Question

1. Describe two ways that risks to financial information would change if management were to implement a real-time system.

Answer 1

The risks to financial information mitigated or changed by the real-time system can be broadly categorized into two types:

1) Operational Risk: Delay in the consolidation of financials and retrieving data from different sources, the inconsistency of information, errors while aggregating and formatting data from different sources, risk of fraud and Sarbanes-Oxley non-compliance (compliance risk), GAAP issues (increasing the risk of making decisions based on data that is different from the finance system of record),

2) Strategic Risk: Cost risks (audit, aggregation, formatting, maintenance costs including data warehousing and software costs), low productivity risks, security issues (breach of security of information portals to gain a competitive advantage in terms of information), market risk due to lag in getting latest and reliable information, customer non-retention risk due to lack of technological upgradation.

So, on the implementation of the real-time system, the above-mentioned risks can be reduced to some extent. Access to aggregated reliable information can be done from a single system. Customization of information according to customers can be handled easily. Real-time analysis, reporting and decision making can be taken using tools, thus increasing the overall efficiency and reducing costs.