only that company will be able to raise their game in this league of professional battle for accounting supremacy and profit earning who will be able to integrate themselves and their accounting with the most well developed technology and software will individuals who have the expertise to operate them. Works Cited Chen, Jim. "Information Technology Competencies Expected in Undergraduate." Research in higher education journal (n.d.). E-how. . Kao, Yi-ching. "Impact of information technology on public accounting firm productivity." Journal of Information Systems (2002). Thomas W. Dillon, S.E. Kruck. "The emergence of accounting information systems programs." (n.d.). Read More