CEO & CFO Perceptions About AIS Impact on Firm Essay

In the multifaceted, propellant, corporate global milieu, imminent rifts glide by to rattle the arenas of accounting/finance. The personal ambitions of chief executive officers and chief monetary officers outweighed their responsibilities toward shareowners, employees, operations, civic/ethical duties, and the general financial musical arrangement. chief executive officers primary(prenominal)ly focused on their own profitability, by increasing margins, meeting shareholder/market expectations, and expanding by any means necessary. Therefore, this lead to CFOs and other members of top management on the front lines in manipulating margins to invoke growth thereby committing sundry(a) aims of pasquinadeulent activities, mainly to manipulate unretentive financial performance. The intertwining of ethical dilemmas and constant conflicts of interest endangered employees, shareholders, customers, and the general public. With the momentary of Sarbanes-Oxley (SOX) in 2012, the act demanded, that corporate management design and implement inbred suppresss everywhere the entire financial account process. (H only, 2013)In reference to CEO turnover and the appropriateness and pictureiveness of a board, board of positionors that are, dominated by in searchent directors are to a greater extent uniformly to remove a CEO based on poor performance than boards dominated by insiders. (Dah, Frye, & deoxyadenosine monophosphate Hurst 2013) During the post-SOX, signifi lavatoryt decline in the incidence of CEO turnovers for compliant trustys. (Dah, Frye, & adenine Hurst 2013) Top management feed adopted method of accounting info Systems, utilizing training engineering science and reinvigorated understandings of physical dominations in the work step forward, in their effort to come with SOX, the Committee of Sponsoring Organizations (COSO), and to maintain ethic every last(predicate)y conscious decisions. A companys native controls beat been under scr upulous review and are ceaselessly examined to a point where they are in full compliance with SOX. closely of the attention is attributed to two main provisions, organized by the Public Companies be Oversight Board (PCAOB) that directly relate to infixed controls. Under instalment 404, the CEO and CFO of publicly traded companies must personally disclose and certify, quarterly and annually, an adoption of a detailed code of morals, which acknowledges an effective maintenance of an internal control system.This section also shelters whistle-blowers. In addition, section 303 requires that the CEO and CFO must sign off on the financial parameters to assure that the reports do non embroil any material misstatements or omissions. To further protect great(p) markets, corporate governance, employees, shareholders, the general public, and the studying profession, the organizations auditors assurance on managements internal control and ethics policies is required. Top manage ment teams understood the magnificence of adding IT prowess. Information Technology subdivisions garnered to a greater extent responsibility after the passing of SOX. Being held as critical importance to internal control modus operandis in an organization, IT departments became responsible for creating, improving, executing, and modifying a series of controls, ingrained to reduce fraud.Additionally, IT is accountable for accumulating, processing, and storing financial info, which is utilized in financial statements, and creates audit trails for external auditors. A portion of the internal controls implemented in a business exist as IT controls, many of which are based in the computerized purlieu and usually pertain to financial data. Programs and processes are written and keep by IT professionals. Fairly new and intuitive processes include machine- compulsive systems. These programs attain reshaped the environment of accounts account. They, initiate, authorize, record, a nd report the effects of financial transactions. (Hall, 2013) Automated accounting is associated with roughly opening Resource Planning Systems (ERP). ERP systems, facilitate the flow of study among all departments in an organization, and manage data sharing with outside systems, such as suppliers, business partners, clients and regulatory agencies. (Chinn, 2011)Top management are attracted to apply automated systems in order to create an efficient and secure in operation(p) and accounting environment. Rudimentary features include the generation and distribution of invoices to customers, which usually follows with high possibility, that retribution ordain be received at a termly manner. This electronic process of invoicing goes hand in hand with receiving wire transfers and, on the opponent rack, purchases of materials therefore, in either process, this allows the company to efficiently benefit from increasing hard currency/ assent receipts and the ability to quickly obtain corporate and direct capital. These advanced computerized processes are able to initiate the transfer of a mickles assets and are able to automatically incur liabilities, in nonification to their corresponding transactions without tender-hearted interaction.However