Literature Review Report
This paper is reviewing literature related to accounting. In the process of reviewing accounting related literature, the various accounting practices used in organizations have been explored. The ways the accounting practices have been affecting the performance of organizations are explained. Besides, the changes that that have been taking place in the accounting field have also been explored. This has involved exploring the factors that have shaped accounting practices over time. The role that technology has been playing in the evolution of the accounting practices is discussed.
Table of Contents
2Role of technology in accounting
Accounting can be defined as the comprehensive and systematic financial recording transactions in business. Through accounting organizations are able to summarize, analyze, and report transactions aiming at improving the financial performance of organizations. Accounting has been considered as one of the key function in any buses that has a goal to achieve. Considering the increased competition in many industries, accounting strategies have been considered important in achieving competitive advantages in the industry. Shareholders in organizations are said to be highly concerned with the accounting strategies adopted in organizations. This is because it is through the accounting policies that their funds can best be managed to maximize their wealth creation (Ball and Brown, 2009).
The formulation and implementation of the accounting strategies engage the various stakeholders in the organizations to ensure that the accounting policies adopted ar9e in a position to achieve the set objectives. Besides, aligning the accounting strategies with the organization’s vision and mission is considered crucial in making an organization competitive in the industry. Accounting has been changing due to the technological advancements that have been taking place in the field of accounting. Many organizations are now incorporating technology in their accounting practices aiming at improving efficiency and effectiveness in the accounting practices.
Accounting entails processing, measuring and communicating information related to financial position of an organization. It is through accounting that economic activities in organizations can be measured and the results communicated to the users of the information who can include regulator, investors, creditors, management, and shareholders among other stakeholders. The accounting practitioners are referred to as the accountants. Accounting can be further divided into other field that can include management accounting, financial accounting, tax accounting, and auditing. Financial accounting has been said to focus on the process of reporting financial information of an organization (Feltham and Ohlson, 2005). Through the use of financial accounting financial statements are prepared that are then communicated to the relevant stakeholders to inform them concerning the financial position of the organization. Management accounting entails measuring, analyzing and reporting the financial information to the management. Most of the accounting activities have been automated where accounting information systems can be designed aiming at supporting accounting activities.
The accounting practices are now changing to accommodate the changes that have been taking place in organizations. There have also been changes in the accounting standards set in organizations aiming at improving financial accounting practices with increased ethics in the profession. Technology has played a crucial role in changing the way accounting has been done in many organizations. There has been increase in innovations in the accounting field where organizations are coming up with best accounting technologies. The innovations in accounting have been working wards eliminating fraud in the management of funds in organizations (Radebaugh, Gray and Black, 2006). Through innovative accounting organizations are able to ensure that the cash flow in organizations is properly managed. Besides, the internal controls of organizations have been improved through the use of innovative accounting practices. Organizations are adopting innovative accounting practices that can guarantee effective and efficient internal controls.
Role of technology in accounting
The traditional accounting was based on manual approach that could not effective trace possible fraud in management of organizational funds. The accounting practices have been changing from traditional way of accounting to digitalized accounting processes. The traditional accounting practices were ineffective and inefficient as it was manual leading to many errors that affected the financial performance of organizations. Besides, relevant financial reports were full of mistakes and misleading financial information that could mislead the various shareholders of the organizations especially shareholders and investors (Watts, 2003).
The adoption of technology has then revolutionized the way accounting is carried out in organizations. Various and robust accounting systems and processes have been developed to assist in ensuring efficiency and effectiveness in accounting practices. The accounting practices are automated making them more reliable and able to solve different accounting issues. Technology has been playing a crucial role in changing accounting practices where financial management has been improved. In the past, the failure to ensure effective and effective accounting practices are in place has led to increase in scandals. The scandals can be associated with the accounting practices that are not transparent and accurate leading to increased fraud (Healy, 2005).
For instance, the case of WorldCom and Enron that collapsed due to the poor accounting practices that led to fraud. This is how the failure to ensure strong internal controls in organizations can lead to organizations failure. The use of technology has enhanced internal controls where the stakeholders can be in a position to realize any fraud as early as possible as technology has led to creation of systems that do assist in tracking the accounting practices. This has played a crucial role in minimizing fraud in organizations as accountants are becoming accountable and accounting practices made more transparent.
Many organizations have been adopting accounting systems to ensure that the accounting practices are efficient. Financial information has been managed using the advancements in technology to guarantee improvements in financial management. Technology has been playing crucial role in making different decisions concerning accounting practices in organizations. For instance, through the use of different accounting systems internal controls can be improved and information needed to make decisions in accounting processed to guarantee good decisions are taken. Besides, accounting information systems can be developed by accountants assist in availing the information that meaningful, relevant, reliable, current, and useful to accountants (Dechow and Skinner, 2010). Through the use of the accounting systems transactions can be captured as they occur electrically making the financial information available online for management. As a result, transparency in financial management is improved as the authorized people in the organization can be in a position to access the information.
