Emerging Technologies in Accounting - Essay Example

 ERP Paper – Answers to Questions: Answers to Question 1 For each of the events given, there are some details which need to be available in the common database before the event, which will be used for reference, validation, process workflow check etc.., and some information will get recorded after the event takes place. The respective details are given below for each event. Event a: For the system to automatically check the customer’s credit and find it acceptable, the information that must be already recorded in the common database before this event include 1) Valid customer Id; 2) Customer’s outstanding payments status, based on invoices and credit notes for any returns; 3) Customer’s credit limit; 4) List of pending orders from the customer due to be fulfilled and the amount due from the orders. For the order to be recorded for the delivery date requested, the valid product ids and quantities will need to be entered after the event. If the delivery date requested also needs to be checked for feasibility, the database must have information on the 1) Stocks available for the products ordered; 2) List of all orders scheduled between now and the requested date for the products; 3) Balance capacity available for fulfilling this order. At order acceptance stage, there is no direct change in wealth because of the order. There are some indirect expenses incurred, which may be considered to have reduced the wealth No obligations would be recorded in the Accounting books at this stage. However, the Company accepts the obligation to supply the products by the delivery date; and the customer accepts the obligation to receive and pay for the goods as per the order’s terms. Event b: When the system schedules the production of goods the information needed from the database are 1) Free stocks available for each product ordered; 2) Bill of materials required for the products ordered; 3) Stocks of raw materials available; 4) Production operations to be performed and the time required for each operation; 5) Machinery, Equipment and Labor required for the operations and their availability At this stage again, there is no direct change in wealth attributable to the order. No change in obligations either of the Company to the customer, or customer to the Company. Event c: For the system to schedule raw material orders from the vendors, the information needed in the database are 1) Raw material requirements for the goods, based on Bill of Materials; 2) Preferred vendors for the raw materials; 3) Vendor rates; 4) Lead time for supply of the raw materials. There are no entries made in the books of accounts, and hence no change in the wealth. Both the Company and the vendors undertake contractual obligations to receive and supply the raw materials ordered, respectively, as per the terms of the orders. Event d: For the raw materials to be received and stored, the database should have information relating to 1) The order placed with the vendors, i.e., Vendor Id, Order No, Order date, Desires Delivery date, Raw material id, quantity, price, Delivery terms, and Payment terms; 2) Goods acceptance details based on inspection of the raw materials supplied; 3) Details of the bin location where the materials are to be stored. When the material is accepted, the system should record 1) The quantities accepted and rejected (if any); 2) Any penalties to be charged in case of delays. When the raw material are received and accepted, the Company accepts liability for the payment, and hence the obligation to pay the vendor as per the order terms. When the payments for the raw materials are made to the vendors, wealth decreases. Event e: When the goods are produced and reserved for shipment to the customer, the information that will be recorded after this event include 1) Product Id; 2) Quantity produced; 3) Job Order Id, Work Centre, Time taken; 4) Customer Id; 5) Order Id; 6) Delivery Date; 7) Packing list and shipment labels The wealth of the Company goes up at this stage since the products are recorded as available in Finished Good inventory (as an asset). No change in obligations is involved either for the Company or for any outsiders. Event f: When the system schedules delivery and the goods are loaded in a truck together with the Invoice being printed and included with the shipment, the information that should be available in the database includes all details recorded in Event e. After this event, the information that gets recorded include 1) Invoice No, Date, Order Reference; 2) Customer Id (Name, Billing address, consignment address are picked up from Master for printing); 2) Product Id, Quantity, Rate (as per order), Value; Taxes; 3) Truck No; 4) Payment terms (picked up from order and printed). Once the Invoice is printed, this is considered as a Sale by the system. Hence the Accounts Receivable asset goes up. Once the goods are received and accepted by the customer, the Customer’s liability to the Company is recorded in the customer’s books. Event g: Shipping notifying Accounting of the shipment details is only a physical process. In the ERP system, all necessary information is recorded with Event f itself. Event h: A month later, when the customer sends his payment, the details recorded include 1) Customer Id; 2) Amount; 3) Mode of payment details (check no etc); 4) Invoice No (and Credit Note No, if any for returns). In the company’s books, the Bank balance goes up, and the AR balance is reduced. In the Customer’s books, the bank balance goes down, and the liability is reduced. Answers to Question 2 The Accountant will not be in a position to produce the correct Sales Report for September 29 (as per Figure 5-18) from the existing system mainly because of: Procedural shortcomings Time lags between the events and their being recorded in the system, and Errors inherent in the system – transcription errors as well as data entry errors The practices that lead to the difficulty in producing a correct Sales Report are as follows: 1) The Sales Order system, Warehouse system and Accounting system are not integrated, and data is transferred between them in batch mode resulting in time lag 2) The existing system produces a transaction file from the Sales Order system and warehouse system, which is used by Accounting to prepare invoices. These invoices will be the basis for the various rows and columns in the Sales Report. This data file is copied to a disk and entered into a PC-based accounting system only on Mondays, Wednesdays and Fridays. Since 29 Sept 2008 is a Monday, getting the correct figures by the next morning will be extremely difficult. 