Impact of Enterprise Resource Planning On Accounting Process

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Based on past researches Enterprise resource planning (ERP) systems defined as an integrate business processes and information technologies into a synchronized suite of procedures, applications and metrics. ERPs are expected to enhance all of the corporate performance due to redesigned or rebuild business processes, integrated business functions, accelerated reporting cycles and expanded information capabilities (O'Leary 2000).

On other hand Enterprise Resource Planning (ERP) system is business or financial management software, which used to manage and integrate business functions in the organization. Therefore it's consists of, finance, Human Resource, sales, material management, control and production planning. An example for those who provides these solutions is SAP in Germany and Oracle. But many organizations now are restricted their operation to companies who have the same ERP.

Many organizational effects of ERP systems have been widely addressed in the popular literature. However, there is a littlie of empirical research examining the impact of ERP system on firm performance. Recently, calls for empirical researches into the effects of ERP system on firm value have viewed in the literature (Lee, 2000).

In the past, an increasing number of firms that's impacted by information technology as a form of computerized transaction processing and electronic telecommunications. For competitive reasons, companies have to change the line and then computerized system that's called enterprise resource planning systems (ERPs).

An ERP system has a combined database that integrated together by links all systems in all departments of the company as a whole consist for example capital budgeting together with financial accounting, etc. ERP systems, by linking all sub-systems through a data warehouse, enable a company to manage its operations overall.

Why firms motivated to change toward ERPs

We can say that the traditional accounting are changed since the information technology become the main driven in the word, This is evident through a transition in accounting function from record, keeping and external reporting to that provides timely and relevant information in term to achieving strategic goals. These developments have prompted the accountancy bodies, academic and professional to call for a change in the curriculum and technical education in the field of accounting. According to the IMA (1999, 3), students should view accountants as business partners rather than simply "scorekeepers," and encourages "accounting educators to develop changes in the accounting curriculum" that reflect the two most critical work activities for management accountants today: strategic planning and process improvement, "neither of which is generally taught in the accounting curricula" (IMA 1999, 6-7). Similarly, the AICPA's Core Competency Framework expects accounting professionals in the 21st century to possess a "broad business perspective" in addition to technical competencies, and to function as valued business advisors (AICPA, 2000, 1).

Association between accountant and ERPs

Past literature found evidence that traditional role of accounting in the organization are decreased .the transferable from accountant to non-accountant such as IS or IT people become easily through implement ERPs, and actually the monopoly of accounting knowledge is break down since information system sharing and contributing information through the organization as a whole. In this sense, the traditional view of accounting as the core of an organization's information system is being challenged and the boundaries of accounting questioned. The fact that the role of accountants to provide information are also seen to decline by the recent downsizings, both in absolute and percentage terms, of accounting departments of several companies that have implemented ERP system.

On the other hand, many evidences indicate that by using these new information technologies systems the accountant and also professional have a clear developed for themselves. Actually the routines of accounting job are changed while ERPs perform many tasks that were caused the bad feeling ,therefore and as a consequence many firms focus and looking for accountant who can use their time and experience in information technology initiatives, business management, and strategic decision-making.

In general, from the wide verity of ERPs we can assert that accounting job has witnessing the phenomenon of hybridization between IS people and accountant, whose direction is double sided.

The conclusion, by ERPs many of accounting practice are moved to be more effective and efficient and changing the accounting concept for the narrow view to the large view, further enable accountant to get more knowledge in IT area by involving them in designing these software's to best understanding all of accounting process as will as organization operations.

ERP System and Accounting Processes

The increasing changes in the organization process and business process and the needed for solutions to keep these changes are also increasing, because without this adaptation firms will fail in survive and succeed in the environment as a whole (Nicolaou, 1999), one of these solutions offers by IT that's become a necessary tool to efficiently and effective response to these changes.

