Accounting has always been impacted by digital technology, although the majority of the digitalisation process has included swapping out analogue instruments for comparable digital alternatives.
The creation, transport, management, and storage of financial data in a digital form utilizing tools like e-documents, e-ledgers, and e-registration are all examples of digital accounting. By reducing the influence and presence of accounting professionals, it also enables the use of information technology, such as artificial intelligence applications, to manage procedures. This has improved financial information preparation, transport, analysis, and interpretation at a speed and effectiveness never previously witnessed.
Numerous new blockchain-based business models, including but not limited to cryptocurrency mining, cryptocurrency exchanges, and cryptocurrency trading, have emerged in response to the ascent of Bitcoin and other crypto assets. In addition, certain nations, including Venezuela, are adopting Bitcoin as legal cash; the mayor of Miami plans to pay state employees in Bitcoin; and in 2022, big companies like Microsoft, PayPal, and Starbucks will begin taking cryptocurrencies. In the Metaverse, other "old economy" businesses like Adidas are selling their goods, while McDonald's has submitted patent filings indicating that it is creating "virtual restaurants."
This demonstrates a distinct pattern of a growing number of organizations changing their business models to include crypto-assets and taking cryptocurrencies now or in the process of doing so. This emphasizes how critical it is to comprehend how blockchain technology alters a number of accounting standards, forensic accounting, auditing, and tax preparation processes.
Numerous basic issues and difficulties are brought up by the digitization of accounting, particularly the adoption of blockchain.
The necessity for quick adaptation and transformation of company practices and business processes without deviating from basic accounting laws and principles reflects challenges for the accounting profession. Accountants need to be alert for the developments and threats to their competitiveness. Some of the challenges of digitalization in accounting are:
First, accountants need to be equipped for digitization, which calls for distinctive and innovative knowledge and skills. Digital systems are susceptible to human error and may need specialized knowledge and skills to function properly. Accounts should be knowledgeable and proficient in using modern digital tools and systems, like Artificial intelligence, blockchain, big data and cloud computing.
Another challenge that can face the adoption of digital techniques in accounting department involves the resistance to change from the part of traditional accountants who are hesitant to the transition from traditional to digital accounting methods. Traditional accountants may not be comfortable with digital systems.
Second, the cost of adopting and implementing new digital systems can be expensive, especially for smaller businesses. Digitalization frequently demands significant investments in technology and infrastructure, which can be a challenge for small businesses and startups with constrained budget.
The cost can be also to compatibility and integration issues. In some cases, implementing digital systems won't be able to interact efficiently with current processes, software, and systems, which can be difficult and time-consuming. Moreover, Digital technologies may have restricted functionality, or they may become outdated over time, necessitating expensive updates and upgrades.
Third, digitization of accounting department brings new dangers, particularly cyberattacks. For any digital transformation strategy to be successful, cybersecurity risks must be considered. The risk of data breaches and cyber-attacks rises as more financial data is kept and sent electronically. Additionally, digitally storing sensitive financial data raises concerns about the security of the information and who has access to it.
To examine their cybersecurity standards and lay out who will be responsible for what, the accounting department should meet with their IT department and potential suppliers before selecting new technology. Another type of risk can arise from human error when manually entering data into digital systems, as well as the risk for data loss or deterioration.
Data quality and consistency is an important issue, The accuracy of financial data depends on the quality of the input, and digital systems can be vulnerable to errors and inconsistencies if proper controls are not in place.
The above-mentioned issues are some of the challenges, among others, that might face the digitalization of accounting. However, these challenges can be addressed under a clear strategy formulated by a company; given that the main obstacle to a digital transformation initiative is a lack of a strategy. It is not sufficient to just decide to invest in advanced analytics or artificial intelligence. A comprehensive plan that covers training, implementation, and maintenance is necessary.
[Authors Dr Suaad Jassem is an Assistant Professor in Accounting and Head of Managerial and Financial Sciences Department at Al Zahra College for Women, while Dr Karima Sayari is an Assistant Professor in Finance at Al Zahra College for Women.]
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