Question 1

List and define the two most common approaches to business intelligence that are used by used
by companies which are discussed in your textbook.

Shadow data: Shadow data is used when data is stored in spreadsheets and other tools that shadow
the formal accounting system. Shadow data is frequently under the control of the accounting
professional.

Business intelligence (Bl) technologies: BI technologies include analytics, data mining, and predictive
modelling. They are typically under the control of the enterprise's IT professionals.

An intelligent enterprise system may use one or both types of Bl. Some organizations, for example,
may use only shadow data while others may use both shadow data and BI technologies.

Question 2

Discuss three advantages and three disadvantages for using shadow data in relation to the
material covered in chapter 7 of your theory textbook.

Shadow data offers several advantages for the accounting professional, including convenience and
availability. The spreadsheet is easy to learn and use. Extensive training is not required to create,
use, or maintain spreadsheets. Also, spreadsheets have extensive analytic features, such as
PivotTables, Solver, and Crystal Ball. Spreadsheets offer reporting features that do not require
custom programming to produce a professional looking report.

Spreadsheet software is readily available. The accounting professional can develop the spreadsheet
solution when needed and does not have to wait on IT to produce the required analysis. To have
value to the end user, intelligence must be timely (i.e., received in time to be used).

Another advantage is that the accounting professional often better understands the requirements
and needs for applications that have specific requirements unique to accounting. IT professionals
may not have the requisite accounting knowledge to meet the analysis and reporting needs of the
accounting professional.

The convenience and availability of spreadsheets for shadow data, however, are accompanied by a
number of serious disadvantages. Since the shadow data is developed on an ad hoc basis, often it is
not well documented. This can lead to issues in the future when the accountant who developed the
spreadsheet application leaves the organization. The application may have to be redeveloped
because no one else knows how to use the prior spreadsheet. Another consideration of shadow data
is that there may not be adequate or regular backups for disaster recovery.

Since shadow data is typically not developed by an IT professional, the shadow data may not
undergo adequate testing to detect errors. This could result in material misstatements in accounting
reports.

Also, since shadow data is outside the formal data systems under IT control, there are concerns
about data security and irregularities. This is illustrated in the first section of Figure 7.9 where the
area outlined in green represents the portion of the shadow data that is secured. The area outlined
in red represents the portion of the system that is open to unauthorized access and is unsecured.
Notice that a large portion of shadow data is unsecured.
Question 3

According to your textbook, there are five guiding principles of integrated reporting, list and
describe them in your own words.

Five guiding principles are the foundation for the proposed integrated reporting framework:

Principle 1: Strategic Focus. The integrated report moves from a short-term, historical, "what
happened?" perspective to a forward looking, strategic focus. The integrated report is intended to
communicate an organization's strategic objectives, how its performance relates to its strategy, and
how the strategy relates to creating and sustaining value over time.

Principle 2: Connectivity of Information. The integrated report attempts to show how business
decisions and performance are connected-how strategies connect to key performance indicators
and key risk indicators. Currently when an organization reports its performance in an annual report,
stakeholders may be left wondering: How does the organization's performance relate to its strategy?
The integrated report attempts to connect an organization's strategy to its performance so the
stakeholders can assess an organization's strategy and the attainment of the strategy through
performance indicators.

Principle 3: Future Orientation. While traditional financial reporting primarily focuses on past data,
an integrated report attempts to provide stakeholders with management's expectations about the
future, such as targets, projections, and sensitivity analysis. This better enables stakeholders to
assess future risks, uncertainties, and opportunities that the organization faces. The future
orientation of an integrated report provides information that is useful in assessing the sustainability
of the organization's business model.

Principle 4: Responsiveness and Stakeholder Inclusiveness. An integrated report provides insights

into the organization's relationships with its key stakeholders. An integrated report attempts to
improve the transparency of reporting to stakeholders on key economic, social, and environmental
issues. An integrated report can answer questions such as: ■ Does the organization understand
stakeholder needs? ■ Does the organization respond to stakeholder needs and concerns? ■ Does
the organization present information to stakeholders in a transparent manner that builds trust?

Principle 5: Conciseness, Reliability, and Materiality. Integrated reporting should focus on providing
concise information that is sufficiently reliable and material to stakeholders' assessment about the
organization's ability to create and sustain value over time. Management must exercise judgement
in determining if information is concise, reliable, and material, and the expectation is that
management discloses both positive, as well as negative, issues to stakeholders.

