Accounting and Information Technology Impact

Introduction

Digital Accounting or e- accounting has become the meaning of modern accountancy. In other words information technology has affected the accounting in its every form and design. The impact of information technology is so strong that those, who worked overtime against its introduction, are now feeling its comforts. Most of them would be leading a retired life planning adjustments within the amount of monthly pension they receive. As fringe benefit of information technology the pension amount now gets automatically credited to pensioners’ bank accounts; also eliminating the visit of pensioners to exchequer proving mortality, as entire information about pensioner is available to exchequer on line.

Accounting systems are flooding the market making their earlier version obsolete within days, and updates are being provided either free of costs or as package charges levied at first purchase. Accountants are considered experienced as per the time used by them on a particular package and not by their all round ability to handle any accounting situations. This is because jobs are advertised seeking accountants with experience on a particular package and not entirely on the qualification and other backgrounds of the accountant.

Introduction of Electronic billing and payment (EBPP) systems is bringing revolution in B2B transactions after establishing supremacy in B2C transactions. Inventories, payrolls, and accounting procedures like bank reconciliation all are getting revitalizations with the introduction of new computing techniques introduced every now and then.

e- taxation has become the paramount attraction for taxpayer by the simple fact that it increases their learning process as well as reducing the cost of experts, as e- filing is now considered routine to be executed on user friendly software provided free of cost by revenue authorities.

CPAs, Chartered Accountants, and internal auditors are seeking new principles to adjust their auditing skills with exploding accounting techniques. They have to remain on toes equipping themselves with latest accounting revolutionary development in order to perform as expert auditors. In fact information technology has brought real challenges to public accounting firms.

Online banking has opened many hitherto unknown vistas in the field of commercial and personal banking so much so that international barriers are now meant only for politicians to pursue their political careers, as online transactions see no such barrier unless plugged.

The revolutionary changes that XBRL is bringing will be a wonder in itself. Preparing financial statements as per accounting parameters of one country and getting converted those into as per requirements of International accounting standards, is not less than wonder, especially when conversions are done within matters of minutes only on basis of computing language called XBRL. This is amazing and an achievement to recon with.

Further, the effects of information technology cannot be counted but those can only be felt as information technology has virtually taken over every aspect of accounting.

Contents

  • Executive Summary
  • Contents
  • Acknowledging the impact of Information Technology on Accounting.
  • Accounting System Applications
  • Impact on Accounts Receivable, Accounts Payables, B2B Payments, Electronic billing & payments (EBPP),Pay Roll, Tax accounting, Accounting for Inventories, and Bank Reconciliations ,
    • Accounts Receivables
    • Accounts Payable
    • B2B Payments under Accounting Domain
    • Electronic Billing Presentations and Payment (EBPP) Systems
    • Payroll and I.T.
    • Tax and I.T.Enablers
    • Inventories and Information Technologies
    • I.T. Impact on Bank Reconciliations
  • Accounting Uses of Internet
  • General effects of Digital accounting (e- accounting)
  • e- Taxation
  • New Auditing Paradigms
  • New Matrix on Horizon called XBRL
  • Conclusion
  • References

Acknowledging the impact of Information Technology on Accounting

Accounting provide various type of information to different level of management in a business organization for the purpose of taking high core business decision based on quantitative as well researched accounting information. The function of an accountant today is not just confined to book keeping, but the accountant now is member of core group providing information to top management in understanding the intricacies of modern day business that is heavily technological based. Accountants gather information, suitably redefine the collected information, and then analyze that accounting information for different decision makings, both with in and outside the organization.

It is now seen that accountants very well understand information technology, its concepts and issues. Few years earlier manual hand written accounting was discarded in favor of accountancy through well structured and customized accounting software. But the global business competition and explosion of innovations in information technology is forcing accountants to work on integrated internet based accounting systems that facilitate quick and qualitative business decision making.

The method of collecting, manipulating, and transmitting data has undergone a sea change. It has become more complex due to new technologies such as fiber optics, satellite transmission, and the Internet. Technologies of inter connectivity have lead to a high degree of cooperation in the exchange of data. This is a sort of challenge to accounting professionals. They need not only be trained as accounting professionals, but also be fully equipped with information technology techniques that help them in performing their accounting assignments.

The accountants are challenged by flood of changing information technologies and techniques so much so that working knowledge or expertise (as per the demand of the job or accounting assignment) in information technology for an accountant has become very important. The following direct challenges to accountants from information technology are worth evaluating and considering by accounting profession world over:

  • Information technologies affect how organizations are structured, managed and operated. Entities can no longer develop business strategy separate from IT strategy, because IT is an enabler of business initiatives. There is, therefore, a need to integrate sound business and IT planning, and to incorporate effective financial and management controls within new systems. The traditional role of accountants: evaluating investments in business system designs; and reporting on potential weaknesses within these initiatives, needs to be preserved and enhanced.
  • Information technologies are changing the nature and economics of accounting activity. The career plans of professional accountants, and their related training needs, need to be based on a realistic view of the changing nature of accounting and the profession’s role, and the knowledge and skills required for success as a professional accountant. Some IT user skills are indispensable, and vary according to specific environment in which professional accountant operates. In accordance with IES 2, IFAC members bodies are required to ensure that candidates posses these IT skills before qualifying as professional accountant. In addition, an increasing number of professional accountant provide IT related advisory and evaluate services that can affect the reliability of business systems. It is therefore important that IFAC member bodies consider appropriate pre- qualification and post- qualification education requirements to support those professional accountants in providing IT related and evaluative related services.” (IAESB, August 2006)

Accounting profession has now been institutionalized, and the accounting institution in every country is now concerned with explosion of advancement in information technology effecting accountancy and the accountancy profession. AICPA in its report on a project titled ‘The CPA Vision Project 2001 and Beyond ‘has acknowledged the fact that ‘technology will continue to challenge and reshape our lifestyle, work pattern, educational experiences, and communication styles and techniques. Technology will rewrite the “rules of business” leaving those far behind who will harness it and effectively integrate it’ (CPA Vision Project, page 3) In this report AICPA has sought five core competencies from its members in order to remain competent to provide professional services in the wake of challenging technological developments, namely,

  1. communication and leadership,
  2. strategic and critical thinking,
  3. customer focus,
  4. interpretation of converging information, and
  5. technological skills. (CPA Vision Project, page 12).

These are not awakening calls for accountants as that awakening of the accountants about information technological impacts has already happened few years earlier. Now is time to match footsteps with highly technical IT advances.

Information Technology needs in accounting can be gauged by the fact that AICPA is providing Information Technology information to its members and others through an ‘Information Technological Center’ started at its main site. The basic objective of this AICPA Information Technological Center to ‘serve the CPAs who hold the Certified Information Technology Professional (CITP) credentials, members of AICPA Information Technology Section, and CPAs who want to maximize information technology to increase efficiency and boost profits.’(AICPA IT Center).

