financial accounting read online

financial accounting read online

The Importance of Financial Accounting in the Digital Age

1. Introduction to Financial Accounting

The issued reports are traditionally for shareholders and members of the firms themselves. Information is also published and is potentially available to other parties in their different and equally important decisions relating to the entity. That there are both proprietors and parties; the business firm is considered to be a social institution that makes a significant affect on both individuals and groups. Different users have different tasks and consequently, different perspectives on the implications for their financial interests and welfare.

This paper is structured particularly to address topics relating to the importance of financial accounting in the digital age, including the general direction of financial accounting and the use of its information. Periodic financial reports issued by the firm, in particular, financial statements form the cornerstone of the financial reporting system, the purpose for which the acceptable financial reporting system can fulfill the hopes and expectations of the functions carried out by the financial communication of a business to its management.

Financial accounting is concerned with giving information to investors and creditors in making their allocation decisions and contributing to their assessments of the returns likely to be received from investment. In addition to the information-giving role, financial accounting is an essential activity for organizational control, valuation, and performance measurement. The financial accounting measurement system is less than perfect and deserves high-level priority for research into how it can be improved.

2. Key Concepts and Principles in Financial Accounting

• The full disclosure principle: Full disclosure refers to the need to provide description or explanation of circumstances and issues that are relevant or material, thus enhancing the users’ understanding of those issues. Companies may add a footnote to the financial statements to provide full disclosure.

• The historical cost principle and the going concern assumption: Basic accounting principles and concepts, such as the historical cost principle and the going concern assumption, lay the foundation for the accounting process. Historical cost principle: This principle specifies that companies record many, if not most, of their assets at their original purchase cost.

• The revenue recognition principle and the matching concept: Two related concepts are basic to financial accounting. Revenue recognition principle: Revenues are recognized in the accounting period when they are earned, regardless of when the cash is received. Thus, a company that provides goods or services to customers on account will recognize revenue in one period and will collect cash in the subsequent period. Matching concept: Revenues should be shown with, and matched with or offset against, the expenses of the same accounting period.

• Monetary unit: Financial accounting requires that a company’s transactions be recorded and reported using a common monetary unit. This characteristic is essential because the information is used by external parties, such as investors, creditors, and others who have economic exchange relationships with the company. Due to the existence of inflation, the monetary units used in the financial accounting process – such as the U.S. dollar or the euro – may lose purchasing power over time, overstating income and equity.

• Double-entry accounting: The double-entry system of accounting allows recording the complete effect of a transaction. For every debit, there is a corresponding credit, and the total debits always equal the total credits. Double-entry accounting means that all transactions are recorded, providing a comprehensive and reliable indication of a company’s financial transactions, condition, and performance.

3. Technological Advances in Financial Accounting

The accounting measures in integrated reports are becoming less fragmented, and the combined adoption of XBRL – as the reporting mechanism – and big data and artificial intelligence for processing and analyzing data enhance the usefulness of technology. With no unifying theory for integrated reporting, existing guidelines cannot cover all areas in one financial report. This is where digitization and data-processing programs can help produce an integrated report. In summary, modern companies need to meet the demands of their users in areas of activity for which there are no consolidated standards, and in this case, the use of technology is essential for justifying their business activities. Technology in the accounting function by making possible greater efficiency, effectiveness, and value creation.

The role of technology in reshaping financial accounting is seen primarily in how accounting is being carried out – producing the accounts in an automated manner through the development of automated accounting processes, big data, business intelligence, XBRL, blockchain, artificial intelligence, and expert systems. Algina and Aliyev stress the growing importance and higher efficiency of robotic systems that are becoming an essential technology in all areas of finance in general and financial accounting and reporting particularly. Improved technological tools have affected not only organizational structures and performance measurements. As more data is incorporated into XBRL, this facility together with the growth in artificial intelligence will lead to greater relevance of the information that can be used for decision-making.

4. Challenges and Opportunities in Implementing Digital Solutions

When attempting to quantitatively analyze the potential effects of digital transformation implementation proposals, a fundamentally interchangeable characteristic of the new technologies is their wealth of possible applications. However, the efficiency of the use of new digital technologies is based on the practical implementation (feasibility or availability). The methodological literature largely treats the implementation as exogenously given, assuming only different degrees or capabilities of actors to make use of technological advancements. It is equally likely, however, that the implementation process depends crucially on the existence of actors who are willing to invest in technological efforts to overcome existing barriers to implementation. Although such a bottom-up perspective is likely to be the most promising source of estimation and implementation studies.

When approaching a digital transformation of a company’s accounting department, the challenge is that different requirements of involved stakeholders may be important for the performance and implementation of digital solutions, in addition to the respective implementation of controlling but also governance functions, which are more difficult to quantify and have been lacking in the acceptance and practical implementation of the digital transformation of the accounting departments. The perspectives and requirements of these stakeholders are frequently underestimated. Therefore, it is of great importance to develop a management concept which defines rules and responsibilities of internal and external users under aspects of IT competence and data security. However, despite common motivation, it is not possible to propose a single approach for the implementation. To distinguish the challenges of the implementation process, two classical and two new aspects were focused on: The establishment of IT competence of all affected organizational areas, facilitation solutions for extended and harmonized targets, appropriate and regulatory compliant solutions and the service level implementation.

5. Future Trends and the Role of Financial Accounting Professionals

The impacts of artificial intelligence and blockchain in financial accounting emerge as knowledge, skills, and abilities that will increasingly be demanded from financial accounting professionals, challenging traditional professional ethics underpinnings. In the future, financial reports could already be common knowledge among stakeholders, making educated and informed trust the observation result of applying trust. A model of an accounting professional active in a future society is advanced, stressing the need for a shift, since the current readiness to adapt and change does not reflect what is at stake and what is expected from professionals by society at large. These discussions were structured at the service of better preparing financial accounting professionals in convergence with modern societal needs.

As information asymmetry decreases because of technological advancements, the importance of collecting, storing, and using such information increases substantially. However, it is not only technological advancements that bring changes in the collection and processing of information. Demographics, preferences, attitudes, and opinions are also of the utmost importance in driving the development of information needs. These must be advanced not in isolation from the challenges, but taking into account the entire picture. Thus, in the global digitized economies, financial accounting will gradually move toward being strategic and not just technical. Responsibility increases, and financial accounting professionals, due to their importance and unique transversal role in most organizational processes, shall have to strategically align more with the pursuit of organizational purposes. Being professionally prepared to do so is crucial.