Study Unit 11:Accounting in Technology Study Notes

Introduction

• Society is increasingly reliant on computer and communications technology, marking a shift into the information age.

Blockchain

• Definition: A decentralized, distributed, and public digital ledger for recording transactions across numerous computers.

• Transactions are publicly stored, forming a shared ledger that requires network consensus for retroactive alterations.

• Bank of England Definition: A technology enabling trust in a shared record of events among unfamiliar parties.

• Used in cryptocurrencies like Bitcoin.

Benefits of Blockchain

• Security: Key benefit in the digital era, addressing cybersecurity risks associated with traditional "closed" systems.

• Traditional systems are vulnerable to modifications by a single party, leading to hacking risks.

Features of a Blockchain

• Transactions recorded by multiple participants on a network via the internet, maintaining identical records.

• Transaction details (value, time, date, parties involved) are recorded by all participants, requiring consensus for ledger updates.

• Computers audit transactions; verified details update all participants' records, forming a decentralized network.

• New blocks are cryptographically linked to previous ones, ensuring chain integrity and making retroactive alterations difficult.

• Cybersecurity is enhanced; interference is rejected by network participants verifying transactions.

Typical Stages in a Blockchain Transaction

1. Transaction is requested.

2. A block is created as a digital representation of the transaction.

3. The block is sent to every node in the network (distributed ledger).

4. The nodes validate the authenticity of the transaction.

5. The nodes receive a reward or the proof of work, such as bitcoin.

6. The completed authorized block is added to the chain.

Relevance of Blockchain Technology to Finance Professionals

• Provides clarity on asset ownership and obligations, improving efficiency for accountants concerned with measuring property rights and allocating financial resources.

• Offers an unalterable, transparent record of accountancy-related data.

• Examples of Enhancements:

  • Reducing costs of maintaining and reconciling ledgers.

  • Providing certainty over asset ownership, obligations, and measurement of amounts owed.

  • Helping accountants gain clarity over available resources.

  • Freeing up resources for planning and valuation instead of record-keeping.

Fourth Industrial Revolution (4IR)

• Definition: Advent of a "cyber-physical system" (CPS) with new capabilities for people and machines.

• Builds on the technologies of the Third Industrial Revolution (3IR) but embeds technology in societies and human bodies in new ways.

• Examples: Genome editing, machine intelligence, breakthrough materials, cryptographic governance methods.

• Represents revolutionary changes and applies to both the technical shift of the Second Machine Age (2MA) and its societal impact.

Second Machine Age (2MA)

• Technological progress in digital hardware, software, and networks automating knowledge.

  • (a) Exponential growth of Moore’s Law.

  • (b) Digitalization of everything.

  • (c) Combinatorial innovation.

• Characterized by profound transition and massive data collection.

• 4IR generalized as a major economic change driven by shifts in work methods and types.

• A new phase fusing technologies to automate production and knowledge through increased computing capacity and machine learning.

• Development of CPSs emerged in Germany around 2000.

• In 2016, 4IR highlighted disruption to labor costs and permanent alteration of living and working patterns due to CPS.

Understanding of CPS

• Coined in 2006 by the US National Science Foundation (USNSC).

• Physical and engineered systems monitored, coordinated, controlled, and integrated by computing and communication cores.

• Transforms human interaction with the physical world, similar to how the internet transformed human interaction.

Emergence and Navigating the Industrial Revolutions

• Technologies are emerging that affect our lives in unimaginable ways.

  • First Industrial Revolution (1760-1830): Steam, craft industries, mechanical production equipment; shifted reliance from animals, human effort, and biomass to fossil fuels and mechanical power; transitioned from rural to urban societies.

  • Second Industrial Revolution (1870-1914): Division of labor, electricity generation, mass production; breakthroughs in electricity distribution, wired and wireless communication, new power generation; growth of corporations and globalization.

  • Third Industrial Revolution (1950s): Digital systems, communication, advances in computing power; development of IT and electronics; move from mechanical to digital technology; known as the Digital Revolution; driven by communications, computers, and the internet.

  • Fourth Industrial Revolution (Current).

