Computerised accounting is the base. On top of it, businesses now convert paper into data, store and process that data in structures a computer can search quickly, and increasingly hire accountants who work for them remotely. Each of these changes how accounting is done, and each appears in the syllabus under its own name: digitisation, data structures and virtual accounting.
This topic is the second of three on computerised and virtual accounting. It follows computerised accounting systems, and the next covers artificial intelligence, blockchain and the fraud risks of remote working. The exam asks for definitions, differences and examples, so the aim here is to be able to define each term, give a clear example, and list benefits and challenges.
In 30 seconds
Digitisation converts information from a physical form into a computer-readable one, such as scanning an invoice to a PDF. Digitalisation uses digital technologies and digitised data to change how work is done, such as saving that invoice in the cloud where software reads and processes it. Digitisation must happen first.
A Data structure is a way of storing and managing data in a computer so it can be used efficiently, for example arrays, lists, trees, hash tables, graphs, stacks and queues. Virtual accounting means a qualified accountant provides services remotely, usually as a contractor, under a service level agreement. Its benefits are flexibility, efficiency, cost saving, expertise and cloud access. Its challenges are communication, set-up costs, policies, motivation and data security.
Digitisation and digitalisation
Technology has changed accounting by making data analysis, the organisation of financial information and the measurement of economic activity faster and easier. Digitisation is the process of converting information from a physical format into a digital, computer-readable one. In accounting it means turning invoices, receipts and paper files into machine-readable form that can be processed with little human involvement.
| Feature | Digitisation | Digitalisation |
|---|---|---|
| Meaning | Converting analog or physical information to digital | Using digital technologies and digitised data to improve processes, services and value |
| Function | Changes the format of data | Transforms workflows and business models |
| Technology | Basic, such as a scanner or PDF | Advanced, such as cloud, artificial intelligence (AI) and enterprise resource planning (ERP) systems |
| Example | Scanning a paper invoice and saving it as a PDF on a desktop | Saving the PDF invoice in the cloud, where software reads and processes it for payment and audit |
| Outcome | Data readable by machines | A more efficient, customer-focused business |
For digitalisation to occur, digitisation must first occur. This is why an exam item that asks what describes saving a PDF invoice in the cloud has the answer “digitalisation” (May Diet 2024, Section A, Question 14), and the item that asks what digitisation is has the answer “converting physical accounting records into a computer-readable format” (May Diet 2024, Section A, Question 8).
Impact on businesses. Digitisation improves managerial and operational efficiency and has wider organisational and social effects. It affects the substance, form and origin of accounting information. It saves time and cost, because accountants and clients can see and comment on real-time data remotely, and a firm can serve more clients. It supports a “paperless office” in finance, once the right regulation and systems are in place.
Disadvantages and relevance of professionals. Digitisation reduces demand for traditional accounting tasks, as tasks are automated, consolidated or outsourced and data becomes available on demand through self-service portals. A Singapore study forecasts a large rise in tasks done by machines. Professionals therefore need to understand accounting, their industry, AI, blockchain and big-data analytics, and employers, employees and professional bodies need to reskill and support learning.
Digital technologies in accounting include machine learning and AI (data entry and sorting, automatic reconciliation and classification, fraud flagging), data analytics (finding trends and patterns with statistical methods), mobile accounting (sending invoices, capturing receipts, expense claims, customer management on a phone), and specialised accounting software, which has replaced the pen, ledger and desk calculator and lets the accountant focus on protecting and growing the client’s business. These are the four items in May Diet 2024, Question 1(b).
Data structures
A data structure is a collection of data objects that gives a way of storing and managing data in a computer so that it can be used. Data structures let large databases and internet indexing services manage large volumes of data efficiently, and they are central to efficient algorithms.
| Form | Examples |
|---|---|
| Linear | Arrays, lists |
| Tree | Binary tree, heap, space partitioning |
| Hash | Distributed hash table, hash tree |
| Graph | Decision, directed, acyclic |
| Stack | Last in, first out |
| Queue | First in, first out |
Uses: efficient data management, efficient programming, efficient use of memory, reusability (compiled into libraries), abstraction (the basis of abstract data types), and building blocks of programming languages and complex computations.
In an accounting setting, arrays and hash tables give quick storage and look-up of customer and transaction records, lists and trees keep chronological records such as sales and payment history, graphs and queues help analyse buying patterns, and good structures use memory well for large ledgers, invoice and payroll databases.
Virtual accounting
Virtual accounting is a flexible system in which a qualified professional provides accounting services remotely rather than at the client’s office. The accountant works as a contractor, so the cost is often lower than an in-house employee.
Services: bookkeeping, payables and receivables, reconciliation of bank, credit and loan accounts, payroll, tax preparation, financial statements, management reporting, financial analysis, and any other task an in-house accountant could handle.
