Digital technologies and the finance function Flashcards
What are the two ways finance function might view new technologies arising as a result of the 4th industrial revolution
As Opportunities or as threats
How does cloud computing change the structure of the finance function
- Allowing flexible working as working can be remote
- Allowing collaboration as files can be shared and updated
- Software is continuously up to date
- Improving the integration of software
- Improving data security
Define cloud accounting
The provision of accountancy software through the cloud
Users can log into accountancy software to process financial transactions and produce reports
How does internal big data analytics affect finance function
- Identification, quantification and management of risk: benefits internal audit functions
-To reduce risk by concentrating on lower performing areas
How does external big data analytics affect the finance funciton
- Used by management accounting to support performance management
- Variance analysis to see if organisation is on forecast
- Help develop budgeting
How does big data support financial accounting
Can improve quality and relevance of financial informatoin
Improve transparency in reporting
How can big data affect financial reporting
Support the development of more relevant anf useful information to improve future accounting standards
What is process automation in terms of accounting
Changing in the work of accountant from recording and verifying low level transactions to higher level activities such as producing and analysing reports
What are teh advantages of finance function investing in process automation
- Frees up staff time to focus on value adding activities
- Reduction in headcount and cost
- Removal of human error for increased activities
- Catalys to help organisatoin adapt
- Positive return on investment for well developed systems
What are disadvantages of process automation on finance function
- Training costs
- Change required to introduce systems
- New systems create uncertainity over job security
- Programmer must be competent
- Finance function relationship with IT must be carefully managed for system’s success
What are examples of how AI can support the finance function
- Simple processes be automated
- Improved fraud detection system
- Predictive models to forecast cost and revenue
- Improve analysis of unstructured data
What are the key benefits of data visualisation for finance function
- Accessibility of data
- Real time processing
- Performance pptimisation for decision making
- Richer insights and understanding of drivers
How might block cgain impact finance function
- Security and traceability of transactions
- Smart contracts: cryptography, digital signatures and secure completion and executed automatically
- Bitcoin and other currencies are not covered by accounting standards at the moment
- Allow money to cross borders easily by avoiding traditionally intermediaries like banks
What is the effect of the internet of things on finance
- Use of multiple devices to collect different information and data
How does mobile technology increase efficiency of finance
- Scalability: easily expandable at low cost
- Communication and flexibility- Allows for working remotely
- Reduction in paperwork
- Instant visibility
What are effects of 3D printing finance function should be aware of
- Increase in direct costs due to set up costs
- Cost savings due to waste reduction
- no overproduction
- reduced inventory and more space for just in time production
- minimal tooling and set up costs required
What are the digital skills identified by Farrar for success in digital world
- Basic digital literacy
- Technology Know how
What are the digital mindsets identified by Farrar
Dealing with complexity
Working in a creative and agile way
Lifelong learning
What is meant by basic digital literacy
Capability to work in digital environment to
- create digital content
- ensure data safety
- communication in digital channels
- solve problems created by digital environment
What is meant by technology know how
Sufficient technical knowledge for value creation to
- Understand digital issues like cyber security affect organisation
- Understand digital technologies like data analytics disrupt business model
- Appreciate the need for and apply data privacy and security procedures
What is meant by digital mindset
Fusion of abilities to confront complexity, work in agile and creative manner and harness curiosity to continuosly learn
What is meant by dealing with complexity as a digital mindset
Change in digital environment is unpredictable and rapid - need for open to hcange
What is meant by working in a creative and agile way as a digital mindset
Changing role from routine processing and report generation into value adding tasks
-need to be a stratefic partner rather than a service provider
- more collaboration with other functions
What is meant by lifelong learning as a digital mindset
