THE ROLE OF INFORMATION TECHNOLOGY IN THE TRANSFORMATION PROCESS OF ACCOUNTING IN THE CROATIAN HOSPITALITY INDUSTRY
MILENA PERŠIĆ, Ph.D., Full Professor
Faculty of Tourism and Hospitality Management, University of Rijeka
51410 OPATIJA, IKA, Primorska 42, p.p. 97;
e-mail:
MARIJANA STOJANOVIĆ, M.sc.
Croatian Pension Investment Company
10 000 Zagreb, Mihanovićeva 3;
e-mail:
Abstract
The task of the accounting information system (AIS) of the hotel company is to create and present relevant financial information, understandable and comparable by criteria and standards of the global tourist and financial markets. Information technology this process facilitates accelerates and makes it cheaper.
The set task must be performed taking into consideration accounting theory, methods, practice, regulation, and the most important, Uniform System of Accounts for the Lodging Industry (USALI), a system for the preparation of accounting reports and financial statements in standardized formats, respecting all specific industry features.
For business transparency, the most important accounting information are those based on interim and segment reporting standards. To prepare relevant information about enterprise’s products and services, its geographic areas, and its major customers the special software is needed which has to be compatible with the requirements of IAS 14 and SFAS 131. Furthermore, USALI methodology has to be adjusted to the real organizational structure and real information requirements of particular hotel company.
The preparation of financial statements is easy and quick if it is connected with the system of internal reporting, because financial statements emerge from the summarizing and grouping of the information created for internal accounting reports.
The second step which is possible by using modern information technology is presentation of financial reports on the corporate web sites. For this purpose the Extended Business Reporting Language (XBRL) is created, standards based method for preparing, publishing in a variety of formats, exchanging and analyzing financial statements and the information they contain.
The paper explores the influence of technological advancements on the functions of accounting and financial reporting. The emphasis is on the need of accounting adjustment to the information requirements for specified purposes. Any other approach to the preparation of managerial information does not assure the realization of the goals and the tasks of the hotel companies.
Keywords: Uniform System of Accounts for the Lodging Industry; International Accounting Standards, Generally Accepted Accounting Principles; Segment reporting; Information technology;
Introduction
The Information technology has grown and will continue to grow in importance very fast. It has significant influence on almost every human and particularly business activity. Accounting is not an exemption. On the contrary, accounting and IT are today an integrated whole, not a two separate disciplines. The growth of the Internet as a medium for delivering business reporting information has altered the way information flows from companies to investors and creditors. That structure will continue to change as companies bring new technologies to the process and as information users find new ways to gather and analyze information.
Introduction of computer technology in the AIS demands new approach to all relevant accounting area: from organization of documentation and accounting techniques, throughout transaction processing and registration, planning and control of all accounting items, to the reporting system, but also to the area of internal and external audit. Besides described changes for accountants, IT has significantly influenced other parties dependent on accounting information. For example small and medium companies which have its accounting departments outsourced in the developed countries such is Great Britain already have their accounting on the Internet. Such information systems makes it possible to accountants online bookkeeping system, and company users can "call their accountant" and use accounting information for 24 hours a day wherever they are only by "pushing a button". In such systems users always have real time information.
The use of general accounting packages, spreadsheets, financial modeling, database, decision support and expert system software have offered support to accountants in their analytical and decision-oriented tasks and allowed them to move from the accumulation, analysis and preparation of financial information towards interpretation, evaluation, control and involvement in decision making. As a result, information quality has been improved in terms of comprehensiveness, accuracy, timeliness, frequency, and relevance. (Xiao, Z., Sangster, A., Dodgson, J.H., 1997 p. 14).
Numerous possibilities offered by IT also require from accountants new theoretical knowledge and practical skills. For example, the IT curriculum in accounting should include complementary issues and aspects of Computer Technology and applications such as General Systems Theory, Accounting Information Systems, Business systems and design, Internet tools etc. Researches of presence of information technology in accounting curriculums have shown that in developed countries already exist comprehensive program of education in IT systems and AIS to future accountants. In developing countries the situation is significantly different. Because of that, international accounting bodies have stressed the need for a shift in accountants' education by increasing the knowledge of IT and called the attention for the creation of a global curriculum to serve as benchmark for developing countries (IFAC's IEG No. 11, 1999).
Information Technology in Accounting Information System (AIS)
The IFAC defines information technology (IT) as "hardware and software products, information systems operations and management processes, and the skills required to apply those products and processes to the task of information production and information systems development, management, and control" (IEG No.11, 1999). Accountants use the advancement in information technology to do their job better, quicker, and the most important cheaper. The manual tasks of bookkeeping and accounting entries, preparation of source documents, checking for correctness, making journal entries, posting of general ledger and the preparation of statements and reports take on new meaning, especially in terms of time cost (Korošec, B. 2003. p. 146/7).