Enterprise Resource Planning as a part of information technologies is an example which aims to share common data across the organization and automate business process put the most important is to provide or produce real time data, as will as enhance decision making process, planning and controlling of operations are more distinct advantages to companies adopting these solutions (Duff and Jain, 1998; Gupta, 2000).

ERP System Implementations

ERP implementation is very different from any implementation of traditional information system for several reasons:

The integrated nature of ERP applications causes dramatic changes on work flow, organizational structure and on the way people do their jobs.

ERP systems are not built but adopted; this involves a mix of business process reengineering and package customization.

Implementation of ERP system is not just a technical process but it is a social and technical challenge as it poses a new set of administrative procedures.

While the firms planning to implement an ERP system, this decision represents a great deal of investment from the company's resources. ERP systems, sold by vendors such as SAP and Oracle Corporation, typically cost $15 million and implementations take, on average, 21 months to complete (O'Leary 2000). The implementation costs rise to upwards of $100 million for large international corporations (Davenport 1998). In addition, substantial annual costs are incurred to maintain and periodically update the system.

Over the past decade, corporations have experienced both successful and unsuccessful ERP implementations and the benefits, complexities, and risks of ERP systems have been documented in the popular press (e.g., Bartholomew 1997). Recently, the majority of ERP systems press coverage has been devoted to Oracle's acquisition of rival PeopleSoft Inc. and its battle with industry leader SAP AG for market share (e.g., Bank and Clark 2004; Bank and Boslet 2005).

The Benefits of Enterprise Resource Systems in general

Replacing complex interfaces between different systems with standardized cross-functional transaction automation, ERP systems use a source of data that integrates enterprise functions such as sales and distribution, materials management, production planning, financial accounting, cost control and human resource management. An ERP system is expected to reduce order cycle times, which in return might lead to improved throughput, customer response times and delivery speeds. Due to automated financial transactions, cash-to-cash cycle times and the time needed to reconcile financial data at the end of a quarter or year can be minimized. The ERP system collects all enterprise data once during the initial transaction, stores the data centrally and performs updates in real time. The standardized firm-wide transactions and centrally stored enterprise data will also greatly facilitate the governance of the firm

As well as the potential advantages of ERP systems (e.g., assisting business process reengineering, reducing complications with Sarbanes-Oxley Act compliance) have made them the system of choice among many corporations (O'Leary 2000; Bradford and Roberts 2001; Winters 2004). By 1999, 70% of Fortune 1000 firms had either adopted or were in the process of implementing ERP systems (Cerullo and Cerullo 2000). Prior accounting research confirms these positive expectations as ERP adoption announcements have engendered positive market responses and ERP implementations have led to improved operational performance (e.g., Hayes et al. 2001; Hunton et al. 2003).

ERP system and Accounting Information

ERP systems are expected to collect and disseminate timely information to managers and thus improve their ability to process and analyze accounting information (Davenport 1998; Hitt et al. 2002). ERP systems are also implemented to provide management with a unified enterprise view of the firm's financial condition at all times (Dillon 1999). In addition, these integrated systems eliminate barriers between firm functions, allowing managers unprecedented access to accounting information (O'Leary 2000).

The combination of increased manager access to/discretion over accounting information and an inadequate system of checks and balances could lead to enhanced opportunities to manage financial statements in ways that meet managers' objectives (e.g., beat earnings expectations), but do not reflect the true financial condition of the firm. Thus, the representational faithfulness and, in turn, the reliability of accounting information may be impaired following ERP system implementations.

The standardized, automated, and integrated ERP system environment is also expected to efficiently process transactions and reduce the length of the financial reporting cycle, thus allowing firms to quickly disseminate accounting information to external users (e.g., O'Leary 2000; Hitt et al. 2002; Jacobs and Bendoly 2003).

Some anecdotal evidence suggests that ERP system adoption can positively affect the timeliness or relevancy of financial accounting information thru decreasing the financial close cycle (e.g., Brown 1997; Jensen and Johnson1999; Wah 2000).