Benefits: Flexibility, since a virtual accountant can join an existing department when extra help is needed; Efficiency, because tax and payroll can be done cheaply without a full-time hire; Cost saving, because the business pays only for the work it needs and avoids idle salary, benefits and overheads; Professional expertise across industries; Convenience, with work at the client’s pace; Several channels of communication, mostly email, with messaging and phone as needed; Delivery to the client’s timetable, with terms set in a Service level agreement (SLA); and Cloud computing, with documents available at any time from any device and data held securely in protected, encrypted, regularly backed-up data centres.
Challenges: difficulty communicating with and managing remote staff; the cost of setting up the technology; the difficulty of setting and enforcing policies, especially for small and medium businesses; lack of motivation and distractions at home; Data security, the major concern when someone remote handles the financial records; the need for awareness of social engineering scams; and keeping remote staff feeling connected.
The ideas in more depth
Reading the exam definitions. “Digitisation” is about format. If an answer talks about transforming business processes or creating new revenue, it describes digitalisation. Examples help: scanning is digitisation, and a cloud system that reads the scanned invoice and posts the payment is digitalisation. An in-house accountant is an employee, while a virtual accountant is usually a contractor who is paid for the work done.
Background (general knowledge). The forecasts are projections from one study, not facts, so use them cautiously in an answer. A service level agreement should state the services, deadlines, confidentiality, how data is held and who is accountable for errors. A good arrangement keeps control of the books with the business owner, even when the work is done remotely.
Worked example: Ibadan Retail Ltd
Scenario. Ibadan Retail Ltd scans its paper receipts into PDFs and stores them on one office computer. It then moves the PDFs to a cloud accounting system that reads them and prepares the payment run.
It is also deciding between an in-house accountant, with a salary of ₦3,600,000 a year plus 25% for benefits and overheads, and a virtual accountant, who charges ₦150,000 a month for bookkeeping and a further ₦300,000 a year for tax preparation. Required: classify the two steps, and compare the cost.
- Scanning the receipts. Converting paper to PDF is Digitisation.
- Cloud system. Using the digitised data in a cloud system that reads and processes it, changing how the payment run is done, is Digitalisation.
- In-house cost.
3,600,000 × 1.25 = ₦4,500,000. - Virtual cost.
(12 × 150,000) + 300,000 = ₦2,100,000. - Saving.
4,500,000 − 2,100,000 = ₦2,400,000 a year. - Judgement. The virtual option is cheaper and flexible, but the business must manage data security, agree the service level in an SLA, and keep control of its own records.
Common mistakes in the exam
- Using digitisation and digitalisation as if they meant the same thing.
- Giving a definition of digitalisation when asked for digitisation, or the reverse.
- Calling a scanned PDF digitalisation without a process change.
- Listing data structures without saying what they are used for.
- Saying virtual accounting means software. It means a remote accountant.
- Listing only benefits of virtual accounting and forgetting data security and communication challenges.
- Comparing the price of a virtual accountant with only the salary of an in-house accountant, and ignoring overheads.
- Forgetting to name an example for each point.
Quick revision
- Digitisation: physical to digital. Digitalisation: using digital tools to change the work.
- Data structures: arrays, lists, trees, hash tables, graphs, stacks, queues. Used for efficient storage, use of memory and reuse.
- Virtual accounting: remote accountant, contractor, SLA.
- Benefits: flexibility, efficiency, cost, expertise, cloud. Challenges: security, communication, set-up cost.
Practice questions
These are original questions in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one first.
Section A style: multiple choice
Question 1. Digitisation is:
- Converting digital files into paper
- Using digital tools to create invoices
- Entering data by hand into a computer
- Converting physical records into a computer-readable format
Show the answer
D. It changes the format of information from physical to digital.
Question 2. Saving a scanned invoice in the cloud, where software processes it, is best described as:
- Data
- Digitalisation
- Storage
- Documentation
Show the answer
B. Digital tools are used to improve how the work is done.
Question 3. For digitalisation to occur:
- Digitisation must first occur
- Nothing else is needed
- Blockchain must be used
- Staff must work remotely
Show the answer
A. Digitalisation uses data that has already been digitised.
Question 4. A data structure is:
- A type of ledger account
- A way of storing and managing data in a computer so that it can be used
- A financial statement
- A software licence
Show the answer
B. It organises data for efficient use.
Question 5. Which of these is a form of data structure?