Asian countries like India and China have made an impact in the field of Information Technological advancements. Accounting profession in India has felt the need for training of its prospective Chartered Accountants in field of information technology, so that upon qualififying, the chartered accountants serve the accounting profession as qualifies accountant fully equipped as trained IT technologist. In new scheme of education and training, the Institute of Chartered Accountants has replaced 100 hours out of 250 hours of compulsory computer training with Information Technology Training (ITT) with effect from December 1, 2006. (Source: ICAI announcement No.BOS/Ancmnt/ITT/19/227 dated23.11.2006)

Accounting System Applications

Basically accounting software is a computer programme through which accounting transactions are recorded into the books of accounts that are generated through such programmes. Accounting software performs all those activities on a computer that an accountant does manually while writing and compiling books of accounts. Generally speaking, an accountant writing book of accounts manually has to perform the following activities till formulating financial statements:

  • Writing basic accounts like maintaining cash book, journal, subsidiary journals like sales register, purchase register and others,
  • Ledgerising the transactions from basic books into ledger accounts maintained as accounts receivable ledger, accounts payable ledger, other required subsidiary ledgers, and general ledger
  • Balancing all ledger accounts including cash book on daily basis,
  • Preparing Trial Balance from ledger balances and balance of cash book, and then
  • Formulating financial statements like Balance sheet, Income statement, and Cash Flow statement for the purposes of users of those financial statements.

The functions of manual accounting are not only time consuming but also subject to frequent mistakes. That is why it used to take days even for preparing trial balances from ledger accounts. Formulating financial statements used to be a marathon effort usually conducted jointly by accountants and the auditors.

Accounting software have brought revolutions in accounting and finalizing of financial statement. Every time a transaction is processed into the accounting software, all accounting activities till preparation of financial statements are performed by the software. In nutshell, financial statements are ready with every transaction processed through accounting software, and those are ready for making necessary analysis.

Numerous accounting software have been developed by specialists for general accounting of business and trading houses. General non- customized accounting software are generally used by small business houses, and some of those have become very popular among business houses. But certain business houses tend to customize accounting software as per their individual requirements, so that style of business functioning and accounting of business transactions commensurate with each other.

With fast developments and inventions in information technology, and depending upon special functions required in accounting soft ware, customization of accounting software has become costlier than the purchasing of suitably selected general accounting software in the market. Beside the cost angle, there are other factors that need serious consideration before seeking customization of accounting system.

Randolph P. Johnston in his article ‘A Strategy for Finding the Right Software’ has developed a strategy to get customized accounting system of an organization. According to Randolph P. Johnston, it is difficult to get exactly the same features as you require when you shop around for accounting software, and that most suitable software can be developed when the organization work diligently on a strategy prescribed in his article. The strategy suggested by Randolph P. Johnston is as follows:

  • Establish a technological advisory committee (TAC)

The idea is to create a team from all concerned department to suggest exact departmental accounting requirements.

  • Prepare a need analysis
  • Consider engaging an independent consultant, unless you have an in house IT expert.
  • Talk with Vendor

Accounting using IT based accounting have some added advantages.

As per Roshan Tolani every one concerned with inter- net accounting is benefited in the following ways:

The System

Internet based accounting involves less hassles. The internet streamlines the accounting process. Various technologies enable to store and retrieve documents electronically.

The Process

Internet based accounting allows firm employee to perform a variety of tasks from any computer terminal with an internet connection. They can up date financial records, finalize expense reports, and enter data. Firms can deliver electronic financial statements and report instantly. Firms can easily obtain information from their clients through file transfers. Internet- based technologies eliminate geographic barriers. Firm can access current statements relevant to their clients’ financial positions. Firms can create access policies to protect sensitive data. For example, they can give some parties ‘read only’ access and allow others to make entries.

Enhancement

The internet allows accountants to quickly search for crucial information and resources. Internet based technologies make it easier for firms to complete electronic monetary transactions. Firms can implement measures to prevent data loss. Internet based accounting solutions allow firms to apply enhancements and patches to their products more frequently.

Administrative benefits

The internet frees accounting firms from having to hire employees locally. Many accounting firms have become paperless, saving themselves millions of dollars annually. Internet based technologies allow firm employees and freelancers to work from home.

Interactions

Online meetings allow firms to communicate with their clients and staff members from any location any time. With programs offered by companies as logmein.com and PCanywhere.com accounting firms can access clients’ computers.

Business Expansion

Firms can grow their business and go global by using virtual meeting spaces. Virtual whiteboards make marketing easier by allowing for effective presentations and demonstrations. Well designed websites attract new clients from distant locations. “ (Roshan Tolani)

There is other side of the picture as well. Let us analyze the drawbacks of internet accounting:

  • Installation costs of hardware and software is enormous as compared to manual accounting. In fact the recurring cost of updating of software adds heavily to overheads of the firm.
  • Companies where staff turnover is higher, the training cost of staff makes things look like an uncalled for overhead cost.
  • Precautionary measures are always required to work against crashing down of system and loss of data.
  • Hacking of data and other net connected problems like eruption of virus make the firm remains alert all the time.
  • Health problems like bad backs, eye strains, and muscular pains have been reported by those who regularly use computer accounting for longer hours.

Special uses of Accounting System Applications

The impact of information technology on accounting and related fields is enormous. No accounting application has remained untouched with IT. However, the following applications of accounting has been greatly influenced and impacted by using IT:

  • Preparation of pay roll records efficiently and effectively so that workers get their due accurately and precisely at time.
  • Making salary or wage calculations as per attendance records or on production basis when remunerations are paid on per piece or item or unit basis.
  • Calculations of deductions and withholdings from wages or salaries with regard to Medicare, security, taxation, and other in order to determine net pay of the employees.
  • Preparing federal, state and local payroll returns and reports
  • Preparing annual federal and provincial tax returns and filing through net services.
  • Use of Electronic fund transfers, ATM, and credit/ debit cards in availing bank services.

Impact on Accounts Receivable, Accounts Payables, B2B Payments, Electronic billing & payments (EBPP),Pay Roll, Tax accounting, Accounting for Inventories, and Bank Reconciliations

Accounts Receivable

The problems arise with accounts receivable when recovery are slow and balances start rising. Possible reasons that can be assigned to such a situation are as follows.

Billing problems may be there like bills not being recorded timely. This may happen when there is untrained staff or there is over worked staff. Recoveries may not be bill wise but ad hock payments are being received and bills are not being earmarked against which payments have been received. No follow up for recoveries are made, like reminders are not posted to customers. Competition in the market might be forcing to accept the payment as is being received.

If the reason for non recoveries are as described above then the fault lies with basic accounting system, as accounts receivable are not be kept up to date because of one reason or the other resulting into irregular follow ups and thus irregular recoveries.

