After working for close to 4 decades in the Indian Industry, when I look back, I see a sea change in the environment, expectations, opportunities and risks associated with the Accountantâ€™s role, over this period. Boundaries within which, the Accountant used to operate have practically disappeared, and sky is the limit for him / her, to add value to their employer organizations, today.
These developments could be broadly categorized under:
1. Developments in Information Technology, and
2. Changes in Control, Compliance and Regulatory Environment.
Developments in Information Technology:
In the seventies and prior, the Accountant used to operate in a manual environment. In large and medium enterprises, substantial part of time and resources were deployed in book keeping activities and for Financial Reporting, with hardly any energy left for analytical efforts, beyond offering explanation to the accounting numbers. This was perceived by many Accountants as their role, and the boundary of books and compliances were at the back of their mind, all the time. For the same reason, Business Managers did not place any expectations on their accounting colleagues, even though accounts contained most authentic information, generated through the primary processes of book-keeping, earning the title of â€œbean countersâ€ for the accountants. Analytical information was practically non-existent, in the manual environment.
Entry of computers in business started in large organizations first, which saw saving in manual efforts as the most significant advantage for deploying computers in their accounting and related applications. Inventory and Payroll were the most common applications with which they started, and it extended to Financial Accounting. All these applications were typically running in a batch processing mode, meaning bunching up transactions for a month and generating the required outputs. This meant that information was available, only after a monthâ€™s inputs were processed, and not when transactions were taking place. This was because those computers were capable of reading records, only in a sequential mode. What it meant was that if the computer required to access the 100th record in a file, it had to read and skip 99 records to reach the 100th record. Invention of â€œFloppy Driveâ€ according to me was a very significant development, which enabled the computer to access any record it wanted, directly, enabling online applications. This had significantly enhanced the scope for employing computers in business.
Living in their comfort zone, some Accountants who were old timers, perceived computers to be a threat to their role. It is appropriate to share a few details about Computing Power and Application Power. By Computing Power, I am referring to processing speed, and storage capabilities. Mainframes which made their entry first were highly expensive in relation to their capabilities in terms of speed and volume handling. This was followed by Mini Computers with better processing speeds and at lower cost. Most significant development was PC with its Operating system, which brought processing capabilities to the end users. With the cost of computing progressively coming down, computers entered all business organizations, big and small, at a rapid pace. The Accountantâ€™s manual environment has been replaced by computerized environment.
Progressive and thoughtful Accountants, who realized the potential of computers, started diverting their efforts towards reviewing their work methods, procedures and processes to adopt them to the new environment, and to get the best out of the computing power available. They are also benefited by the â€œbest practicesâ€ and â€œworkflow automation techniquesâ€ which ERP vendors offered as a part of their packages.
Batch to online to integrated applications forced accountants to come out of the boundary of books, and to think of relating Financial Applications to Business objectives.
Todayâ€™s Accountant is not required to spend time reconciling books. He needs to focus on prompt transaction capture, quick revenue and cost closure, without any compromise on GAAP, make Financial and Operating Results available to management as early a possible, and proactively help the organization in realizing its business objectives.
Changes in Control, Compliance and Regulatory Environment
Important developments which come to my mind as relevant for the Accountant in Industry are COSOâ€™s Framework on Internal Controls and on Enterprise Risk Management, adopted by many organizations, legislation in the US through Sarbanes Oxley Act (SOX) and in India, SEBIâ€™s Listing Requirements through Clause 49 of the Listing Agreement.
COSOâ€™s Internal Control Framework, released in 1992 has been designed to provide reasonable assurance regarding the achievement of organizational objectives in:
i) Efficiency and Effectiveness of Operations,
ii) Reliability of Financial Reporting and
iii) Compliance with laws and regulations.
While the Accountant always had a responsibility in relation to items ii and iii, in relation to the first, namely Efficiency and Effectiveness of Operations, these requirements have placed expectation of a proactive role, because of availability of relevant information at his / her disposal to support and opportunity to participate in Planning Monitoring and Control functions. These developments have prompted the Accountant to come out of the boundary of the books and to pay attention to the organizationâ€™s business objectives, in prioritizing his tasks. Accountants who are in the role of Internal Auditors had the added responsibility of evaluating effectiveness of Internal Controls.
Sarbanes Oxley Act, introduced in 2002, in US, emphasized on Internal Controls in Financial Reporting, placing responsibility directly at the level of CEO and CFO, tagged with stringent deterrents. COSOâ€™s Enterprise Risk Management Framework, released in 2004, placed emphasis on Internal Controls, with additional focus on risk management perspectives relating to events which could be risks or opportunities that impact achievement of the organizational objectives.
In the Indian context, requirements relating to Corporate Governance, through Clause 49 of the Listing Agreement released by SEBI, once again emphasizes on the system of Internal Controls in the preparation of Financial Statements, and the related CEO and CFO Certification.
In all these pronouncements, what comes out prominently is â€œrelating to business objectivesâ€ and â€œfocus on Internal Controlsâ€.
Instead of worrying about balancing the books, as the Accountant in the manual environment had to do, todayâ€™s Accountant in the Industry, with intelligent deployment of IT resources at his / her disposal, should focus on best practices in business processes, controls and in analytical activities to help in Performance Improvement, of the organization. Some of the possible areas are Cost Monitoring and / or Project Cost Monitoring, Working Capital through Inventory Management, Receivables Monitoring and Payables Monitoring, Management Reporting to help top management drive performance, and Operating Management in efficiencies, effectiveness and controls. This orientation and approach will make the Accountant in the industry, an important member of the Management.
Please visit www.cmii.icai.org and look for a more detailed article by me, on the same subject, under Knowledge Dissemination.
Thank you for your attention.
Tulasi S Sastri.
© 2015 Tulasi S. Sastri