Harnessing the Power of Databases

By Luzi, Andrew D.; McCabe, R. K. | Journal of Accountancy, July 1993 | Go to article overview

Harnessing the Power of Databases


Luzi, Andrew D., McCabe, R. K., Journal of Accountancy


In this age of electronic information, hardly a scrap of data useful to accountants isn't recorded somewhere--most likely in an electronic database easily accessible by computer. In the last few years, thanks to advances in hardware and application software, databases have become easier to access and to create. (For a list of the most popular database application programs, see exhibit 1[TABULAR DATA OMITTED], on page 73.)

This article is about how CPAs--whether they perform general accounting tasks, conduct audits, prepare tax returns or provide consulting services--can use databases to make their work more effective, more efficient and less burdensome.

POTENTIAL DATABASE USERS

How can accountants in public firms and in commerce and industry tap the power of databases? The possibilities are countless and limited only by the user's imagination. These are some of the common applications:

* Tax research. Several databases contain tax reference materials. For example, some tax databases include the full tax code and regulations as well as the complete tax services of certain publishers, along with explanations, examples and citations. They also may contain Internal Revenue Service revenue rulings, private letter rulings, cases, tax forms and instructions. All the state tax laws are easily accessible, too.

* Accounting. Certain databases contain all the authoritative audit and accounting literature. Some also contain the complete texts of company annual reports and Securities and Exchange Commission forms 10-K, which can be particularly helpful when researching how other firms have handled a particular accounting problem or financial statement disclosure.

* Auditing. Some databases provide access to economic forecasts that could affect decisions in areas such as materiality, audit risk and tolerable errors. These data also can help identify related parties and corroborate management's related-party assertions. For example, some states provide corporate and partnership data with listings of officers and directors.

* Industry background. Databases can be especially helpful when an accountant must deal with an unfamiliar industry. For example, CPAs can search certain databases for research papers and articles and instantly obtain information on the industry in question. Also, in reviewing articles by other accountants serving the industry, a CPA can develop strategies for handling audit, compilation and review and management consulting engagements.

* Marketing. Databases can sharpen an accounting firm's marketing effort. For example, a firm seeking to carve out an industry niche may find databases helpful in identifying potential clients.

Clients can be targeted by size, standard industrial classification (SIC) code, location or some other criterion. Once that list has been assembled, lists of candidate clients can be winnowed further or enhanced by using yet other databases that provide information on each company's key personnel and their backgrounds, its overall financial condition and profitability, current audit firm and a wealth of other useful information. Further, there are databases that provide credit ratings as well as other important financial information.

TYPES OF DATABASES

Databases come in two varieties: internal and external. Internal databases are compiled by users and usually consist of customer and client or industry data an organization collects for its own use. Since such information packages usually are fashioned by the users, they are, by default, custom-designed. The most common internal databases are name-and-address files for bulk mailings. But

they can be more sophisticated than that. For example, an internal database that starts out as just a customer mailing list can be combined with a commercial or government database to provide more comprehensive information, including financial status, product or services provided, accounting firm used, etc. …

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