Pressing the right buttons

The Accountant: February 28, 2006

A multitude of software products and technological tools are on
offer for companies and firms to use as they seek to improve the flow of
information when it comes to crunching and analysing the numbers.
Catherine Woods reports on where a rapidly evolving market is heading

There is a sense among regulators and the audit profession that more
needs to be done to simplify financial reporting for the users and
preparers of accounts, and that technology will have a key role to play
in this process.

David Turner, group marketing director for software provider CODA,
says that when it comes to using technology, accountants have always
been reasonable. He adds: "[They] are also... slightly conservative and
you can't blame them for that. Auditors, I think, are probably lagging
further behind."

Phil Donarthy is business development manager within the
accountants' division for software company Sage. He says that he does
not find accountants reluctant to take up new technology, but he finds
that many are not as progressive as they could be. He notes that there
has not been a sudden shift whereby accountants have become more
receptive to new technologies than in the past. "I think we're at the
stage now where across all walks of life, people are more receptive to
technology and also, let's be honest, technology is getting better," he
says.

Slow uptake

A sluggishness to use new systems is illustrated by the results of
research commissioned by Sage. Nearly 500 accountants, 200 business
start-ups and 2,100 established businesses were polled for the Sage
Accountants Business Collaboration (ABC) survey.

Eighty-one percent of accountants who responded felt they could make
better use of technology to increase the effectiveness of services they
offered. Sixty-nine percent believed it could also cut the cost of
providing those services.

Turner says the development of the internet has had one of the
greatest impacts on the use of technology in the financial services
sector. "You've had a whole new generation of web-based reporting tools
that have since come out," he says.

This greater use of technology across the finance spectrum, he adds,
is being driven less by clients and investors and more by the general
push for efficiency. Turner notes: "Number crunchers want to spend less
time creating the numbers and more time analysing them."

However, Donarthy says that there is another side and this is when
accountants want better systems for their clients: "Many accountants are
still working with clients who bring them bags full of receipts, rather
than actually providing them with any form of formatted data so a lot of
accountants are saying: 'If only my clients could be more efficient, I
could be more efficient and provide them with real insight into their
business.'"

Providing better business insight for the clients, notes Donarthy,
is also better for a firm's bottom line as it means accountants can
"concentrate their efforts on the higher value stuff [and] they can bill
for more". The benefits of technology can be in terms of greater
transparency, which suits today's environment in which resources are
constrained and yet the demands from regulators and stakeholders are
high.

Firms are progressive

Helen Nixseaman, partner in risk assurance services at
PricewaterhouseCoopers UK (PwC), and Steve Maslin, head of assurance
services for Grant Thornton UK, stress that the firms are progressive
when it comes to the use of technology.

Maslin says it is something that the accounting network, Grant
Thornton International, recognised in the early 1990s after member firms
predicted growing commercial and regulatory pressure for there to be
greater consistency. That led to the development of a common audit
methodology. He says: "Certainly, over the past few years... that's
given us huge commercial advantages and enabled us to deal as
efficiently as we can with regulatory demands."

In addition to this audit methodology, a lot of work at Grant
Thornton International has gone into developing software around internal
controls. The network now uses a software product which Maslin says
builds up a database of the sorts of internal controls one would expect
in different organisations. He notes: "That means whenever we're doing
an audit throughout the world, we've got a single methodology for going
around and testing the effectiveness of our clients' internal controls
system."

The software is linked to another product which enables Grant
Thornton International clients to capture their internal controls
electronically. Maslin says this is a format which allows a member firm
to carry out an audit procedure on controls without a client also
documenting it and causing unnecessary duplication.

Regulations and standards

Maslin observes that the latter system has been introduced to help
meet the requirements of the US Sarbanes-Oxley Act and the new
International Standards on Auditing which now require auditors to look
at the design effectiveness of a company's internal controls.

Internal control software, according to Turner, is a part of the
business that has grown rapidly in the US and is also picking up in
Europe. "Either because of Sarbanes-Oxley or because people in Europe
are seeing other legislation coming down the line, they're realising
that they're going to have to get their internal controls nailed down,"
he says.

Another way Grant Thornton International ensures that work being
done conforms to international regulations is through the use of
electronic audit files. Maslin says by working electronically "we can be
confident if we're doing multi-national audits that we're doing the work
to a single set of standards, but adding on to it the individual
standards of any one country". Audit files in the UK, US and Canadian
member firms became electronic around 1999.

PwC has also used electronic working papers for the firm's audit
files for a number of years. Nixseaman says: "It just makes sense in
terms of sharing information, particularly with teams spread around
different locations or even different countries."

The majority of this software at PwC and Grant Thornton has been
developed specifically for the firms. Maslin says Grant Thornton
International has employed a software team of 15 specialists in North
America for the last 15 years to develop and maintain its suite of
products.

It is, he adds, better at present to use an in-house system: "We've
found the software we've developed and maintained ourselves is certainly
a lot more robust and efficient than a lot of the software we've bought
from the commercial market."

An area where PwC is looking to further enhance its use of
technology is audit methodology. Nixseaman suspects that the firm will
move to make more use of the data analytic-type tools referred to by
Turner. These tools fall into two main areas: "One is in analysing
clients' data, so re-performing calculations or carrying out our own
analysis to look for trends or exceptions, and then producing some of
our own reports or graphs.