Accountancy provides valuable information pertaining financial statements and also financial transactions to investors, debtors, and creditors. In any business, accountancy is usually necessary as it makes a summary, analysis and makes the relevant reports on all transactions which are conducted by the firm. The financial statements provide the investors with the pertinent information thus helping them to make a decision on whether to invest or not. Also, it helps business operators as it provides them with a comprehensive record pertaining their enterprises and therefore, assists them in for effective decision making (Dechow, 2004).
On the other hand, auditing seeks in expressing an opinion on the financial statements of a given organization. The auditor usually gives his or her opinion concerning the financial statements of the financial position, cash flows of an enterprise and results of operations by the accepted accounting principle. Auditing is usually the unbiased evaluation of the financial status of an organization. Any accounting information system often focuses on processing the accounting data of a specific firm.
Tax accounting helps in preparing and analyzing all tax payments and also tax returns made to the individual organization. The taxation system usually requires specialized accounting principles for the only purpose of taxation and which is different from the accepted principles for the financial reporting. The law of taxation covers some basic forms of businesses such as partnership, corporation, and sole proprietorship. These types of activities are usually taxed depending on both levels of income and marginal rates (Burns and Scapens, 2010). Also, the accepted accounting principles provided by national regulatory bodies such as international accounting standards board helps many organizations in running its activities. Some organizations in different countries may issue accounting standards which are unique from each other. Numerous accounting practices are made simple with the help of accounting computer based software which is usually installed in larger organizations.
Organizations have been conducting research to look for the bet ways that accounting practices can be improved to achieve competitive advantages in industries. Accounting research encompasses all the effects of economic events due to the process of accounting taking place in organizations. The accounting research can be conducted by both practicing accountants and also academic researchers too. The use of accounting information systems has significantly reduced the cost of storing data and reporting of information that relates to managerial accounting.
The information systems are making the information storage digital hence avoiding paperwork that was present in the traditional accounting approaches. Besides, the information sharing has been made easy by the use of information systems in accounting. Also, it has enabled us to produce a detailed account of all data of an organization (Watts, 2003). The overall managers of businesses usually require accounting information to make good decisions in their leadership. Moreover, the accounting information helps to satisfy the needs of interested parties such as creditors. However, there are the purposes as to why an organization requires an accounting. This purpose includes knowing the results of an operation, whether the business has been operating in loss or profit for a particular span of time. Also, helps an organization to get aware of how much resources currently have and how much the entity owes third parties.
Accounting involves different fields which include auditing, tax accounting management accounting and financial accounting too. However, there are accounting information systems which that are used to in supporting accounting activities. Accounting has been facilitated by accounting firms and professional bodies in accounting organizations. Financial transactions are recorded and summarized and presented using bookkeeping equation where the rule of double entry applies. Financial accounting focuses on giving information concerning the financial statement of an organization to external users as suppliers and investors. It calculates and records all transactions and therefore preparing a financial statement for the users by the accepted accounting principles. Management accounting usually deals with the analysis and reporting of any useful information that can be useful to managers in decision making to realize the set goals of an organization. However, in management accounting, the measures and reports are usually based on cost-benefit analysis and therefore do not require to follow the general accounting principles. The main aim of management accounting is to produce future-oriented reports and also focusing on specific departments.
Ball, R. and Brown, P., 2009. An empirical evaluation of accounting income numbers. Journal of accounting research, pp.159-178.
Burns, J. and Scapens, R.W., 2010. Conceptualizing management accounting change: an institutional framework. Management accounting research, 11(1), pp.3-25.
Dechow, P.M. and Skinner, D.J., 2010. Earnings management: Reconciling the views of accounting academics, practitioners, and regulators. Accounting horizons, 14(2), pp.235-250.
Dechow, P.M., 2004. Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of accounting and economics, 18(1), pp.3-42.
Feltham, G.A. and Ohlson, J.A., 2005. Valuation and clean surplus accounting for operating and financial activities. Contemporary accounting research, 11(2), pp.689-731.
Healy, P.M., 2005. The effect of bonus schemes on accounting decisions. Journal of accounting and economics, 7(1), pp.85-107.
Radebaugh, L.H., Gray, S.J. and Black, E.L., 2006. International accounting and multinational enterprises. New York, NY: John Wiley & Sons.
Watts, R.L., 2003. Conservatism in accounting part I: Explanations and implications. Accounting horizons, 17(3), pp.207-221.