Features of the Fourth Industrial Revolution

• Fusion: Cyber and physical systems continue to merge.

• Employment: Automation may make jobs redundant or change them fundamentally.

• Artificial Intelligence and Machine Learning: Enable customized products more easily and cheaply.

• Machine-Led Manufacturing: Shift from machines aiding workers to workers aiding machines will accelerate.

• Improved Asset Management: Benefits to the natural world through efficient use of assets, renewable energy, and innovations in recycling.

4IR and New Jobs

• Potential for increased unemployment and inequality.

• Well-paying jobs are expected in creativity, data analytics, and cybersecurity.

• Skills needed for the automation economy differ from those emphasized by higher education institutions.

• Top Ten Skills (World Economic Forum “Future of Jobs” report):

  • Complex problem-solving

  • Critical thinking

  • Creativity

  • People management

  • Coordinating with others

  • Emotional intelligence

  • Judgment and decision-making

  • Service orientation

  • Negotiation

  • Cognitive flexibility

• Active listening and quality control (needed in 2015) replaced by cognitive flexibility and emotional intelligence in 2020 due to automation.

• Work becomes more fluid, requiring employees to be agile and adaptable.

Major Areas of Concern

• Inequality: Increasing wealth concentration among the richest 1%.

• Security: Hyperconnected world combined with rising inequality can lead to fragmentation, social unrest, and extremism.

• Identity, Voice, and Community: Technology embedded within us raises questions about diversity, collaboration, and what it means to be human.

Role of Higher Education Institutions in the Era of 4IR

• HE is changing due to the fast-shifting global economy.

• Needs to prepare thinkers of the 4IR with interdisciplinary skills.

  • (a) Current HE systems designed for past industrial revolutions are not suited for the automation economy.

  • (b) Design, construction, and verification of CPS pose cross-disciplinary challenges.

  • (c) Information transfer is no longer the sole purview of HE; lifelong learning and upskilling are essential.

  • (d) Adult learners need continued learning opportunities.

  • (e) Collaboration between governments, industry, and HE is necessary.

  • (f) An HE degree no longer guarantees past promises.

  • (g) Continued education is necessary beyond traditional degrees.

  • (h) Nearly everyone will work with AI.

  • (i) Traditional lecture and test formats are inadequate; learning must interact with the context demanding certain skills.

• Change in HE is considered inadequate.

• Bloom’s taxonomy of higher learning: remembering, understanding, applying, analysis, evaluating, and creativity.

• University systems must train accounting professionals with new skills, innovation, and social/ethical responsibilities.

Skills Level of Public Accountants in the Digitalized Economy

• Accounting and data processing are intertwined, but conceptual development lags.

• Focus is shifting to uploading data to computer media using AI for automation.

• A study concluded:

  • (a) 4IR requires new skills for public accountants.

  • (b) Accounting practice is not immune to globalization and digital internalization.

  • (c) Accountants are not ready to face the challenges of the 4IR, lacking in critical thinking, analysis, and problem-solving.

  • (d) Analytical thinking, innovation, active learning, creativity, originality, and initiative are increasingly important.

  • (e) The accounting profession must expand its horizons and internalize financial markets and ICT.

Enterprise Systems

• Accounting Information Systems (AIS).

• Commercial software packages that integrate transaction-oriented data and business processes.

• Include Enterprise Resource Planning (ERP) software and related packages.

What is an ERP?

• A system integrating management information through data flow across the enterprise.

• Integrates data gathering and processes of departments into one system.

• Handles vital operations and includes strategic and technical functions.

• Examples: SAP and Oracle.

Why Companies Buy an ERP System

• (a) Improves performance in daily operations by addressing inefficiency of institutional processes.

• (b) Simplifies management and operations of large-scale companies.

• (c) Replaces or upgrades outdated ERP systems.

• (d) Achieves financial goals through productivity gains and efficiency from business process automation.

Application of an ERP System

• AIS are fundamental for recording accounting transactions and preparing financial statements.

• The application of ERP has contributed to numerous changes in accounting information systems.

  • (a) Elimination of routine tasks of accountants.

  • (b) Requirements are increased in scope and complexity.