the many enticing advantages an automated system offers, there is no doubt the, inextricable elements of the financial reporting process that SOX considers, and they must be controlled. (Hall, 2013) Section 302 is in place to bug any inconsistencies of internal control in the workplace. Automation of the revenue cycle is typically used to reduce overhead costs, make better credit granting decisions, and better collect outstanding accounts receivable. Along with SOX provisions, the Committee of Sponsoring Organizations framework grouping IT system controls into two broad categories Application Controls and usual Controls. Subcategories of industriousness controls include input controls, processing controls, a nd output controls. The General controls include controls over IT governance, infrastructure, vane & angstrom operating system certification, database access, application acquisitions & angstrom unit development, and program changes.General controls are aimed to support the environment in which application controls function, and two are needed to ensure accurate financial reporting, as rise as reduce instances of fraudulent activity. (Hall 2013) While utilizing the aforementioned controls will greatly reduce adventure of financial fraud, there are inherent risks concerning training technology systems. Organizations integrated in a global frame, face an overarching environmental risk involving stability, which primarily concerns IT. The rapid carrefourion and ingenuity of increasing compute power, coupled with consistent gains in the growth of technology, have a direct result in an exponentially vibrant information technology atmosphere. This dynamic environment causes consta nt changes within internal controls in companies.Currently, IT is considered one of the main risk factors in organizations, and both lack and excess of such investments mickle compromise the structure and the operations of the firm. (Lunardi, Becker, Macada, & Dolci 2010) To keep up with the former thinking global environment, as advantageously as surveiling with constant jural and technical changes, IT innately move arounds a focus with organizations. Management continues to adapt to new challenges that emerge, in relation to IT. Recently, companies have been spending about 50% of all capital investment on IT. (Lunardi, Becker, Macada, & Dolci 2010) Executives understand that it is impossible to importantly curb IT spending in such a technically driven world however, they do not want to spend any more than the minimum necessary to deploy and run IT efficiently. (Lunardi, Becker, Macada, & Dolci 2010) Outsourcing specific IT projects, as well as full ERP (Enterpri se Resource Planning) systems, has become more ruler throughout the past few years.Over 90% of firms that were sampled in various research projects engage in IT outsourcing. Given the pervasiveness of IT outsourcing and the magnitude of IT spending in the economy (Kobelsky & Robinson, 2010) top management sack up write-off costs, as well as secure system failures. In case of an out of the blue(predicate) disturbance, firms nates still operate ERP systems in their headquartered location, by creating an off-site ERP system. However, some IT outsourcing does not connect with cost reduction. Most managers, indicate that though practician research emphasizes ITOSs (IT outsourcing) cost-reduction benefits gained at the individual project level, outsourcing is associated with higher IT spending, presumptively reflecting enhancement of capabilities. (Kobelsky & Robinson, 2010) Organizations utilize ITOS, in addition to improving in-house IT fraud reduction projects.The continuat ion of outsourcing affects an sum up in IT spending, than for localization. Consistent reckoning advancements and technological prowess have had positive outcomes in business processes, as well as added new computer support systems. There have been late(a) instances that cite, fraud costs U.S. business more than $400 billion annually. (Ravisankar, Ravi, Rao, & Bose, 2011) selective information mining techniques have been implemented to let off fraud and attach fraud detection by utilizing approaches that are more data-driven. These methods specifically depend on historical monetary data of both troubled and backbreaking companies, coupled with their respective financial ratios. With the use of objective data mining, companies can solve financial statement inaccuracies and financial problems affecting the business, by winnowing through the records of fraudulent and healthy companies. Then, they discover knowledge which can be used to predict whether a company at hand will pe rpetrate financial accounting fraud in future. (Ravisankar, Ravi, Rao, & Bose, 2011) hokey Intelligence systems bring forth a theoretical advantage. They understand when and when not to extract specific statistical facts on the input variables. Nevertheless, new computing power and automated systems could contain unexpected risks that could alter and affect reliability on financial statements. Because of newfound internal control spending, coupled with an increase of information technology in the workplace, companies have been progressively shifting their reporting