The New Finance: New Technology Is Challenging the Accounting Profession to Redefine Itself

Recent advances in information technology--evidenced by the widespread use of personal computers, powerful off-the-shelf software and easy access to even the most remote financial, production and marketing data--have changed the way business is conducted and the way accountants work. There is reason to believe that even more dramatic changes are about to occur. Most of the changes that businesses have implemented so far have been based on paper-oriented, precomputer thinking. Some business thinkers, while not totally abandoning yesterday's precomputer methods, are starting with a clean slate, rethinking and reengineering the way enterprises conduct business--from monitoring production and tracking inventory to issuing invoices and calculating taxes. Further, they believe many current accounting and reporting practices no longer are relevant. They are concerned that if the accounting profession doesn't reinvent itself, it easily could be pushed to the sidelines--perhaps even be replaced by a profession that has yet to emerge with an entirely different vision of how information, analysis and attest services should be provided. Other members of the profession, though, say the traditional practice of accounting and management reporting not only won't change but also doesn't need to change. They contend the time-tested concepts of feeder systems and transaction journals, debits and credits, ledgers, cost accounting, closing cycles, on-site auditing, noninteractive printed financial statements, analyses and the resulting management reports will continue to fit all the conceivable needs of business long into the future. While these may be extreme points of view, there is no doubt that major changes already are taking place. As Labor Secretary Robert Reich said, "Companies are making cuts in the name of faster decision making and increased productivity .... The forces prompting the trend ... are increased global competition and the advance of computer technology, which has reduced the need for layers of middle management in large corporations because much of their role was gathering, analyzing and dispersing information--tasks made easier and less laborintensive by personal computers." How will these changes affect the accounting profession and, more specifically, CPAs' roles and traditional accounting practices? This article explores these questions, and while readers may not agree with every aspect of the analysis, it's hoped the article will prompt the profession to examine the issues being raised.  Accounting and management reporting traditionally have focused almost entirely on information about an organization's past events, even though such information often is so old it no longer has meaning. In the 21st century, managers surely will expect more timely information. For example, a business accustomed to real-time transactions and network computing no longer may have use for six-week closing cycles, after-the-fact hard-copy analyses and noninteractive paper reports. Forced to compete with smart, well-financed global competitors, managers increasingly will refuse to steer their businesses by looking only through the rearview mirror of historical performance. They will expect and demand real-time knowledge of what is rather than what was. Business leaders will be asking: How much are we selling today? What is in inventory today? How much does it actually cost to make a product at a certain level of production? How much are we producing today? How much are we earning? What should we do differently tomorrow? In response, one must ask how a profession with its information stock-in-trade squirreled away in journals, ledgers, workpapers and "adjustments" can provide most efficiently the information requested. Clearly, traditional approaches to information management must be rethought if accountants are to meet the new information challenges of the 21st century. …

Field of study: Business