  • (c) Operational management requires accounting knowledge.

  • (d) Routine accounting tasks are done centrally and automatically.

  • (e) Traditional accounting tasks are transferred to other employees.

  • (f) Centres of excellence arise, specializing in demanding tasks.

Advantages and Disadvantages of an ERP System

Role of Accountants

• Accountants must develop new skills and competencies to manage information systems.

• Demanding role implies high analytical ability, knowledge of business and IT, teamwork, strategic thinking, and ethical decision-making.

• Management accountants need higher knowledge of multidisciplinary tasks.

SAP

• A comprehensive ERP system for upgrading and managing daily business, reserves, and processes.

• Developed in 1972 by German programmers at IBM.

• Produces management programs to improve businesses and connect them into one system.

• Aims for coherence and efficiency without multiple software systems.

• SAP has evolved into a comprehensive program for all sections of a company.

• Applications are called modules and can be bought separately.

• Provides practical business solutions.

Relationship Between SAP and ERP Software

• SAP is a popular and widely accepted ERP software.

  • (a) Implementation is complex and requires attention to configuring basic modules.

  • (b) Implementation can last over 18 months, resulting in using both SAP and old software.

  • (c) A time gap exists between implementation and first positive effects on analysis.

Management Accounting Changes for Companies Using SAP

• SAP reduces time for traditional tasks of management accounting, increasing time for data analysis, performance measurement, and strategic reporting.

• Modest impact on management accounting; stabilizing effect is more widespread.

Oracle

• Database is the core of information management in enterprises.

• A relational database aiming to be the world leader.

• Introduced shared SQL and multithread server system, reducing resource usage.

• Grew from a database vendor to market leader.

• Database refers to physical storage; instance refers to software executing on the server.

• Includes features for easier management.

Oracle Database 12c

• New versions released every three to five years.

• Improved scalability, functionality, and manageability.

• Appeared to be used interchangeably in 2012.

• Enterprise Manager 12c continues to be a framework for managing the database.

Managing the Oracle Database

• Manageability and rapid provisions features are useful in cloud computing environments.

• Three Fundamental Types of Physical Files:

  • Control file

  • Data file

  • Redo log files

• Offers Application Server and Fusion Middleware for business intelligence.

Database Application Development Features

• Used to store and retrieve data through applications.

• Includes language and interfaces for programmers to access and manipulate data.

• Data can be accessed using SQL/XML, XQuery, and WebDev.

• Programs can be written in PL/SQL and Java.

Optimization of Oracle System

• Configuring practice-based Transport Layer Support (TLS) has been proposed.

• Methods have limitations in privacy protection and smart contract configuration.

Pastel

• Sage Pastel is preferred for effortless daily financial management.

• Allows customers to focus on business beyond accounting.

E-commerce and Digitalization

• 2020 marked a turning point due to unprecedented growth in digital and e-commerce sectors amid the Covid-19 crisis.

• E-commerce’s share of global retail trade increased from 14% in 2019 to about 17% in 2020.

• The trend is likely to continue throughout the recovery from Covid-19.

E-commerce

• Online business process of selling, buying, delivering, servicing, and paying for products and services over computer networks.

• Objective: Add/expand revenue streams, enhance customer relationships, and improve efficiency.

• Involves manual interaction for physical transport and delivery.

• Companies are moving from push to customer-driven pull models.

The Main E-commerce Categories

• Business-to-Business (B2B): Transactions between organizations.

• Business-to-Consumer (B2C): Organization selling directly to the public.

• Consumer-to-Consumer (C2C): Consumers selling directly to other consumers.

• Consumer-to-Business (C2B): Consumers posting requests for products or services online.

• E-government: Governments transacting with organizations, citizens, and other governments.

Action Points for E-commerce

• Governments need to prioritize national digital readiness.

• Building an enabling e-commerce ecosystem requires changes in public policy.

• The approach should be holistic.

• Entrepreneurship must become a central focus.

• Countries need better capabilities to capture and harness data.

• The international community needs to find new ways to work with governments and the private sector.

Advantages and Disadvantages of E-commerce

Digitalization

• Technical process of converting analogue tasks to digital form.