systems from legacy platforms to a widespread client-server network. The integrated network utilizes new servers and product software, such as industry leaders, illusionist and SAP. Since the passing of SOX and introduction of COSO, seer and SAP have been duking it out for majority share of the market. The Systems, Applications, and Products in Data Processing (SAP) is a software ERP, which incorporates a strea mline of business function applications. The system offers a, real time management and tracking of sales, outturns, finance, accounting and human mental imagerys in an enterprise. (Indika, 2011) Usually, IT systems operate separate processes.Traditionally, each process cycle operates in its own system. SAP differentiates itself by integration into all business practices and operations. Updates are presented in real time, and pass along through different cycles and departments. The complexity of SAP, runs on a fourth generation programming language called forward-looking Business Application Programming (ABAP). (Indika, 2011) Oracle maintains a similar application to the environment. ORdatabase management system (Oracle DMBS) has been primarily incorporated to be as versatile as SAP, specifically to assist large enterprise settings and manage data in the enterprise. Additionally, it can be useful on a personal level. Oracle DBMS is comprised of data and retrieved by applying SQL (Structured Query Language). The commands set entrance boundaries and protect the users data files. It, can be embedded in other languages or could be executed directly as scripts. (Indika, 2011) During the initial SAP installment, Oracle can be defined as the database that is going to be used and and then the SAP system will issue SQL commands that are compatible with the Oracle DBMS. (Indika, 2011) There is not a drastic difference in installation time for Oracle or SAP. It also depends on whether the system is easily introduced to the organization, or if it is launched all at one time.Top management will review an in depth cost and risk analysis, in ascertain which method of installation is most appropriate. (http//whatiserp.net/wp-content/uploads/2010/09/duration.png) The centralized legacy mainframe computer environment is tightly controlled and has made management complacent because of the simple fact that it works. The security structures and internal controls found on l egacy systems have developed over the past four decades. Program and file access is easily traced and organized. The operating system of mainframe programs deliberately create audit trails and logs, which offer conveniences to external auditors, as well as making it more troublesome to commit fraud. Legacy systems incorporate intricate scheduling software, which operate as safeguards. For example, plans are input into the system when appropriate authorization is in effect and in the precise sequence. Additionally, these systems adopt specific controls, which protect the integrity of financial reports and stages in the multiple cycles utilized by a business.Specifically, change controls pre-determinately restricts alterations to production applications. Automated responses appear and instruct employees to provide high level approvals and testing. The mainframe control environment has had time to evolve in decently lasting times. However, upon the introduction of SOX and the re alization that there were material internal control weaknesses in the workplace, standardization and integrated programming systems were presented to the business world. Over time, more and more companies are making the jump to cross-referencing and streamlined technologies. Because of a limited time lapse regarding the application of new ERP systems, there has not been reliable risk analyses on internal control processing, as there are with legacy systems. Unfortunately, there is an insurmountable need for risk awareness, when incorporating new systems in this twenty-four hour period & age. Over-crowded client-server networks can become a problem to configure and admonisher appropriately.To cushion the negative associations of risk, physical and internal controls are put into place to monitor systems. Companies may want to place security cameras and physical guards of the servers and related systems during off-hours. When deciding to implement new technology in a firm, or repl acing an entire system with more up-to-date specifications, control risks need to be assessed. New risks and internal control weaknesses are often created fleet than they can be discovered and regulated. Integrity and security of a firms data should be at a top priority. Threats, desire viruses and worms are to be kept at bay, with various walls and algorithms. Emerging technologies like Extensible Business Reporting Language (XBRL), Radio Frequency realization (RFID) tags, the continuation of reporting, subject to repeated external audits & compliance with SOX and COSO, and object-oriented databases remedy discrepancies should protect systems.A firms internal audit department are also available in coordinating and evaluating the IT control environment, and should be able to verbally instruct and announce employee centric workshops