Information Technology Impact on Managerial Accounting Student Name Assignment Week #1: Article Research Paper BAOL 531: Managerial Accounting Professor: Dr. Thomas Seiler Date
Information Technology Impact on Managerial Accounting
Information technology has soared within the past couple decades. Today, individuals live in a technological era in which they are constantly connected, whether it be through cell-phones, laptops, IPads, etc. As one can imagine, this new technology has also brought about change and opportunity for the accounting industry. Think back to when financial statements and tax returns were prepared by hand, to now where just about everything is done electronically. Instead of sifting through paper documents, one can easily retrieve information with a few clicks of their computer mouse. Needless to say, information technology has had a tremendous impact on both financial and managerial accounting.
Purpose of Research
The general purpose of this research was to study how far information technology has advanced and how current information technology has impacted the managerial accounting profession.
Review of Literature
According to Warren Jr., Moffitt, and Byrnes (2015), in 2000 approximately 25% of accounting information was stored electronically, whereas today, roughly 98% of information is stored electronically (p. 397). That is a vast increase in 15 years and a perfect example of how technology has significantly impacted the accounting industry. The research conducted by Warren Jr. et al., focused on Big Data, which is various forms of datasets such as video, images, social media, websites, etc. and how all of this information can be collected, analyzed and used to improve financial and managerial accounting (pp. 400-401).
Warren Jr. et al. (2015) provided that managerial accounting is “the use of information generated from accounting records to help managers carry out their duties” (p. 400). Thus, information technology has increased the amount of data available for managers to analyze. However, Bredmar, Ask, Frisk and Magnusson (2014) believed that the key to information technology is that managers must develop accounting systems that measure and/or pull the data that is relevant and useful to the manager. In other words, the amount of information available is almost endless, thus, managers need to develop a plan or a goal and build the management system from there (p. 126). An idea suggested by Warren Jr. et al. is for managers to leverage the Balanced Scorecard management control system to identify behaviors in both a financial and nonfinancial measure; Big Data can identify the behaviors outlined in the Balanced Scorecard and provide important information to the manager (p. 400). For example, telephone usage can track productivity, email can be used to track internal processes, client service, etc. (pp. 400-401).
Organizations can also use information technology for budgeting (Warren Jr. et al., 2015). Managers can analyze historical data and look for trends or seasonal business activity to forecast financial information. Warren Jr. et al. believed Big Data and information technology will allow managers to use other useful information such as climate, performance evaluations and labor to produce budgets (p. 401). In other words, some companies are moving past the traditional budget in which only financial data is used, and are incorporating multiple datasets into the budget. Bredmar et al. (2014) also believed that organizations can utilize information technology to develop rules and calculations to create budgets and define specifically what those budgets are to be used for.
The research suggests that information technology has and will continue to significantly impact accounting. It is astounding how much information is available to individuals every single day. With information technology and advanced accounting systems, businesses can collect, analyze and produce financial information that is relevant, useful and likely more accurate than in the past. The research conducted by Warren Jr. et al. (2015) provided an excellent indication of how information technology will positively contribute to the managerial accounting profession. The research explained that information technology will help improve management control systems, budgeting and other nonfinancial reporting such as client satisfaction and employee productivity (p. 405). Bredmar et al. (2014) also indicated that as times change, and so too do performance measures and reporting requirements. Thus, it is both appropriate and important to utilize information technology to learn, grow and adapt in the accounting profession. For example, as performance metrics change, companies should adapt their systems in order to meet the needs of the new goals of the company (p. 135). In summary, information technology will assist managers in adapting to the constantly evolving accounting world.
I am always in awe with the technology today. Especially when I speak with Partners at the firm I work for and they remind me that they used to prepare tax returns with a pen and paper, some of those tax returns were 200 pages long! All that to say, it is amazing how far technology has come throughout the years. I imagine companies are able to perform much more detailed analyses today versus in the past. Mainly because they probably did not have the information or resources available to perform such complex calculations. Thus, not only has information technology assisted companies in analyzing data more efficiently but it has also provided business leaders with more useful information; more informed business leaders would hopefully result in better business decisions and economic growth. In addition, information technology has been instrumental in delivering useful information to investors. Therefore, I’m sure investors and stakeholders are thrilled with the amount of information made available to them because they can use that information to try and invest their funds wisely.
One thing that I think is very important to keep in mind is “Garbage In – Garbage Out.” In other words, business entities first need to confirm and verify that the data going into their systems is good data. The company then needs to verify that their information systems and reports are collecting all the necessary information, because if one key element is left out, the results become useless. The point I am trying to make is because there is so much data available, it is important for managers to distinguish what is relevant data versus what is not relevant data and then build their analysis and reporting around that. Essentially, companies should not get lost in all the data or produce reports that are too complex, vast or difficult to understand. The goal should be to collect, analyze and report the most useful information in logical manner.
Bredmar, K., Ask, U., Frisk, E., & Magnusson, J. (2014). Accounting information systems implementation and management accounting change. Business Systems Research, 5(2), 125-138. doi:10.2478/bsrj-2014-0015
Warren, J. D., Moffitt, K. C., & Byrnes, P. (2015). How big data will change accounting. Accounting Horizons, 29(2), 397-407. Retrieved from http://aaajournals.org/doi/pdf/10.2308/isys-51580