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¶ … investing in it The Use of Technology in Finance Effects of investing in Information Technology The wealth effects of investing in information technology) The study done by Jory and others (2010) examines the reaction of investors to announcements of new information technology or improved existing information technology by companies as a response to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

This section of the Sarbanes-Oxley Act of 2002, commonly referred to as SOX 404, demands that auditors attest to, and report on, the effectiveness and assessment of the management of the company's internal control systems. This Act was passed due to the increasing number of accounting scandals. The overall reaction was found by measuring several particular effects and reactions. First the short-term stock market reaction was evaluated by measuring the effect of the announcement on Information Technology expenditure related to SOX 404.

This was followed by the evaluation of the cross-sectional variation in market reaction, as an internal control variable, in which the market reaction of a firm was related to the control deficiency under Section 404. This also included the investigation of the effect of severity of control deficiency on the market reaction. Firms that had control deficiency, significant deficiency, and material weakness at the time the firm announced SOX-related Information Technology investments were identified.

The third aspect also dealt with the cross-sectional variation in market reaction but as a company's risk where four proxies for a company's risk were derived which were the bid-ask spread, the number of analysts following the firm, the dispersion in analysts' earnings forecast, and the firm's beta. Lastly the same cross-sectional variation in market reaction was evaluated with regard to quality of financial reporting.

The Information Technology decisions of companies were put into serious focus by the SOX 404 compliance since it led many firms into implementing new Information Technology to improve their internal controls while others just upgraded their existing Information Technology. This meant that companies were moving from the basic spreadsheets and manual processes to software tools that would assist them in better management of the auditing process and correction of errors.

In order to undertake all these changes a lot of investment is required and the article addresses the issue of whether the benefits are more than the related investment. One of the major effects of SOX 404 has been causing a number of firms to remain or go private, additionally some foreign companies who were interested in listing in the U.S.A. have decided to stay offshore.

However, the general perception of investors on Information Technology investment is positive and they consider it to be value-enhancing thus the SOX 404-related Information Technology investment is also expected to create a similar positive investor perception. There is further indication that the more a company devotes resources towards the improvement and evaluation of SOX 404-related Information Technology controls, the more the companies begin to have confidence in their control structure this leads to more investor confidence with regard to the reliability of financial reporting to the market place.

This could be an indication that the benefits of SOX 404-related information technology investment are much more beneficial than the costs. Such investment could also be considered to be more beneficial since it achieves the overall goals of improving financial reporting, improving fraud detection and prevention, and providing investors with greater assurance with regard to the accuracy of financial reports. The overall finding of this research is that the response of the market to companies' SOX-related information technology investments is positive and favorable.

The position taken by Jory and others (2010) is that investment in information technology is beneficial to a company but on certain conditions which include strong internal control and the risk levels of the company. It is important that the study focused on how the position of the company can affect the benefits derived from investment in information technology, however, basing the success on the reaction of the stock market alone is a big set back as this leads to a number of assumptions.

There are many ways of measuring the business value of investment in information technology, as well, there are many factors that affect the success of such an investment. It is therefore appropriate that when the effects of investing in information technology are to be studied then a wider scope should be covered in order to bring all these factors on board.

There is no doubt that introduction or improvement of information technology has benefits can be considered to be right to the extent of the general view of the advantages of technology. There are benefits that are associated with information technology such as the ability of processing large amounts of information while at the same time presenting the information to the parties concerned in a clear and concise manner.

Whenever a company implements any information technology there are a number of benefit anticipations such as productivity improving, profit performance becoming better, and increased degree of accuracy of processing information. There is also a general improvement on the sharing of information among the stakeholders. Apart from the general benefits information technology brings to the company the finance department has particular benefits that it derives, through improvements in information technology company finance officers are able to interweave their financial data with economic data concurrently.

This will help them understand and explain the performance of the company (Roberts and Baker, 2010). An improvement in information technology also benefits accountants since they are able to make real time comparison of actual and budgeted results for any account. This is facilitated by the fact that both internal and external auditors can place software agents on the Web that study the auditing concerns and processes of other companies and at the same time carrying out a continuous audit of all internal corporate transactions.

In addition to comparing budgets, accountants can also query the entire internet to benchmark the processes of other companies or search for new cost advantages. The comparison of actual and budgeted results is very important to the company especially when enhanced by external data since the only way a company can know if it is doing well is by comparing itself with other companies.

Gill (2011) also mentions the benefits of 'cloud computing' which is also an information technology to include increased speed of deployment, streamlining of business processes, low capital expenditure, lower total cost of ownership, easy upgrades, and the possibility of accessing data anytime, anywhere. All these benefits will lead to increased productivity of a company and more financial gains to the company in the long run.

Although there is a general improvement in the productivity of the company there can be some loss experienced during the "learning curve" but the ultimate benefits outweigh the loss at this stage. There are features of the current information technology that make it have the benefits associated to it. It has to be appreciated that computers have improved over the decades in terms of performance and size and the growing technology has enabled the linking of personal computers across wide geographic areas which result into networks.

The resulting networks play a significant role in the performance of a company providing benefits such as data integrity and enhanced productivity. It is possible to share a wider range of information in different forms through a broadband network and even videoconferencing is possible through these networks. The concurrent advancements in both hardware and software have enabled creation of multimedia "documents" which can be easily shared via the internal network, or the internet.

