7thInternational Conference on Enterprise Systems, Accounting and Logistics (7th ICESAL 2010) 28-29 June 2010, Rhodes Island,

Greece

Diffusion of Digital Accounting Practice

Benita M Gullkvist
Hanken School of Economics, Finland benita.gullkvist@hanken.fi

Accounting has evolved with developments in business and information technology. The mechanization and computerization of accounting has now moved into a new stage, the digitization of accounting. Digital accounting does not as yet have a standard definition but is usually referred to as changes in accounting due to computing and networking technologies. Deshmukh (2005) defines digital

accounting, or e-accounting, as the representation of accounting information in the digital format, which can then be electronically manipulated and transmitted.

Since the emergence of personal computers and the Internet, new ICT is constantly being introduced. It is therefore of interest to analyze and try to understand how innovative accounting practice (administrative innovations) spread within and across organizations as the result of adoption and implementation of technological innovations. An innovation, according to Rogers' (1962) theory of diffusion, is an idea, thing, procedure, or system that is perceived to be new by whomever is adopting it. Prior research has concluded that innovations often take years, if not decades, to spread into wide use, and that accounting practice is rather slow to change (Scapens,1994:317). Yet, the automation of financial accounting processes was one of the first uses of computer systems in early years. Further, in order to achieve and maintain a competitive edge in the business world of today, managers are concerned with both the diffusion of efficient innovations and increasing the rate of diffusion (Gurd et al., 2002).

The purpose of this study is to provide an analysis and review of the diffusion of digital accounting practice emerging from the adoption of technological innovations 1

7thInternational Conference on Enterprise Systems, Accounting and Logistics (7th ICESAL 2010) 28-29 June 2010, Rhodes Island, Greece

for corporate financial accounting among Finnish accounting services firms over the last fifteen years. The working definition of diffusion of innovation here is the adoption and implementation of new ideas, processes, routines, or services, with particular emphasis on managing corporate financial accounting practice within and/or across organizations. This study mainly focuses on the adoption and implementation of more recently emerging innovations developed for automating procedures, developing more appropriate information technology-based processes, or replacing analog with digital information. Such innovations are for example electronic bank statements, electronic reporting to tax authorities electronic invoicing and web-based accounting software. Thus, technological innovations in this study cover a number of various information technologies and systems, however all with the purpose of digitalizing the financial accounting process and practice.

Drawing on Rogers (1962; 2003) research and theory on the diffusion of innovations, the paper examines innovation adoption behavior over time. Further, by using the Gartner Groups hype cycle (see for example OLeary, 2008) as a basis for the analysis, the paper recognizes the diffusion of digital accounting practice as a progression of emerging technology. Different stages of the curve is analysed with regards to diffusion of digital accounting practice over time: technology trigger, peak of inflated expectations, trough of disillusionment, slope of enlightenment and plateau of productivity with regards to digital accounting practice and ICT adoption.

Data was collected over a fifteen-year period 1995 to 2009 from academic literature, as well as academic and business journals. Primary data collected as part of a major research project including tape-recorded semi-structured interviews and surveys among Finnish accounting professionals and entities was further used in the analysis. Overall, the analysis show a hype in media and business journals with regards to digital accounting practice in late 90s and early 2000. It was expected that the legal consent to use machine-readable data records when setting up and archiving bookkeeping entries, e.g. revised Accounting Act effective from 1998, would radically change accounting practices. The available evidence is, however, that the change to 2

7thInternational Conference on Enterprise Systems, Accounting and Logistics (7th ICESAL 2010) 28-29 June 2010, Rhodes Island, Greece

digital accounting practice has been slower than expected, and has not yet reached the slope of enlightenment or plateau of productivity in many entities. Evidence of that the hype ended in disillusionment could be found, and this stage has only more recently turned into a slope of enlightenment in many companies. For innovators and early adopters, however, there is evidence of changes in accounting practice, however mainly further automation of previous practices and self services. True innovative ways of managing digital accounting practices appear not to have emerged so far. Further, and consistent with previous research, the diffusion

process shows a lag resulting from the difference in adjustment and evolution of administrative innovations (new routines, procedures) to changes in technical systems. Reasons for and obstacles to the development are discussed and suggestions for further research are proposed.

References
Deshmukh, A. (2006). Digital Accounting: The Effects of the Internet and ERP on Accounting, The Ideal Group, Hershey PA. Gurd, B., Smith, M. & Swaffer, A. (2002). Factors impacting on accounting lag: An exploratory study of responging to TQM, British Accounting Review, 34, p. 205-221. OLeary, D.E. (2008) Gartner's hype cycle and information system research issues, International Journal of Accounting Information Systems 9, p. 240252 Rogers, E.M. (1962), Diffusion of Innovations, The Free Press, New York, NY. Rogers, E.M. (2003), Diffusion of Innovations, 5th ed., The Free Press, New York, NY Scapens, R.W. (1994) Never mind the gap: Towards an institutional perspective of management accounting practices. Management Accounting Research 5, p. 301321.