The Impact Of Technology On Financial Accounting - Research Paper Example

?THE IMPACT OF TECHNOLOGY ON FINANCIAL ACCOUNTING Accounting profession has encountered a drastic change because of the technological advancements over the past few years. Initially, a lot of paperwork was involved in the accounting process, but gradually, with the advent of technology, there has been a huge decline in the level of paperwork in accounting procedures. It has been observed that, while, on one hand, technology proves to be an asset for a business organization, it leads to the increase in liability for the accountants. Some of the technological tools like manufacturing of products through computer integrated systems, internet, expert systems, image processing etc. have a positive impact on accounting by facilitating collection, recording, and communication of accurate information about the various business transactions in a timely manner. However, technology has a negative impact on accounting, too. With technological advancements, the risk of losing confidentiality and accountability of the financial accountants has increased. Technology has paved the way towards creating more opportunities for different fraudulent activities in financial and management accounting. Furthermore, there are some impacts of technology on accounting, which cannot be termed either as positive or as negative ones. The pattern of hiring in different organizations has changed considerably, and the training and educational pattern of accountants have also changed because of the technological impact on this sphere. Table of Contents Table of Contents 3 Introduction 4 Positive Impacts of Technology 4 Negative Impacts of Technology 8 Technology as a Change 10 Conclusion 11 References 13 Introduction In the early days of the beginning of accounting profession, all the financial accounting procedures were mainly done manually. A huge amount of paperwork was involved in it. At present, most of the information related to accounting is recorded through computers. It’s a fact that technology has an impounding effect on accounting and it has brought about numerous changes in this profession over the past many years. However, it is still to be found out whether advancement in technology has brought about positive or negative impacts on accounting. More often we find that technological advancement has proved to be an asset for a business concern, but at the same time it has added to the liability of the accountants of the organization. As an instance, correct information is provided on a timely basis, but only at the cost of confidentiality. A few of the technological impacts on accounting are only changes in simple terms and can be termed neither as positive nor as negative. Hence, in a nutshell, technological advancements have neutral, positive, and negative impacts on accounting, but each of these impacts calls for the accounting profession to be in conformity with the changes. Positive Impacts of Technology The advent of various types of tools because of the technological advancement is quite obvious. It is one of the positive impacts of technology on accounting. Some of these tools are manufacturing process using computer-integrated system, the internet, communications technology, image processing, and the experts systems. All these are examples of few tools out of many, which have been designed to facilitate presentation of accurate information in a timely and detailed manner. Manufacturing processes in organizations using computer integrated system had an impounding effect on the cost accountants in the financial world. With the manufacturing process being automated, information is collected by the computers and reported instantaneously. This gives rise to a system of operational information which is characterized by the integration between manufacturing and other organizational processes like accounting and marketing. Activity-based costing systems are the results of this type of integration, which has a significant impact on cost accounting. Overheads are efficiently allocated by the accountants using this costing system. It also helps the cost accountants to identify the added costs having no value for the company and thereby make those costs valuable for the company. Technological tools helps in the promotion of efficient transmission of data between the organizations and its various departments, customers, or even its accounting firms. These types of data are transmitted to all its recipients through technological combinations utilized by the communications technology. Large accounting organizations are significantly benefited from this type of technology, because the communication capabilities of the firms are greatly enhanced, and they could easily expand its business in the international market. It helps to provide competitive advantage for the accounting firms in the international market. Internet proves to be the newest platform where the different types of business processes are conducted. Transactions through internet are the primary example of obtaining accurate and timely information by the companies. Electronic commerce facilitates the organizations in providing information for the transactions made through internet. It helps to create a link between a number of organizations through communications and computer technology. As for accountants, it helps to provide them with the most recent information, which could be utilized by them in their accounting processes (Murray, n.d.). As for the small business firms, internet helps to provide them with services like automated bill payments and on-line banking systems, which leads to the elimination of various clerical tasks carried on by the accountants previously. Technological advancements are leading the way towards complete removal of paperwork by the companies. Transaction time is greatly slowed down because of paperwork involved in the process and thus requires business concerns to incur huge amount of maintenance costs. Image processing proved to be a revolution in an accounting profession. It works efficiently by utilizing scanning to help in the conversion of images of