Y2K tops the list of top 10 technology issues, many of which are driven by the Internet.

Y2K Tops Tech Issues List

M embers of several AICPA technology committees made their annual pilgrimage to Tucson to choose the top 10 technological issuesthose most likely to affect CPAs in 1999. Defining issues as situationsgood or badresulting from implementation of technologies or applications, the group came up with a list of broad topics all CPAs should be aware of.

The good, the bad and the confusing
Several participants spoke with the Journal about the choices the group had made. Sandi Smith, who has written books about past top 10 technologies, summed up the issues list: These are not necessarily the most exciting, bleeding-edge’ issues, but they are the ones that will get your firm or company in trouble quickly if you ignore them. She said all CPAs should be discussing these with colleagues and, if they have the skills, helping to provide solutions for clients and employers.

Ed Zollars, a member of the tax technology committee, emphasized the many opportunities these issues can provide for CPAs. Firms of all sizes will find their clients struggling with these issues. CPAs can help with electronic communication and e-commerce, for example.

Below are the 1999 top 10 issues, from most to least important.

1 The Y2K issue. Number one on the list needs no introduction. In fact, Wayne E. Harding, a member of the IT practices subcommittee, said even his cab driver in Fargo made casual conversation about the Y2K issue. Despite universal awareness, many disagree about what can or should be done about it. Some participants felt businesses in general were doing too little too late. Several pointed out the issue could lead to a liability nightmare. Zollars said, If you haven’t considered the Y2K issue yet in your business, you’ll have to concentrate virtually all your technology resources in that area. Someone pointed out CPAs are the natural solution providers for companies that do experience major Y2k problems, because of their familiarity with clients’ information systems.

The Y2K issue includes auditing, technology, financial reporting and tax implications. (For more on this topic, see four articles in the December 1997 Journal [pages 33-44].)

2 The Internet. Zollars said the Internet was the force behind the issues listsecurity, electronic money, electronic evidence and the virtual office are all Internet related. Smith said, I hope the Internet as a choice doesn’t sound trite, but I have seen complete businesses wiped out overnight because they were selling information another business posted for free on the Internet.

CPAs market themselves on the Internet. They provide information for their clients and on behalf of companies that employ them. They post financial statements and operate newsgroups. CPAs create intranets and connect them to the Internet for seamless information access. In fact, the Internet affects the professionand vice-versain ways too numerous to mention. Although the Internet provides immeasurable information, Gene Prescott, past chairman of the tax technology committee, pointed out there is a big difference between information and knowledge: CPAs are uniquely positioned to transition toward being the catalyst delivering information that results in knowledge. Clients will pay us for that. Nevertheless, he cautioned, Such a transition presupposes that all CPAs personally have more Internet technology competence than their clients.

3 Information security and controls. Comments on security seemed to suggest that this was a path, not a goal. All security is a trade-off of costs vs. benefits, and there is no such thing as absolute security. If the security system is too difficult to manage, those who need to use it will simply bypass it, said Zollars. Several participants felt that security had long been an issue and the Internet had only added some new wrinkles. According to one CPA, when photocopy machines first became widespread, businesses were afraid employees would make illegal copies of sensitive documents.

Security not only has legal components but psychological ones as well. Some participants warned against being overconfident that a system is secure. Others discussed current encryption techniques electronic locks on messages that are so strong even top code breakers are unable to decipher them and many governments, therefore, ban them. Said Prescott, It may take some visible disasters affecting rank and file folks for security to receive the resources it warrants.

4 Training and technology competency. As one participant put it, technology training too often is a trial by fire affair. Many found training inadequate throughout the profession and U.S. businesses generally. Said one participant, How can we as CPAs spend so much money on technology and staffing and think we can then spend next to nothing on training? Another said he believed that lack of training was a leading reason why many people left their jobs. One CPA said that his firm had a coordinator to help make sure staff received needed training. Another suggested that accounting students be cross-trained with MIS students to get the skills they need. The accountant of the next millenium will need the know-how to access, track and analyze digital data. We cannot fully serve our clients unless we know how to maximize the IT tools available to our clients’ competitors.