Information system is integration of material resources, programs, professionals, methods and organizational procedures intended to collect, process, store and deliver of data and information to users. It has four complements: material basis (hardware), intangible elements (software), specialized personnel (lifeware) and organizational routine (orgware) (Ekonomski leksikon, p. 319). Analogous, AIS is integration of people and equipment, designed to transform financial and other data into information. AIS perform this transformation whether they are essentially manual systems or thoroughly computerized. Computer based accounting reporting system can generate accounting information for different types of reports to a wide variety of decision makers (figure 1).
Figure 1: AIS reports and users of accounting information
Source: Sunder, S. (1997), Theory of Accounting and Control, S-WCP, Cincinnati, Ohio,p.15.
Reports provide an important interface between an information system and the users of the system. According to their purpose, and at the most general level, they can be categorized and classified in various types (figure 2).
Figure 2: Various types of reports in business organization
No. / Classification scheme / Examples1. / Purpose / Planning
Control
Operational
Income taxes
Stockholder
Government regulation….
2. / Time horizon / Long range
Short range
Historical
3. / Scope / Firm-wide
Division-wide
Department-wide
4. / Occurrence / Upon request
Periodic
Event - triggered
One time
5. / Organizational function / Production
Sales
Finance
Inventory
6. / Report format / Monitor
Color graphics
Computer printout
Narrated
7. / Conciseness / Brief
Detailed
Variance report
Source: Bodnar, G.H.(1995), Accounting Information System, 6th Edition, Prentice Hall, New Jersey, p. 404
AIS is involved in process of preparing wide rang of those reports, presenting financial data and information about business results. Specially developed computer software can support and assist in process of preparing information for different managers needs, in process of decisions making. Those database software have to be able to take over the desired data from several different applications where are stored and process them for special needs. The goal is to provide a common and controlled method, for transforming data in information.
Financial reportingon the Internet
Many enterprises are using the Internet to communicate with customers, stakeholders, creditors and others in a variety of ways (for example on-line buying or selling of goods and services and other communication with customers) but for this paper the most important is the provision of financial information for investors, creditors, analysts and other interested users. The proportion of companies using the Web for financial reporting is increasing in all countries with active capital markets and advanced communications networks.
Although financial reporting on the Web clearly has numerous advantages, it also creates a number of challenges for companies, regulators and standard-setting organizations. So IFAC, IASC, SEC and major national regulatory organizations continuously deals with this issue. The reason for that are wide variations both in terms of the amount of content (e.g. summary financial statements vs. detailed financial statements) and style of presentation (e.g. purely transcription of financial report vs. inclusion of multimedia). The variations in reporting between companies are so wide that users may thing that there are no rules for financial reporting on the Web, but they exist. In the United States, the Securities and Exchange Commission (SEC), in Securities Act Release No. 33-7233, indicates that the Internet is just another media and the rules that apply to paper-based financial reporting equally apply to the Internet. By contrast, the AICPA’s opinion is that electronic sites are a means of distributing information and are not ‘documents.
A survey of large listed corporations in 22 countries on total of 660 companies was made in 1999 (Lymer, A, R Debreceny, G Gray, and A Rahman, 1999) to assess the extent of annual reporting in its various forms on the Web. The results (summarised in figure 3) have shown that 86% of the corporations surveyed had a Web site. The penetration rate varied from 100% for Germany, Sweden, Canada and the USA, to 53% in Chile. Even in countries with relatively low general Internet penetration rates amongst the general population, such as France and South Africa, a relatively high proportion of corporations had a Web site. Some 62% (410) of the corporations made some form of financial disclosure on their Web sites. Of the 410 companies that made some type of financial disclosure on the Web, 80% (327) used HTML in some form with 57% (234) disclosing substantial elements of their complete financial statements on the Web.
Figure 3: Stage of development of Financial Reporting by Country
Source: Lymer, A, R Debreceny, G Gray, and A Rahman (1999), Business Reporting on the Internet. London: International Accounting Standards Committee International Accounting Standards Committee. Available at
In Croatia, companies mostly have Web pages, but the amount of disclosed financial information is not significant. We have researched the Web pages of hospitality industry companies listed on Croatian stock exchanges, and have found that neither one of them offers financial information. The probable reason for such situation is that they are still mostly in state ownership or have just few big owners.
Investors depend on financial information for their investment decision making. For example, they routinely use financial disclosures in evaluating a company's growth prospects, its riskiness and the long-term success of the company's business model .These analyses also provide the inputs investors need to price individual securities and to make portfolio decisions. Taken altogether, the quality of investors' pricing and capital allocation decisions affects the relative efficiency and effectiveness of financial markets. (McEnally, R.T., Doran Walters, p., 2003).