- A trial balance
- A journal
- A cash book
- A queue
Show the answer
D. Arrays, lists, trees, hash tables, graphs, stacks and queues are data structures.
Question 6. Virtual accounting is:
- An in-house accounting team
- Accounting services provided remotely by a qualified professional
- Software only
- Paper-based bookkeeping
Show the answer
B. The accountant works remotely, usually as a contractor.
Question 7. A benefit of virtual accounting is:
- Higher office overheads
- Slower reporting
- Cost saving, since the business pays only for the work it needs
- No data security issues
Show the answer
C. It avoids idle salary, benefits and overheads.
Question 8. The terms of a virtual accounting arrangement are set out in:
- A service level agreement
- A trial balance
- A bank statement
- A source document
Show the answer
A. An SLA binds the provider and sets the terms of operation.
Question 9. A challenge of virtual accounting is:
- Lower cost
- Data security concerns when a remote accountant handles the records
- More office space needed
- Less use of technology
Show the answer
B. Trusting a remote professional with financial data is a major concern.
Question 10. A “paperless office” in finance results from:
- Manual entry
- Fewer computers
- More filing cabinets
- Digitisation of finance functions
Show the answer
D. Digitising records removes the need for paper.
Section B style: written questions
Question 11 (10 marks). (a) Define digitisation and digitalisation and give an example of each. (4 marks) (b) Explain four impacts of digitisation on modern businesses. (6 marks)
Question 12 (20 marks). You are the head of information technology (IT) and finance of a medium-sized retail company that plans to move to virtual accounting and digitised operations. (a) Identify and explain three ways virtual accounting can benefit the company. (6 marks) (b) Outline four uses of data structures in managing financial and customer data. (8 marks) (c) Explain three challenges the company must prepare for. (6 marks)
A further written question
Question 13 (10 marks). An in-house accountant costs ₦5,000,000 a year in salary, plus 20% in benefits and overheads. A virtual accountant charges ₦180,000 a month for bookkeeping and ₦400,000 a year for tax. (a) Calculate the annual cost of each. (4 marks) (b) State the saving. (2 marks) (c) State four risks that the business should manage. (4 marks)
Model answers
Show the model answer to Question 11
(a) Digitisation is converting information from a physical or analog form into a digital, computer-readable one, such as scanning an invoice to a PDF. Digitalisation is using digital technologies and digitised data to improve business processes, services and value, such as uploading the scanned invoices to a cloud accounting system that reads and processes them for payment.
(b) Any four:
- efficiency, because repetitive tasks and manual entry are reduced
- better data management, with easier storage, searching and analysis
- customer engagement, using data to personalise service
- cost saving and scalability, with less paper and storage
- collaboration and remote access in real time
- economies of scale and a paperless finance function
Show the model answer to Question 12
(a) Cost efficiency: no full-time salary, office space or overheads, and the company pays for the services it needs. Flexibility and scalability: services can be increased for seasonal peaks or expansion without long-term commitments. Professional expertise: specialist knowledge of industries, tax and compliance. (b) Efficient storage and retrieval, using arrays and hash tables to look up customer and transaction records quickly.
Organising and sorting transactions, with lists and trees keeping chronological records for tracking and audit. Data analysis, with graphs and queues used to analyse buying patterns. Memory management, giving optimal use of space for large ledgers, invoices and payroll data. (c) Data security concerns when financial and customer data is online or shared through the cloud. Dependence on internet connection and technology, because downtime stops work.
Limited personal interaction, which may slow urgent decisions. Others: set-up cost and enforcing policies.
Show the model answer to Question 13
(a)
- In-house.
5,000,000 × 1.20 = ₦6,000,000. - Virtual.
(12 × 180,000) + 400,000 = 2,160,000 + 400,000 = ₦2,560,000.
(b) Saving = 6,000,000 − 2,560,000 = ₦3,440,000 a year.
(c) Data security and confidentiality; communication and managing a remote provider; dependence on internet and technology; and enforcing policies and controls, including a clear SLA.
Pathfinder on Digitisation, data structures and virtual accounting
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Question 8 asks which statement best describes digitisation in accounting. Question 14 asks what best describes saving a PDF invoice in the cloud.
Revise first: Digitisation and digitalisation
Asks you to explain the impact of digital technologies on accounting systems, focusing on machine learning and artificial intelligence, data analytics, mobile accounting and specialised accounting software.
Revise first: Digitisation and digitalisation
Digitisation, data structures and virtual accounting are new syllabus items, and apart from May Diet 2024 no past diet asks for them. Expect definitions and examples, the difference between digitisation and digitalisation, the uses of data structures, and the benefits and challenges of virtual accounting. Check Section A of every diet you practise.
Revise first: Virtual accounting
Source: ICAN Pathfinder, Financial Accounting. Diets covered: May Diet, 2024. Digitisation, data structures and virtual accounting are new syllabus items and only May Diet 2024 asks for any of them. Diets before November 2014, and November Diet, 2024 onwards, are not covered here.
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