"The second area where we use it is to look at systems such as
financial systems or ERP [enterprise risk management] systems and to
look at how those have been configured and how segregation of duties has
been set up."

Quicker to use

Turner says these tools are being used by more people now that the
technology is quicker to implement and cheaper. He describes these tools
as occupying a third level of reporting analysis. The other forms are,
he says, rudimentary, online browsing-type and query-type reports which
people would perform within their accounting systems, and reporting
tools which entail taking something like Microsoft Excel spreadsheets
and turning them into more sophisticated reporting tools, or a purely
web-based product which allows accountants to quickly assess something
like profit and loss.

The tools on the third level of reporting analysis, Turner claims,
are what the market is going to want more of in the next three to five
years: "We've just gone through a number of years of focus on big ERP
applications. I think there's a reaction against that towards 'light
technology' - solutions you can implement fast, that will help you
automate your business and that are almost disposable so you can bring
them in, use them and then, if necessary, move on to the next
technology."

Maslin believes there is more the firm can do with regards to
internal control. He says the challenge for Grant Thornton will be to
move the current audit approach "from instead of just enabling it to
meet our regulatory and professional needs to working with clients to
make sure they're using the results of that audit work to actually
improve the efficiency and robustness of their own systems".

He identifies a new technology that electronically picks out the
parts of company reports that are most often examined as another tool
the firm is looking to harness. "It takes electronic financial
statements and every time an investor or analyst looks at the company
accounts, it builds up a profile of what sections of the accounts seem
to be of most interest. That is going to help both issuers and the audit
firms to better understand the needs of investors," Maslin notes.

A simple language

Simplifying financial reporting for all users of the information has
been driver behind eXtensible Business Reporting Language (XBRL),
especially in the US. Greater uptake in the UK is another area of
interest to Grant Thornton  International. XBRL  is an online system
that works by tagging data within financial information. The tags then
enable automated processing of business information by computer
software. XBRL can process data in different languages and accounting
standards.

In the US, one of the champions of XBRL is Securities and Exchange
Commission (SEC) chairman Christopher Cox who, since taking over from
William Donaldson last year, has consistently promoted the use of the
technology. The SEC is currently running an XBRL voluntary filing
programme which offers companies incentives to take part.

The XBRL project in the UK is not as advanced although Philip Allen,
director of XBRL UK - a consortium which advances the use of XBRL in the
UK - says there has been a huge increase in interest. Allen says the
"massive gain" to be made from the online application in the US is
different to the gains to be made in the UK.

"In the US, the issue is you have a huge number of listed companies
and no-one can really compare or analyse their accounts. Being able to
put it all [into] XBRL will allow people to simplify the analysis of
listed company accounts dramatically," says Allen.

In the UK, he suggests that the main benefit will be to improve a
company's access to credit. XBRL could allow banks to better process and
analyse the accounts they receive periodically from businesses to which
they have loaned money.

Allen comments: "If you have a large bank that actually could look
at a million corporate accounts and compare them all properly in real
time, it would revolutionise the way the bank provides credit. I think
that's probably going to have more of an impact on the UK economy than,
let's say, what listed companies do. They all list in the US anyway so
will be more affected by what the SEC is doing."

Companies House, the official government register of UK companies,
and HM Revenue & Customs (HMRC), are spearheading the British
government's involvement with XBRL. Allen says both have technically got
to the point where they have "solved all the problems relating to the
receipt of XBRL". Companies House now has a live service for receipt of
XBRL, trialling the system for companies which are exempt from audit.

Allen says Companies House and HMRC are "taking it very carefully
and very slowly because they don't want to put a foot wrong on this". He
adds that it is widely acknowledged that listed companies in the UK will
become more familiar with the software.

Accounting firms and software companies, claims Allen, are listening
carefully to the UK government before committing a large amount of
capital in this area: "What they understand is that in practical terms,
this is all going to be driven by government saying: 'This is how you do
your filings.' It's not that they're not interested, it's just that they
could lose a lot of money trying to go too fast on this."

As for when the government is likely to insist that companies must
use XBRL when filing accounts, Allen says: "Lord Carter [head of the
review of HMRC online services] has been undertaking a review of
corporate filing processes and it is expected that he will report at
some point on this. That report will drive how HMRC reacts." In the
meantime, XBRL UK is planning a conference in London during May for
accounting practices and software vendors about the Companies House and
HMRC projects.

Benefits

Just as the UK is keeping track of the US when it comes to interest
in internal controls software, the same trend is expected to happen with
XBRL. Allen believes that the Wall Street community is now starting to
understand what the investment analyst can do with XBRL and the same
equation will occur in the City of London soon, although he acknowledges
that "it is fair to say not many people there have quite got that far
yet". The possible credit benefits of the technology, he adds, are
unlikely to be realised until there is a larger take-up of the
production of XBRL accounts.

When it comes to technology which accountants use daily, the US has
less influence in the UK. Donarthy's theory is that simplifying the
technology he presents to accountants works best: "Accountants want to
do a good job. They're not at all interested in the technical details of
the solution. They're interested in how it can help them provide a
better service to their clients or make their practice as efficient as
possible. That's one thing we've learnt - we have to talk about the
benefits rather than getting hung up by how clever we are with our
latest whiz-bang feature."