• Leverages digitalized products to develop new organizational procedures and business models.

• Converts elements of firm value-chain activities using digital technologies.

• Covid-19 is the great accelerator of digitalization.

Applying Digitalization in Enterprises and Redefining Business Models

• A business model (BM) maps a business to its customers.

• Success depends on the comprehensive development, durability, and mapping of parameters.

• Digitalization is redefining products and BMs worldwide.

• For firms to join rapid transformation:

  • Firms need support from institutions on policies.

Fast-Tracking of Digitalization by Covid-19

• It is the "great accelerator" in embracing modern technologies, ushering in transformation.

• Evolved to be a "catalyst" for increased digitalization in work environments.

• Digitalization brings opportunities but imparts risks.

Barriers in the Adoption of Emerging Technologies

• Adoption may be hindered by external interests, nostalgia, and employer opportunism.

• Negative effects on employee well-being may undermine productivity.

• Psychological barriers are hampering efforts to embrace digital platforms.

Areas of Technology That Will Thrive Post the Pandemic

• (a) Data-enabling healthcare initiatives will increase.

• (b) Scalable digital business models (BMs) will start replacing product-focused operations.

• (c) E-commerce will experience a renaissance.

• (d) Digital collaboration and entertainment tools should see an upsurge in valuation.

• Augmented reality (AR) and virtual reality (VR) applications have the potential to deliver a £1.4 trillion boost to the global economy by 2030.

Solutions

• Businesses need to rethink what creates value and what role digital innovation can play, especially in sectors less impacted by the pandemic.

• Companies must stay human and customer-focused.

• Essential for businesses to create and maintain a strong digital culture.

• Winning cultures encompass trust, transparency, caring, and continuous learning.

Current Trends

Artificial Intelligence (AI)

• Widespread adoption in business and accounting is in early stages.

• Produces outputs that exceed human accuracy and consistency.

• Improves efficiency, insight, and value to businesses.

• AI can lead to the automation of many tasks and decisions.

• Examples:

  • Using machine learning to code accounting entries and improve accuracy.

  • Improving fraud detection through sophisticated models.

  • Using predictive models to forecast revenues.

  • Improving access to unstructured data.

• AI does not replicate human intelligence.

Cloud and Mobile Computing

• Computing based on the internet, avoiding the need for physical storage.

• Benefits:

  • Store and share data more easily.

  • On-demand self-service: customers can gain access to technology on demand

• Example: Budgeting process with multinational companies, allowing simultaneous input from different locations.

Cryptocurrencies

• Blockchain has the potential to deal with some unique sets of requirements like confidentiality and immutability and can therefore be deployed in many areas other than cryptocurrency. Bitcoin is a digital currency that was introduced in 2009.

• Other cryptocurrencies exist, such as Ethereum, Cardano, XRP and Solana.

• Cryptocurrencies are being developed at a heightened and intensified rate, with decentralised finance (DeFi) and non-fungible tokens (NFS) being the latest additions to the crypto market.

• Bitcoin is the oldest cryptocurrency. There is no physical version of bitcoin; all bitcoin transactions take place over the internet.

• Unlike traditional currencies, bitcoin is decentralized, meaning it is not controlled by a single bank or government. Instead, bitcoin uses a peer-to-peer (P2P) payment network made up of users with bitcoin accounts.

• Bitcoin acquisition can be done using a bitcoin exchange such as LUNO, or ALTCOINTRADER in South Africa. Coinbase and Binance are the most popular crypto exchanges in the world. These exchanges allow users to exchange rands for bitcoins.

• Bitcoin mining involves setting up a computer system to solve math problems generated by the bitcoin network. As a bitcoin miner solves these complex problems, bitcoins are credited to the miner. The network is designed to generate increasingly more complex math problems, which ensures that new bitcoins are generated at a consistent rate.

• When a user obtains bitcoins, the balance is stored in a secure “wallet” that is encrypted using password protection. When a bitcoin transaction takes place, the ownership of the bitcoins is updated in the network on all ledgers, and the balance in the relevant wallets updated accordingly.