Here the role of IT accounting become important because of the type of services those could be generated from well planned software. IT accounting soft ware can provide the under stated facilities that enable any organization to keep track of recoveries and claim interest from customers on short as well as late recoveries from accounts receivables, when the agreements so permit :

  1. On generation of sale or service providing bills, all related accounts are up dated instantly, and therefore there can never be problems relating to unrecorded or wrongly recorded bills receivables.
  2. Staff cannot complain about over work or no training, as accounting through computing is not a time consuming job and there is no possibility that accounting software may be installed without properly training the staff member handling computer accounting.
  3. Due dates are fended to system before working on the system. Accordingly as soon as due dates of recovery arrive, the amount with AR details are highlighted, and some systems even mail the due date information through internet.
  4. Ad hock recoveries get recorded only when details of bill due from ARs are mentioned. The system may not accept transactions without full information. So credit always go to specific bills and unpaid bills can be tallied with balance due whenever list of ARs. is generated.
  5. Once the sale or service is executed, competition in market cannot be provided as reason for non- recoveries or short- recoveries. There actual possible reasons for non recoveries get highlighted by the system.
  6. A report on accounts receivables can be generated with periodic intervals giving all the required details, so that management may take suitable actions for short recoveries, non- recoveries, doubtful and bad recoveries.

Accounts Payable

Accounts payable is such a critical area of a business that its entire credit worthiness is always at stake. Accounts payable constitutes the critical potion of current liabilities. Accordingly entity’s cash flow is always concerned with the timely payments of this short term regular liability. To safeguard any untoward happening, IT has developed solutions that involve following features to strengthen the caution dealing with accounts payable:

  • Easily issue of check on demand and enter the payment in one step
  • Display all transactions and their documents on screen.
  • Support unlimited foreign currencies in real time.
  • All transactions of a selected supplier are available (largest balance, purchases YTD, and last year comparisons)
  • Individual supplier notes keep relevant data accessible.
  • Edit individual checks and complete check runs on screen prior to approval and issuance.
  • Edit documents any time prior to General Ledger interface.” (SIMMS Accounts Payment Module)

A careful study of the features of above stated module on Accounts payable indicates that this IT module is not only serving accounting but carries internal control features for helping the entity. That means those entities that require reporting on internal controls’ functioning as per Sarbanes and Oxley legislation would be helped a lot by such an impact of IT on accounting features of the entity.

B2B Payment Systems under accounting domain

Payment receiving from Accounts receivables and remittance of payment to accounts payment can be termed as B2B payments, and these activities are integral part of any accounting procedure or system. Information technology has evolved certain B2B payment systems that not only solve the complexities of the business transactions, but are increasingly becoming part of any Enterprise Resource Planning (ERP) systems

It is important to note that B2B payments are entirely different arena of accountancy domain than B2 C (Business to Customers) payments, largely because of the complexities involved in business purchasing. Sometime a dozen or more documents are needed to complete a business transaction. To give you an example business purchasing or selling involve purchase order, invoice, bill of lading or shipping, insurance papers, financial documents, regulatory documents, credit verification, escrow service documents, authentications, letters of credit mostly in across the border transactions, and documents relating to different payment methods or instruments.

The systems that information technology has developed with regard to B2B payments are necessarily required to be linked with existing ERP systems that integrate inventory, production, shipping, and other corporate data, and also into EDI (Electronic data interchange) systems. In fact ERP and EDI are IT technologies such systems that are going to replace paper based business transactions and impacting the accounting domain very effectively. Accountants may not be surprised to see book keeping itself becoming part of ERP (Economic Resource Planning) as is being presently envisaged by information technology experts. The systems for B2B payments as are developed under Information Technology extensions are replacing existing banking systems involve in business payments.

Actrade is such online B2B payment system that replaces the functionality of traditional banking. Actrade is an international market place intermediary in the payment process. The modus operendi of Actrade involve processing payment to foreign sellers immediately and allowing local buyers a variable time schedule for repayment.

In fact Actrade assumes credit risk on behalf of sellers as they receive payments for their supplies from Actrade. The transactions are electronically digital, and are secured with digital certificates or signatures. There are other players for such accounting cum business transactions like Tradecard, eRevenue, efinance, and eCheck. So far small business transactions are being handled through these electronic resources of B2B payments, but in coming periods accounting for B2B payments will be entirely handled by these electronic based systems.

Now traditional banks have also entered into the fray. They have also started offering variety of services with regard to B2B payments. Then traditional credit card companies like Master Cards and American Express have developed ‘P-Cards’ or procurement cards have also started offering business payment facilities, the maximum limit of transactions to transact through these cards have so far been limited.

In other words accounting has been greatly affected by the way now the B2B payments would be transacted as the source of recording the transaction would not be traditional bank cheques but auto online transaction reflecting straight into the bank accounts of concerned entities.

Electronic Billing presentation and payment (EBPP) System

EBPP services allow consumers or customers to receive or view bills through electronic process of Internet and making payments of those bills by electronically funds transfers or using credit cards. Electronic billing using internet and receipt of payment mostly using credit cards has got an extraordinary potential. The biggest advantage under this system is the greatly reduced costs of entities issuing bills as well as the ease with which consumers or customers transact the payment without wastage of time in matter of few minutes. For example now- a- days for making payment of utilities provided by Utility companies at commercial and residential premises, one need not visit the payment counters established by such utility companies.

Entire process of issuing the bills and receiving the payment under EBPP system is executed through Internet. One can also understand how much accounting facilitation are being enjoyed by such utility companies as well as entities and individuals making payments through the operation of EBPP system. Moreover, such utility companies and other entities now send customers’ accounts statements on line saving again the mailing costs and issuing paper generated statements/bills and their administration costs as well.

Although it has been observed that majority of EBPP transaction take effect in B2C arena, but now-a- days B2B transactions also taking advantage of this hugely beneficial services of information technology. The basic reason for this is the costs saving attribute of EBPP. Secondly its increasing use in both B2C and B2B arenas is the unimaginable growth in Internet users. The more online users would provide greater market for EBPP systems.

As the bills are generated electronically under EBPP system, accounting of such transactions is also facilitated as soon as the bills are generated. One can imagine the impact of speed, accuracy, and savings affected by EBPP system on the accounting system if entities involved.

From accounting point of view it is necessary to understand that there are three types of EBPP systems, namely Biller- Direct, Consolidators, and Portals.

Biller- direct system is generally used by utility companies issuing millions of bills each period, like telephone companies, gas companies, credit card companies and others. Under Consolidator model, the consolidator aggregates all bills for consumers and allows consumers one stop bill payment. Portals also work like consolidators, but this is only one of many services that portals render to consumers. Examples of portal EBPP system are Yahoo, AOL. Cyberbill.com, and like that.

Payroll and Information Technology

The information technology for payroll accounting has almost become a necessity mainly because of large number of transactions involving wage and salaries calculations, deductions, withholdings of taxes and insurances and other need careful and accurate consideration. Every other we find specialized software introduces with regard to payroll accounting that proves that IT has almost captured this field of accountancy completely and in all respects and manners.

