Role of Information Technology in Financial Reporting and Management. How do banking and finance sector stand to gain from Information technology?
Information technology has continued to play an important role in the growth of the business industry in the 21st century. The advent of computers, IT and the Internet has changed the way businesses operate. From HR to marketing and financial management, everywhere the role of IT has grown. None of these functions can be run without using Information Technology. Use of IT means adding speed, efficiency, and convenience to these functions. These three are important factors that can help improve productivity. IT trends have also shown that the world of technology will continue to grow. Businesses are using every form of technology to grow their sales and revenue. Finance is an important and a bit complex function that cannot be run efficiently without the use of IT.
Every finance manager is expected to have a sound knowledge of Information technology and a nice level of IT skills. Finance has traditionally been a complex function that has boggled minds. Chances of errors have always remained high in financial management. Its role is central to business and most businesses take the function very seriously. Finance is risky business and errors in this area can ruin all the efforts made by the staff through an entire year. IT can be a very important support for the finance staff. This is why finance managers must have IT skills and should focus on use of IT for efficient financial management.
Financial management and reporting need to be free from errors. For a long time the world was dependent on financial mangers and hand written accounts for storing and publishing financial data. This made the task cumbersome and things have changed with the development of IT. The internet has brought the biggest change in this area. It has made storing, sharing and publishing of financial data easier. IT has also reduced the costs of financial management.
With less staff more can be achieved and accuracy is always higher. Accuracy is a key requirement in financial management and helps reduce the need for redundant work or wastage of time. The world of finance is fraught with risks and every small error can prove costly. Moreover, accounting managers are always under pressure related to ethics and performance. IT improves performance and can process larger amounts of financial data within less time. So, finance managers stand to gain a lot from IT.
The key advantages of IT in the area of financial management:
Accuracy: Financial management requires lots of attention and precision. It helps with these things. It becomes easier to calculate and study data. Input and calculations are easier and it becomes easier to calculate rows of financial data. Tonnes of data can be calculated easily and processed without any headache. Accuracy of financial data makes it understandable and based on it managers and CEOs can make important decisions without any obstruction. CEOs can take financial management inside their organisation a step farther with the use of IT.
Speed: In financial management you do not just need efficiency but also speed. You cannot keep sitting for ages waiting for the balance sheet to be ready. The decision makers always need financial reports to be ready on the table. IT helps finance managers prepare these reports and process data without any complexity and do real time analysis. In the 21st century, speed is important. You have to make key decisions within seconds and for that you need reliable information in your hands within seconds. Reliability is also an important advantage of IT in financial management apart from speed and accuracy. Suppose you are the CEO of a firm and want to make some key decisions about an upcoming product release. If your finance managers are ready with the right data at the right time, you can make decisions and the operational flow will be better.
Performance: Performance includes accuracy and speed with simplicity. Organisations are using better software for financial management and for higher efficiency. The finance function has to process loads of data that becomes easier with financial management software and information systems. Data managers also need to present this data in a simple and actionable form and that is possible through the use of IT tools. The simpler the reports, the easier it is for the leadership and executives to act on them. IT boosts performance and enables fast operational flow. Human ability is limited and manipulating a very large amount of data is impossible for humans without the use of IT.
Exchange of financial data and information between various functions is easier with the use of Information Technology. Sales and marketing functions need support from finance department. They need actionable financial data to make key decisions. Important sales and marketing decisions are based upon financial information and data. The finance function plays a critical role in this area and supports these functions with important financial information that helps them plan and create effective marketing programs. Effective financial management helps with so many things because finance supports every other function. Internet’s role in financial reporting has grown. Apart from online exchange of financial data, online information systems have also helped the finance function. There are several online tools and financial software that help finance managers to understand data and analyse trends.
A key responsibility of the managers inside financial organisations is to analyse the data trends and to understand what will happen next. The world of finance is full of risks and if you are not looking forward, you will find it difficult to be competitive. Information Technology has eased so many pressures on finance managers and reduced their tension. The need for accuracy and ethical pressures have always been a major burden for finance managers. With increased use of IT tools and software, both these burdens have eased. It is right that IT has given rise to some disadvantages but it has also balanced some forces. Automation was feared to affect employment but the increase in capacity offered by it is a great factor. Two hands and a mind are not enough to create as much as a single computer can. Today’s financial analysts are equipped with best in class technology that enables the analysis of loads of data with ease. Financial data can be complex and small errors can give rise to chances of loss.
IT reduces this probability and helps handle large loads of data with efficiency and relieves finance managers and companies from the most cumbersome task. Financial and statistical tools are a major support in case of data analysis. Enterprise Resource Planning systems are a great tool for the planning of financial resources. It helps make key investment decisions and ensures greater productivity and profits. Accurate financial information is a key necessity for the executives since they have to make important decisions within seconds. A key benefit arising from the use of IT is accessibility. Another key benefit is affordability. Since sharing of data is easier, it makes data accessible. Shared management information systems enable the sharing of data between the various departments and faster workflow. The field of IT has seen a lot of innovation and made everyone’s task easier. Several companies share their financial information publicly online from their websites. Balance sheets and proforma statements get ready within minutes and are published and shared with stakeholders with ease.
Small and big companies alike need to use IT tools for financial analysis. In the small companies, the load of finance department may be lower and yet the benefit of using IT can be immense. One important challenge that IT has faced is that of data safety. However, in the sphere of IT, as the challenges take place innovation too happens. Cloud based storage systems have helped companies store their precious data with care and kept finance managers free from worry. IT has emerged as a boon for managers. In the banking and finance sector it has come as the biggest enabler. It has helped financial companies serve their customers in new and better ways. They can market themselves and their brands in new and better ways and use their websites to publish financial information. It has helped them reach new market segments and serve customers with higher efficiency. Information technology has helped companies bring in transparency and efficiency both. The most important effect is on quality of financial services. Financial reporting is not only better and quicker but also the task burden is greatly reduced. People feared that IT could kill jobs but it ended up creating new opportunities. It enabled greater security in the world of finance and higher accountability too. More financial data can be handled with higher accountability, greater ease and the chances of violation are also low.
The banking sector was caught in a chasm for ages. IT added speed and efficiency to this sector. IT saw a swift jump with increased reach and better performance. Banking and finance sector have grown very fast in the past decade. It has brought growth in the financial world and helped it in several spheres. Data processing, quality of reporting and marketing in the banking world, all have grown very fast with the arrival of the internet.
THE ROLE OF INFORMATION TECHNOLOGY IN FINANCIAL REPORTING QUALITY: IRANIAN SCENARIO – Mahdi Salehi & Elahe Torabi