important papers into documents that could be viewed through electronic media. Transferring of the electronic documents becomes significantly easier, which results in the information being more timely and efficient (McRoberts, 1986, p.39). Software designed for the advanced accounting and experts systems prove to be a great technological asset for the accountants. This has been a recent technological advancement in this field and is being utilized by different organizations starting from small business firms to large companies. Expert systems can be considered to be a kind of artificial intelligence, which helps the financial accountants in their decision-making process. It is particularly useful and important in the tax and auditing decision-making process. However, it can also be of significant use in various areas like the preparation of financial statements and inventory control systems of the companies (Mates, D., Iancu, E., Bostan, I., & Grosu, 2010, p. 95). Many different types of software are being designed, which is of immense help for the financial accounting. The task of preparation of financial statements has been made a highly automated and easy task for the accountants. As regards the completion of projects, an innovative approach in the business world is to work in groups utilizing computers. This type of group work is facilitated through various advancements in technological tools like collaborative computing. Information is transferred between different work groups through the workflow technology. Using the collaborative computing software, all of the group’s members are able to edit and update various documents from all different locations. All these software products and technologies help in the enhancement of the work of a number of people working in a particular project and, therefore, lead to the increase in efficiency of the task performed by them. This type of group work is particularly effective in carrying out auditing activities of a firm. The members of audit personnel, who might be working in different locations, could easily convey their information to people present in other locations, such as the corporate office of the organization (O’Leary & Pangemanan, 2007, p.215). Technology facilitates the consolidation of all the information collected into a database, which can be accessed centrally within an organization. All types of different data and information that are recorded in various departments of an organization could be stored in a single central database of the company utilizing computers. These types of databases help companies in the collection of accurate and the most recent information, which can be easily accessed from their headquarters. An instance of an accounting system based on data is Completely Integrated Business Environment (CIBE). The CIBE system works in a way which facilitates organizing of major information outflows that are being produced through these technologies. It does not eliminate any of the important information that is produced in the process. Management accountants are greatly benefited through this accounting system based on relationship of data and information. All different kinds of management and financial information could be easily controlled through the central database of an organization because of the integration of this CIBE system. It can thus ensure that the organization operates effectively and efficiently. Data are automatically collected and analyzed through CIBE. It thus facilitates continuous monitoring of critical factors affecting the company's performance by the management accountants. Information can thus be considered as a strategic resource for the organizations. It is possible to combine information collected from all different sources. It thus results in providing the accountants with an efficient and effective method for managing, reporting, analyzing, and controlling the business performance of an organization (SMEToolkit, n.d.). Negative Impacts of Technology As we have found out, technology has a significant positive impact on accounting. However, technology has also many negative impacts on accounting. Though technology has resulted in facilitating accountants with accurate information on a timely basis, it is associated with the risk of loss of confidentiality and accountability for the accountants. The removal of paperwork can result in the development of major concern for the accountants in this era of electronic information. Some of the technological advancements regarding this removal of paperwork actually give rise to fraudulent activities performed by many management officials. The volume of paperwork related to recording of business transactions is reduced through the use of image processing technology. This results in the unavailability of support from the backup papers, which have been not converted. Electronic Data Interchange (EDI) helps to record business transactions between the two businesses only through computerized system involving no personnel at all. This type of processing of daily business transactions carried on by business organizations results in the development of audit trail for the auditors of a company which is purely electronic in nature. It further becomes difficult for the auditors to follow these electronic audit trails with the use of collaborative computing and area networking by the organizations. Through area networking, various resources can be shared through different computers located at various sites. Unfortunately, this type of use of technology does not help to identify the source of the information about the transaction recorded easily. This gives opportunity for the performance of fraudulent activities. As discussed earlier, collaborative computing results in the enhancement of input volume on a particular subject. Unfortunately, it results in jeopardizing the accountability and verification process of the information. Hence, accountants should have good control over these technologies. In today's world, confidentiality is the major area of concern for the accountants. In order to have protection for the vital information, accountants should take