Technology’s Impact on Accounting and Business

October 23, 2012
644 Views

I recently participated in a panel discussion—which was (perhaps esoterically) titled “The Relationship Between Information Systems and Accounting In Practice: Implications for Teaching and Research”—at the American Accounting Association’s (AAA) annual meeting. The AAA annual meeting is attended predominantly by representatives from higher education establishments and accounting firms, both in the US and overseas.

I recently participated in a panel discussion—which was (perhaps esoterically) titled “The Relationship Between Information Systems and Accounting In Practice: Implications for Teaching and Research”—at the American Accounting Association’s (AAA) annual meeting. The AAA annual meeting is attended predominantly by representatives from higher education establishments and accounting firms, both in the US and overseas. My professional body, the Institute of Chartered Accountants in England and Wales (ICAEW), sponsored the panel and I was joined by a partner from a large accounting firm, two university professors and the Technical Director of ICAEW.

The view I held before I participated in the panel was that, since I have left practice over 17 years ago, the world of accountancy must have evolved significantly in the sophistication of its ability to recognize and be aware of business IT issues. Furthermore, I presumed that the educational incubation of new accountants was supporting this.

I was apparently wrong.

As the person charged with beginning the discussion, my remit was: (1) to give a historical perspective on the development of IT and accounting; and (2) to discuss current trends and challenges, how IT impacts accountants and how accountants can add value in businesses today.

A Historical Perspective of IT and Accounting

Accounting was the early driver of information technology in business. The first business computer, the Lyons Electronic Office (LEO), was built by Lyons, a British catering company (who, incidentally from personal experience, served wicked cream cakes!). In 1951, the computer ran a program to evaluate the costs, prices and margins for that week’s output of bread, cakes and pies. In 1954, it took on the weekly calculation of the company’s payroll. LEO was primitive by today’s standards, taking 5,000 square feet of floor space!

Current IT Trends

Since then, information technology has diverged significantly from its initial primary role of processing accounting transactions and supporting financial reporting. Despite this, the accountancy profession has a critical role to play in the evolution of IT in business—and yet there are a number of concerns about how this will play out, particularly from the standpoint of tomorrow’s accountants currently in higher education.

  • Technology in business is moving at what seems to be an ever-accelerating rate. I now have more computing power in my mobile phone than 1970s-era mainframes had. It is also sobering to consider that when I started at RDA over 17 years ago, business use of the Internet was non-existent. In order to ensure tomorrow’s accountants don’t enter the workforce with a dated knowledge of the impact of technology, academia is going to have to be agile in the way it keeps content current and relevant.
  • Tomorrow’s accountants are part of the so-called “millennial” generation who only know a world in which apps—think Facebook, Twitter and YouTube—are omnipresent. These accountants tend to take being connected for granted. For them, texting has replaced phone calls and even email can seem antiquated as a communication mechanism. They seem to have little appreciation for the importance of privacy and security and don’t realize the consequences of everything they put up on the World Wide Web. So while tomorrow’s accountants are comfortable being immersed in the world of consumer technology, they must be educated and have an appreciation for the latest advances in business IT if they expect to play a role in IT’s business evolution.
  • The use of IT in business creates significant business risks that tomorrow’s accountants must be able to recognize and manage. Consider current developments and trends in business IT:
    • In 2010, Gartner estimated that 80 percent of business data was now unstructured (e.g., documents, images, spreadsheets, presentations). That figure was estimated to grow at a compound rate of 50 percent each year. Unstructured data presents significant business risk from several angles—not the least of which are regulatory, intellectual property, confidentiality and privacy.
    • Mobile computing is starting to have a significant impact on how business is conducted. The world of mobile computing is still very immature from a business perspective. Businesses are trying to figuring out how it impacts both operations and customers (which is about to get even more complex by the introduction of the third major mobile platform in the form of Windows 8). Security, privacy and manageability are big issues regardless of the mobile platform used.
    • The cloud is starting to have a major impact on business. It is enabling businesses to scale their IT infrastructure, turning what has been traditionally a fixed cost into a variable cost. But with the cloud comes major security and privacy concerns (which is why health and financial services in particular are slow to adopt it), as well as availability risk (what happens when the connection to your IT resources fails for a critical system?)—all issues that need to be managed.
  • Accountants need to understand the implications of internal controls on the development and operation of business technology. Although there is a place for specialists who understand this area more deeply, accountants still need to have an appreciation of the issue so they know when they need to call for help. A look at some recent news stories seems to confirm the impact of what I argue are internal control failures over software development.
    • A software bug resulted in Knight Capital having to raise $440M to stay afloat.
    • Southwest Airlines is sending refunds to customers who were billed multiple times after a half-price online ticket promotion backfired.
    • NatWest/RBS (the British Bank) is facing compensation claims from a debacle in June when a software issue caused a multi-day problem that in turn caused customers to be unable to access their accounts online and prevented direct debits and standing orders from being processed.
  • Accountants need to treat all information that is produced by computers—and upon which business decisions are based and finances reported—with a healthy skepticism. How do we know the information is accurate? That applies whether it’s contained in a spreadsheet, produced by an accounting system or available on the Internet.
  • Finally, accountants need to understand how technology impacts business and how it can be used to improve operational efficiency, achieve regulatory compliance, support financial reporting and management and even increase revenues. They must also have an appreciation for how to capture and communicate technology needs for their business.

A Consensus of Concern

Unfortunately, the views of the other panelists on the steps being taken to prepare future accountants did not give much cause for comfort, either; one commented that the information technology component of accounting courses in higher education is “stuck in the ’60s.” I didn’t take that to be literally true, but rather to mean that academic institutions are way behind when it comes to teaching content that is relevant to today’s business world. Also to my surprise, one of the panelists said that accounting students are generally ambivalent or even hostile to learning about IT in business and don’t see its relevance to accountancy. While attempts are being made to encourage a crossover between the two, particularly in accounting practices, relatively few accountants seem to actually “get it.”

Empowering Tomorrow’s Accountants To Make Sound IT Business Decisions

IT provides the “machinery” that not only keeps many organizations in business, but helps them stay competitive. With finance departments still controlling the IT purse strings in many organizations, it is vital that tomorrow’s accountants have a sufficient understanding of IT and its organizational impact, are able to cut through the smokescreen of IT jargon and can provide valuable perspectives and insights on IT related decisions. How will they get the knowledge and skills to do this if they don’t get a good academic grounding?

Aside from learning through practical experience and taking advantage of educational opportunities, there will seemingly be a continual need for trustworthy, bilingual (business speak/IT speak) consultants who can provide the objective advice and assistance to help accountants make good business oriented decisions around IT. Or, as RDA’s website puts it, consultants who are “taking the time to understand (our) clients’ business needs and then mapping the appropriate technology solution.”