Accounting Systems Design and Development - Essay Example

Accounting Systems Design and Development Contents Introduction 3 2.Overview of SAP 3 3.Challenges and benefits 5 4. Recommendation 7 5.Conclusion 9 References 10 1. Introduction Technology is a key driver of success in the modern business environment. Most companies operating in today’s business world depend extensively on software and computers in order to store, generate as well as retrieve information which helps them to take key decisions and to effectively manage their business activities. It has become obligatory for all enterprises to incorporate different information technology software and solutions to ensure successful operations. A common way in which many enterprises have taken up information technology concepts on a large scale is through the installation of Enterprise Resource Planning (ERP) systems. SAP is a leading ERP system that is very commonly used in businesses across the globe. This report is prepared with the aim of understanding the various dimensions and impacts of SAP implementation in organizations from the accounting and management perspective. The report contains an overview of SAP and its functions, an evaluation of the accounting challenges and benefits of SAP and suitable recommendations as to how the companies implementing SAP can overcome these accounting challenges and extract maximum benefits from the SAP implementation. The report is concluded by summarizing and synthesizing the whole write up and the main findings. 2. Overview of SAP Enterprise Resource Planning (ERP) systems are software solutions which use different database integration technologies to integrate data from all the different business units and functionalities of an enterprise. SAP is a type of ERP system. SAP is the abbreviation of Systems, Application and Products in data processing. The name of the software is SAP and the company providing this software is SAP AG which is a German company. SAP AG is one of the largest software manufacturing companies in the globe. The SAP systems are business software solutions that are designed to interrelate and interconnect all areas included in a business. The goal of SAP is to provide end to end solution for different functionalities and units of a business including manufacturing, financials, distribution, logistics, inventory, sales and marketing and human resources. A SAP system requires the integration of all business processes and the sharing of information among all units and all levels of the enterprise. Many updated SAP systems have been launched over time. The latest SAP system used by the international companies is the SAP R/3 system which consists of a number of modules as well as a plethora of information technology functions which support the specific requirements of the organizations operating at various scales and in different industries. The latest SAP systems have integrated customization tools and business processes. The SAP systems ensure data consistency and help in satisfying the evolving requirements of the customer groups. SAP FICO is a module of SAP which is aimed at maintaining data regarding the financial domain of a business. JD Edwards Enterprise One is popular ERP system software. It is the biggest competitor of SAP. JD Edwards Enterprise One is manufactured and marketed by Oracle. It is a complete business management solution which can be used to integrate different domains of a business including customer relationship management, project management, procurement, order management, supply chain logistics, human resource management, financial management, inventory management etc. JD Edwards Enterprise One is evaluated to be of more usability when compared with SAP on the basis of comparative factors like flexibility, cost predictability, complexity and functionality. The ease of implementation and cost of usage is lower in case of JD Edwards Enterprise One. Also, SAP is significantly more expensive as compared to Enterprise One. The Enterprise One package is found to have more time to value predictability as compared to SAP. SAP does not provide a complete picture of cost in a company which makes it difficult for the managers to suitably evaluate the proposals of budgeting and planning processes. However, the Enterprise One software provides with a holistic view of the cost structures and requirements in a company. The use of JD Edwards Enterprise One also helps in reducing the disruption levels and risk levels in a business. The accounting challenges like impact on the accounting profession and several audit issues are also lower in a company which uses Enterprise One. 3. Challenges and benefits There may be several accounting benefits and challenges related to SAP implementation in an organization. Various authors have published their writings regarding the various aspects of SAP implementation in journals, articles and other literary works. According to Mabert, Soni and Venkataramanan (2001), one of the main challenges associated with the implementation of SAP in an enterprise is the impact that it has one the accounting profession and accounting culture prevailing in the company (Mabert, Soni and Venkataramanan, 2001). The use of an accounting management system that provides end to end solutions may lead to over dependence of the accounting professionals on the software system. This may lead to several risks in accounting management and control because the integration of data makes the need of reconciliation and adjustment of accounting entries redundant. Also, switching to a real time reporting system like the SAP is a major shift from the general financial reporting processes followed by the companies. Traditionally, companies prepare and publish financial statements on a periodic basis. However, in case of the use of accounting management systems like SAP FICO, the accounting professionals have to enter and maintain real time data in the computers. Many times the accounting professionals are resistant to adapt to this change which significantly affect their performances in the company. This in turn also affects the validity and verifiability of the accounting information within an organization. Also, the use of SAP creates an integration of data in all business units which makes traditional control activities in each business unit redundant. Bae and Ashcroft (2004) argue that this may increase the risk of misrepresentation of information because overall monitoring of data is not common in the accounting management systems (Bae and Ashcroft, 2004). Additionally, the use of SAP may lead to several audit issues. The use of SAP makes physical documentation and records absent. Therefore, the auditors have to rely excessively on the data in the systems which may lead to inefficiencies in the audit processes. As per Grabski, Leech and Lu (2007), once the IT program is integrated into the system