The purpose of this report is to identify problem found in the article dated March 29, 2019 entitled “Wirecard’s problem partners” by Dan McCrum and Stefania Palma (https://www.ft.com/content/cd12395e-4fb7-11e9-b401-8d9ef1626294). It will also give suggestion on what needed to be done to address and prevent such problems in future.
As revealed in the article, processing payments for the murkier parts of online commerce is highly lucrative. Interestingly, the article reveals that Wirecard’s clients include mainly businesses that relate to lottery, gambling, dating, adult entertainment and associated business models. This influx of such business is attributable to technological advances and Asia Pacific expansion. Although Wirecard serves to help such companies, there is an indication that there is problem in managerial accounting in such era of technological advancement. Managerial accounting face a challenge of documenting such unlicensed transactions. It is not clear whether Wirecard company using fake companies and doctored contracts to boost revenues artificially over several years. It is not clear whether there is corruption or whether such business deals are legitimate. This gap serves as the basis for this memo. The memo attempts to clarify the issue of managerial accounting in an era of technological advances and determine what measures should victim companies such as Wirecard and partners should take to prevent such issues.
Traditional management accounting is called internal reporting accounting, which is mainly for a series of regulatory and decision-making behaviors within the enterprise, and lacks comprehensive analysis of external market changes. In the past, network technology has not been so developed. The data collected by enterprises is lagging behind, which makes enterprises less sensitive to changes in the market economy environment. Enterprises respond to countermeasures and strategic adjustments are slow, and often fail to achieve the expected goals. In the era of big data, management accounting can make full use of the advantages of big data (for example, the amount of data is large, the variety is rich, the timeliness is strong, the dynamic is strong, etc.), and the data is filtered and used on the basis of enriching information resources. Advanced technology tools deep-seated and dissect them, and integrate related financial and non-financial data, structured and unstructured data, and internal and external data into information that facilitates decision-making by managers (Jans, Alles & Vasarhelyi, 2013). Management accounting uses this information for comprehensive forecasting, analysis, and decision making, and develops the best strategy for the company in understanding the market economy. In the application of data, the role of management accounting has changed from a simple accounting level to a strategic management level. Strategic management accounting assists managers in making judgments and formulating implementation strategies from the perspective of the overall situation of the enterprise (O’Brien & Marakas, 2011). It not only makes the internal management and performance evaluation of the enterprise more reasonable, but also promotes more rational decision-making and risk management outside the enterprise.
Companies such as Wirecard ought to make appropriate adjustment. Under the traditional business model, enterprises and related parties communicate through offline, telephone, letter or interview. In the era of big data, companies can directly obtain a large amount of valuable data information online, and can also communicate effectively with market stakeholders through Internet technology. Big data not only greatly reduces the time and cost of collecting and disseminating information, but also provides the necessary information foundation for the integration of enterprise industry chain, which ultimately drives the traditional operation modes of enterprise information flow, logistics, and money flow. Change (Grabski, Leech & Schmidt 2011). At the same time, under the traditional business model, enterprises often form economies of scale by successively investing capital, expanding production scale, and promoting sales growth to save costs and maximize profits. Management accounting can make full use of the big data environment to collect valuable information for enterprise decision-making, get online information feedback in the network integration system, and understand important information such as market trends and consumer preferences (Lanen, Anderson & Maher 2013). In the enterprise, it also facilitates the improvement of operational efficiency, risk prediction accuracy, and internal performance management rationality, and breaks the limitation of traditional working methods. Management accounting needs to adjust the information source channel and information analysis method according to the changes of the business environment in the era of big data to better serve the enterprise.
The adjustment of enterprise models has led to major changes in the content of management accounting, including cost accounting, budget management, and performance evaluation (Ali, Khan & Vasilakos, 2015). Taking cost accounting as an example, in order to standardize the cost control of each operation link, many enterprise cost accounting is calculated from the original department to the operation flow and operation link, and the accounting method is converted from the full cost method to the activity cost method. The big data environment provides data and technical support for accurate costing of all operations (Nicoleta, 2019). In addition to accounting methods, the scope and means of cost accounting have also changed. For example, in the big data environment, the massive feedback information and information technology applications of various channels have promoted the idea of “big cost concept” to be integrated into the cost management of modern enterprises (Williams & Gong 2014). “Big” and “view” mean that enterprises are not limited to narrow cost categories, and should be comprehensively analyzed in terms of management and economics (Koyuncugil & Ozgulbas, 2012). Under the “big cost view”, the cost accounting not only includes the cost consumption in the production process, but also includes the ex ante cost and the after-the-fact cost, that is, the entire life cycle cost, and the scope is further expanded. In the aspect of enterprise performance evaluation, the data of the evaluation system evaluation is more comprehensive and diversified, and the diversified data makes the performance evaluation more objective and three-dimensional, and the evaluation system may be further improved and upgraded.
To conclude, in the era of big data, modernized new business models were born. The new model relies mainly on time-sensitive data and Internet technology in the era of big data. In order to adapt to the new development environment and better serve the decision-making services of enterprise managers, the need for management accounting adjustments is becoming more and more obvious. Companies such as Wirecard and its partners ought to embrace new technologies such as big data, blockchain, bitcoin, cryptocurrencies and Internet of Things in order to solve their current needs.
References
Ali, M., Khan, S. U., & Vasilakos, A. V. (2015). Security in cloud computing: Opportunities and challenges. Information Sciences, 305, 357-383.
Grabski, S. V., Leech, S. A., & Schmidt, P. J. (2011). A review of ERP research: A future agenda for accounting information systems. Journal of Information Systems, 25(1), 37-78.
Jans, M., Alles, M., & Vasarhelyi, M. (2013). The case for process mining in auditing: Sources of value added and areas of application. International Journal of Account Information System, 14(1), 1-20.
Koyuncugil, A. S., & Ozgulbas, N. (2012). Financial early warning system model and data mining application for risk detection. Expert Systems with Applications, 39(6), 6238-6253.
Lanen, W., Anderson, S. W., & Maher, M. W. (2013). Fundamentals of cost accounting (4th ed.). New York, NY: McGraw-Hill.
McCrum, D. & Palma, S. (2019). Wirecard’s problem partners. Financial Times. Retrieved from: https://www.ft.com/content/cd12395e-4fb7-11e9-b401-8d9ef1626294
Nicoleta, G. C. (2019). Management Accounting: The Boundary between Traditional and Modern. Journal of Academic Research in Economics, 11(2), 453–461.
O’Brien, J. A., & Marakas, G. M. (2011). Management information systems. New York, NY: McGraw-Hill.
Williams, T. P., & Gong, J. (2014). Predicting construction cost overruns using text mining, numerical data and ensemble classifiers. Automation in Construction, 43(43), 23-29.
