Examining Accounting Information Systems

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Spreadsheets have been a key aspect of business for many years. This started back in the 1970s which allowed a person to organise data, examine it and as a result make an informed decision as to what to do next. The idea behind the spreadsheet was to organise data which allowed the user to analyse data more efficiently. Presently, many firms still use spreadsheets to aid their work, and the same premise is 'carried out using the basic concept of the manual worksheet' (Ballantine, 1991). Spreadsheet modelling is not only used as an indicator for a firm, but is also useful to organise large amounts of data so that a manageable system is determined. Furthermore, it allows ease of use and additionally helps with sensitivity analysis or what-if analysis which cannot be performed manually.

Modelling is considered to have more benefits but disadvantages are also involved. The benefits include efficiency, cost and flexibility. However, disadvantages include relevance, incumbent errors and critical analysis. This is significant because spreadsheet modelling is only relevant for certain aspects of reporting, and therefore not suitable for certain practices. As a result not all firms are able to run suitably. For example, 'two-thirds of companies continue to depend on spreadsheets despite the availability of more sophisticated financial systems' (Falck and Lynn, 2004), this is surprising due to operational risk involved. However, this concerns only certain parts of finance and accounting including treasury management and auditing.

'Spreadsheets have been applied successfully in many different fields to help solve a wide range of problems' (Ballantine, 1991). This suggests that spreadsheets are relatively easy to use but this does not convey the whole story. Generally, modelling is applied to 'profit and loss accounts [and] balance sheet preparation' (Ballantine, 1991) which to many is seen as the bulk of accounting. Moreover, it is considered to be a key tool of daily functions but this depends upon how "sophisticated" the software is; but generally, spreadsheets provide 'higher productivity and better utilization of time' (Ballantine, 1991). Despite spreadsheets being easy to understand and therefore to easy to use, there has always been one common problem which can potentially 'waste the whole spreadsheet' (Callahan, 2002). Spreadsheet errors are extremely frequent in modelling suggesting usage is not so advantageous. Studies such as the financial intelligence CODA report 'that 95% of U.S. firms use spreadsheets for financial reporting '(Morrison 2006), which implies that errors are more than likely to occur in each case. As a result, this is can cause data to be misused and therefore waste valuable time and create unnecessary costs for firms. On the most part they are created through human error, but yet, this can still be hard to rectify. For example, 'Freeman cites data from the experience of a consulting firm, Coopers and Lybrand in England, which found that 90% of all spreadsheets with more than 150 rows that it audited, contained errors' (Panko, 2008). As a result, this proves that heavy usage does come at a price, not only to the individual but to the firm at the end. This may be a reason why firms search for alternatives.

Despite the spreadsheet's methodology and it being commonplace within firms, Enterprise Resource Planning (ERP) has started to impact companies and especially affecting the role of management accounting. ERP 'are software modules for different business functions linked for a common database to produce an integrated enterprise-wide system' (Perpetrators). This is particularly important for financial firms as it allows accurate forecasting and therefore aids profit by keeping efficiency at a maximum. For companies, ERP allows certain amalgamation between departments and helps keep data centralised. This is significant because 'prior to ERP, software was developed to fit individual processes of an individual business' (Monk and Wagner, 2009). Albeit, this is not always beneficial for financial practices and therefore spreadsheet modelling becomes advantageous. ERP can become expensive, and compared to spreadsheets is not that easy to use. ERP involves management accountants changing their roles and requires extended knowledge, hence why bookkeeping principles are considered useful. Continued usage of ERP means greater requirements of efficiency and can add pressure to employees within the firm. Furthermore, a common database is not always required making spreadsheet modelling more practical. However, this depends on the actual firm and the need for specific reporting.

Security is an important feature for many firms especially for those who compete, and therefore do not want their information shared. Microsoft Excel has certain security features however; the awareness to users is minimal which can cause increased risk and ultimately extra costs for firms. Another view on this is that it is simply there for ease of use and not purely for security reasons. Secondly, the Sarbanes-Oxley Act has further hampered the innovation of more intelligent spreadsheet versions. This is due to an increasing dependency on the Act resulting in slower improvements for the 'compliance process and risk management capabilities' (Leech, 2005). Consequently, any changes made to a spreadsheet are difficult to track and makes modelling redundant to a certain extent. Therefore, it is essential for spreadsheets to have security, but this is not currently the case which makes firms switch to other data programs like ERP. Thirdly, 'many companies are not assessing IT general controls' (Leech, 2005), implying that firms are not concerned about the security behind spreadsheets as well as few firms considering 'spreadsheet-based control reporting to be accurate enough' (Leech, 2005)despite the actions of the Sarbanes-Oxley Act. Furthermore, it is up to the firm to update their software and therefore provide security for spreadsheets, but firms do not subject spreadsheets 'to the same controls and disciplines as properly managed IT projects' (Condon, 2010). This falls short with firms because spreadsheet security is 'not recognised as an enterprise security problem' (Condon, 2010).

New compliance with Sarbanes-Oxley means that firms and more importantly accounting officers are made responsible for errors. Therefore, it is difficult to see why a spreadsheet would be used to convey such important figures. 'The Act specifies new financial reporting responsibilities, including adherence to new internal controls and procedures designed to ensure the validity of their financial records.' (Author Unknown, 2003) As a result, spreadsheets, as argued earlier, prove difficult to be accurate and are susceptible to errors. The Act 'has forced companies to examine the role spreadsheets play in their financial reporting processes as well as financial decisions based on the use of spreadsheets' (Author Unknown, 2006). To a greater extent, it implies that spreadsheet modelling is no longer appropriate as a tool to express financial data; and great stress is made on more sophisticated and reliable software. Despite this concern, spreadsheets are still commonplace within firms, where emphasis is upon on accuracy. Consequently large amount of costs are spent on the scrutiny of every sheet. In the case of Enron, whom misstated their accounts, they've caused much reform within the accounting world resulting in accounts being 100% accurate and free from error. This is where spreadsheet modelling struggles. It makes it more difficult for firms to use spreadsheets despite their reliance. The consequences are too high for spreadsheets to be used in reporting, such as the case of Cendant and Sunbeam.

Overall, spreadsheets are still considered to be vital within a firm with advantages of time and cost. This is important for firms because it helps them consider both internal and external factors, and allows companies to model their business decisions. Furthermore, building a model helps the user fully understand the causes and consequences of a problem, as well as considering any alternatives. More importantly it gives the flexibility to the user however it does not delve deep into more complicated problems as errors are more susceptible and common. Moreover, it does not give firms the information that it always requires; to many, spreadsheets are deemed to be "big, complex calculators" and therefore not appropriate for firms who have substantial revenues and vast amount of data. The disadvantages outweigh the positives as many firms become frustrated with the inaccuracy compared to other accounting software. Errors can remain undetected which at the end can prove to be problematic. '40% to 80% spreadsheets contains errors at their inception' (Randles, 2005) which then can waste valuable time and lose essential efficiency, furthermore, it 'omits context' (Randles, 2005) where it could be analysed by firms. Additionally, 'most companies apply good practice within their ERP environment with identity and access management and segregation of roles, that discipline is lost once data is exported to a spreadsheet'(Condon, 2010); therefore it can be said that spreadsheets are no longer required in modern day business. A reason is that they are static and no real advancements have been made since the 1970s.

Finally, spreadsheets are a cause for concern as they are not needed anymore but firms are fickle to adopt modern alternatives and as a result 'these errors can have devastating consequences for the organization', but still too many firms 'recognizes that spreadsheets will continue to be the foundation of financial reporting (Author Unknown, 2006).

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.