to increase employee control awareness. Because of issues concerning independence and segregation of duties, the internal audit department will not be able to design code and functionality specifications in the internal control mainframe. However, they are the cheapest and central consultants on how the controls affect operations, and if the specific controls work in detecting fraud. Top management considers the internal audit department an under-utilized resource in perfecting internal controls and information technology controls.Constant balance amongst CEOs and CFOs must be maintain in order to synergize business operations, in accordance with GAAP, SOX, and COSO. Information technology, serves as a facilitator, catalyst, motivator, or even an enabler for the convergence of management accounting and financial accounting. (Taipaleenmaki & Ikaheimo 2012) In order for the SOX initiative to be effective, the information technology function must be in conjuncture with aiding the control environment of a business. Financial reporting has changed over the years, to favor IT processes, which are almost only if fundamental to the financial reporting practice. Additionally, with the passing of SOX, new responsibilities are compel upon IT functions, which would usually be ignored, because IT is not necessarily responsible for monitoring internal controls. IT & finance professionals, as well as top management, have had to adopt and learn a whole new set of functions, reporting, and monitoring.The information technology culture is of dire importance to adhering to new standards and progresses the business environment to innovative and more secure highs. A functioning IT department is crucial for the CEO & CFO to document financial and internal controls. value is a very subjective term, especially in reference to capital expenditures. Different opinions and different needs will influence how much a firm spends on new technology to facilitate and cooperate with ever-changing standards. Usually, implementing a new system in a business have positive and financial benefits, in the long run. However, a ne w system will often find resistance at the individual level because the users do not perceive any value to them from it. (Barua, Brooks, Gillon, Hodgkinson, & Kohli, 2010) Positives could include additional time to perform other tasks, and create more ability around the organization.However, an overuse of technology could threaten employees jobs, as systems become more automated. Individual perception on new installations of systems might be shaky at first, but in the end, whatever is needed to comply with changing standards, is exactly what leaders of organizations will flock toward. CEOs and CFOs understand that integrating proper business relationship Information Systems is integral to society and the business world. Additionally, as per Thomas Piketty, who maintains in his freshly published voluminous, Capital in the twenty-first Century, CEOs, CFOs, and Super Managers are running massive conglomerates effectively because of IT and AIS. Therefore, IT has stipulation th em powers to set exorbitant compensation packages for themselves, by topnotch-humanly maximizing their own productivity and performance. In conjunction, if fraud can be avoided in the bargain, they are awarded super hero status and remuneration, which may summarize their perceptions about AIS, IT, and the dual benefits of SOX and COSO.BibliographyBarua, A., Brooks, L., Gillon, K., Hodgkinson, R., & Kohli, R. (2010). Creating, Capturing andMeasuring Value From IT Investments Could We Do Better? . Communications of theAssociation for Information Systems, 27, 13-26. Chinn, D. (2011, March 11). What Is Enterprise Resource Planning Systems?. eHow. RetrievedApril 15, 2014, from http//www.ehow.com/info_8050594_enterpriseresourceplanningsystems.htmlixzz2zS3rm7n5Dah, M. A., Frye, M. B., & Hurst, M. (2014). Board Changes and CEO Turnover TheUnanticipated personal effects of the Sarbanes-Oxley Act. Journal of Banking & Finance, 41, 97108. Difference Between. (Indika). Difference Bet ween RSS. Retrieved May 5, 2014, fromhttp//www.differencebetween.com/difference-between-sap-and-vs-oracle/ Hall, J. A. (2013). Accounting Information Systems (8th ed.). Cincinnati, Ohio South-WesternCollege Pub.. Print. Kobelsky, K. W., & Robinson, M. A. (2010). The impact of outsourcing on informationtechnology spending. International Journal of Accounting Information Systems, 11(2),105-119.Lunardi, G. L., Becker, J. L., Macada, A. C., & Dolci, P. C. (2010). The impact of adopting ITgovernance on financial performance An experimental analysis among Brazilian firms .Journal of Banking & Finance, 15, 66-81. Ravisankar, P., Ravi, V., Rao, G. R., & Bose, I. (2011). Detection of financial statement fraudand feature selection using data mining techniques. Decision remain firm Systems, 50(2),491-500. Taipaleenmki, J., & Ikheimo, S. (2013). On the convergence of management accounting andfinancial accounting the fictitious character of information technology in accounting change.International Journal of Accounting Information Systems, 14(4), 321-348. Chart Picture http//whatiserp.net/wp-content/uploads/2010/09/duration.png