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Ombudsmen: the convergence of accounting and IT.

CPAs are the bean counters and the IT people are the techics, right? Not anymore. Tightened compliance requirements, a global business environment and advancements in information availability have pushed these traditionally administrative Functions to the front line of firms and companies. Accounting and IT are being looked upon to identify new business opportunities and execute strategic initiatives, all while maintaining their traditional support of day-to-day business functions. Here's why--and what it means to CPAs.


Regulatory Environment

The Sarbanes-Oxley Act of 2002 and recent financial turmoil have forced companies to strengthen their internal controls. Additionally. the Dodd-Frank Act of 2010 requires financial institutions to implement further measures to ensure their integrity and sustainability. These increase the burden on business cost and, as such, the nature of key internal controls must move away from detective controls (identifying and correcting errors) to preventive controls (minimizing errors before (hey occur).

A detective control, for example, is a monthly review of all journal entries to ensure all journal entries arc approved; whereas, a preventive control involves systematically routing all journal entries for approvals in accordance with the business authorization policy. Preventive controls are usually more efficient and effective in mitigating business risks as they are designed to identify and resolve errors before they occur. A reduced number of detective controls means less manual resource is required to resolve issues that could have been prevented in the first place.

What this means is that CPAs and IT professionals must work together to understand business-risk compliance requirements, which place higher reliance on technology to reduce manual errors and enhance record keeping efficiency.

Compliance is a requirement that takes time and resources away from making and executing other strategic decisions (read: a cost-saving effort, not a revenue generating one). As such, companies must integrate compliance requirements into routine business activities that can be automated to focus their human resources on the (op line.

Global Business Environment

While the CPAs keep the books. IT is tasked to support a global structure. Regardless of a centralized or decentralized organizational structure, top management has to have the ability to know what is going on in the day-to-day business, as well as to ensure that divisional activities are in alignment with corporate strategic direction and in compliance with local law and regulations.

While decisions can be made locally, information should be available centrally. Email and shared servers have enabled high-level collaboration across time zones, however, there are often discrepancies as local information is tailored for local needs.

For instance, divisional accounting managers often maintain a local book for local compliance purposes. Separate books may be maintained for regional reporting and corporate reporting. Corporate accounting should work with local accounting and IT to design a system to display the same information, while satisfying corporate and divisional needs. Upper management should have the same and easy visibility to divisional information as local management at anytime.

A global business environment means complex local laws and regulations. Varied import-export requirements and multiple reporting currencies add difficulties to comply with U.S. and local GAAPs. Fortunately, the implementation of enterprise resource planning systems has greatly simplified such processes. However, CPAs must be involved in the implementation process to ensure the integrity of transaction flows complies with U.S. and local GAAPs.


The importance of data analysis is well known, however; while a CPA has the ability to analyze data, an IT professional has the expertise to produce the right data. But communication between the CPA and IT professional is often two-dimensional: the CPA asks for information and the IT professional provides the information. The CPA then massages the data into various formats to incorporate other system-generated information. As such, many large corporations are still managed by spreadsheets. With complex business intelligence tools, a routine analysis should only be a few clicks away rather than this complex and time-draining process.

The time when only a few data points are available to make a decision is long past. From strategic decisions, such as off-shoring versus outsourcing, to day to day business decisions, such as evaluating customer credits, an "informed decision" has taken a different meaning. As more information becomes available each minute, CPAs must ask what information can be generated, understand how-information is being collected and organized, and identify relational data that would ultimately contribute to a better decision making process.

Besides generating the requested data, IT professionals need to understand why such information is necessary and leverage other sources to produce a robust data set for the analysis. For example, an accounts receivables aging report is often obtained from IT to perform bad debt, analysis. GPAs apply a percentage to each aging bucket to arrive at a bad debt reserve. That percentage is typically calculated based on historical data of how much cash was actually collected for the outstanding invoices in each bucket. However, there are other inputs that are available, such as days to collect per customer, average returns per customer, etc., that can be systematically calculated to provide better visibility to the collectability of accounts receivables.

With the rise of social media and exponential growth in information availability transparency of business decisions is unavoidable. Aside from the periodic board scrutiny management decisions are constantly being evaluated in newspapers, blogs, infomercial websites and social networks. CPAs and IT professionals need to work together to obtain a more holistic view of the available information, and make a decision that is based on assumption supported by a valid set of data.

Identify New Business Opportunities

With better data and capabilities to perform data analysis, CPAs and IT professionals are asked to help identify new business opportunities, such as emerging markets, customer patterns and technology trends.

Aside from data collected through routine business activities, the same sources that scrutinize management's decisions, such as newspapers and blogs, can also be leveraged to serve as a sounding board and sources of new information. However, these sources often generate a massive amount of information that is hard to validate. CPAs and IT professionals must work together to connect the dots from different data sources and eliminate incoherencies to drive innovation and present new business opportunities to upper management.

Returning to the above mentioned accounts receivable collectability analysis example, a more holistic view of a. customer's payment behavior allows management to structure more favorable discounts and payment terms to be more competitive in pricing and improve on the collection rate.

Support of Day-to-day Business Functions

Upper management is facing tougher scrutiny from the board of directors and investors to cut costs and execute more efficiently. The economic downturn has pushed companies to become more nimble and use fewer resources--while trying to accomplish more.

With the increased responsibilities noted above, CPAs still have to safeguard the integrity of the financial reporting process. They must work with IT professionals to explore opportunities to automate routine processes and reduce resources required to record day-to-day business transactions. For instance, in a financial closing process, CPAs make extensive use of Excel spreadsheets to analyze and justify period-end adjustments. CPAs should help IT professionals understand the data source and underlying calculations used in these spreadsheets, so IT professionals can develop system generated reports to reduce manpower needed for the period-end analysis, and ensure the integrity of data source and enforce proper change management.

CPAs and IT professionals must, work together to form an efficient decision-making process that requires the ability to gather, filter and analyze data from a myriad of source's while complying with existing regulatory environment and supporting a global business structure. |j0

George Chiu, CPA is a senior internal auditor at SanDisk Corporation. You can reach him at

The views and opinions expressed above are those of the author and do not necessarily represent the views and opinions of SanDisk Corporation or any of their respective affiliates or employees.
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Title Annotation:Specialty Expansion
Author:Chiu, George
Publication:California CPA
Date:May 1, 2011
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