Shelf life of learned knowledge is decreasing so finance professionals have to be committed to learning for life
Who has identified five qualities/practices/approaches as important dimensions of digital mindset
Forbes
What are teh 5 qualities or approaches as dimensions to digital mindset
- Provide clear vision of how business should evolve by empowering others
- Giving up controlling the change but rather architect the choices
3 Sustain and enhance existing businesses by allow to nurture new processes to distrupt status quo
- Place reliance on the data but trust personal instict
- Be both sceptical and open minded
What is meant by a change adept organisation
Organisations that are ready and have capability and capacity to deal with change
- Lean processes and flexible structures and are forward thinking
- Staff should have growth mindsets
What are the components of the finance function
- Financial reporting
- Management accounting
- Treasury
- Internal audit
What are the responsibilities of financial reporting
- Put togther financial statements/ statutory annual accounts of a company
- SPL, SOFP, SOCF
- Communicate with external
What are the three ratios used by investors
EPS: Earnings per share
PE: Price Earnings
Dividend yield
What is EPS
Earnings per share is a measure of the profit per share
Profit after tax/ weighted average number of shares in issue
What is PE
Price earnings ratio
Share price/EPS
High PE ratio indicates investors expect future earnings growth
What is a dividend yield
Calculated by:
(Dividend paid per share / current share price) x 100
What is the role of management accounting
Analyse data to provide data for managerial action
- For internal stakeholders
- No legal requirements
- Set by management
- Both financial and non financial data provided
What are the uses of Budgets
C: co-ordination of departments
R: responsibility of budgets and authority for expediture
U: utilisation-maximise utilisation- ensure managers have visibility of budget
M: motivation - to achieve budget goals
P: planning - provide information to plan
E:evaluation- act as a point of reference of performance
T: telling- communciation tool of objectives
What is the role of the treasury
Responsible for raising finance and controlling financial resources
- Working capital and liquidity by managing cashflow
- Financing: sourcing and funding management for intvestment
- Foreign currency management
- Taxation: maanging corporate affairs
- Cash management to prepare overdrafts and budgets
What is meant byt working capital and liquidity management
- Treasury role
- Working capital: balance of inventoy, trade recievables and trade payables
- Cash balance: minimising overdraft, ensurign return on cash surplus
What is meant by financing or funding management
- Treasury role
- Weighing debt vs equity mix
- Gearing level : (longrterm debt/shareholder funds) x 100
- If gearing is too high then future lenders might be put off
- Managing interest rates
What is meant by foreign currency mangemtn
- Treasury role
- Deciding whether and how to hedge foreign currency risk
-Manage company affairs to minimise exposure to exchange rate losses
What is meant by taxation as a treasury role
- Ensuring company is compying with law
- Minimise tax liabilities legally (tax avoidance)
What is the role of internal audit finance function
Employees who report on the effectiveness of internal control systems
- Accountable to audit committee
- Prevent and detect fraud, compliance
-Evaluates effectiveness of entity’s operations and management
- Investigates accouting systems
What does UK Corporate governance say about internal audit committee
All listed compnaies SHOULD have internal audit function
Those that do not need annual analysis on wehther they require one
What is the scope of internal audit
- Reviewing internal controls, risk management and financial reports
- Managing the data used to identify risks
p Identify methods to prioritise and manage risks - Reporting on effectiveness of risk management controls
- Prevention and detection of fraud
What are the purposes of internal audit
- Advise: those charged with governance on effectiveness of control
- Make reccommendations: to imrpove interal controls
- Adopt a risk led approach: to identify risk
- Remit of work undertaken: determined by management
Define fraud
Criminal activity of theft by deception
- misinterpretations in financial statements for a gain
What are teh three prerequisies for fraud to occur
Dishonesty
Opportunity
Motivation
What are the causes of fraud
- Low staff morale
- Low monitoring and control systems
- Lack of segregation of duties
- Unnecessarily complex corporate structures
- Domination of management by small group/person
What are symptoms of fraud
- Strage transactions
- Payments being made out of proportion to work done
- Lavish lifestyles of employees
What are the limitations of the internal audit system
- Independance: they are still employees of the organisation
- Organisational constraints: cannot be a separated business function
