The impact of digital technology on system of national accounting

395 International Conference on Finance, Accounting and Auditing (ICFAA 2018) November 23rd, 2018 Hanoi City, Vietnam The Impact of Digital Technology on System of National Accounting Pham Thi Bich Chia, Ha Hong Hanha aNational Economics University Submission day: 30/10/2018 Review day: 10/11/2018 Acceptance day: 15/11/2018 Abstract The digital evolution, which is currently happening day by day, has changed the very nature of work for accountants and pushed researchers as well as practitioners alike to struggle with a host of threats and opportunities facing. The government interfere into macroeconomic not only maintain a watching brief across a broad range of technologies and trends but also must deal with a wide array of the construction of system of national accounting (SNA) including new policy challenges and the need for new system. The article aims to primarily analyse the impact of digital technology to national accounting as a whole. Some suggestions are also illustrated in order to advise the government and regulators to exploit technology in the most benefit method. Keywords: Digital technology, System of national accounting 1. Introduction The 21st century has experiencing the change of industrial economy to the digital economy. The digital economy differs in fundamental respects with the dominance role of a single sector, information and communication technology, as the primary source of innovation. Today, a smart phone has more computing power and data storage capacity than were available to the entire world in the 1960s. Equally striking, the digital factor improves all sectors of the global economy. For example, computers made striking progress from their first introduction during World War II to the end of the 20th century, but the truly critical development in the rise of the digital economy has been the creation of the Internet. The most important contributions of the Internet are to improve communications and sharing of 396 information. Nowadays information which is also underpinned and influenced by the technology trend, includes cloud, big data, mobile and social collaboration are converging to change the ways of reflection. Accountants in practice and in the business function are part of the connected world. The accountants have always exploited technologies to help them to complete their tasks more accurately, quickly or simply: from the incised clay tablets through the adding machines, to the calculators and computers. In the 21st century, the crucial problem is to account for the value of information. Relevant accounting information currently still maintains two values of prediction and confirmation; however, it is naturally a public good and costly to produce. These changes bring new policy challenges and, with them, the need for new systems of national accounting. The main purpose of the paper is to address many ways in which the recent dramatic digital changes that have reshaped the national accounting. By keeping informed about technologies as they evolve, considering new technologies as they emerge, the Government can be prepared to minimize the burdens and maximize the benefits to build the national accounting. In this way the technology can be exploited wisely. The article has two main objectives: Firstly, to identify components of system of national accounting and digital technology. Secondly, to address and analyse the impact of digital technology on system of national accounting. 2. Theoretical Framework and Analysis 2.1. Theoretical Framework of Digital Technology Technology trend is seen as a solution for time management, labor shortages, communication and collaboration. According to a research of ACCA (ACCA, 2018), there have been ten technology trends facing to accounting: (1) Mobility; (2) Cloud; (3) Social Collaboration; (4) Digital Service Delivery; (5) Big Data; (6) Payment Systems; (7) Cyber Security; (8) Robotics; (9) Augmented and Virtual Reality; (10) Artificial Intelligence. 2.2. Theoretical Framework of System of National Accounting The definition of system of national accounting was first presented in accordance with the capacity of the economy to generate revenue (Petty, 1889). The Government have always been concerned with their capacity to raise revenue. However, it was only in the 20th century that the demands of economic management reached the point where a more comprehensive measurement of the volume and value of economic activity was urgently required. The activist state required statistical information about economic activity, and a framework for analysing the impact of policy on economic welfare. National accounts were vital for this task. For various reasons, a single number, Gross Domestic Product, or GDP came to encapsulate the complex picture of the economy presented in the accounts. The national accounts provides the most comprehensive overview available of developments in that national economies is a well – established view among statistical bureaus and users. 