All these features of the current information technology work together to form a system that when applied in a company's financial controls yields a lot of benefits. However, for information technology to have value in the business environment then it has to be related to a work process, there must be people who are competent in using information technology, and the informational purpose must be business-focused.

There are high chances that a lot of time is spent in measuring the wrong thing, what should be measured is the business value of information technology management, not information technology itself. It is very common to find the business value of information technology being secondary after the process re-engineering that comes before any information technology implementation.

It should be understood that re-engineering is just a pre-requisite for information technology and when the business value is not considered then the result will be a more efficient version of the information technology that existed before thus if it was poor then what the company gets is a poorer system that performs faster which is dangerous. It is therefore necessary to measure the contribution of information technology to business in the right way.

There are a number of weaknesses associated with measurement approaches and they include partial investigation of cost and risk, some costs such as human, organizational and management not being accounted for, using budgeting methods that hide costs, exclusion of intangible or indirect benefits, non-assessment of the opportunity cost to business of a lack of information technology, information and information technology strategies not being in line with the business, and tracking of benefits through poor anchor measures.

This implies that there should be a movement towards measurements that have a more balanced scorecard and dashboard which will be healthy though there is a risk of developing an internal evaluation bureaucracy and lose of credibility if not updated and focused on parameters that are critical to the company. The other aspect that is also crucial to the introduction of information technology is the amount of usage, when information technology introduced in a company is not used or is underutilized then it ends up wasting the company's money.

In order to extract value from information technology investment that a company makes, it needs to involve people. In most cases when a company does not give an opportunity for nor funds organizational learning and adjustment that is necessary then the information technology will not be used optimally thus being a disappointment. There is a tendency for companies to concentrate on the operational complexity of implementing information technology rather than educating the staff to be competent in using it and deriving maximum benefits from it.

Information technologies widely differ and so do their costs and ways of getting business value from each information technology also differs. For instance when the information technology investment to be undertaken involves infrastructure investment then it can not be compared to a point solution for a specific business process which is also self-contained. When information technology is not given a portfolio approach then it is a problem since information technology has different purposes and requires different measurement regimes.

Information technologies also do deliver business value through different ways and up to different levels, that is to say that one information technology may deliver business value better then another. Organizational variations in information technology exists considerably, therefore, embedding a right measurement regime as part of the routine management will help a company know its position. It is also recommended that this is linked from the business strategic to the information technology operational level, and across the lifetime of the system, but this is rarely enacted.

Good measurement and actual improvement in the business use of information technology have been found to correlate. Another important aspect is the attitude of the senior executives towards information technology, in some organizations executives who have no faith in information technology fear. In such cases, the existence of information technology has to be continually justified and traditional measures used to judge, this leads to self disappointment and under-funding. On the contrary some executives view information technology as asset and consider what benefits the company will get from it.

Such executives usually get more business value from their information technology since they usually give a clear business focus to the measurement systems and investment of information technology. Their confidence on the business value of information technology also leads them to focus on key metrics and results rather than on exhaustive measurement data. In line with the above, there are certain traits that are considered to be possessed by effective information technology users which include listening to technology and getting informed by global dynamics of new trends.

Such individuals also govern information technology as a strategic, business-focused portfolio. The chief information officer of a company should also be credible and influential among senior business executives. When a company intends to introduce or improve its information technology but lacks the aspects that are necessary to derive business value from the information technology then the company will be considered not to be ready and this is usually the crossroad for finance and technology.

It is recommended that a method used for assessing technology readiness considers the smooth integration of new products with downstream design and manufacturing process, the performance should also meet the expectations of the user's environment (Clausing and Holmes, 2010). When the assessment for technology readiness is not present then unstable performance will cause a disruption in the later stages in the process of development. A technology readiness process that is well structured should include a development process that makes the technology more stable thereby performing as earlier expected.

The degree of technology readiness and potential risks should also be measured before proceeding to developmental stages, this way any new technology introduced will translate to new profits. For a company to enjoy the full potential of any new technology and implement it smoothly then the new technology should be in an environment that enables it operate realistically, however, when technology readiness is not incorporated then the business value may not be easily realized.

In order to realize this readiness it is also necessary to have corporation between the information technology department and the others within the organization, especially the finance department (Marshall and Mullen, 2004). The study carried out by Jory and others (2010) indicate that there is a favorable reaction of stock market to corporations that invest in SOX 404 -- related information technology but further reports that a difference existed between firms with reported internal control weaknesses.

This still points out to the factor of readiness of the company and such a company may not derive any benefit from investing in information technology. The perception of investors is that when a company has strong control environments then investing in information technology will give more profit than the costs incurred.

Does this mean that some firms need not to conform to the requirements of SOX 404? What it actually means is that the firms should undergo a process that will prepare them for the information technology introduction or improvement in order to reap the benefits associated with it. This is one of the best options for such firms since the only other option left is for them to run out of business or alternatively merge with other firms.

This is how cruel the need for information technology can be when a firm is not prepared. Even though it is the benefits of information technology or technologies in general that are being talked of loudly, introduction of such technologies can also have some undesirable impacts especially when a firm becomes completely dependent on the technology.

The first feature of the current technology is automation of most if not all tasks in a firm, this is usually an admirable feature and treated as innocent as it looks not until the system fails. When the firm was fully dependent on.