Lesson 2: Information Technology in Accounting - Summary Problem

Context and Learning Outcomes

• Technical competencies:
  • 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting
  • 1.1.4 Explains implications of current trends, emerging issues and technologies in financial reporting
• Learning outcome:
  • Discuss aspects of information technology in accounting.
• Summary Problem (parts a–d)

a) Components of an information system

• People: It is people who program systems, input data, and interpret the results.
• Processes and procedures: A process is the steps taken to achieve an outcome, and procedures are the specific steps required to complete an activity within the process.
• Networks: The infrastructure that allows computers to communicate with each other, including the transfer of data.
• Hardware: The physical elements of a system, including monitors, servers, printers, processors, and storage devices.
• Software: Non-physical elements of the system that gather, organize, and manipulate input data.
• Data: Inputs processed by the computer software.

b) XML and XBRL in financial reporting

• XML is a system for encoding documents for transmission over the internet. Reports can be encoded using XML, then transmitted and decoded back into readable files, allowing end-users to use data as needed.
• XBRL is an XML-based system that enables business reporting. The system allows financial statements to be prepared under ASPE or IFRS and their notes to be uploaded, searched, and used by regulators, banks, insurance companies, financial markets, and other businesses.

c) System reliability in accounting information systems

• Privacy: In AIS, privacy involves protecting personal and sensitive data from unauthorized access; organizations should comply with privacy laws and implement access controls, data minimization, and encryption.
• Confidentiality: Restricting access to sensitive information to authorized individuals.
• Security: Measures to protect data and systems from threats, including cybersecurity, physical security, and incident response.
• Integrity: Ensuring data is accurate, complete, and unaltered; uses validation checks, reconciliation, audit trails, and controls.
• Availability: Ensuring system uptime and accessibility; includes backups, disaster recovery, and business continuity planning.
• In AIS, these five components collectively safeguard the reliability and trustworthiness of financial reporting; breaches in any element can compromise reporting quality.

d) Impact of one new or changing technology on financial reporting

• Example technology: Blockchain and smart contracts (or cloud-based AI analytics).

• Potential impacts:

  • Real-time data capture and continuous accounting and auditing.
  • Immutable audit trails improving traceability and reliability of transactions.
  • Changes in internal controls and testing requirements; need for new assurance approaches.
  • Potential reductions in manual data entry, data reconciliation effort, and the timing of financial reporting.
  • Implications for regulatory compliance and standards; interoperability with existing systems and XBRL/ASPE/IFRS.
  • Data privacy and access considerations; governance and skill requirements for the finance function.

• Practical implications: training, cost, migration risks, vendor selection, data migration, and continuity planning.

• Ethical, philosophical, or practical implications (implicit in adopting new tech): considerations around data ownership, accountability for automated decisions, and ensuring continued public trust in financial reporting.