December 1998 Issue


By Robert J. Zink

The severity of a company's problem will depend on the age of its systems, the amount of date logic contained in the system, and how frequently time-sensitive applications are used to run the company's operations. When assessing a company's year 2000 problem, all hardware and software applications should be reviewed to determine where problems exist. After investigating the problems, the list should be prioritized. In some cases, it may be more cost-effective to simply upgrade to new hardware and software applications that are Y2K compliant.

All computer hardware, such as mainframes and personal computers, as well as operating systems and applications software should be reviewed for the Y2K bug. Some applications that may be affected are as follows:

* Order processing software that provides future shipment of products;

* Scheduling software that relies on order information to determine the timing of production runs;

* Customer files that rely on dates to identify the most recent update of data;

* Backup programs that rely on dates to identify files scheduled for destruction;

* Password protection programs that rely on dates to notify users to change their passwords (Users may not be denied access if these programs are not reconfigured);

* Software that relies on dates to determine scheduled maintenance on machinery;

* Accounting software, such as payroll and payables modules, that rely on dates to process information;

* Electronic data exchange and other third party interfaced systems;

* Network file servers, or network operating software (i.e., Novell);

* Any equipment that is operated by a computer, such as a phone or power system.

Correcting your systems will most likely entail a combination of retiring and replacing hardware and software, as well as rewriting code. Generally, costs incurred to reprogram software to be Y2K compliant should be expensed for both financial and tax reporting purposes. The cost of replacement hardware and software should be capitalized and amortized over time. *

Robert J. Zink, CPA, is partner-in-charge of the information technology services department of Wiss & Company, LLP, Livingston.

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