Friday, January 10, 2003

The Accountant and Information Technology

A primary function of the accountant is information management. The accountant is charged with the responsibility of capturing and converting data to information for use by the various users of financial statements. The IASB Framework states that information presented in the form of financial statements must include the following characteristics:
Understandability – information must be readily understandable by the users;
Relevance –information must influence the economic decisions of users by assisting them to evaluate the past, present or future events;
Reliability (Accuracy) –information must be free from material error and bias and can be depended on by users; and
Timeliness – information must be presented while it is still applicable for decision making.

In pursuing these primary characteristics the accountant can find IT (Information Technology) and other tools useful. The expanded nature, increased complexity and competitiveness of modern business necessitates that the accountant fully understands what IT tools are available.

The accountant must find ways to capture data at the transactional source and speedily convert that to information as this is the most efficient way to capture data and when it is most readily available. This is easily achieved via process specific and accounting applications. At the core of such applications is an accounting system, which consists of a general ledger (GL) and include accounts receivable (AR), accounts payable (AP) and inventory (IV) functions. Extensions of these modules include order entry (OE), purchase order (PO), manufacturing, warehouse management, reservation and other process specific applications. The primary benefit to be derived from these applications is the efficient gathering of data and reporting of information.

The chart illustrates the relationship between the various modular components of such applications. The ultimate aim is the capture of information in the GL to produce financial statements. Along the way the method of gathering data is critical. The chart shows that systems today encompass the full gambit of an organization’s operation. The idea behind these systems is to capture data at each point of interaction with external parties, thereby reducing the need for manual data processing. There is no longer a need to employ a specialist data processing department or individuals primarily for that purpose. Additionally, these systems add benefits of speed (timeliness), accuracy and relevance to the information process.

The points at which data is gathered includes, but is not limited to:
Entry of customer quotes, vendor invoices and job costing information;
Printing of customer invoices and cheques for payment;
Printing of purchase orders; and
Entering inventory receipts.

When data is gathered at these points it produces instantaneous information for management decision. Additionally, capturing data here creates a check point for accuracy as external parties ensure the correctness of the documentation. The result is a reduced need for unnecessary reconciliation. A well setup and run system means that financial statements can be kept current throughout the month. IT tools therefore enhance the IASB Framework characteristics.

At each stage management will have information for decision making. A manufacturing system will produce costings, a PO module will show credit obligations, AR and AP will show customer and vendor balances and history and the GL will produce financial statements. It should also be noted that the further the information gets from the point of external interaction the more consolidated it becomes. This is consistent with the use of information by various levels within the organization. Management will primarily use the more consolidated information and the functional staff will use daily reports. This is a guide for the various access levels given to the users.

There are various options available to the accountant. Some examples include:
1. Large and multinational companies – Oracle Financials, JD Edwards;
2. Medium to Large companies – EPICOR Financials, ACCPAC, Solomon, Great Plains; and
3. Small companies / Home Office – MYOB, Simply Accounting, QuickBooks.

The appropriate system selection not only depends on company size and transaction volume, but also on the features and third party solutions available. Each system has its strong points and weaknesses. In selecting an appropriate system the accountant must ensure that proper due diligence is conducted, which examines, among other things, the following requirements:
- Transactional (process method and volume);
- Processing speed;
- Input / Data capture;
- Reporting; and
- Integration needs.
The accountant must arrive at a balance between cost and functionality. Implementation of these systems also requires careful project management and here again the accountant can utilize tools such as project management and flowcharting software to assist.

The onus placed on accountants for the quality of management information, inevitably will lead to a merger between the accounting and IT functions. A move towards efficiency and the available tools has made that distinction redundant. Today’s accountant must understand IT to be relevant.

In the final analysis, the accountant is responsible for the integrity and timeliness of information and must employ these and other tools in achieving the objectives. Although this is a very involved process, ultimately it will enhance work flow and decision making. If organizations are to become more efficient in today’s competitive environment then the accountant must be aware of and consistently employ new IT tools.

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