Radio frequency identification: the wave of the future; as bar codes give way to RFID tags, accounting for inventory will go high-tech.

Publication: Journal of Accountancy

Publication Date: 01-NOV-04

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COPYRIGHT 2004 American Institute of CPA's

EXECUTIVE SUMMARY

* RADIO FREQUENCY IDENTIFICATION has the potential to reduce the cost and increase the efficiency of managing and accounting for inventory.

* AN RFID SYSTEM consists of tags, transceivers and a computer system. These components share information on the characteristics, location, arrival/shipment time and other information about inventory items.

* WAL-MART AND THE DEPARTMENT OF DEFENSE, two huge participants in the global supply chain, are requiring their top suppliers to begin using RFID by 2005 and the rest of their vendors to do so by 2006.

* RFID USES RADIO FREQUENCIES to transmit product-related information and does not require a line of sight, as barcode technology does. This makes it easier to perform a physical inventory.

* RFID WILL PROVIDE AN EASIER WAY to value inventory and identify slow-moving and obsolete items. To ensure RFID systems are producing reliable information, CPAs auditing them must understand the appropriate controls and know how to assess their effectiveness.

* RFID IMPLEMENTATION STILL IS IN ITS INFANCY. As a result accountants seeking to expand their consulting practices should consider adding RFID-related services to those they offer, as should auditors, whose expertise also will be required.

Much has changed since an Ohio grocery store sold the first product with a bar code on it--a pack of Wrigley's gum--in 1974. In the 30 years since then, organizations have been applying these identifiers, more formally known as universal product codes, to everything from aircraft parts to zippers, so they can manage inventory more efficiently. But a new technology--radio frequency identification (RFID)--offers greater precision, flexibility and potential cost savings and has attracted the interest of a wide range of businesses and public entities. This article explains RFID (see "How It Works," page 46) and shows CPAs--auditors, members in industry and consultants serving as de facto CFOs for small businesses--how to help their clients and employers use it in the most cost-effective ways possible.

More and more organizations are deploying RFID for a variety of business purposes. New York and other states use E-ZPass to electronically collect tolls without interrupting traffic flow. As motorists swiftly pass through an RFID-enabled toll gate, information from each participating car's tag is transmitted to the highway authority's computer system, which uses it to charge drivers for tolls. ExxonMobil's Speedpass, an RFID application instantly and securely-without a credit card or signature--collects the payment for a gas-station transaction from a tag on a driver's key-chain. And in certain Ford Truck plants, workers temporarily place in each truck a tag containing information about the vehicle. When an order for a specific type of truck arrives, transceivers gather information from the tags in the staging area. This enables Ford employees to easily locate trucks that meet dealers' needs. Significantly, Wal-Mart and the Department of...

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