- Poorly qualified/lac of experience staff
- Self-interest threat
What is human and machine hybrid activities
Activities where technology can augment human intelligence
‘Superpowered activities’
To improve efficiency
What are the three key impacts of automation on finance professional
- Ensuring they can understand what machines can do and their limitations
- Ensuring they possess human skills which machines lack
- Ensure they are highly skilled in areas of hybrid collaboration
What is the automation paradox
As technology takes tasks out of human control - resulting in loss of skills
then an atypical event might occur which technology cannot cope with byt humans are also deskilled
How does automation impact financial reporting
- Downloads of bank transactionsinto accounting system
- Posting bank transactions to nominal accounts
- Reconcialisation of bank, supplier and customer accounts
- Creation of statuatory accounts
- Reports to identify possible errors
How does automation help management accounting
- Generate management accounts
- Calculation of variances and finance rations
- Produce in depth analysis and budgeting based on actuals
- Use AI for forecasting
How can automation be used in treasury function
- Investment appraisal calculations
- Analysis of financial markets to predict cost
- What if scenario planning
- Monitoring currency markets
- cash flow forecasting
How can automation be used in internal audit
- Routine monitoring of transactions
- routine tesitng of controls and procedures
- Simulations of cyber attacks
- Real time feedback
- vulnerability testing to identify potential threats
What are the skills required from a finance professional
- Business acumen wide understanding of business and environment
- Analytical skills: add value to data through analysis
- People skills: interpersonal skills
- Leadership
- Judgement: to make effective decisions
What are the five moral dimensions of the information age
- Information rights and obligations (protecting privacy)
- Property Rights
- Accountability and control (when things go wrong with technology)
-System quality
- Quality of life
What is meant by the quality of life moral dimension
Negative cosnequences of technology on quality of life:
- monitoring system use of individuals
- blurring boundaries between work,family, pleasure
- dependance and vulnerability on systems
- equality
-health risks
- technorisks
- cyber crime and abuse
What are the ethical considerations of data
- Data dependence
- Data Mining and storage
- Data distributions
What is meant by data dependence as an ethical consideration
There is a doubling of computer power every 18months
Has helped with the proliferation of data in everyday life
- Dependance on data and vulnerability to errors and poor data quality
What is meant by data mining and data storage as ethical considerations
Advances in data mining and storage techniques enable organisations to find more detailed personal information
- for instances through credit card purhcases, telephone calls, browsing, subscriptions
What is meant by data distribution as ethical considerations
Advances in networking reduce the costs of moving and accessing large quantities of data
- large pools of data can be mined remotely using small machines which permit an invasion of privacy on a vast scale with great precision
Why are ethical and social considerations of data important
- Gain confidence of investors
- Provide confidence to customers
- build stakeholder trust for long term sustainabilitiy
- shows awareness of risks
What are the principles of GDPR
- Lawfulness, fairness and transparency (data held only with valid grounds)
- Purpose limitation (individuals should be aware of why data is being taken)
- data minimisation (only data needed should be held)
- accuracy (cannot be misleading with no inaccuracies)
- storage limitation (should not be held for longer than needed)
- Integrity and confidentiality/security
What rights does the GDPR recognise
- right to be informed
- right to access
- right to rectify
- right to erasure
- right to restrict processing
- right to data portabilitiy
- right to object
- right to stop automated decision making and profilling
What are the impacts of legal and social responsibilty of data on corporate digital responsibility
- accuracy of data
- allow individuals to access data about them
- should ensure systems used are secure
- take a lean approach to data storage
What are the five areas for developing corporate digital responsbility
- Digital stewardship: using data responsibily, securely and repectfully
- Customer experience: transparency and be empowering to opt in and out of sharing data
- Giving back: data shared should benefit
- Data value: consider rewarding customers for data
- Data inclusion: aim to breakdown barriers to enable access to data for everyone
Define tax mitigation
Tax mitigation involves reducing tax liability through conduct that does not frustrate the intentions of Parliament when the law was created.