5 Technology management and budget. Do you buy or rent? What about outsourcing? How often do you upgrade? How much should you spend? One of the big issues is TCOthe total cost of ownership. One CPA said that CFOs were looking into it and the expected return on investment. IT expenditures could eat up as much as 10% of an entity’s total budgetsome companies are finding outsourcing gives them more control by allowing them to reduce their dependency on full-time employees. Great Plains and IBM are jointly starting what they call a hosting service, also described as outsourcing on steroids. Companies connect to a financial management system offsite via a secured network. (This hosting service is a recent addition to the AICPA technology advisor program, www.aicpa.org/members/tap/index.htm .)

The group discussed this issue at length but found few answers. One participant summed it up neatly, however: The real issue needs to behow do I leverage my investment? Once I can do that, technology expenditure is not an issue.

6 Disaster recovery. Y2K isn’t the only glitch that can cripple or destroy a business; whole systems can crash or be stolen. Are companies and firms backing up all their data frequently and storing them offsite? What about telecommuters? Never mind the cost of the machinedoes the hard disk contain irreplaceable, confidential data? And never mind the machinesthe loss of key IT employees can be a disaster if there’s no one to take their place. The participants seemed concerned that many businesses are closing the barn door after the horse has escapedworrying about disaster recovery after there’s a problem. Even companies and firms that have backup procedures may be using older programs. Do you even have the software and hardware to read your backups? asked one CPA. Others thought that today’s highly reliable hardware lulled companies into a false sense of security and testing backup procedures was such a nuisance most companies skipped it.

7 The virtual office. The participants spent more time discussing the psychological implications of the virtual office than the technological ones. The hardware and software needed to allow employees to work out of their homes and still remain in touch are available now. But are clients, customers and employees ready for this? Carolyn Sechler, who runs a virtual firm in Phoenix, said, One of the key challenges is within oneself. A firm must determine why this is the right way to deliver services to its clients and why it fits the employees’ lifestyle. This really has to be all spelled out firstlong before you jump in the deep end. Others were more skeptical, believing no networked system could replace the interaction around the water cooler and the literal pat on the back. However, proponents said they could work face time into a virtual office too and pointed out its advantages to employees who want a different lifestyle, especially younger ones used to new technologies.

Those who have at least experimented with a virtual office agreed: It isn’t Novell or NT or T-1 lines that holds together a virtual firmit’s trust.

8 Privacy. To what extent are the Internet and technology in general eroding our privacy? Online, companies use cookies to keep track of current and potential customers: A Web site will leave a small piece of information on visitors’ hard disks so it can identify them later. Although many of the participants objected to the use of cookies, others pointed out they are essentially harmless and Web browsers give users the option of automatically rejecting them. Even if the cookies themselves are harmless, though, the fear they generate, particularly among Web novices, can in itself hinder the growth of e-commerce. One participant suggested that, if companies were more open about leaving cookies and explaining why, people would be less afraid. Another felt that privacy issues could open up opportunities for CPAs, whose reputation for confidentiality and independence is longstanding.

9 Electronic money. Companies such as CyberCash have pioneered the use of virtual money. Consumers buy an online wallet with a credit card, and CyberCash handles a secured transaction between approved online merchants and customers. One application of this system could be micropurchases of informationa small amount of data for a dime. Credit card transactions are too expensive for such small purchases. Also, electronic money provides anonymity, an advantage for those who don’t want their purchases easily tracked. However, in a room full of CPAs, it didn’t take long for someone to note that cyberwallets collect no interest. And e-cash also has its psychological componentour society is too credit-based to go back to an online cash economy.

10 Electronic evidence. Although a cutting-edge issue, electronic evidence applies particularly to one of the oldest of a CPA’s duties: the audit. What is a record? Must it be a piece of paper, or can it be an electronic file? And how can you tell if an electronic file has been tampered with? Participants said assurance is needed before the paperless office becomes a reality. Different jurisdictions would have to agree on common standards for when and how electronic evidence would be admissible in court cases. Catalog companies selling products through their Web sites already are making sales and fulfilling orders partially or completely with electronic documents. The American Bar Association has been studying the issue and, no doubt, standard settersFASB and the ASB, for examplewill continue to address this.

More to come
The committees also came up with additional liststechnologies (such as notebook and laptop computers), applications (for example, telecommuting) and emerging technologies. The Journal will cover these in future issues.