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Accounting is an essential part of any business venture. It is impossible for any organization to operate without proper accountancy and bookkeeping of the financial records. Currently, most firms have adopted computerized accounting systems and keep their financial records using various accounting software and their computers (Sun & Zhang, 2014). However, some businesses still use the manual accounting system, keeping their transactions records by hand. There are significant differences between these two accounting systems, covering benefits and risks associated with them. It is on this basis that this paper will critically research and evaluate the differences and the benefits each of these two auditing systems has.
Auditing Computerized Systems versus Auditing Manual Systems
Each step of accounting requires accuracy and consistency, especially in the auditing department (Nagy, 2008). Therefore, adoption of the computerized accounting system ensures consistency and accuracy when compared to the manual accounting system. It can be explained by the fact that accounting software has inbuilt automated calculations that ensure that the math is always right. More so, computerized accounting system provides consistency into the reporting through standardized file formats and established workflows in the organization. This system also eliminates confusion and human error due to reduced paperwork that may lead to inaccurate financial records. It promotes efficiency and consistency in the filing of documents, especially when compared to the manual accounting system that is characterized by inconsistency, inaccuracy, and a lot of paperwork in the recording process.
Regarding the speed of entry of the data, the computerized accounting system is faster than the manual accounting system (Kettinger & Marchand, 2011). Once an organization has implemented a digital solution in their structure, the time the auditors spend working on the accounting tasks decreases significantly. The process of feeding data into the computer through the keyboard and commanding the computer to do work is faster than unraveling the complex process of financial records by hand or working the math with the help of a calculator. The accounting software is equipped with numerous built-in templates designed to carry out the tasks faster. Additionally, data that are captured by the computerized accounting system are immediately accessible, meaning the organization will always have the recent and updated information on time.
When comparing the security and safety, a computerized accounting system is more secure than the manual accounting system (Namuduri, 2013). The computers enable the users to password-protect their accounting data and store them in their working computers, thereby barring intruders from accessing them. On the other hand, manual accounting is less secured since the number of financial documents increases over time, and with time, they require large space for storage. However, with computers, documents can easily be stored on the external backup drives whereas the manual system will require the auditor to copy the text manually to store the copy safely. Furthermore, losing an original digital accounting data can be easily retrieved as compared to when an original hard copy of the manual system record is lost.
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Computerized accounting method also has the advantage of ease of distribution as compared to the manual method. Manual accounting requires the auditor to write manually down the document and distribute invoices and other records by hand to the persons they are intended to. However, with the computerized method, the auditors create one file and make numerous copies of the same, then distribute them via emails or other wireless communication channels to the people they are intended to reach without spending much energy and time as in the case of the manual accounting system.
Another main difference between the manual accounting system and computerized system is the cost involved (Bol, Kramer, & Maas, 2016). The manual accounting system is almost cost less as it only requires papers, pens, and pencils compared to the digital system that demands machines and software in combination with other supplies such as papers and inks. Also, the cost of backup storage systems such as hard drives and other memory gadgets is high, and their capacity for storage is limited to space and time. These devices are prone to wear and tear and cannot store data for more than ten years. Hence, they require constant replacement and services, and all these involve an increase in costs. Therefore, the manual paperwork serves much time when they are well stored hence reducing the costs associated with the constant replacement of the gadgets. Thus, it saves the organization from incurring some additional costs.
Computerized accounting system is more organized than the manual accounting method because data that are processed via the computer are organized and are very easy to find ("Penetration testing and network auditing: Linux," 2014). However, this is not the case with the manual system, especially when there is a pile of papers that an auditor has to go through find one document. The computerized system organizes the data in one place, grouped by type. For example, if an auditor wants to find a document about a vendor, he or she will go to the account payable section to the computer and click on it to carry the search for the supplier. Similarly, when the same search is performed via the manual accounting system, the auditor will have to go through numerous pages or documents, and this consumes time to find the required information.
Regarding accuracy, the computerized accounting system is more accurate than the manual one (Mohd Sam, Hoshino, & Hayati Tahir, 2012). For manual accounting records to be accurate, the accountant must recognize every transaction and classify the documents into the corresponding accounts. The transaction is then recorded in appropriate journals such as sale journals and general journals among others. The affected accounts are then classified as credit or debit, and an explanation is specified in the journal. This process is followed in each transaction, and all the journals are then posted to the ledger on the periodic basis. This process involves a lot of paperwork, and it is very tedious and time-consuming. As a result, the accountant may make a mistake leading to a misleading report about the financial position of an organization. On the other hand, in the computerized system, this process is not necessary since as long as the auditor feeds the computer with the correct data and the software instructed to perform the task, the most accurate result is achieved.
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The computerized accounting system also has an advantage over the manual system in that; it can deal with various currencies easily. In the manual accounting system, the account is required to conduct the conversion of one currency to another manually (Richardson & Louwers, 2010). However, with the digital system, many computers have an integrated program that allows the conversions of multiple currencies with ease. Therefore, it minimizes the problems with the exchange rate. On top of this, a computerized accounting system also ensures that the availability of the new exchange rates is automatically adjusted to the currencies exchange value in the international market hence does not require the auditor to monitor the variations in the exchange rates of the currencies continuously.
From this research, it is evident that both approaches are important for an organization, but for more efficiency, consistency and accuracy, the computerized accounting system should be used regularly. It is because it carries a lot of benefit to an organization and ensures fewer uncertainties and risks to the commercial recording of the firm. On top of that, a computerized accounting program provides simplicity in the presentation of the company's records. Hence, it is favored over the manual accounting system.