Big international companies (for example General Electric) already offer the possibility of electronic delivery of Annual Reports and Proxy Statements. Also, on their web pages they present Guides for understanding Annual Reports with the basics of how to read an annual report even if a reader have no prior experience in finance or accounting. Furthermore, it is evident that the relationship between IT use and external reporting change is stronger in listed companies than in unlisted ones. This is because listed companies have to comply with certain stock exchange regulations, which means that the minimum reporting requirements are more stringent than for non-listed companies. For example, in Croatia quarterly reports from companies listed the "JDD quotation" (quotation of the so called public companies – companies which have 100 and more shareholders and shareholders capital 30 mln HRK and more) of Zagreb and Varaždin stock exchanges must be available on the stock exchanges' web sites.
Web reporting language (XBRL) and management's responsibilities
We can think about Web as a giant data warehouse, but downloading and analyzing financial data is not always easy task. The problem is that there is no underlying common language that will allow computers to uniquely identify financial-reporting elements on the Web page. For example, if someone wish to obtain 20 financial statements' values and two notes disclosure items over a ten-year period for ten companies in ten countries, he must go to the Web site of each company, find the annual report, download in PDF or read on screen if in HTML and then re-key the information into a spreadsheet. Such work is long lasting and rather boring.
Because of such problems, the professionals, at the initiative of the AICPA, begins to develop financial reporting langue of the Web, called eXtensible Business Reporting Language. The XBRL is designed to allow users to readily find financial reporting information on the Web and to extract needed values, for example sales, costs, margins, contents of the notes to financial statements etc. XBRL is not a new form of accounting, but it makes the financial information more transparent and readily available. In other words, XBRL is a standards-based method for preparing, publishing in a variety of formats, exchanging and analyzing financial statements and the information they contain. It facilitates reporting and makes it easier for companies to expose data that is valued by investors and regulators.
XBRL provides benefits to all members of the financial information supply chain, public and private companies, the accounting profession, regulators, analysts, the investment community, capital markets and lenders, as well as key third parties such as software developers, system integrators, consultants, and data aggregators. Current users of XBRL include Morgan Stanley, EDGAR online, Reuters, and Microsoft. Other early adopters include the UK Inland Revenue and the US Federal Deposit Insurance Corporation (XBRL International, 2004).
Management is responsible for the realization of company's objectives, according to defined business strategy. In the process of realization of set goals it is very important for managers to consider all aspects of business risks, among which is also IT risk. "Management assesses IT risks with respect to information reliability. Information reliability depends on IT system reliability, and IT system reliability depends on IT controls". (IFAC, March 2002) The implementation of effective IT controls will help ensure the creation of reliable information. According to the IASB's Framework for presentation of financial statements, information is reliable if faithfully represents the transactions and other events; if is presented according to the substance and economic reality, not only in legal form; if it is neutral, prudent and complete. The use of XBRL will be helpful in creating information with such characteristics.
Information system is reliable if it is capable of operating without material error, fault of failure. The hardware, software, data and information have to be constantly available. Also, the IT system must be capable to authorize particular person to have access to certain data, information and systems, or to have permission to modify of delete certain data or information. Internet users have come to expect that information on a Web site is the most current information available. But the timeliness is still the problem with business reporting on the Internet. Business reporting continues to provide information in packets, each of which is current as of the date of its release or filing. Some have suggested that the Internet will drive business reporting from its monthly, quarterly, and annual cycles to a system of real-time reporting.
Impact of USALI standards on reporting system in hospitality industry
Uniform System of Accounts for the Lodging Industry (in short USALI) is system for the preparation of accounting reports and financial statements in standardized formats, respecting all specific industry features. It was firstly issued in 1926 by the Hotel Association of New York City, and “represented the first successful organized effort to establish a uniform responsibility accounting system for the lodging industry and one of the first such efforts in any industry”(Uniform…, 1996. iii). Today, most hospitality business use computers to apply USALI standards in reporting to internal and external user, and to record and analyze the effectiveness of internal operation.
USALI contains not only the basic financial statements, but also 32 supplementary departmental operating statements and appendices covering budgeting and forecasting, breakeven analysis, and uniform chart of accounts. This system expects the uniformity in acquiring, collecting, sorting, evidencing, balancing, preparing and presenting of the accounting and statistic information in strictly formalized statements that enable the comparison of a company’s own results with competition, and average results of the hospitality industry on the national and international level.
In order to accomplish described task, it is prerequisite to establish an internal chart of accounts supported by IT (figure 4), to adopt relevant accounting policies and to enable separation and allocation of fixed and variable costs. Management, accountant and IT experts must lay together the foundation of accounting concepts to understand the necessary data and information needed as input to AIS, with goal to prepare standardised reports with relevant information, as the output from selected hardware and software.