397 The key problem for national accounting in the 20th century was that the input output relationships between industries. The solution in national accounting terms was the concept of “value added”. This concept was crucial in measuring economic activity for the purposes of macroeconomic management and in assessing the rate of economic growth. According to Hanson (2006) the system of national accounting includes some main features: household vs. market, public goods and information, GDP and NNI (Net National Income), endogenous growth. (Appendix 1) Household vs. market Households earned and spent money income in the market economy, through work and returns on financial assets. Each household also formed its own economy, within which family members produced, and consumed, services such as cooking, cleaning and childcare. This division between market and household corresponded closely to a gender division between men’s and women’s work. Particularly in the period immediately after World War II this division commanded strong normative support and corresponded to reality for a large proportion of households, particularly those in the growing middle class. The norm was enforced by unequal pay and policies that required women to resign from positions in the public service on marriage. Public goods and information One of the most difficult problems in system of national accounting is that of accounting for public goods. These characteristics mean that the value of public goods in consumption cannot be measured by market observations. This problem is conceptually distinct from that of valuing publicly provided services, such as health and education, which are primarily private goods but are not traded at market prices. However, the solution has been the same in both cases: to value public goods and publicly provided services at their cost of production. GDP and NNI The separation between household and market work made sense for some of the purposes for which national accounts were used. Most importantly, the primary requirement for macroeconomic management is a measure of economic activity in the market sector. The tools of macroeconomic management (fiscal and monetary policy) work almost entirely on the demand for market goods and the supply of labor to the market. Endogenous growth Analysis of economic growth has traditionally focused on the accumulation of the physical factors of production-land, labour, and capital (machinery and buildings). System of national accounting holds out the promise of a quantitative understanding of growth, in which the relative contributions of the major factors of production could be assessed. Figure 1: Towards a basic system of national accounting 398 Source: Hansson (2006) 2.3. Analysis the Impact of Digital Technology on System of National Accounting Cloud The internet has evolved from a platform that connects millions of computers, into the network of interactive computing platforms now known as ‘the cloud’. It can deliver IT resources (such as software applications, computing power and data storage) flexibly and efficiently online, as a service. Accounting systems were among the first software to become available online where they (and their associated data) have been joined by a growing range of business ‘software as a service’ (SaaS): from budgeting to spreadsheets. Using cloud-based infrastructure such as computers and data storage can provide access to unlimited resources without the need for up-front investment, maintenance or IT expertise. Social Collaboration Digital technology creates more chance for people to create, share and exchange information and ideas. Social media sites is an convenience tool for blogging, 399 crowdsourcing, instant messaging, internet telephony, and sharing pictures and music quickly gained critical mass as popular personal tools for communication and collaboration. As the use of social tools becomes the ‘new normal’ all accountants will be affected by changing approaches to, and expectations of, communication and collaboration. It would help to remove barriers to communication and open up new routes to investments. However, it appears to have more risks to sensitive data. Digital Service Delivery Digital services are transforming business, practice, central and local government, charities and other third sector organisations, by exploiting new IT architectures and technologies to deliver web-based business processes, e-commerce, mobile commerce, and cloud-based software and services using the internet and intranets. E – Government is not a new term as the use of electronic communications devices, computers and the Internet to provide public services to citizens and other persons in a country or region. The digital services open to potential transform efficiency and customer satisfaction. Moreover, business models can be automated and streamlined and more global standardized. The Government also need to consider challenges of lacking of interoperability of legacy systems. Big Data The ability to collate, manage and analyse it effectively can lead to better decisions and generate a competitive advantage for business, and the technology to do this is becoming more accessible and affordable. The profession’s trademark analysis and problem-solving skills can help the Government to manage the complexity of the vast amounts of data being generated. Payment Systems E-commerce features are increasingly being built into software and e-banking is following: even entry-level accounting systems now automate links with bank accounts. Consumers and businesses are exploiting pre-paid smart cards and mobile phones as ‘electronic wallets’ using services. The payment systems in the digital age increase level of transparency in transactions. The Government also has challenges as new payment providers operate outside existing regulatory frameworks. Cyber Security The world has become reliant on computers and digital personal and business information. This has exposed individuals, organisations and entire countries to significant threats, and these must be managed as new forms of cyber-terrorism, cyber-crime and cyber- fraud that are emerging. With products and services increasingly provided, sourced and accessed online, the security of sensitive personal and corporate data and systems is vital if cyber-attacks are not to damage operations and reputations. Theft of digital information has 400 become the