Pay roll setting up for IT is an activity that broadly requires the following information required for inputs into the operative IT system in the organization:

  1. Name of employee
  2. Tax Number, if separate from SSN
  3. Social Security No. (SSN)
  4. Last Pay Period
  5. Pay Period Start & Ending Dates
  6. Check date
  7. Bank checking account no.
  8. General Ledger withholding account no. with regard to
  • Federal Income Tax Withholding Account
  • FICA Withholding
  • Medicare Tax
  • State Income Withholding Account

The above are just example of basic information required by the IT system with regard to accounting of payroll wages and salaries. Normally the duties of payroll technician consist of following activities:

  • Verifies and posts monthly payroll and various payroll deductions to the control book and traces discrepancies
  • Assumes responsibilities for processing payrolls and mandatory and voluntary deductions
  • Maintains records relating to payroll
  • Ensures that timely payments are made with regard to Federal and state withholding taxes
  • Properly filing of quarterly tax returns to Federal/ Sate agencies
  • Edits and corrects retirement reports according to state and country requirements, and
  • processes the input data in accordance with instructions set fourth in the input and control procedure manual,
  • acts as back up for all positions in the payroll area during absences of other regular payroll personnel as liaison for the payroll activity area
  • functions as liaison for payroll activity area in discussing problems or questions
  • maintains and enters data through the use of computer terminal” (San Jose Unified School District)

Advantages of payroll accounting using information technology are as under:

  1. Pay Rolls soft wares consume less time and are quick to calculate wages
  2. Wage calculations are accurate and free of mistake that normally occur while preparing wage payment sheet manually. Only input information is required to be put in and result all calculations are done within jiffy.
  3. It is seen that payroll legislation is often complicated putting so much stress on the accounting clerk that mistakes occurrence becomes a regular feature. Payroll software normally has built in system for deductions and withholdings.
  4. It is not possible to make changes in the past payroll, as the Payroll systems generally lock up the earlier period calculation ensuring safety and full security of payroll data.
  5. Regular reconciliation of payroll wages calculations with attendance and other records are automatically done.
  6. As physical records are not maintained under IT payroll software, the organization does not require storing space for those records.

Tax and IT enablers

Regular Federal Income tax, State income tax, FICA, and many other tax calculations either require the services of tax professionals who are in independent services, or the organizations have to employ in house professional to ensure accuracy and timely actions of deposits of withholding. It is true that IT cannot replace the services of tax professionals; but IT has certainly helped the business community in meeting routine work of tax calculations, withholdings, and timely deposit of withholdings with govt. treasury.

The following initiatives of Information Technology have helped the entire accounting process taxes and its administration in a revolutionary way as has been explained hereunder:

  1. Information technology provides new opportunities for tax simplification in areas such as tax owing, filing tax returns, and making payments. In turn, being able to modify these obligations presents opportunities for the removal of some of tax risks faced by the businesses.
  2. Information technology can reduce transaction costs, including those associated with payment of tax; businesses could make smaller, more frequent payments without an increase in cost.
  3. Inland Revenue is committed to expanding its use of information technology to reduce compliance cost.” (Information Technology Initiatives)

Tax Planning is such an art that when ten tax experts plan a tax stragetegy separately and independently, it is seen that each one of them will have a different solution to same problem. With the advent of Information Technology into tax planning, one IT solution will provide a number of different alternatives to same problem for the user to decide which one is more suitable. That implies that a business problems need not be solved by a number of tax experts, one IT solution will provide you different alternative to one problem.

In 2007 tax calculation solution under the name ‘Orbitax’ was launched. On its launch, Thomson Tax and Accounting, a business segment of The Thomson Corporation commented, “The business relationship will focus bringing a range of tax planning and analysis tools, developed by Orbitax, to users. An easy to use online edition, ITE on line is available on checkpoint, which displays various cross border tax rates, calculates payments made between multiple foreign entities, and uses contents from the International Bureau of Fiscal Documentations, for authoritative expertise on cross border taxation.” (International Tax Expert)

The above is a press statement of Thomson Corporation on release of ITE, a tax software providing tax accounting services for overseas and cross border business transaction. A review of the above press statement reveals the range of services that one tax software will provide for tax accounting. Such range of services is not at least possible to provide at one go by any tax expert, even if he is a long experienced tax practicing professional only in cross border business transactions.

Moreover such practitioner, if available, will be very few in numbers, and with the advent of globalization it is not possible for few of those tax practitioners to provide consultancy to large number of such business houses. Whereas one Information Technology tax solution, when obtained by all those business houses, will be able to provide consultancy to all of them and that too at low cost. Such is the range and powerful impact of Information Technology on tax accounting.

Inventories and Information Technology

In order to assign a dollar amount to inventory, a company will first determine the quantity of inventory that is on hand as of the date of balance sheet. There are two inventory systems, one is Perpetual Inventory System, and the other is Periodic System. Once an ending inventory quantity is determined, a cost must be assigned using an inventory costing method. A variety of methods may be used included:

  • Specific identification
  • FIFO
  • LIFO
  • Average

Information Technology has developed a number of solutions that help both in determining the quantity of inventory, and assigning the cost to such determined quantity of inventory.

Like ‘Biztech solutions’ has developed Biztech Centralized Inventory solution that generates “reports for sales register, month wise sales comparisons, daily sales analysis, daily sales with collections, purchase register, GRN register, costing sheet, freight analysis, cost price analysis, duty variance report, bin card, stock statement, stock valuation, stock movement, physical stock, daily stock statement, spoilage, internal transfer, packing list, price list, and discount reports. Inventory control can generate analytical reports, profitability analysis, and accurate stock statement on basis of FIFO methodology, customized pre- printed invoices, supplier rating, and customer wise discount reports.” (Biztech @ Inventory)

Imagine so many types of stock reports and other reports are being generated through a single information technological solution. This not only will save the time consumed to generate these reports manually, but the cost of purchasing can never match the high cost of professional required to develop and generate this much magnitude of reports.

One can say that IT has impacted stock accounting in a manner that impact on all other accounting field look small.

Under inventory management few things are very important:

  • “First, you must know how much inventory to have on hand to ensure quantity of supply in the event of an uncharactstic increase in either demand and/ or lead time. There is no universally used formula for determining safety stock quantity.
  • Second, you must know when to reorder material for inventory. Generally, this point in time is determined when the quantity of materials in stock decreases to a certain level, called the reorder point.
  • Third, you must know how much to order. A complex mathematical equation determines the Economic Order Quantity or EOQ. This equation recognizes the tug of war between acquisition costs and inventory carrying cost; when you order bigger quantity less frequently, your aggregate acquisition costs are low but your inventory costs are high due to high inventory levels. Conversely when you order smaller quantities more often, your inventory costs are low but your acquisition costs are higher because you are expending more resources on ordering. The EOQ is the order that minimizes the sum of these two costs.” (Charles Dominick, December 27, 2006)

Information technology has found simple solutions to these complicated problems of stock of finding EOQ, because EOQ can never be a static quantity, and changes with other factors of production and acquisition and acquiring costs. A company called Big Byte Solutions Pvt. Ltd. (BBSPL) has developed ‘Inventory Management Software Solution’, that calculate EOQ with required inputs and using companies need not indulge in complicated and time consuming process of calculating EOQ.