there are enormous benefits that can be explored by the management. Firstly would be eliminating probable routine jobs. Before the program has been installed into system the work was done by management accountant but later it can be quickly conducted by the SAP system. The reason behind this process is capability of advanced technology to detect mistakes and rectify them and not only because of the factor that it can gather large volumes of data at a fast pace. Like for instance when a firm faces problem regarding invoices it can utilize this system where data can be given as input which would then be compared by SAP with all past records. If there is no such match detected then automatically the following step would be stopped. It ensures that central database is easily accessible by users and removes any scope for redundancy errors. Hence it can be stated that usage of SAP helps to reduce accounting function’s size. The other benefit is that SAP program alters a specific role of a manager. In general context managers possessed the responsibility of budget monitoring, generating forecasts and explaining variances. These managers always need to work in collaboration with accountants to produce correct financial reports. However SAP changed the entire scenario whereby data can be easily accessible by managers through this framework. They do not have to remain dependent on accountants and can access required data to make appropriate decision. SAP framework helps to break barrier between accounting and management. On the other hand it even requires sufficient knowledge to be possessed by line managers in order to execute their tasks. SAP is even beneficial as it enables forward looking information. It even facilitates the approach of forecasting by storing large volumes of comparative data. There are different classes in a firm and managers belonging to a specific class have specific rights to access information available in system (Grabski, Leech and Lu, 2007). Through this framework senior managers can easily monitor any data changes taking place and formulate decisions or strategies quickly without waiting for months or days for financial reports to be analyzed. The use of SAP ensures a wider role for management accounting within an organization. The role of the management accountants have evolved significantly in the modern businesses. Earlier the management accountants were responsible only for maintaining data and providing information to the managers to assists them in the decision making processes. In the present situation, the management accountants are significant entities in the decision making processes. Therefore, they need to have expansive knowledge in their areas of operation. As per the work of Lodh and Gafikkin (2010), SAP helps these professionals to remain informed of all the details related to management accounting which improves their performances (Lodh and Gafikkin, 2010). 4. Recommendation SAP framework is an essential component in every organization in relation to present competitive business environment. This is simply because of the factor that it makes data accessible to every organizational member which enhances overall decision making process. However there are certain challenges associated with adoption of SAP framework and amongst them the major risk would remain exploitation and duplicity of financial data. Data can be accessed by all having the right so a slight alteration of data by one can cause adverse effects on strategy formulation or taking effective decision. In order to avoid such risks it is highly recommended that a proper infrastructure for SAP needs to be constructed in the beginning so that data security can be maintained. To some extent financial auditing based on SAP program indicates that an auditor would analyze only those data which is available on the system. Thus in such case it becomes essential to maintain reliability of the system. In order to incorporate this factor in the system rights and responsibilities to alter data should be assigned only to the top management. This would help in establishing total control over the system where only few members would possess the right to make certain changes in financial data but others can view data and utilize it as and when required. Secondly for SAP adoption it is important that proper budgeting is done as per the various requirements of a system. Budget is essential as installation of SAP program is expensive so setting out budget for particular module installation would help in implementing the best elements in the framework. On the other hand budget should even be allocated for support or maintenance as it is not cheap and is recommended to form an agreement with firms who provides support on year basis so that smooth flowing of operations is not affected. A SAP program can only be effective in an organization when its end users are able to operate on each of its functionalities. This could be achieved by imparting proper training to all the users as per their job responsibilities. Training module would even make users understand the ethical dimension which they need to follow while operating in the SAP framework. When a company plans to adopt SAP the first recommended step that they should take is to analyze organizations that have incorporated such a structure and their probable return on investments. 5. Conclusion Thus, it can be identified that SAP is one of the most popularly used accounting management systems which has found widespread adoption in medium to large scale enterprises. The rising importance of business management systems has made the use of SAP more evident in most companies. There may be an array of benefits of taking up an accounting management system like SAP. Also, there are a number of challenges associated with the use of SAP in an organization. The evaluation of the challenges and benefits clearly indicate that the benefits of the system outweigh the challenges and risks. So, when the enterprises start using SAP systems they should ensure that the organization is prepared for the use of the software so that the associated challenges can be overcame and the maximum possible benefits can be gained from the system. References Bae, B. B. & Ashcroft, P., 2004. Implementation of ERP Systems: Accounting and Auditing Implications. Information Systems Control Journal, 5(1), pp.1-4. Grabski, S.V., Leech, S.A., and Lu, B., 2007. Risks and controls in the implementation of ERP Systems. The International Journal of Digital Accounting Research, 1 (1), 47-68. Lodh, S. C. & Gafikkin, M. J., 2010. Implementation of an integrated accounting and cost management system using the SAP system: a field study. European Accounting Review, 12(1), pp.344-346. Mabert, V. A., Soni, A., Venkataramanan, M. A., 2001. Enterprise Resource Planning: Common Myths versus Evolving Reality. Business Horizons, 44(3), pp. 69-76. Read More