IMPLICATIONS FOR ACCOUNTING INFORMATION SYSTEMS
The main purpose of this paper is to investigate the major implications for a company’s Accounting Information System (AIS) which may be affected by ERP when the firm decides to implement a full function of Enterprise Resource Planning (ERP) system. In detail, ERP is a combination of business management practice and technology with the company’s core business processes to enable the achievement of specific business objectives. Besides that, AIS is combination of study and practice of accounting with the design, operation, and monitoring of information systems. Besides that, this paper will cover the roles and purposes for both AIS systems and ERP systems as well as perceived the benefits and drawbacks for companies of ERP system. Specifically the paper will examine whether the implementations of full ERP system have effected or impacted the AISs. In addition, this paper will look at the problems cause by ERPs and the identification of major implications for AISs.
ROLE & PURPOSE OF ERP
First of all, ERP play an important role in provides centralized and integrated software to help coordinate and manage the ongoing activities of the function within the enterprise, which include, accounting, sales, finance, product planning, marketing, human resources, distribution and manufacturing. As Hernandez, (1997) said that, for ‘many authors, ERPs are systems which enable integration of the various functions of the enterprise, to the extent that they centralize and make accessible all the information required for the various business processes that run across these functions’. On the other hand, the purpose of ERP also implemented to manage those ‘existing and prospective business policies and plans in an efficient manner under a specific strict deadlines’ (Shelly, Cashman &Vermaat, 2007).
Besides that, every implementation of ERP is unique and is designed to match to the implementer's various business processes. In general, the implementation of ERP system can be cost hundreds millions of dollars to install it, and may take at least 4 to 6 years to implement and complete. Once the ERP system had installed to the firm, it must be customized to match the current business requirement of firm. Nevertheless, ERP system that could provide information within the organisation as analyze purpose, so that management of the organization can share information more easily. Consequently, ‘higher effectiveness and efficiency in operations and improved customer satisfaction are the ultimate benefits derived from ERP systems’ (Duff and Jain, 1998; Gupta,2000).
However, ERP system is formulated in an organisation to effectively and efficiently achieve the business objective and goals of the organisation. The workflow may takes place between departments in return to become much more automatic, and eventually, provide better service to customer due to the individual using the customer-facing applications will have access to every bit of information regarding each relevant process. Other than that, ERP systems are define as a wide organisation systems and the implementation of the system normally involves many stakeholders. Therefore, ‘ERP system requires data standardisation, integration of the system with other information systems and management of consultants and vendors’ (Soh et al., 2000). Figure 1 shows how Enterprise Resource Planning fits into the operations of an enterprise.
Figure 1. ERP encompasses all of the major activities throughout a business. (Shelly, Cashman &Vermaat, 2007, p731)
ADVANTAGES & DISADVANTAGES OF ERP
Further, there are a number of advantages or benefit of ERP system, which include complete integration of information system across department, and also helps to achieve better project of management, better customer services, improved work process, increase access to available date for decision making, quick response to changing business operation and market condition, reduce paper and so forth. In general, ‘complete integration means that the information is shared rapidly and management receives a more complete and timely view of the organization through the information’ (Shelly, Cashman &Vermaat, 2007, p731). Once implemented the ERP system brings fantastic advantages for the company, it is due to all the systems are linked or connected together, thus all the departments can share information more easily within the organization as I mention early. In addition, a survey done by Oliver, (1999) showed that ‘better and faster reporting of the state of the enterprise leads managers to better decisions’. In addition, ERP system can be useful in helping a company to find the best design process. Once a company is in the process of designing a product, the process is actually creating as important as the end result. Furthermore, ERP can also be responsible for altering how a product is manufactured. Another benefit of ERP which can help the order tracking. When a company receives orders for a product from supplier, the company is able to appropriately track the orders can allow the company to get detailed or information on their customers and marketing strategies (Al-Mudimigh et al. 2001). In consequence, ‘ERP systems are expected to enhance market value and firm performance through efficiency and effectiveness gains’ (James, Barbara and Jacqueline 2002).
Nevertheless, with all those benefits that ERP offers, there are also a number of drawbacks as well. Perhaps one of the major disadvantages to this system is the cost of implement as well as the training cost. To implement a full function of ERP can be cost hundreds millions of dollars to install, and may take several years to complete as I mention early. Even if a company has enough money to implement a fully function of ERP, but they may not be able to successfully use it if they do not have enough money to train their employees on the process of using new system. Thus, the cost drivers to training of employees are high. Another biggest problems with ERP is that it is hard to customize, it must be modified to suit their needs. Therefore, Bingi et al.,(1999) said that ‘very few companies can effectively use ERP due to this system is difficult to use’. Kumar and van Hillegersberg, (2000) research, ‘many large organisations have made significant investments of both capital and time to install and implement ERP systems, other than that, not all implementations go as well as intended’. It is due to even when a company does start changing the system, but they are limited in what they can and able to do. Besides that, Mohania and Bhide (2008) claim that the ‘information integration problem has become the biggest pain point for enterprises today’. Furthermore, there are a numbers of the integrated links need high accuracy in other to applications to work in more efficiently and effectively. According to Mohania and Bhide (2008), ‘the growth of organizations always leads to the creation of multiple isolated data sources that are disconnected from each other, leading to reduced efficiency’.