IT impact on Bank Reconciliations

In practice there is usually, but not necessarily, difference between bank account in entity’s books of accounts and the balance shown in bank statement received by the entity from bank due to different practical and non- practical reasons. Accordingly accountants’ job is to reconcile the two balances. Under manual accounting reconciliation of bank account transactions as per books of accounts of the entity and the entity’s account in bank’s books of accounts used to be a lengthy and time consuming job. Information technologies with its self developed, customized, or generally developed solutions, as well as through recently evolved internet banking or online banking have simplified such reconciliations as explained here under:

  • During initial years of IT evolution, spread sheets solutions using, for example excel spreadsheet, were self developed by accountants as per individual requirements. But such solutions were completely customized and could not be generally used. In fact such solutions were not even customized as entity’s own requirement, but those were more of accountant customized suiting individual accountant’s style of working. These accountant’s customized spreadsheet based solutions could not achieve the speed with instant results as was expected out of hopes associated with IT. In this respect Jim Johnson rightly said at a blog on 07 December, 2006 that “although Excel is an excellent general tool, it does not provide direct functions to meet all of what we, as accountants, need to do. I often used VLOOKUP alongside each table to find the matching values in the other table being reconciled.” (Jim Johnson)
  • In the mean time general accounting software like Quick Books, Simply accounting, Tally, and many other made available bank reconciliation features. These tools eased out many problems of reconciliations
  • Now is the era of Internet banking or online banking The invention of internet banking has sorted out any left out problem in respect of such reconciliations.. Bank accounts are at accountants’ laptops and it is for them now to decide whether they are compatible with the speed with which information is provided to them. Managing your own bank account through Internet leave no scope of difference between book balance and bank balance except the buffer created till presentation and clearance of cheques and other financial instruments.

Accounting uses of Internet

Qualified and certified accountants are called CPAs (Certified Public Accountants) in US and some other countries; they are Chartered Accountants in European, some Asian and other countries. But professional problems are similar. Big accounting firms control the profession in one way or the others. Even scandals resulting into passing of various legislation (like Sarbanes Oxley Act of US) controlling to an extent but mostly over viewing their functioning could not affect monopolistic powers of such big accounting firms. The idea of such background is to express the inability and uncompetitive powers of smaller and newly formulated accounting firms vis-a vis big accounting firms.

According to rough unpublished estimates, big accounting firms control more than 90% of the auditing business of public companies. Such is the state of affair that explains the control of big accounting firms. Small firms face teething troubles in finding accounting and auditing assignment, as such business is passed only when recommendations about accountant are strong. Even high paced technology has not been able to replace this. Now the million dollar question how those smaller accounting firm would survive in face of stiff monopolistic competition from big firms. The answer is provided by spreading of internet technology and it all round use in almost all business and service sectors. Internet is a boon for smaller accounting firms as further explained in detail as under:

Basic Core Accounting

Accounting professional can easily find accounting packages through internet to serve client’s basic core accounting needs. So much is development in this area that accountants do not have to purchase the software for accounting. All they need is internet browser. For basic accounting a professional accounting package need to cover the basic needs like General ledger, Accounts Receivable, Accounts Payable, Payroll, and number of pre-defined reports like Balance Sheet, Income Statement, Cash Flow Statement, Sale Register, Purchase register etc. There is flood of software. Accountants can choose software from free to highly pay from bruising on internet. The business community, and in particular accountants, have certain basic advantages of internet accounting detailed hereunder:

  • Increases awareness and access to the educational opportunities presented to the accounting community via more effective use of internet and IT resources,
  • Accelerate the rate of use and development of innovative information based products or services available for accounting academics and practitioners, e.g., multi media or web based accounting teaching/ professional development materials, etc.
  • Increase the number of professional accountants and accounting educators more effectively using this medium of communication which will lead to a strong accounting presence on the Internet.
  • Improve communication between the accounting professional an counting communities globally by increasing the awareness of the common interest of both and means of more effectively communicating and sharing resources, e.g. e-mail, discussion groups, electronic seminars, char sessions etc.
  • Help to develop an accounting community which can provide higher quality of cost effective services to its principal clients and provide leadership in the development of accounting as a knowledge based, vibrant and exciting discipline/ profession with information technology knowledge and skills that are valued and in demand in both national and international marketplace.” (Bill Swirskey)

Accounting Outsourcing

Internet has opened whole lot of opportunities from small accounting firms through business processing operations. A little analysis of BPO process will reveal that accounting out sourcing helps both CPA professional who is providing the work of his client by outsourcing it to other accounting professional who is receiving the outsourced assignment. In fact “outsourcing accounting and accounting functions creates a steady steam of work for overseas employees and enable outsourcers to constantly challenge its offshore employees. This provides continuity of service and reduces the likelihood of churn.

The firms are better positioned to attract and retain qualified personnel by offering less repetitive work and accelerate career growth. The shift of routine accounting tasks overseas allows US office personnel to focus more exclusively on identifying and addressing their clients’ needs. Progressive firms should be able to add value to their client relationship, both internally and externally.” (BPO Accounting)The point is that at both ends, the provider of work and the executor of outsourced work are small accounting professionals.

Accounting Professionals, who receive the accounting outsourcing work under BPO as well as the companies offering such services to professionals, do get some added advantages due to impact of information technology on the accountancy. These added advantages are as under:

  • Normally accounting is outsourced by companies to enable them to concentrate on their core objectives. Companies like to spend to take advantage of new systems coming up in field of IT that relieve them from time consuming accounting jobs.
  • Reduction of expenditure on accounting staff is now a proven fact, but companies take advantages of efficiency improvement due to advanced IT facilities with service providers. It also results reduction in capital expenditures. Also the saved time and resourced could be utilized for other revenue earning purposes.
  • “BPO practices and methods are entirely different from corporate- in house practices and purposes. By opting for outsourcing, individuals as well as organizations become accessible to value added workflow systems, ideal utilization of state of art technology, ability to reengineer processes, modern models and HR deployment and management, and innovative models of delivery.”(Hightech Accounting Services)
  • In nutshell the BPO services allows the companies to :
    • “ Concentrate on other business priorities
    • Automate complex and voluminous processes
    • Cost savings
    • Access large, skilled, and viable labor pool
    • Get the work done on quick turn around time
    • Enjoy the benefits of advanced collaboration capabilities

Improve customer satisfaction through efficient and timely processing of requests, service changes and projects.

Free themselves from the hassles of managing employees and records.” (Hightech Accounting Services)

IT based methodology

Accounting outsourcing is completely information technology based process. Basically this IT based methodology has four processes explained hereunder:

Accounting Business Process Discovery: Under this process the accounting needs of the accounting processes to be outsourced is understood and identified. Simply speaking it is mutually decided between the service seeker and service provider as to which accounting functions will be outsourced.

Feasibility Study & Planning: In this second phase various accounting process flows and process integration plans between internal accounting processes and the outsourced accounting business processes are prepared, discussed, understood, and finally approved between the seeker and provider of services. Here the entire processing system is developed and understood by the parties concerned.

Accounting business process execution: The service provider prepares the IT solution based on the requirements as approved in earlier processes and start execution of processing work. After detailed quality check first processed samples are sent to seeker to ensure that those are as per requirements and objectives of the seeker. After making the final changes suggested changes, the provider get ready with the solution for regular processing work.

Accounting business process delivery and transition: As per agreement the prepared solution is placed at agreeable location, either at seeker’s location or with the provider. If location of solution is at seeker premises, provider impart regular training at additional cost, otherwise regular processing is done at provider’s premises.

Opposition to outsourcing

Outsourcing is in fact a boon from information technology but like everything good, BPO has also to face great opposition from countries seeking full advantage of this opportunity from information technology. So much so that it has now taken a political color.