most commonly reported fraud, surpassing physical theft, and recent research indicates that the relative insecurity of small and medium-sized enterprises is making them a growing focus for cyber-attacks. Robotics A robot is a system that contains sensors, control systems, manipulators, power supplies and software, which all work together to perform a task or series of tasks. As robotics evolves and converges with other emerging technologies a new world of ethical, financial, practical, and operational possibilities will emerge. There would have been some opportunities that the capacity to improve our personal and professional lives. However, the Government has to consider this factor for national accounting system as it is easiest to automate. Augmented and Virtual Reality Augmented reality (AR) can enhance our perceptions of the real environment by overlaying images of it with sensory input such as sound, graphical overlays, video and various other types of data. Accountants are using the virtual world to recruit trainees, attract clients and develop new lines of business, and holding meetings in online. The profession will need to prepare for changes in areas ranging from education, through customer service to data processing and analysis. The Government will need to develop new approaches to measuring and analysing costs and return on investment. Artificial Intelligence Artificial intelligence (AI) describes a machine or software that can demonstrate behaviour indistinguishable from that of the human brain. Accountants increasingly rely on the expert knowledge built into software in a range of scenarios. Auditors use smart software to automate parts of the auditing process, and there are other specialist applications to help with compliance in areas ranging from financial reporting to international tax. The Government use AI to improve compliance and decision making. 3. Suggestions on a new agenda for system of national accounts 3.1. Estimating stocks and flows of information The rise of the digital economy suggests a new agenda for national accounts. Among the most important requirements are procedures for estimating (and valuing) stocks and flows of information and a new approach to growth accounting. These changes also imply a breakdown of the traditional division between household and market sectors of the economy. Estimating the volume of information creation and storage is a technically difficult, but conceptually fairly simple task. Estimating the economic value of this information is much more challenging. Standard economic analysis suggests that, as the cost of creating and storing information falls, so will the marginal value of the information. A video of a cat playing amusing tricks, reproduced and stored thousands of times after going viral, might account for as much information storage as an entire library, but is clearly of much lower value. 401 On the other hand, it seems unlikely that the declining marginal value of information fully offsets the massive growth in volumes. Second, we can look at expenditure on computers, and on communication and storage devices. Expenditure on computers, telecommunications and storage has risen over time, but remains small in terms of GDP. 3.2. Growth accounting in the digital economy No comprehensive assessment of the impact of information services on economic growth appears to have been attempted. However, given the rapid increase in reliance of such services for all kinds of activity, the impact is obviously substantial. This increase must consist almost primarily of increases in total factor productivity, though it may also have been associated with some capital deepening. Given the correlation between broadband access and Internet and computer use more generally, it seems reasonable to take this as an estimate of the productivity impact of ICT. 3.3. Estimate hours of household work As has already been noted, it is important to improve our understanding of household time spent participating in the Internet economy, through browsing websites, reading and posting on social media, reading and commenting on blogs, wikis and so on. These forms of activity have grown rapidly both in terms of the proportion of the population engaged and in terms of hours spent per day. This suggests the need for a more general reassessment of household labour. The rise of a service economy means that the 20th century distinction between household and market sectors is no longer tenable. The traditional gender distinctions associated with a largely industrial economy have broken down. Employment rates for men and women are now only modestly different, reflecting both the impact of feminism and the fact that there are now very few jobs where physical strength is a crucial requirement. All of this has been reinforced by the rise of the Internet. 4. Conclusion The system of national accounting was functioned both as a tool of short-term macro- economic management and for assessments of medium and long-term economic performance during the 20th century. Because of the revolution of information technology in the 21th century the dual purpose approach can no longer be sustained. A new system and agenda of accounting and maintenance should be developed. And importantly, the Government must keep acting as an important role to identify strengths and weaknesses to be faced. 5. References ACCA (2013) “Technology trends: their impact on the global accountancy profession”, https://www.accaglobal.com/content/dam/acca/global/PDF-technical/futures/pol-af-ttti.pdf Hanson, K (2006) “Improving national accounts”, Kybernetes, Vol. 35 Issue: 1/2, pp.45-64 Petty, W (1899) “The Economic Writings of Sir William Petty”, Vol. 1, Cambridge University Press, Cambridge