adequate precautionary measures by enhancing the security system. Security risks are enhanced through the use of several types of technologies like internet, group work, and communication technologies. Accountants should ensure that the access to financial information confidential in nature is allowed to the authorized users only. Utilization of a multilevel password system and PIN numbers can help to accomplish this task. This type of security problems has been addressed by the CIBE system, which has an additional feature in its programming that can facilitate authorized use of information in specific areas. The dependence of technology on the forethoughts of humans is a major disadvantage of utilization of technology. It is the innovation of humans which results in the development of new technologies. Consequently, technologies repeat the errors performed by humans. Technology intertwined with human error can prove to be very costly. One such instance was the Y2K problem that resulted in a huge amount of expenses by any well known big companies of the world. A significant volume of accounting data was distorted because of this problem. A few years back, computer system failure was just a simple issue causing inconvenience for the organizations. Today, however, similar kinds of computer system failures can result in the destruction of many organizations. The software used in accounting uses the technologies that are prepared by humans. Consequently, the smallest of errors during the construction of this type of software might result in a huge loss for a company. Technology as a Change Technological advancements have brought about significant impacts on accounting. However, all these impacts cannot be termed as negative or positive. Many of the technological impacts are merely changes. Some of these types of neutral changes include training and education of accountants, the patterns of hiring, and changes in the accounting profession as a whole. Technological advancements imply the need for an increased amount of education of the accountant. To facilitate the efficient utilization of all the technological tools such as expert systems, different types of software programs, communication systems, etc., one should make them familiar to the accountants who are to operate them. In today's world, accountants must be educated on a continuous basis. The pattern of hiring in an organization is affected through technological advancements. The companies require less number of people in the entry level positions, because computers perform these duties. A significant increase in the use of computerized systems in different organizations has resulted in the reduction in workforce levels of the companies and the abolition of various positions which were previously held by employees doing their tasks manually. Today, majority of accounting firms are engaged in the business of consultancy. Networking management involves major portion of this consulting business. Various consultants who work in the field of accounting are primarily engaged in the implementation of various technologies, as discussed earlier. Easy access to internet requires the consultants to be held responsible for educating their clients about the efficient development of companies through the utilization of internet. Security issues must be addressed as well. With this rapid advancement of technology, many of the organizations have to take numerous decisions related to the selection of software packages. Conclusion It has been observed that technology proves to be an asset for any organization. It is so because of the increased provision of communication opportunities. The efficiency of business performance and accounting procedures followed in an organization is increased through the utilization of various technological tools. Some of these technological tools include manufacturing of products through computer integrated systems, internet, expert systems, and image processing. As a result of the increased efficiency in business processes because of technological use, more accurate information is being collected and communicated by the organizations. Unfortunately, technology being an asset for a business organization can prove to be a liability for the financial accountants of the organization. The provision of accurate and timely information through the use of technological tools might result in the increased risk of loss of confidentiality and accountability. The audit trail becomes purely electronic in nature, casing difficulties for the auditors in their audit process. Internet transactions may not be very safe and secure and may result in the loss of confidentiality for an organization. It can give rise to the opportunity to perform fraudulent activities in the field of accounting. If we look at the overall situation, technology has resulted in significant changes of accounting procedures performed earlier. The trend of hiring in an organization has changed because of technological advancements. However, it cannot be called as a positive or negative impact of technology. Therefore, it can be concluded that technological advancements have a significant impact on accounting, as they have brought about positive, negative, or neutral changes in every field of accounting. References Mates, D., Iancu, E., Bostan, I., & Grosu, V. (2010). Expert system models in the companies’ financial and accounting domain. Journal of Computing, 2(1). Retrieved from http://arxiv.org/ftp/arxiv/papers/1001/1001.3495.pdf. McRoberts, A. L. (1986). Current and future use of image processing. Retrieved from http://www.scafo.org/library/mcroberts1986.pdf. Murray, A. (no date). E-Commerce for development: Challenges and opportunities. Retrieved from http://www.isoc.org/inet99/proceedings/1g/1g_2.htm. O’Leary, C., & Pangemanan, G. (2007). The Effect of groupwork on ethical decision-making of accounting students. Journal of Business Ethics, 75, 215-228. Doi: 10.1007/s10551-006-9248-5 SMEToolkit. (no date). Small business bookkeeping & accounting system. Retrieved from http://us.smetoolkit.org/us/en/content/en/3749/Small-Business-Bookkeeping-Accounting-System-. Read More