As Aziz Hanifa reported in ‘rediff news’ on July 9, 2007 as under:

“Referring specifically to the outsourcing of jobs to India, Clinton issued a dire warning that if the United States continues to outsource jobs to India in increasingly large numbers, people will begin to feel insecure and may very well seek more protection against what they view as unfair competition.”

A fine review of the problem will reveal that the main objections to outsourcing of job normally revolve around following two issues:

  • Companies outsourcing jobs lay off workers in one country and hire people in the other country where job is outsourced to do same kind of work for lesser remuneration., and
  • Highly technical and highly paid jobs go away from the country outsourcing the jobs, and people of such country will have to remain contented with low paid and low quality assignment

A lot of hue and cry over of these issues resulted into a number of states in US already introducing legislation bill, though all of them have not yet enacted, to enact legislation against outsourcing. In other words, the opposition to BPO has now been institutionalized.

No doubt there are genuine reasons to oppose ‘business processing outsourcing’, as the loss of well established jobs has many detrimental effects. No one can deny this fact and these detrimental effects can only be understood by those who really suffer the job loss. But opposing some good technical developments has other effects as well. The opponents of BPO must analyze those effects before taking a final decision ,as simply opposing a cause might turn out to be biggest mistake of human kind of an era.

In this direction attention is invited to a report titled ‘Outsourcing Turned Inside Out’ by Ken Belson and published in The New York Times on April 11, 2004. Few excerpts from the report are as under for a serious consideration:

“Through out the United States, from high tech corridor of Central Texas to the automobile plants of the Deep South to the pharmaceutical laboratories scattered throughout the New Jersey and Massachusetts, foreign companies are spending billions of dollars to build or expand operations. In the process they are lifting local economies and offsetting some of the jobs being sent offshore by American companies.

Proponents of free trade point to the near record 6.4 million Americans who worked for foreign companies as of 2001, the last year for which complete figures were available. They also note that while many jobs being outsourced than in sourced, the number of new workers employed by foreign companies more than doubled during the 15 years ending in 2001. By comparison, the number that moved offshore – roughly 10 million, according to the Bureau of Economic Analysis—grew by only 56 percent in the same period.”

The answers to all the reasoning against BPO has been aptly provided in this report of by Ken Belson. If you are prepared to take benefits of in sourcing in such a big way as the Ken Belson report points out, you must be ready to sacrifice some thing for the sake of development of a technology.

General Effects of Digital accounting (e-accounting)

Digital reminds us of numbers, and therefore digital accounting (also called e- accounting) means accounting information in digital format that can be electronically manipulated and transmitted. Almost a decade with “the development of Electronic Data Interchange (EDI) and Electronic Fund Transfer (EFT) can be said to be the beginning of the digital exchange of accounting information among trading partners” (Ashutosh Deshmukh). In simple language all accounting through accounting software or that is in any way processed through computer whether using internets or not, is called digital accounting. The merits and some demerits of such accounting are detailed hereunder:

Merits

  • The World Wide Web (www) is full of sites providing accounting software for all types of accounting needs. Small businesses, mid sector, and for high end accounting general software are readily available on different sites. Even a number of sites are providing accounting software free of cos. Accordingly a business entity, be it a small, mid sized or high end entity, can select from innumerable software available on internet sites according to there requirements, and expenditure they intend to make for procuring accounting software.
  • When an entity has a requirement of a very specialized type of accounting software keeping in view the type of its accounting transactions, the entity can approach software developers to develop customized accounting software as per exact needs of the business. In fact most of leading accounting firms have developed professional practice by extending a branch of their activities where customized software are developed for clients under the combined guidance of computer software developers and experienced accountants on roll with such professional accounting firms.
  • It has been observed that certain geographical areas of world, that Europe is getting a unique type of benefit with the development of computer language called XBRL. Different European nations have different reporting parameters despite their adoption of International Accounting Standards. The problems to meet different reporting and other requirements of different nation’s legislations governing accounting and those of IASB have been aptly solved by recent developments in information technology and in particularly for European nations and other users of their financial statements will be befitted as under:
    • For companies preparing their financial statements under the IAS taxonomy because it will only be necessary to prepare them once in XBRL. This will automatically allow the publication in different ways (printed report, corporate web site, electronic submission to security commissions, tax authorities, banks etc.) and the translation of all the European Union languages. In addition XBRL will enhance the transition to IAS for those companies currently using their local standards.
    • For financial analysts, investors and regulators because XBRL is going to increase the possibility to use the financial statements information and to automatically analyze it. It will also significantly reduce the need to re key financial data from a format to another one. And it will to receive information in the user’s favorite format and language.
    • For data aggregators and financial information providers because automatic data capture will imply a reduction of both preparation costs and re-keying errors. It will make possible a deeper concentration on adding value to data.
    • For software vendors because of possibility to import and export files in XBRL format will increase their connectivity with their applications.” (Enrique Benson)
  • Digital accounting almost eliminates need for paper supporting unless those are required for legal or other statutory requirements. This not only costs of paper but also other administration costs like costs of storing paper documents and files.
  • Accounts of an entity are accessible on internet from any part of the world, and users can take necessary information without re-keying, improving or processing. Users of financial statements do not have to wait until they receive physical paper copies of those financial statements from the company.
  • Accounting statements can be digitally signed when those are required to be submitted with Government departments and for certain other contractual or legal purposes.
  • Arvind Deshmukh in his book, at page 10, has described the following conceptual benefits of digital accounting:
    • Faster cycle times – these include credit approvals, payments and collections, posting of transactions, closing of the books, generation of reports and more time available for higher time analysis.
    • Broader geographic reach.
    • Continuous service available- 24/7 access and more satisfied internal and external and external customers.
    • Reduced error rates- that mean fewer transactions with error as well as errors.
    • Reduced accounting staff and increased productivity.
    • Better cash management- efficient payments and effective collections.
    • Cost saving in mail, paper and storage of paper.
    • Improved audit trails and security.”

Demerits

  • Many accounting software companies promoting their products often stress that there is no need of qualified or experienced accountants to process accounting in through those software. When accounts on such software would be prepared by non- accountants there is always a limitation that non- accountants who do not understand accounting terminology would be deriving wrong and misleading financial statements though generated by technically well equipped accounting software.
  • In his book ‘Digital accounting: the effects of internet and ERP on accounting’ at page 11, Arvind Deshmukh has described following as costs of e-accounting:
    • Investments required in computer hardware and software
    • Initial need for expensive consultants
    • Costs involved in system, process, processing of information and report generation charges.
    • Continual training or retraining needs and/ or requirements of personnel with specialized skills.
    • User resistance
    • Careful attention needs to be paid to security, control and audit requirements during the initial configurations. If initial configurations of the system is not correct or integration with ERP software or legacy system is faulty, then there are recurring costs and fewer benefits from the implementation.

