FINANCE

Big Data in Financial Accounting

Financial reporting, also known as the fiscal report can be said to be a formal record of commercial activities and position of a business, person, or any other entity. Financial reporting includes some basic financial statements such as balance sheet, income statement, statement of retained earnings, and cash flow statements (Charifzadeh and Taschner 2017). The current world is composed of new and improved technology which changes the ways in financial reporting is done in business. Precisely, evolution in technology has revolutionised financial reporting to Big Data. Big Data can be defined as extremely large data sets that can be analysed computationally to reveal trends, patterns, and associations concerning the behaviour and interaction of an entity or an individual (Charifzadeh and Taschner 2017). The large and complex nature of Big Data makes it impossible for traditional software to be used in their analysis. The focus of this study is to analyse Big Data as developed with financial reporting. Further, the study will explain some of the benefits and drawbacks of big data in financial accounting.

As explained earlier, big data is a series of information that is extraordinarily enormous and complex (Charifzadeh and Taschner 2017). Due to this complexity, this information cannot be analysed using old methods and technologies. It should be noted that data analysis is a very crucial concept in business because it provides the required information to categorise a business. Further, the results from a study are used to the government while taxing, and by the shareholders to understand the financial health of an organisation.

An analysis suggests that big data concerning finance office should consist of all the information that companies collect internally in the normal operation. The use of big internal data in financial reporting is always note encouraged by the chief financial officer (Charifzadeh and Taschner 2017). However, those who have used the big data in financial analysts argue that it assist in identifying cases of fraud in business. In this case, one can say that the use of big data in financial reporting helps in determining and detecting fraud and some credit or risk identification as used in an organisation. The benefits mentioned earlier are only possible in a small organisation by reorganising data and then applying advanced analysis.

On the same note, it should be noted that the financial reporting has seen new development in the past that affects the way in which organisations conduct financial reporting. The new accounting framework introduces two different suites of standards for-profit entities and for public benefit entities (Segall and Cook 2018). The for-profit standards must follow the international financial reporting standards (IFRS). On the other hand, the public benefit entities’ reporting standards must follow the international public sector accounting standards. Both of these suits are based on IFRS which are in continuous and progressive changes in the due to the ever-changing financial economy.

The new financial reporting standards are likely to affect several businesses including the banks and their customers. The reason why the big data affects banks and some small companies is that they lack proper bookkeeping that can be used as a source of big data. Further, the implication of the use of big data means that organisations have to apply and dedicate their efforts to technical, methodological issues. In particular, this part would require onto think of how they can affect forward-looking assumptions macroeconomic settings in their existing facsimiles and techniques. Besides, IFRS requires that business organisations recognise financial assets or liability in its statement of financial position. In this case, some organisations like banks face strategic as well as business challenges when it comes to the adaptation of their operation in a new environment under IFRS (Segall and Cook 2018). If they have to address this issues, then they would have to apply fundamental changes in their model and affects areas such IT and risk management (Charifzadeh and Taschner 2017). Besides, the IFRS is likely also to affect the ability of banks to lend cash. This discouragement is so because some sections of the IFRS discourages credit origination for clients. For instance, if one considers venture investment to be substance to volatile cyclic behaviour, then they may resolve to limit new business expansion in such arrangements.

Benefits of Big Data in Financial Accounting

Investors use the information presented by a business to determine whether they should or should not invest in a given organisation. In the modern day, the world is increasingly driven by data and how organisations outline its strategy and approaches is a crucial determinant of its ability to compete in a given industry (Al-Htaybat and von Alberti-Alhtaybat 2017). Further, stakeholders across the world use big data to make all sorts of economic decisions regardless of the size of their business. In other words, big data is a primary source and guide related to decision making in either small or large organisation.

Another benefit of using big data is that it provides descriptive analytics. It involves classifying and categorising data into useful information. In other words, it can be used to analyse which region or branch sold a given brand in high number, which brand has the highest demand, and what feedback customers give to a given brand among others. Another example of descriptive analytic in an organisation is when a business may need to spend some cash on marketing and want to find out how this spending can affect their sales or profit realisation.

Besides, big data can be used in real-time impacts and financial predictions which are crucial in determining the effectiveness of a business. It can be incorporated into a measure of financial forecasting. Such predictions can then be used to increase the efficiencies, assess risks, and identify any form of advantage or weakness via inquiry.

Lastly, accountants and CFOs in business can use big data to present the industry as a potential business partner. In this case, the finance department is expected to use the predictive analytics tool in collaboration with customer data to make future forecast operation of a business (Al-Htaybat and von Alberti-Alhtaybat 2017). Thus the move can be used to form alliances with potential investors.

Drawbacks of Big Data for Financial Accounting

Despite the vast advantages of big data, it also presents some challenges in a business setting. For instance, if the financial managers in an entity fail to understand the need for big data in a business, then they are most likely to lead the market into turmoil. Besides, a company may end up paying more taxes if they present big data in a wrong way. Further, the method of collecting and analysing big data is quite tedious and cumbersome, especially for some organisations. Lastly, a big information is like to negatively affect small organisations.

 

References

Al-Htaybat, K. and von Alberti-Alhtaybat, L. (2017). Big Data and corporate reporting: impacts and paradoxes. Accounting, Auditing & Accountability Journal, 30(4), pp.850-873.

Charifzadeh, M. and Taschner, A. (2017). Management accounting and control. Weinheim: Wiley-VCH Verlag GmbH & Co. KGaA.

Segall, R. and Cook, J. (2018). Handbook of research on big data storage and visualization techniques. IGI Global.

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