Throughout the years, accounting and financial reporting have embraced the digital revolution, I will be explaining the role of computers in financial accounting and discussing whether embracing the digital revolution has helped or hindered traditional financial reporting.
Accounting is recording transactions in a business or organisation in a specific period of time, it helps create various reports, which include the balance-sheet as well as the profit and loss statement.
Reporting is the process of gathering all the information from all the ledgers to form statements, that show shareholders where the business stands.
Accounting includes the double entry system, which means that every transaction a business makes has an impact on two accounts, for example, if a business was to buy goods on credit from their supplier, their asset account will increase in value as well of their liability account because they still owe this money to the business. Over the years accounting has embraced the digital revolution, before this everything was done by hand, especially the double bookkeeping entries. There would have been a bookkeeper who entered all the entries in several different books, as most businesses have many accounts opened, which made it more prone to human error. If an error was made it would likely have been caught up on after the trial balance was made, hence making it a very time consuming process, with modern software it has allowed business to save time and also reduce the risk of error as the systems do not require you to put two entries, all that needs to be done is you input the invoice and the system then makes the double entry. Also if an entry does not balance in the system, the software will not allow you to add it, which has highlighted the error, before it has been made hence making it a more efficient way of accounting.
By embracing the digital revolution, it has allowed accounting to be more improved in terms of what data can be stored (Improved Detail), how easily data can be simultaneously accessed virtually from anywhere in the world (Simultaneous access to Data) among the abundant saving a business can make due to reduced costs (Cost Saving). Many businesses are now keeping all financial data stored locally or in the cloud which allows worldwide access. This has really helped financial reporting as businesses can update accounts in real time. Correspondingly with having a computerized accounting system, it allows extra information to be stored with each transaction, which can be done to ensure that the transaction is legitimate, hence making it harder for workers to commit fraud and take money out of the business which has been done previously. Businesses also save a lot of money due to lowering costs as administration staff is not required to make every single double entry, all that is required from them in most systems is to input certain information, such as an invoice and the system makes the double entry system automatically.
Along with the all the benefits that come with the role of computers in financial reporting, it has its drawbacks which can have a really negative impact on a business. The first drawback I will be expanding upon is Artificial Intelligence. Artificial Intelligence is described as a machine of software which can be used to demonstrate the same behaviour the human brain, although this is currently not possible there are software’s which accountants use that can demonstrate limited intelligence. Accountants greatly rely on software’s which have Limited Artificial Intelligence built into them which helps them complete complex tasks which range from financial reporting to taxation. The reason this is a drawback is that if there was to be some sort of malfunction or issue which doesn’t allow certain tasks to be undertaken it could cause problems as most accountants could have trouble completing the task as they have been relying too much on the software.
As financial accounting has embraced the digital revolution, I strongly believe that it has helped reporting as it has many advantages to a business such as costs saving, better accuracy, lowered chance of human error and many more. By saving costs, it allows businesses to further invest in technology which is always changing at a fast pace, also it allows the business to allocate the money in different departments where the money can be used to achieve greater business objectives. With better accuracy, it allows businesses to easily catch out any fraud that may be taking place as the numbers would most likely show up on the system. Lowered chance of human error’s also a great advantage to financial accounting as it is so advanced it wouldn’t allow incorrect entries to be made, and even if it was to be made, spotting it is much easier. However, the computer may have an issue, which includes the software having bugs or crashing which can cause loss of information and theft of information through the bugs.