ROLE & PURPOSES OF AIS
The elementary purpose of Accounting Information System (AIS) is to ‘collect data, process it into information and report the information which are regarding events that have an economic break down upon the organisation and the communication, maintenance and processing of information to the internal and external stakeholders’. (Constantinos J. Stefanou, 2006). Factors that shape the AIS include ‘natures of the business , the size of the firm , volume of data and the informational demand that management and others place on the system’ (Kieso and Weygandt, 1998). This information is used for the evaluation of the financial position of the organisation and for decision-making purposes such as help manage the organizations more strategically and efficiently.
Furthermore, these systems can be customise to meet the requirements of a business. For instance, information technology professionals and business processes are responsible for the AIS which there can combine to work together to implement and develop such a system so that the business will automatically gets information from other sources which is already in use by the business. In addition, AIS can be set up to feature certain functions that are important to the business and eliminate functions minor to the business. Seddon, Wong and Yip (1992) claimed that ‘there has been very little research into the features that make one transaction-processing accounting system better than another. Brecht Martin, (1996) done a research on issues related to ‘accountants play roles of great significance in the economy, if without the information expertise of accountants, business will not be able to evaluate their profit of loss and cost position, business performance , or to plan future financial success’.
AIS AFFECTED BY THE IMPLEMENTATION OF A FULL ERP SYSTEM
According to Joseph F. Brazel and Li Dang, (2005) research showed that ERP systems have become ‘the system of choice for the majority of publicly traded companies and have completely changed the way accounting information is analyzed, processed, disseminated and audited’. ERP systems are cosmically information systems which has a major implication for a company’s accounting information systems. The implementation and utilization of a full function ERP systems represent ‘a radical change from the legacy systems of the past as business functions are integrally linked through workflow automation and one authoritative database’ (O’Leary 2000, Bradford and Roberts 2001, Winters 2004).
Other than that, there are 2 major qualities of decision usefulness, which are relevancy and reliability of the account information, at the same time were affected by the implementations of ERP system. As results indicate that, at least in the years immediately subsequent the implementation of ERP system which leads to a decline in the reliability of financial. Moreover, when a company wish to publish “good news” to the market through the timely dissemination of financial statement information, ERP systems appear to reduce reporting lags. Other than that, Dr Paolo and Trevor (2003) done a research showed that, ‘fully integrated may collapse traditional concept of time and new systems were created and reproduced by conventional accounting systems, tending organizations with less clear functional, destroyed boundaries and integrated central databases may reach management of information that needed’, which is caused by the implement of a full function ERP system.
Furthermore, ERP systems are also implemented to provide management with a integrated enterprise view of the company’s financial condition at all times of period (Dillon 1999). In addition, these integrated systems ‘help dispose of the barriers within the company’s functions, allow manager unprecedented access to accounting information’ (O’Leary 2000). At the same time, recent research had indicate that there may be decline in internal control efficiency and audit quality in ERP system settings (Wright and Wright 2002; Hunton et al. 2004; Brazel and Agoglia 2005).
ERP is recommended in an organization not only because the advantages outnumber the disadvantages but also by keeping in mind the ways to overcome the disadvantages. An organization has to correctly weigh the advantages and disadvantages of ERP before going for them.
Lastly, it should be pointed out that AIS are subject to certain legal requirements as far as the recording, processing and reporting of financial information is concerned. This is an important design characteristic, which is seriously considered in the process of analysis, development and implementation of AIS.
In summary, firms and their stakeholders appear to experience a trade-off between accounting information reliability and relevancy after implementing an ERP system. These mixed results complement other empirical studies that have typically shown positive operational and market effects associated with ERP system adoptions. Our findings should be of interest to financial statement preparers considering ERP adoption, changing ERP suppliers, or adopting the next version of an ERP system. Regulators overseeing the public markets and reviewing recent consolidation in the ERP system industry might be interested that ERP system adoption could result in less reliable (yet more relevant) financial statements for external users. Lastly, this study provides auditors with empirical data to support concerns that ERP system implementations can potentially increase the likelihood of financial statement management.
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