e- Taxation

This concept of ‘e- taxation’ is catching the world so fast that Governments of most of the nations where information technology has reasonable presence,(besides developed nations, where e- taxation is already there for a number of years now), are trying to equip their revenue departments with e- powers to manage the affairs of collection of revenue from citizens. Certain nations like India and China are already deep down with advanced information technology that their revenue departments are innovating information technological ways even to check revenue concealments. Some of the e- taxation services those have become routine with all nations using information technology in taxation affairs are:

  • Filing of tax returns on line by tax payers
  • Payment of taxes on line by tax payers
  • Assessment of taxable income or wealth and tax calculations as per returns submitted by taxpayers
  • Electronic refund of excess paid taxes to bank accounts of tax payers
  • Educating tax payers through web- based portals to educate and increase awareness of taxpayers about tax laws and regulations.
  • Different government department share information and data about taxpayers on line in order to pursue other schemes, projects and policies of the government.
  • Government web page is the main information provider to citizens, but it has been observed that various private web sites have emerged that provide taxpayers very specific tax oriented services to tax payers, like providing tax information, finding deficiencies in information at Govt. web sites.
  • Private web sites have also started distribution tax information in such fashions that some time they carry more authentic information than government sites.
  • Private sites even provide different tax forms as prescribed under law for use by tax payers.
  • These private sites also provide jurisdictional information to tax payers. They also devise ways and educate tax payers about legally avoidance of taxes.

Though citizens also show enthusiasms as changes are coming from manual tax activities to e- taxation but some of them are averse to the whole e- system of taxation because of following limitation:

  • Security lapses of e- taxation system is a big cause of non- acceptance of changing taxation system by a section of taxpayer. Though they do not have any other alternative except to go with masses, but their concerns are worth consideration.
  • They are afraid that their private information about businesses and personal lives that are legally required to be submitted with tax returns may be shared by tax authorities with unscrupulous social elements that may put their lives to danger in the hands of those unsocial elements.
  • Electronic tax remittances are still a taboo with certain section of society.

Information Technology is advancing towards taxation system so fast that almost every field in taxation system that hitherto manually controlled would be a thing of past. But there a real challenges for the administration of such tax on line or e-taxation. In fact “the internet poses many challenges with regard to administration of tax system. With growth in the use of the internet for business communication, administration and record keeping, challenges and opportunities are presented to revenue. The challenges facing revenue include protection of tax yield in this new environment where transaction can be carried out in a new way. The benefits of revenue include being able to use these new technologies to manage tax administration in an even more efficient and effective way.” (Business 2000 case study)

New Auditing Paradigms

There is unimaginable growth of IT in use of accounting activities. Entities are using and keep on updating computer hardware, databases, internet, intranet, accounting software, and many other IT paraphernalia for maintaining accounting and financial transactions and records of the entity. For financial statement auditors such situation at earlier stages created unimaginable auditing problems. This is so because an auditor need to plan an audit assignment and planning means understanding the entire system of Information Technology being used by the client. Moreover, financial auditing is largely dependent on substantive testing calling for evidences in for transactions. But electronic processing differs from paper evidences as has been pointed out by Thomas A Ratcliffe and Paul Munter in their article and described hereunder:

  • Difficulty of alteration: Easily altered evidence lacks creditability and reduces value to the auditor. Whereas paper evidences are difficult to alter without detection alteration attributable to the operation of a system might not be deducted without performing specifically designed tests.
  • Prima Facie creditability: SAS 80 establishes a hierarchy for credibility for evidence. Creditability is enhanced when source of evidence is independent of client and confirmable. An electronic purchase order derives its creditability primarily from controls within the environment. When printed a fraudulent or altered electronic purchase order appears no different from a valid purchase order.
  • Completeness of documents: Whereas paper evidence typically include all the essential terms of transaction on its face (e.g., customer name and address, preferred shipping methods), an electronic system may substitute codes or cross references to data files that may be hidden from users.
  • Evidence of approvals: Approvals integrated into paper documents add to completeness. Electronic approvals may be similarly integrated into electronic records, but they could require additional interpretation. Simply viewing a screen may not provide visible evidence of the approval, possibly leading to an incorrect audit conclusion.
  • Ease of use: Electronic evidence often require extraction of data by an expert, where as paper evidence can be evaluated without additional tools.
  • Clarity: Competent evidence should allow the same conclusion to be drawn by different auditors performing the same tasks. The nature of electronic evidence is not always clear. For example similar record format could lead to mistaking an EDI network transmission confirmation for a vendor’s order confirmation, in the absence of appropriate controls.

In order to remove above stated and other problems being faced by financial statement auditors SAS 94 was issued and impact of this auditing standard was so effective that auditors were put at ease while auditing under computerized environment.

“SAS 94 was introduced in an attempt to guide external auditors regarding information technology and related internal controls systems. In essence, it tells financial auditors how they should consider IT controls, and their relevance might be to a financial statement audit.” (Linda L. Briggs)

As per Sarbanes Oxley legislation, controls are required to be checked and reported by the auditors. Though SAS 94 was issued much earlier than SOX Act, the directions or suggestions of SAS 94 have assisted the auditors in conducting check of these controls effectively. As per SAS 94 auditors can conduct their auditing business under three broad categories using computer assisted techniques to test controls:

  1. Auditing around the computer,
  2. Auditing with the computer, and
  3. Auditing through the computer

Auditing around the computer implies that auditor first calculate the results of the transactions entered through computer, then compare those results with computer processed results; and if those results are correct and valid, it can be assumed that controls in the entity are effective.

Auditing with the computer implies computer assisted audit technique, abbreviately called CAAT. There is general audit software called GAS and is used to perform substantive testing. Thus auditing has started itself using computerized techniques to perform tests and checks. But for using CAAT auditor has to be an information technology expert as well.

Auditing through computers means software for accounting itself embraces auditing technique and auditor has to develop audit programs to verify the functioning of those techniques.

Day by day information technology is becoming complex and sophisticated. Accounting is now a days is totally IT based, be it of large firm or any small entity. According auditing must take this fact into consideration while auditing financial statements. Guidance like SAS 94 is helpful to conduct auditing as the situation demands. Besides understanding the nature and functioning of business auditors must also understand the accounting technique used by the entity in order to frame audit program.

New Matrix on horizon called XBRL

Development is a continuous process, and information technology is not only itself a very recent phenomenon but it is developing so fast that nothing seems impossible in accounting and financial field in the very near future. We all are very familiar with the term ‘xml’, that denotes files workable under Microsoft excel program. XML is language for working at Microsoft excel program. Similarly there is a new invention called XBRL, which is new I-Matrix and a language as explained hereunder:

XBRL is an I-Matrix

Matrix denotes medium or method. In fact the term ‘Matrix’ is commonly used in mathematical jargon. “Matrix represent a mathematical matrix that provide methods for creating special matrices (zero, identity, diagonal, singular, victor) operating on them arithmetically and determining their mathematical properties.” (Matrix)

Based on the above definition of Matrix, we can impute that term ‘I-matrix’ shall mean invention of methodology under information technology to serve various objectives.

XBRL is an I-Matrix that has been recently developed to assist and solve many problems of financing accounting. It is a financial language

XBRL stands for eXtensible Business Reporting Language. XBRL is not a text language. It is also not an internet page. In fact XBRL provides a tag for each data and that tag is readable by the computer.

