General description of an accounting information system


This is a system which is used to record the all business transactions and after processing them provides information to business stakeholders no matter if they are internal or external. During the time many small businesses grow to middle-sized companies, expanded nationally and even become larger and start to trade internationally. As a result of this development, many of these companies decided to use Enterprise Resource Planning (ERP) software to integrate their many business activities such are production planning, sales and distribution, asset and material management, and other processes related to human resources, production, sales and so on.

There are many companies that have successfully resolved many of their problems by using ERP software, but there are also few whose implementation of the ERP has failed. After bankruptcy of several high profile companies such as World-Com and Global Crossing and as biggest, Enron collapse, in the US, as a result, the Sarbanes-Oxley Act was passed. This Act had big implications on disclosure on reports, top management accountability, auditor independence etc. The Act also had huge implications to ERP software developers and providers.


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Overview of each question

In This article we will, in the first place, talk about classification in accounting, give some reasons why accounting is classified, explain what activities are undertaken and in a relation to SAP, What features does MySAP ERP have to meet these requirements and discuss these and other features covered by this mini research project.

Secondly, we will talk about Sarbanes-Oxley Act, give some explanations and the reason for the Act and mention some of the implications of the Act, and also describe how MySAP ERP meets these implications.

Thirdly we will mention some Success and Failure examples of SAP ERP implementations in well known companies.

Classification of Accounting 10

In general, there are two points of view to Accounting. The first point is Managerial Accounting focused on "Numbers and Figures" for Internal Decision Making and Control and the second point of view is Financial Accounting which is focused on "Numbers and Figures" for Stakeholders which are potential future Investors, Lenders, Bankers, Accounting Standards Regulation Boards, and some other External Users.

"Managerial Accounting is a process of preparing management accounts that provide accurate and timely key financial and statistical information required by managers to make day-to-day and short-term decisions. Management Accounting generates monthly or weekly reports for the firm's internal audiences such as department managers and the chief executive officer. These reports typically show the amount of available cash, sales revenue generated, amount of orders in hand, state of accounts payable and accounts receivable, outstanding debts, raw material and in-process inventory, and may also include trend charts, variance analysis, and other statistics". [1] 

Financial accounting produces annual reports mainly for external stakeholders such as creditors, investors, and lenders. While Managerial Accounting reports are prepared in accordance of internal needs and are not regulated in any sense, Financial Accounting is a collection of basic (raw) data, the same that are used in management accounting, "treated in a prescribed and statute enforced format which emphasises the historic, custodial and stewardship aspects of the business" [2] .

MySAP ERP is organised in software modules. Each of the modules covers different areas of business. The first module is FI (Financial Accounting) module that is mostly used to satisfy all the reporting requirements. This module integrates with other SAP software modules. Those modules are part of Logistics and HR mostly useful for managerial accounting - MM module for Materials Management, PP module for Production Planning, SD module for Sales and Distribution, PM module for Plant Maintenance, PS - Project Systems as well as HR module for Human Resources.

SAP ABAP is not really a module - it stands for Advanced Business Application Programming and this is the structured programming language for custom development including reports.

SAP features 15

SAP FI Module

SAP FI - which stands for Financial Accounting - is the SAP Module where regulatory or statutory data is tracked and managed. The SAP FI Module has the capability of meeting all the accounting and financial needs of an organization. It is within this SAP FI Module that Financial Managers as well as other Managers within your business can review the financial position of the company in real time as compared to legacy systems which often times require overnight updates before financial statements can be generated and run for management review.

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SAP FI Module - where FI means Financial Accounting - essentially this SAP module delivers your regulatory 'books of record', including General ledger, Book close, Tax, Accounts receivable, Accounts payable, Asset Management, Consolidation, Special ledgers

SAP SD stands for Sales and Distribution and this is the module which is used to manage customer-focused activities, from selling to delivery, including, Request for quotation, Sales orders, Pricing, Picking (and other warehouse processes), Packing, Shipping

SAP CO - which stands for Controlling - is the SAP Module which allows you to perform your management accounting. The SAP CO (Controlling) Module provides supporting information to Management for the purpose of planning, reporting, as well as monitoring the operations of their business. Management decision-making can be achieved with the level of information provided by this module. Some of the components of the CO(Controlling) Module are Cost Element Accounting, Cost Centre Accounting, Internal Orders, Activity-Based Costing ( ABC), Product Cost Controlling, Profitability Analysis, Profit Center Accounting.

SAP HR stands for Human Resources and this is the module which helps you optimize your HR processes to attract, develop and attain the right people including Employment history, Payroll, Training, Career management, Succession planning.

SAP MM stands for Materials Management and this is part of SAP Logistics which helps you manage end-to-end procurement and logistics business processes, from requisitioning to payment, including, Requisitions, Purchase orders, Goods receipts, Accounts payable, Inventory management, BOM's, Master raw materials, finished goods etc.

Sarbanes-Oxley Act 15

o Explain the reason for the Act and briefly implications

o How does MySAP ERP meet these implications

After bankruptcy of several high profile companies such as World-Com and Global Crossing and as biggest, Enron collapse with its famous special purpose entities, in the US, as a result, the Sarbanes-Oxley Act was passed. The Sarbanes-Oxley Act was created to protect investors from corporate accounting fraud. Named after its sponsors, Sarbanes and Oxley, it is variously referred to as "SOX" and "Sarbox," but its official name is the Public Company Accounting Reform and Investor Protection Act of 2002. It is considered by many to be the biggest overhaul of U.S. securities regulations since the New Deal.

Here are the major provisions of the act:

Chief executives and financial officers are held responsible for their companies' financial reports.

Executive officers and directors may not solicit or accept loans from their companies.

Insider trades are reported more quickly.

Insider trades are prohibited during pension-fund blackout periods.

Disclosure of executive compensation and profits is mandatory.

Internal audits and review and certification of audits by outside auditors are mandatory.

There will be criminal and civil penalties for securities violations.

There will be longer jail sentences and larger fines for executives who intentionally misstate financial statements.

Audit firms may no longer provide actuarial, legal, or consulting services to firms they audit.

Publicly traded companies must establish internal financial controls and have those controls audited annually.

The following sections of Sarbanes-Oxley contain the three rules that affect the management of electronic records. The first rule deals with destruction, alteration, or falsification of records.

Sec. 802(a) "Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both."

The second rule defines the retention period for records storage. Best practices indicate that corporations securely store all business records using the same guidelines set for public accountants.

Sec. 802(a)(1) "Any accountant who conducts an audit of an issuer of securities to which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C 78j-1(a)) applies, shall maintain all audit or review workpapers for a period of 5 years from the end of the fiscal period in which the audit or review was concluded."

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This third rule refers to the type of business records that need to be stored, including all business records and communications, including electronic communications.

Sec. 802(a)(2) "The Securities and Exchange Commission shall promulgate, within 180 days, such rules and regulations, as are reasonably necessary, relating to the retention of relevant records such as workpapers, documents that form the basis of an audit or review, memoranda, correspondence, communications, other documents, and records (including electronic records) which are created, sent, or received in connection with an audit or review and contain conclusions, opinions, analyses, or financial data relating to such an audit or review."

Success and Failure of SAP ERP implementations 20

Conclusion 5