3) The Sales Order system itself is prone to errors while entering data relating to prices and discounts and hence may be inaccurate. These errors will creep into invoices also 4) While packing the shipments, if there are shortages, the picker may take snack bars directly from production area, or the consignment may be dispatched with less than the ordered quantity. This information is at time not passed on to the Accounting clerk, and hence a wrong Invoice may be recorded, resulting in incorrect Sales report 5) At times the Sales clerk may make changes in order details after the disk file has been sent to Accounting for processing and invoice generation. This again results in incorrect invoices and hence an inaccurate Sales Report. 6) Customers return snack bars which have exceeded their shelf life. In such cases the customer account is credited, and the Sales figures have to be reduced. Similarly damaged or defective cased returned by customers also qualify for credit. Non-availability of RMA reference and poor penmanship in the Return Notes may result in wrong customer accounts getting credited. Thus the “Customer Sold to” rows in the Sales Report may not reflect the correct figures. If FS had an ERP system implemented, all the above difficulties will be eliminated since a) The ERP system records all transactions online and in real time, thus eliminating time lags between processes b) Workflows and validation processes in an ERP system are well defined, ensuring elimination of most of the above procedural shortcomings and data entry errors c) ERP solutions provide complete integration of all sub-systems and hence there will be no need for transferring data between systems Answers to Question 3 – Steps in a typical recruiting process Recruiting Process: The typical steps involved in the recruiting process are listed below and the steps that involve interaction with potential jab candidates are highlighted in yellow: a) Design Advertisement and publish in press and website b) Receive application cover letters with CVs by post and by email till cut-off date c) Tabulate candidate details and screen based on eligibility criteria d) Send letters / emails to candidates inviting them for written test and preliminary interview e) Administer written test and conduct preliminary interview f) Evaluate written test answers and tabulate interview performance results g) Prepare short-list based on performance in test / interview h) Send letters / emails to short-listed candidates for final interview i) Conduct final interview; Negotiate terms with potential recruits j) Issue Offer letters to selected candidates The problems in the above process that might lead a candidate to develop a negative opinion of the Company are listed below: 1) The candidate’s name appearing on initial letter inviting the candidate for written test/interview may be completely incorrect (a different person’s name) or may be spelt incorrectly (I have experienced this) 2) On reaching the test/interview center, the candidate may find that his/her name does not figure in the list of candidates for that date, or may appear for a different time slot 3) The interviewers may not have a copy of the candidate’s cover letters and CV (I have experienced this) 4) Problems identical to 1, 2 and 3 may be repeated at the stage of final interview 5) The terms in the Offer letter may be different from the terms discussed during the final interview An effective information system that has well defined workflows for the entire process can eliminate problems 1 to 5 listed above, since: Often the information system will be integrated to a web-based system where the CV details recorded by the candidate online are directly incorporated into the main database. This eliminates possible spelling errors in name or incorrect combination of names and addresses as mentioned in (1) above. Since the initial tabulation, screening, scheduling of written tests/preliminary interviews and dispatch of letters to candidates would be from the common database, with built-in validations, error (2) is eliminated With an online facility for interviewers to access of CV details in the interview rooms, error (3) will get eliminated If generation of Offer letters is also automated in the system, with the facility for interviewers to enter terms during the interview itself, error (5) will also be eliminated with a well-designed system. Answers to Question 4 The article “Enterprise Resource Planning (ERP) Systems: An Empirical Analysis of Benefits” by Daniel E. O’Leary of the University of Southern California, published in the Journal of Emerging Technologies in Accounting, Vol. 1, 2004 (pp 63-72) presents an interesting analysis of the financial benefits derived from an ERP system. The article is available at: http://www-rcf.usc.edu/~oleary/Papers/Empirical%20Benefits.pdf This paper presents an empirical analysis of benefits based on a repository published by Oracle Inc, for companies from a wide cross-section of industries including Chemicals/Pharmaceuticals, Consumer Sector, Energy, Financial Services, Hardware/Software, Healthcare, Manufacturing, Media/Entertainment, Natural Resources, Public Sector/Government, and Telecommunications. The paper presented by the author is based on 25 companies form Hardware/Software and Manufacturing, and covers companies that had implemented Oracle Applications (pre-cursor to Oracle E-Business Suite). The major tangible financial benefits reported in this study include (Leary, 2004): Inventory Reduction Personnel Reduction Productivity Improvements Order Management Improvements Financial Cost Cycle Reduction What does it mean to “shorten the business cycle”? Business cycle, in the macroeconomic sense, refers to the periodic but irregular up-and-down movements in economic activity, measured by the fluctuation in GDP and other macroeconomic variables. In the context of ERP, the term Business Cycle refers to the processes that help an organization generate cash-flows. Thus Order-to-Cash, for example, is the process cycle that refers to all steps involved from prospecting to closing the order to delivery of the order and receiving the payment from the customer (Blumen, 2002). Procure-to-Pay is the process cycle that refers to the steps involved in vendor selection, placing order for supply of raw materials and components, receiving goods in the warehouse, to making payment to the suppliers. Thus, Business cycle encompasses all processes related to time-to-market and time-to-revenue, and hence “shortening the business cycle” refers to the reduction in the time taken to complete the entire set of processes, covering the manufacturing-related processes, as well as the supply chain processes. This is a direct benefit derived from successful implementation of ERP, Supply Chain Management (SCM), and Customer Relationship Management (CRM) systems, resulting in substantial reduction in the working capital requirements in any business. Works cited Blumen Daniel. (2002). The 3 Ms of Order to Cash. Knowledge Management Applications Leary Daniel. (2004). Journal of Emerging Technologies in Accounting, Vol. 1, 2004 (pp 63-72) Read More