Question 4

Integrated reporting combines two different types of reports into one to show more clearly the
enterprise’s ability to create and sustain value. Explain the challenge that this benefit must
address.

Challenge:

The systems and IT currently used for the multiple strands of reporting may not be compatible. The
accounting system must be able to integrate the multiple sources of financial and nonfinancial
information. To prepare an integrated report, the accounting system must be designed to collect and
store both financial and nonfinancial data that can be used to measure performance. Most
accounting systems are well suited to storing financial data measured in dollars. But how will such a
system store nonfinancial, strategic data that is not measured in dollars? One of the proposed
solutions to meeting the unique challenges of integrated reporting is to use eXtensible Business
Reporting Language (XBRL). XBRL electronically tags data (similar to putting a bar code on products)
for easier analysis and retrieval. XBRL can tag financial and nonfinancial data, so XBRL appears
promising for collecting and reporting financial and nonfinancial data to streamline integrated
reporting. If you would like to learn more about XBRL, see the next chapter, XBRL: Intelligent
Business Reporting.

Question 5

Explain the difference between qualitative and quantitative data. List and describe three
approaches for storing qualitative data in a database providing an example with each description.

Difference between qualitative and quantitative data:

Quantitative data often tells us how much (such as the cost of espressos from a coffee shop for one
year). Qualitative data often tells us why.

Three approaches for storing qualitative data in a database:

One approach to storing qualitative data is to quantify it using numerical ranking. For example, if you
have identified safety as an important qualitative factor for your production employees, then you
might develop a numerical ranking or Likert scale of 1 to 5 to identify the safety level. The safety
level 1 might be the most hazardous to employees while 5 might be the safest. Even though safety is
a qualitative factor, there are measures that can be used to quantify safety for comparison and
storage in a database.

Another method of addressing how to store qualitative data is to quantify it by developing estimates
of dollar amounts that are indicative of the level of risk and value. For example, if a suggested course
of action is considered relatively hazardous to employees, the safety aspect of the action could be
quantified by estimating workers' compensation claims, increased health insurance costs, and cost of
employee absenteeism. In the 1990s, Ontario's Hydro, a hydroelectric power company, attempted to
identify and quantify the external impacts of operations, including environmental and health effects.
The company used modeling techniques to estimate how emissions affected the environment and
people, and then estimated the costs of the impact (see Epstein 2008).

Yet another way to store qualitative data in a database is to use predefined labels that can be
entered in the database and later retrieved using business intelligence tools. For example,
predefined labels for safety levels might be as follows:

■ Hazardous for human consumption

■ Hazardous above 90 degrees Fahrenheit

■ Hazardous when mixed with water

The predefined labels would be stored in an alphanumeric database field of a specified length. The
field would be searchable using database queries and analyzed using business intelligence tools. The
power of the database is its ability to store and retrieve large amounts of data. Thus, it is important
that the qualitative data is stored in the database in such a way that it can later be retrieved. To
summarize, three ways to store qualitative data so it can be retrieved for decision making and
performance evaluation purposes are (1) numerical ranking, (2) estimated dollar amounts, and (3)
predefined labels.

Question 6

List the four groups of people that are affected by sustainability accounting, and explain how each
of these groups is affected.

Sustainability accounting can impact people inside and outside the organization.

Employees, including accounting and IT professionals as well as customers and vendors, may be
affected. Accountants will be asked to collect and report new types of data, such as an organization's
effects on society and the environment. This will require new ways of measuring data that are
different from what accountants have used in the past. Accountants are often asked to provide
recommendations for decision making. So when an accountant analyzes decision options, he or she
will need to consider information related to sustainability.

Customers may demand more people- and eco-friendly products. Sometimes, companies must
educate customers regarding the benefits of new products, such as energy efficiency and cost
savings of a new refrigerator purchase.

New expectations may be placed upon vendors to reduce packaging and provide more peopleand
eco-friendly products. With respect to employees, some firms create a culture of sustainability
throughout an organization that impacts all employees. For example, some organizations have
adopted a company-wide sustainability policy to use virtual meetings instead of employee travel.

At the crossroads of accounting and IT, professionals responsible for the accounting system will need
to evaluate how sustainability impacts processes and technology, which we explore next.