Part A - The impact of accounting on the IT Development 4
Part B – Question 1 - Introducing or Upgrading Computerized Accounting Systems 5
(a) Advantages and Disadvantages of using a Computer Accounting System 5
Advantages 5
Disadvantages 5
(b) Considerations when setting up a Computerized Accounting System 6
Completion of an Accounting Cycle 6
Recording all Transactions from Manual Trial Balance 7
Running a Trial or Testing Phase 7
Verification of the Computerized Accounting System 7
(c) Chart of Accounts and Coding Structure is Followed by Impetus Limited 8
Part B – Question 2 - Accounting Packages 8
(a) The Features of an Accounting Package 8
Security 8
Reporting 9
Interdepartmental Operations 10
(b) ‘Module’ in an Accounting Package and its Purpose 10
(c) ‘Integrated’, ‘Semi-Integrated’ and ‘Non-Integrated’ Modules 10
Part B – Question 3 - Control and Security in Computerized Accounting 11
(a) Some of the Controls found in a Computer Accounting Environment and their Importance 11
(b) Importance of having Controls 12
(c) Batch Control and its Working with Examples from Impetus Limited 12
References 13
Accounting Packages and Systems – Assignment 1
Part A - The impact of accounting on the IT Development
In old times, it was difficult and time consuming for accounting professionals to deal with extensive manual records using paper and pencil. With the passage of time, accounting professionals and Information Technology (IT) experts developed software programs, such as spreadsheet, for handling manual calculations, preparing reports with online platform and publish the accounts using online computing or Information Technology (IT). Such online programs were developed so that accountants could record transactions, pay bills and publish reports. Margin of error in recording and reporting transactions was minimized when certain software programs were introduced. The need for using pencils, ledgers and calculators was greatly eliminated when the electronic spreadsheet was brought to attention in the accounting industry.
For speed and accuracy of manual accounting processes, it became necessary that computerized accounting packages must be introduced for automated categorization and recording of transactions. With the passage of time, as demands on accounting managers increased, it was necessary that updated information should result in instant printing of financial reports which itself reflects the role of accounting into the IT development. As accounting processes became more complex, managers felt the need to introduce computerized accounting system so that income and expenses management could be made a lot easier. Simplification of the whole accounting cycle is another reason for which IT-based accounting applications were introduced over time.
Part B – Question 1 - Introducing or Upgrading Computerized Accounting Systems
(a) Advantages and Disadvantages of using a Computer Accounting System
Computerized accounting concerns the usage of different software programs and automated packages for carrying out every single activity of the accounting cycle.
Advantages
The very first advantage of using a computerized accounting system is that it helps managers to process all information in the accounting cycle in an efficient and quick manner since such a system generates accounting documents and reports automatically . The use of accounting software package which is user-friendly could help businesses save costs of maintaining a manual accounting system . Another advantage of using computerized accounting system is that timely information could easily be published since the need to manually handle the financial data is greatly eliminated. Such a data could easily and automatically be posted or carried forward to their respective accounts and ledgers.
Disadvantages
Apart from advantages or merits, computerized accounting systems have disadvantages or demerits as well. This is because such an automated accounting system is vulnerable to power failure . Moreover, computerized accounting systems are at greater disadvantage if they fall victim of any computer virus and could be attacked or hacked by intruders/hackers at any time. This way, organizations may lose their valuable financial information in an instant if none of the firewall and anti-viruses are installed .
Once the financial figures are entered into the computerized accounting system, managers are obliged to consistently monitor the entered data for completeness and accuracy. Therefore, persistent monitoring of the computerized accounting system seems another disadvantage where there is a risk that the produced financial reports may be inaccurate.
Another disadvantage of using computerized accounting system is that if organizations employ inappropriate hardware or software packages, system is poorly programmed or inability to recruit expert IT professionals, it might create a havoc all over the workplace. Increased riskiness of vulnerability to fraudulent activity is another disadvantage of a computerized accounting system if proper controls and high-level IT security is not instituted both internally and externally.
(b) Considerations when setting up a Computerized Accounting System
When the internal management of any organization makes a concrete decision to implement computerized system in its accounting related operations, it should consider or take certain factors into account for successful adoption.
Completion of an Accounting Cycle
The first and foremost factor an organization must consider in implementing a computerized accounting system is that such a conversion from manual to automated system should be made when an financial accounting period is about to end. By keeping this consideration in mind, accounts department and its managers would no longer be required to do extra work in addressing all those financial transactions that have already been recorded in the manual books throughout the period. As the new financial accounting period starts, managers may start recording new transactions in the computerized accounting system and the balances of permanent accounts brought forward must also be entered in the new system.
Recording all Transactions from Manual Trial Balance
At the start of recording transactions in the computerized accounting system, it is an important consideration that managers should record the balances of permanent accounts from the trial balance that was used previously for closing the books at end of the last financial accounting period. Balances should be entered into the computerized accounting system by considering another factor that permanent accounts (such as assets, liabilities and owners’ equity) have carried forward balances while temporary accounts (like income and expenses) have zero balances in the trial balance.
Running a Trial or Testing Phase
After the accounts department have entered all the financial data into the computerized accounting system, it is imperative that managers should evaluate the efficiency of the program by running a series of financial reports and create some test statements. This factor should be considered so as to ensure that the entered financial information is accurate and the formatting style is up to the standard followed previously in manual processes. Managers should perform this test-run because modifying the formatting style and entered financial data will be much easier once the computerized accounting system is put into place.
