Brought to you by EarthWeb
IT Library Logo

Click Here!
Click Here!

Search the site:
 
EXPERT SEARCH -----
Programming Languages
Databases
Security
Web Services
Network Services
Middleware
Components
Operating Systems
User Interfaces
Groupware & Collaboration
Content Management
Productivity Applications
Hardware
Fun & Games

EarthWeb Direct EarthWeb Direct Fatbrain Auctions Support Source Answers

EarthWeb sites
Crossnodes
Datamation
Developer.com
DICE
EarthWeb.com
EarthWeb Direct
ERP Hub
Gamelan
GoCertify.com
HTMLGoodies
Intranet Journal
IT Knowledge
IT Library
JavaGoodies
JARS
JavaScripts.com
open source IT
RoadCoders
Y2K Info

Previous Table of Contents Next


Chapter 27
Accounting and Auditing

Carol E. Brown, Amelia A. Baldwin, and Alan Sangster


CONTENTS

1. Introduction
2. Background
3. Historical Account
3.1. The Era of the Research Prototypes
3.1.1. Financial Reporting/Auditing
    3.1.2. Tax
    3.1.3. Management Accounting
3.2. Moving into Practice
3.3. A Field is Born
4. Applications and Impacts of Accounting Expert Systems
5. The State of the Art
6. Research Issues
7. Future Trends and Summary
References

1. INTRODUCTION

In a rapidly changing and highly competitive business environment, professionals in accounting struggle with managing information, integrating research, and applying technologies to practical accounting situations. Since the mid-1980s, the use of expert systems to solve practical accounting problems and to assist with financial decision-making has spread throughout business, industry, and government.

With the continued growth of expert systems use, substantial benefits have been reported. In the mid-1980s, accounting and auditing firms put their first expert systems into field use. By the late 1980s, accounting expert systems were already providing substantial payoffs for leading U.S. companies. For example, Texas Instruments' capital-budgeting proposal package increases the speed of processing time for requisition goods by 20 times, reduces cost overruns, and saves $2 million in preparation expenses.

Financial applications are by far the most frequent users of expert system technology. Companies in a variety of industries are using expert systems to prepare complex entries for their accounting records, analyze division performance, assist with capital budgeting decisions, analyze variances, prepare audit plans, assist with tax planning, and perform many other accounting-related tasks. Companies must now decide if expert system technology is suitable and cost effective for their accounting tasks.

The background section of this chapter (Section 2) describes why both accounting firms and companies for which accounting is a staff function develop expert systems for accounting tasks. The historical account section describes the beginnings of expert system research and use in accounting, and how accounting expert systems became a field of study and application. Sections then follow on current applications and areas of study related to accounting expert systems.

2. BACKGROUND

Organizations develop accounting expert systems because they are discovery systems that can affect competition, productivity, and task process. Expert systems are a part of the organizational strategy of many accounting organizations.

Discovery. Expert systems development is a discovery process. The development of an expert system requires a deep understanding of the domain and task; thus, organizations acquire information during development. Accounting expert systems can, therefore, impact the organization's knowledge level.

Competition. Another motivation for accounting expert systems development is to affect or influence competitive forces. Within the auditing industry, expert systems development grew rapidly as competition and litigation increased and clients began to shop around for lower audit fees.

Productivity. Accounting expert systems can provide measurable improvements in individual and organizational productivity. Expert systems may increase personnel productivity, increase task efficiency, improve quality control, or result in other productivity impacts. In fact, a number of expert systems for audit tasks have resulted in both improvements in efficiency and effectiveness overall, and particularly, in faster expertise development for novice auditors.

Task process. Accounting expert systems have also changed task processes. The development process provides a deeper understanding of the task and therefore the process can be improved. The task process may also be changed as a result of the expert system enabling tasks to be done by users with less experience. In addition, the system may allow for more inputs and outputs than the task could incorporate prior to the creation of the expert system. This is particularly true for tasks whose complexity is often largely the result of the amount of inputs that must be processed, as in some audit, tax, and financial planning tasks.

Organizational strategy. These impacts and motivations highlight the sometimes mysterious relationship between expert systems and organizational strategy. The interaction between organizational strategy and expert systems is a continuous process that can be described as having six steps.

  1. The state of the accounting organization is gauged in light of the organization's strategy, i.e., its broad plan for the future and its goals. The state of the organization includes both macro (e.g., industry position) and micro (e.g., task efficiency) measurements.
  2. The current state of the organization is compared to the strategically desirable state, and a need for improvement is indicated.
  3. Expert systems are developed.
  4. They are used as a part of the organization's strategy for changing itself. For example, Coopers & Lybrand's ExperTax, which supports both tax accrual and tax planning tasks, became part of a strategy that linked audit and tax services.
  5. The state of the organization impacts the development and use of expert systems. Clearly, corporations and accounting firms with a previous history of using technology strategically, have been the most likely to utilize expert systems. IBM, for example, successfully developed and uses CONSULTANT, an expert system that helps field representatives in the bidding process. On the contrary, an organization that has been historically very slow to change is more likely to have an unsuccessful development and implementation. For example, a bank that historically discouraged the use of computers by loan officers failed to take advantage of an expert system for commercial loan analysis, even though the system helped loan officers avoid bad loans.
  6. The development and use of expert systems impact the state of the organization. The development of an expert system may result in a better understanding of the task process, improvement in efficiency and effectiveness of organizational members, or even a change in competitive position. It is for these reasons that expert systems are developed for accounting applications.


Previous Table of Contents Next

footer nav
Use of this site is subject certain Terms & Conditions.
Copyright (c) 1996-1999 EarthWeb, Inc.. All rights reserved. Reproduction in whole or in part in any form or medium without express written permission of EarthWeb is prohibited. Please read our privacy policy for details.