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Advantages and Disadvantages of Accounting Technology Accounting Information Systems Security Issues
accounting (ACCT. 101)
Western Mindanao State University
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Advantages and Disadvantages of Accounting Technology
Accounting operations have undergone tremendous changes recently due to growth in accounting technology.
Accounting technology enables accountants to manage accounts and perform accounting operations using computer software applications.
These software applications are commonly known as accounting software or financial management software, which are helpful to track transactions, categorize income and expenses, calculate taxes, facilitate bill payments, create financial reports, and analyze investments.
Types of Accounting Software
Two types of accounting software are available, namely single-entry systems and
double-entry systems.
Single-entry systems or personal finance managers are the simplest
accounting programs designed to automate tasks such as record keeping and check writing.
Double-entry systems support functions such as financial ledgers, accounts
receivable and accounts payable. Some advanced enterprise solutions possess multi-user capabilities and support functions for payroll, invoice, inventory, sales analyses, manufacturing and marketing.
Automation
Automation of accounting processes is the most important benefit of accounting software. With automation, generation of accounting documents such as invoices, checks and account statements have become simple. Necessary financial reports can be generated in a timely manner.
Financial data are posted to respective financial ledgers or accounts automatically, which avoids manual errors and ensures consistency and integrity. Employees are able to automate routine and repetitive manual tasks using accounting software. Data storage ability of accounting software allows rapid information sharing and better communication among employees. Sophisticated accounting software applications handle complicated issues such as foreign currency transactions, supply chain management and logistics management.
Increased Management Efficiency
Accounting software applications keep the work force more focused and efficient. Faster and more efficient processing of financial reports simplify the process of management decision-making.
Employees are able to automate cumbersome and labor-intensive accounting processes, and focus on other important and strategic activities. Advanced accounting software, with its inbuilt mechanism, ensures stringent risk and compliance procedures to meet the regulatory standards. Comprehensive business performance and sales reports help management take important decisions on revenue-generating strategy.
Disadvantages
All accounting software require data be entered manually. If the data are not examined for accuracy and completeness, the reports generated by accounting software will lead to misconception.
Many of the accounting software needs to be customized to match business requirements. It is necessary for management to train employees specifically to access and use the accounting software, which involves huge cost and time.
If tax rates and rules change, accounting software used to calculate taxes must be rewritten accordingly to avoid errors. Power failure, computer viruses and hackers may affect computerized systems if proper precautionary and security measures are not in place.
Why Do Accounting Information Systems Fail?
Accounting information systems (AIS) have revolutionized the way business is done on a global perspective. Once financial information is entered into the AIS, financial reports and statements can be generated at multiple business levels to ensure profitability.
In order for AIS software to present accurate financial reports and statements, the accounting information must be entered into the AIS correctly and efficiently.
The Facts
Audits from outside accounting firms usually focus on the validity of financial information entered into the AIS; recording invalid information is a critical error and will be listed as an accounting deficiency on audit reports.
Accounting Workflow
Financial information must follow the proper steps in order to meet the requirements of timeliness, accuracy, and validity. Every accounting office should have a workflow to ensure that all financial transaction can be entered into the AIS and financial reports run before the accounting period ends. Efficient workflows will also have each document handled only once during each process, eliminating increased work by over-handling financial transactions.
Willful Fraud
Although financial transactions may meet the accounting requirements of timeliness, accuracy, and validity, some businesses engage in willful fraud to promote the financial health of their company.
AIS software was meant as a computerized record that is difficult to manipulate, but it can still be done. Using special accounts that hide transactions, creating separate entities to hide debt, and using former auditors to design a company AIS are all ways to create fraudulent information with an AIS.
The Disadvantages of Manual Accounting
Time Consuming
Accounting processes that use paper journal and ledgers or similar tools requires copious time to complete tasks. Accountants will need to locate accounts and journals in the system prior to recording entries.
Checking account balances and reviewing information is also difficult. Accountants may also need to rifle through multiple documents to locate information requested by executives. Copying this information can also be difficult.
