Technology's Impact on the Internal Control System

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  • 0:01 Technology Defined
  • 0:47 Internal Controls
  • 1:12 Impact on Internal Controls
  • 4:13 Lesson Summary
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Lesson Transcript
Instructor: Rebekiah Hill

Rebekiah has taught college accounting and has a master's in both management and business.

Almost every day, you hear about new advances in technology. Do you ever wonder how this new technology affects the business world? In this lesson, we are going to discuss how technology impacts internal control.

Technology Defined

I love working with numbers. One of my all-time favorite things to do in the bookkeeping and accounting arena is payroll and payroll taxes. When I first started doing the payroll, it was much more time-consuming. I had to manually calculate every dollar earned and every deduction that was to be made to get the right dollar amount for an employee pay check.

Then computerized accounting entered my world, and payroll was a breeze. I owe the simplification of my job to technology! What do I mean when I say 'technology'? There are a couple of different definitions of the term, but for this lesson, the most appropriate would be that technology is the equipment that's created by the use of scientific knowledge that aids in streamlining business operations.

Internal Control

Now before we get too deep into the discussion on how technology impacts internal controls, let's define exactly what internal controls are. Internal controls in accounting are procedures that are put in place within an organization to ensure business is carried out in an orderly, effective, and accurate manner. These guidelines are used to create job descriptions, separate job duties, and measure company performance.

Impact on Internal Controls

When it comes to internal controls, there are a couple of key areas that have been improved by the use of technology. One of those is improved processing time. In years gone by, when everything was handwritten, it took quite a bit of time to process transactions. Now, one simple scan or even a few keystrokes and an entire transaction is documented. Just think about my payroll responsibilities. It used to take me hours to get all the calculations I needed to make done, checked and double-checked, but now, I can get payroll entered into my computer and completely finished in an hour. That's what I call major improvement, and I owe it all to technology.

Going hand-in-hand with reduced processing time comes reduced errors. Have you ever been working on a computer and an error message pops up on the screen? Or what about writing a paper and you get red or blue lines underneath some words? I can't tell you the number of times that has happened to me. That extra level of protection that is built into computer programs helps to reduce errors. It is through the use of technology that computer programs are created and designed to catch improper inputs into the system.

Another way that technology has improved internal controls comes in the form of reduced paperwork. Since the days of handwritten records left us with the coming of age of computers, documents are scanned, sorted, and even written on computers and stored safely on portable devices that can fit into the palm of your hand! This allows for years of information to be available in the click of a mouse, making it significantly easier to compare how internal control systems are working. Along with that, you have the Internet and computer networking that allows you to email files from one individual to another without having to transport loads of documents. As for me, the reduction of paperwork is a blessing. I no longer have to worry about keeping up with time cards, copies of payroll stubs, or any miscellaneous paperwork associated with my job. Employees punch in via a computerized clock that sends the punches straight to my payroll software on my computer. Now, of course, I have to double check all the information, but that only takes a matter of minutes. I make sure that I back up all my data on a daily basis to a portable thumb drive that is kept in a separate location. If my computer crashes, I still have every bit of information for my accounting duties on my portable device. Now, how is that for technological impact?

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