“XBRL is a powerful and flexible version of XML which has been defined specifically to meet the requirements of the business and financial information. It enables unique identifying tags to be applied to terms of financial data such as ‘net profit’. However these are more than simple identifiers. They provide a range of information about the item, such as whether it is monetary item, percentage or fraction.. XBRL allows labels in any language to be applied to items, as well as accounting references or other subsidiary information.” (XBRL International)

Practical advantages of using XBRL

  1. First of all there is no special requirement of any standardization when we work on XBRL. The language is flexible that it adopts all form of accounting and financial computing languages presently in use in the business and industries all over the world. We can XBRL is a universally adoptable computer language to be used for accounting and financial jargon world over. This is so because of ramification of International accounting standards being universalized, so is the accounting jargon enabling the XBRL to work universally.
  2. It is believed that all manual financial accounting processes will come to an end when XBRL will be in force. In fact for each accounting analysis we have to collect financial data again and again and then work on various formulas to arrive at desired results. Once XBRL will be in use, there will no need to waste time on recapturing of data. Data and other financial information would be available in matter of less than seconds and accordingly analyzing the data would be faster and worth some on timely availability.
  3. Data Collection and reporting: “By using XBRL, companies and other producers of financial data and business reports can automate the processes of data collection. For example data from different company divisions with different accounting systems can be assembled quickly, cheaply, and efficiently if the sources of information have been upgraded to using XBRL. Once data is gathered in XBRL, different types of reports using various subsets and data can be produced with minimum efforts. A company finance division, for example, could quickly and reliably generate internal management reports, financial statements for publication, tax and other regulatory filings, as well as credit reports for lenders. Not only data handling be automated, removing time- consuming, error- prone processes, but the data can be checked by software for accuracy.” (XBRL International)
  4. Use of XBRL is bound to become universal because of the utility it is going to provide to business community as well to regulatory and social institutions and bodies. Accordingly all most all users of financial data and not only business community, but stock exchanges, Governments, educational institutions, social services providers, statistical record collecting agencies, banks and other financial institutions, and other bodies would be extensively taking advantage by using XBRL. In fact the entire data processing and reporting atmosphere would get an overhaul.
  5. Technically speaking XBRL will be faster than present clan of data processing languages. It will ensure accuracy as already stated that software used would be ensuring the accuracy of data once reports are processed through XBRL.
  6. Qualitative and accurate reporting and analysis would make business and other institution taking qualitative decisions base on such reporting and analysis.
  7. Financial institutions like banks would feel a sense of security when XBRL processed reports would be used for granting loans and other banking transactions.
  8. Above all XBRL will be economically very cheap and affordably by all sections of business community and all financial data and statements users.

Impact of XBRL on accounting would so immense that all financial accounting, financial auditing, and tax related activities of data processing would all be processed using XBRL computing language. In the coming future XBRL will be the computer accounting language.

Conclusion

Accounting has come of age. It has changed rapidly from handwritten accounting books to accounts being compiled through internet based accounting via well crafted computer software. Accounting system applications are available varying in contents and qualities with life long updating guarantees.

Accounts receivable and accounts payable are largely affected in their administration through the entry of Electronic Billing and Payment (EBPP) systems into B2 B transactions, as earlier such systems have established their worth under B2C arena, when mostly practiced by utility companies.

A new computer language XBRL has appeared on the horizon and this language besides assisting in accounting may even perform technically highly complicated accounting tasks within minutes. These are the tasks those were considered as most difficult and time consuming earlier.

Payrolls, inventory accounting, and even simple bank reconciliation accounting activities are being benefited through automated internet based accounting software. General effects of e- accounting range from achieving costs savings to fulfillment of different nations’ regulatory requirements using XBRL.

e- taxation is a blessing in disguise for authorities as well as for taxpayers. Revenue collections are rising in countries where these facilities are in operations. Tax payers are getting educated on free user friendly software provided by authorities for e- filing. Tax payers would be saving a lot of cost as they need not visit tax professional for e- filing as well as for seeking refunds on excess tax withholding.

Execution and recording of accounting transactions have become so fast that accountants have to remain alert all the times for the latest innovations. This is because any accounting performance on being evaluated and found below standard keeping in line with latest changes, innovations, and developments of computerized accounting may not disturb the company’s status among its own stakeholders.

Auditors are learning new techniques to remain updated with latest innovations in order execute auditing as per standards and reporting parameters established by various legislations. In fact professional activities of CPAs and Chartered accountants have been greatly influenced and affected by the developments of information technology in the field of accounting. On- line banking has brought a revolution in accounting field, bringing transmission of funds at the tips of accountants. In other words information technology has affected the accounting in its every form and design.

References

  1. AICPA Information Technology Center. Web.
  2. ibid, page 10.
  3. ibid, page 11.
  4. Aziz Hanifa, Hillary changes tune on outsourcing, rediff news, 2007. Web.
  5. Ken Belson, Outsourcing, Turned Inside Out, The New York Times. 2004. Web.
  6. Bill Swirskey, The use of information Technology and the Internet in Accounting Education in Canada: Opportunities, Problems, Trends and Applications. Web.
  7. BPO Accounting, Outsourcing beyond Tax Returns, 2008. Web.
  8. Biztech @ Inventory, Biztech Solutions, 2008. Web.
  9. Business 2000 case study: Revenue Commissioners, The Irish Taxation System. 2008. Web.
  10. Charles Dominick, Purchasing & Inventory Management Hook Up!, PurchTips-#116. Web.
  11. Cyberkink, Small Business Accounting BPO Methodology. 2008. Web.
  12. Enrique Benson, The International Journal of Digital Accounting Research, Volume 1, Number2. Web.
  13. The CPA Vision Project: 2011 and Beyond, the American Institute of Certified Public Accountants, New York, N.Y., 2002, page 3. Web.
  14. ibid, page 12.
  15. Hightech Accounting services, outsourcing benefits. 2008. Web.
  16. Institute of Chartered Accountants of India, announcement No. 2006. Web.
  17. Information Technology Initiatives, The Role of information Technology. 2008. Web.
  18. International Accounting Education Standards Board, Information Technology for Professional Accountants, Exposure Draft, 2006, para 10, page 6. Web.
  19. International tax Experts, Thomson tax & Accounting, The Thompson Corporation, Press Release. 2007. Web.
  20. Jim Johnson, Excel Reconciliation Function, 2006. Web.
  21. Lind S Briggs, CPAs in Coders’ Clothing: Auditors breach IT’s Inner Sanctum. Web.
  22. Matrix, definition of Matrix. 2008. Web.
  23. Randolph P. Johnston, A Strategy for Finding the Right Software, Journal of Online Accountancy. 2003. Web.
  24. Roshan Tolani, Internet- Based Accounting. 2008. Web.
  25. San Jose Unified School District, Payroll Technician- example of duties. 2008. Web.
  26. SIMMS Accounts Payable Module, KCSI. 2008. Web.
  27. Thomas A Ratcliffe and Paul Munter, Information Technology, Internal Control, and Financial statements Audits, The CPA Journal, 2002. Web.
  28. XBRL International, How XBRL works. Web.
  29. ibid.