Subject to Errors
Errors can be quite frequent in manual accounting processes. Common errors are entering information into incorrect accounts, transposing figures or recording information backwards. While these errors are also in modern accounting systems, manual systems have no internal checks and balances.
Accountants researching errors will often spend several hours to locate and correct entries. Multiple accountants working in several manual accounting ledgers can exacerbate these problems.
Lack of Security
A lack of security is another common disadvantage to manual accounting. Companies may be unable to prevent employees from reviewing sensitive data in paper ledgers and journals.
Files copied and stored on a computer may also be less secure. This may allow employees to abuse financial information through fraud or embezzlement. Disgruntled employees may also irreparably damage the information and destroy important financial records.
Few Copies Available
Large organizations often find manual accounting difficult due to the lack of multiple ledgers and journals. Most businesses will have one journal for accounts payable, accounts receivable, payroll, fixed assets and so on.
This means only one accountant can work on a journal at any given time. Separating out these ledgers into sub-ledgers can result in less security and the potential for duplicating information in the accounting system.
Types of Accounting Packages
Back in the 1980s, accounting was done manually. With the advances in technology, this process has been automated and improved. Businesses of all sizes are now using financial management software to streamline accounting processes and reduce human error.
The different types of accounting packages available today can accomplish a variety of tasks, from data entry to e-filing and reporting. They can be integrated
Payroll and accounting software is a type of financial management software that appeals to small companies. Your accounting department can use it to calculate bonuses, generate payslips and automate year-end reporting. They can also link it to timesheet systems to record employee attendance and streamline payroll calculations.
Furthermore, these programs can store your company's financial data and provide forecasts. Some have advanced reporting capabilities and may help reduce the need to understand tax legislation. Because of their simplicity, they are an easy target for cybercriminals and carry a higher risk of data loss and theft.
Installed Accounting Software
Some accounting packages are available on CDs and DVDs, making them ideal for start-ups and small companies with a slow or limited internet connection.
These programs are easy to install but difficult to customize and use remotely. Since the data is stored on physical devices, it cannot be shared with other departments within your organizations.
Commercial Off-the-Shelf (COTS) Software
COTS software is built and delivered via a third-party vendor. It's one of the most popular options for companies worldwide, featuring advanced reporting and error detection capabilities. Most accounting packages in this category are designed for specific industries.
This type of business software appeals to large companies. It usually comes with pre-built settings and cannot be customized. Some programs are available online, which allows users to access them through the vendor's website.
Solopreneurs and small companies can opt for basic accounting packages, such as invoicing software. Zoho Invoice, Bill and Harvest are just a few examples. Another option is micro-business software like Zoho Books and Sage One. These programs can handle tax tracking, double-entry accounting and other simple tasks.
Accounting Information Systems Security Issues
Accounting information systems contain confidential and private information that can become compromised if left unprotected.
Unauthorized use of an accounting system can be disastrous, risking loss of information, bad data input and misuse of confidential information. Security of accounting systems is a priority in many firms.
Management
It is interesting to note that security of accounting information is a top management responsibility, not really just a bookkeeping or IT problem.
Section 404 of the Sarbanes-Oxley Act (SOX) made it mandatory for management to maintain internal controls over financial reporting, and that includes accounting systems, which generate numbers for the reports.
Risks
The risks with accounting systems are real, from booking fake transactions to having someone steal a backup tape with all financial information on it. Examples of risks: Theft of social security numbers from employees and contractors Payments to fake vendors Data deletion/loss Damage to backup tapes Theft of servers or computers Security Measures
Security measures are also known as controls, and they can be preventive, to prevent risks, or detective, to identify problems after the fact. Once risks are identified, the controls can be set up to protect the system. Some security measures are:
Frequent password changes Encryption of data Monthly supervisor review of vendor reports Safe and protected server and computer environment Safe and protected off-site archiving of backup tapes
Advantages and Disadvantages of Accounting Technology Accounting Information Systems Security Issues
Course: accounting (ACCT. 101)
University: Western Mindanao State University
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