Introduction: of Finance: Computerized Accounting Packages Since the

Introduction:
The Evolution of Financial Accounting

This essay will
focus, analyze and debate how computing
has altered the world of traditional financial accounting with references to
deskilling roles (i.e auditing and reporting); cybersecurity
(i.e Petya ransomware); technology trends (i.e mobility) and whether the
digital revolution has helped or hindered it. Evolving from a once slow-paced conventional
trade, public accounting has undergone numerous changes at the turn of the
century, sparked largely by the rapid changes in the surrounding environments
(Elliott 1998) 1.

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The Digital
Revolution of Finance: Computerized Accounting Packages

Since
the introduction of computing, there has been a surge of businesses that have
migrated their accounting practices from traditional methods such as ledgers
and clerks to modern software packages, either “bespoke” or “off-the-shelf”, each
having their own advantages and disadvantages. Corporations typically use
tailored software whereas smaller companies focus on ‘off-the-shelf’ products
due to cost and availability. Both types, however,
scale back the workload of employees, as such “de-skilling” their roles and
reducing the workforce due to increased automation.  

Financial
Times published an article in September 2017 which focused on the top four firms
(KPMG, PwC, Deloitte, and EY) seeking to
invest more into ‘pilot projects’ focusing on artificial intelligence (AI),
embracing the automation of audit. While such technology exists, auditors strongly
believe that instead of over-relying on AI, it should be used to relieve
pressure off their role so that they can focus on areas where human judgment is required more (Murphy H, 2017,
ft.com, Accessed 22/12/2017)2.

The
Financial Reporting Council (FRC) reported that between 2011 and 2016, there
was a staggering increase in FTSE 250 companies changing auditors rather than
retaining them, yet the forecast for 2017 onwards shows an uncertainty in the
future of auditing as AI advances at a rapid rate. Furthermore, the FRC fined
PwC in 2017 £5.1m for auditing misconduct on a subsidiary firm. This shows that
embracing computing for financial reporting is helpful as human error can be
eliminated, and companies can focus on more important tasks rather than
reporting and audit 2.

An
advantage of automated systems is that it’s
cost-saving (Thomas & Ward, 2015) 3,
as fewer employees are needed for functionality.
Moreover, detailed data is generated real-time which is faster and accurate,
but more importantly easier to access globally and simultaneously compared to
traditional auditing. Symantec operates globally (Symantec.com, Accessed
02/01/18) 4 and allows
employees to access information collaboratively. If a transaction in China occurs,
then USA employees can access it instantly, creating rapid communication time.

However,
there is an over-reliance to AI, hindering financial reporting as rapid generation
of information may be overlooked for any errors as employees may assume the
system is correct. Additionally, a ‘digital divide’ between employees means
that more training is required and that employees that struggle to learn will suffer.
A major disadvantage of computerized packages is cybersecurity. Hacking and information misuse is
a great problem within the computing industry, with misuse ranging from stolen
details to ransomware and Trojan viruses (See below).

The Digital
Revolution of Finance: Cyber-Security

As
technology advances, there is an increase in cyber-threats, ranging from basic
Win32 Trojans to complex cache demanding ransomware(s).
In traditional financial reporting, there was no need to tackle cyber threats
as all accoutring was done manually and physically. With the embracement of the
digital transition, however, this has allowed for hackers to remotely
access information through such ‘bugs’ within computerized
software packages, making data theft easier than ever. Another burden is misuse
and fraud.

As
seen in the June 2017 ‘Petya’ ransomware scandal, Tax accounting software ‘MEDoc’ used globally had a malicious command
line integrated into the software updater that when triggered, infested the
hard drive(s) containing confidential reports, ‘locking’ the users out of their
workstations. This ransomware affected over 60 countries, with businesses such
as Russian oil company ‘Rosneft’ (Irvine
J, 2017, economia, icaew.com, Accessed 20/12/2017) 5. Proper internal controls need to be
implemented and preserved to prevent fraud. 
The ‘HM Treasury’ reported fraud
within their department, as a junior clerk exploited a software update and
administrative privileges to de-fraud £100,000 3.

While
relying on software for accounting is easier for businesses, the ‘Petya’ ransomware scenario proves that the digital
revolution has hindered reporting. A burden that businesses face is that they’re
‘forced’ to purchase expensive anti-virus software, regularly update their packages
and create disaster recovery strategies; should their systems ever be
compromised. With the HM treasury scenario, knowing that the over-reliance on the system meant minimal
checking, fraud was easier to execute. Traditional reporting consists of more
human judgment, to ensure that all
ledgers are balanced, therefore fraud is easier to spot.

Conclusion

Embracing
the ‘digital revolution’ is not necessarily helping financial reporting than it is hindering, but I believe that this
is a step in the right direction. There is work needed to secure this new
venture in finance, as manual reporting will eventually become obsolete. Advancements
in AI will mean ‘smarter’ technology, but there will always be a threat to counter
it. 

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