Verification of the Computerized Accounting System
After confirming the accuracy of financial data and system efficiency, managers should ensure if the produced financial statements comply strictly with a certain accounting system being followed. If the figures in financial statements are different than the one in manual books, managers should consider examining the amount written in manual books. This is so because numbers written in manual records may be inaccurate due to any error or fraudulent activity.
(c) Chart of Accounts and Coding Structure is Followed by Impetus Limited
A CoA (Chart of Accounts) represents a financial accounting tool that lists the title/name of each and every account maintained in the general ledger by an organization in its accounting system for recording business transactions.
The coding structure or Chart of Accounts being followed by Impetus Limited is based on transaction references where every business transaction is given a separate sequence and unique reference that are based on categorization of nine different accounting titles such as Sales Receipts (SR). Cash Payments (CP) and Bank Payments (BP) etc. the other form of coding structure followed by Impetus Limited concerns nominal accounts used to categorize each transaction for recording on the basis of account number (N/C) and account title (name).
Part B – Question 2 - Accounting Packages
(a) The Features of an Accounting Package
For every accounting package an organization considers to implement in business processes and accounting operations, it is critical to take into account certain features of the package that are summarized as follows:
Security
When businesses shop for efficient accounting software, they must consider the security features at first for the protection of confidential information. Such an accounting package must be free from any security breach so that no hacker could break into the system. In other words, the accounting package must be capable enough to protect confidential information such as account balances, account numbers, and employer identification numbers etc. moreover, the accounting package must be efficient enough to prevent any unauthorized access into the system by an unscrupulous individual.
Businesses should deal with accounting package suppliers or vendors who could provide information about security features in a detailed manner . Password protection, firewall protection as well as anti-malware and anti-spyware technology are critical for an organization’s accounting and financial data that must be protected at first. Furthermore, prevention of data loss and data theft are the other important features an accounting package must contain.
Reporting
In true essence, organizations use computerized accounting systems or packages for automated documentation and tracking of financial transactions. This includes withdrawals and deposits as well as monitoring sales revenue and management of numerous investments. Keeping this in mind, organizations should consider, before making purchase, only those accounting packages that contain an important feature of upgraded reporting capacity.
In addition to this, an accounting package must not be able to assist managers in financial management but should also contain a feature to report financial information in a detailed manner with strict compliance with laws that govern financial reporting activities . For instance, an investment management firm must be able to provide financial services by following various federal regulations and guidelines, like the Sarbanes-Oxley Act. If any accounting package could comply with such regulations, this single feature will indicate organizations about whether to purchase such an accounting package or not.
Interdepartmental Operations
Even though majority of the accounting packages are designed for managing financial transactions in a simple manner, organizations must consider an important feature if an accounting package could integrate all business transactions in real-time . Not only an accounting package could track bank deposits and withdrawal activities of the accounts department, but must also be featured to manage customer purchases and returns, employee payroll as well as any credit or investments obtained by the finance department of an organization. This important feature of an accounting package should be considered because a single accounting package, purchased on the basis of an organization’s size and business structure, can increase its operational efficiency dramatically.
(b) ‘Module’ in an Accounting Package and its Purpose
Computerized accounting packages are not different from manual or traditional accounting activities except that the former employs automated processes for recording transaction and publish financial statements. Because of this, accounting packages contain a special General or Nominal Ledger for the statutory records and books of accounts which are known as “modules”. The primary purpose of these “modules” is to categorize every business transaction such as Sales ledger prepared for customers (debtors) and Purchase Ledger designed to address supplier’s credit (creditors) .
(c) ‘Integrated’, ‘Semi-Integrated’ and ‘Non-Integrated’ Modules
Considering the examples from Impetus Limited, a module is said to be integrated when the financial information or data could be shared with all users throughout an organization. Such a data includes sales revenue and targets achieved by sales team etc. Module concerning financial information could be semi-integrated when the data could only be shared upon request of authorized personnel.
Examples include information on purchase orders, bank deposits and employee payroll etc. A module could be non-integrated when information is kept confidential and is never shared. Such a data concerns the information used by the senior management of an organization such as data related to supplier management, accounts receivable and cost computations etc.
Part B – Question 3 - Control and Security in Computerized Accounting
(a) Some of the Controls found in a Computer Accounting Environment and their Importance
In every computerized accounting environment, there are some controls systems found for the reliability and accuracy of the package. The very first control found in the computerized accounting environment concerns authorization of every business transaction. This control is important for meeting the input data needs of authorized users after every transaction is verified for completeness and accuracy.
Apart from this, the computerized accounting environment should contain important controls such as processing every business transaction for ensuring integrity of financial data. Another important control in the automated accounting environment concerns the use and protection of financial information with the help of passwords and encrypted data.
This control in computerized accounting package is important to prevent unauthorized access to computer data and files etc. Maintenance of proper user log is another important control which an organization must implement into its computerized accounting environment.
(b) Importance of having Controls
It is important to have controls in the computerized accounting package so that none of the IT professionals could make any error or mistake when selecting an accounting system for implementation. Most importantly, it is necessary for businesses to have internal controls in their computerized accounting system so that the possibility of human errors is minimized. Segregation of duties and elimination of fraudulent activity are the other benefits which an organization could realize if proper control mechanism is introduced in the computerized accounting system.
(c) Batch Control and its Working with Examples from Impetus Limited
Batch control controls correctness checks performed into a computerized accounting system which is applied in the data processing phase particularly to batches or groups of input data. This is done because checking the validity of all input data is impossible for which “rough” checks should be performed. Batch control works by entering data into batches or groups . For instance, if Impetus Limited’s internal management enters invoices into batches or groups, the expected impact of a group total on a system’s net figure could be compared with the actually realized figures. In case of any difference, the officials of Impetus Limited may perform more detailed checking.
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