Reliability of Accounting Information

Reliability is an essential characteristic for accounting information to be useful for decision making. Reliability represents the extent to which the information is unbiased, free from error and representational faithful (FASB 1980). Despite the central role of reliability, it is a complex and elusive construct of accounting information. Reliability is difficult to specify precisely in accounting standards and practice, and it is difficult to examine directly with research. Greater understanding of the empirical literature on accounting information reliability should assist standard setters and regulators in establishing financial reporting standards, preparers and auditors in implementing standards, and financial statement users in evaluating accounting information reliability (

An empirical question that remains is whether the improved accounting information provided by ERP systems allows managers greater discretion in reporting financial information to external users. Financial statements can be viewed as a joint effort of both management and the auditor (Antle and Nalebuff 1991). If ERP system implementations allow managers greater access and control over financial accounting data (Dillon 1999), the opportunity for middle management to manage financial statements to meet top level management's objectives (e.g., beating analysts' forecasts of earnings) is increased. Increased opportunities leading to financial statement management is consistent with the literature studying the fraud triangle and AS no. 99 (e.g., AICPA 2002; Wilks and Zimbelman 2004). In addition, the inherent information time lags present in legacy systems often required management to manage external accounting information through more transparent year-end adjustments. In contrast, the constant stream of accounting information and enterprise-wide view provided by ERP systems may provide management with the opportunity to manage financial accounting information intermittently throughout the year.

Relevancy of Accounting Information

The other chief benefit of ERP system implementations cited by Poston and Grabski (2001) is improved efficiencies through computerization. From the perspective of financial accounting information; this indicates a reduction in the financial reporting cycle for ERP system adopters. A reduction in the length of the reporting cycle should allow adopters to provide financial statements to external users in a more timely fashion and, in turn, increase their relevancy. Prior research has provided empirical evidence to suggest that other potential ERP system benefits (e.g., reduced costs) are realized by firms adopting the system (e.g., Hitt et al. 2002).and some Studies examining the timeliness of earnings indicate that firms publish financial reports earlier when they have "good news."

The ramifications of these studies are that firms appear to strategically determine the timeliness of their financial accounting information and those firms providing "good news" to external users has incentives to shorten the time lag between their fiscal year end and reporting date.

Research Purposes

The purpose of this research is to provide evidence via a questionnaire on the impact of ERP systems for companies adopting them with particular emphasis on there accounting processes as part of business processes and whether ERP system has impact on the usefulness of accounting information.

Research Objectives

This research aims to provide answer's to the following questions:

What is the impact of ERP systems on accounting processes?

What changes has the adoption of ERP systems brought in the accounting practice?

How has the application of ERP systems influenced accounting processes?

Why companies implementing an ERP system?

Is there any relationship between implemented ERP system and Accounting information? And what is this relation?

Research Problem

The study problem can be identified by studying the impact of ERP system when implemented or expected to implement on the accounting processes and the usefulness of accounting information as a method to improve the performance.

Research Hypothesis

Information system capable of generating enormous benefits for organizations

To test this hypothesis I will try collect information about the effectiveness and efficiency, strategic decision making and business processes

ERP system become a necessary tool for companies to remain competitive

This hypothesis will be test by answer this question.

How can ERP systems be managed to become source of sustainable competitive advantage?

ERP system implementations decrease (increase) the reliability (relevancy) of accounting information.

Importance of the research

The importance of this research comes from its objectives of studying the effect of ERP system as a method to minimize to cost comparing with its benefits and to get a competitive advantages by using this system.

On other hand, study the relationship between information system and the accounting will give us a clear view for the effect of IS on accounting practices.

Research methodology

The preliminary research interviews with managers, accountants and as well as with some final ERP users in companies adopting ERP systems is expected to conducted .and a questioner survey will be introduced as the instrument for data collection.

Research Sample

This study will implemented at firms that use the ERP systems with consider the banking sector as a part of these firms. As will as take advantages of academic teachers on the universities.

Research Limitations

The main limitation of this study is the sample itself, in which lead to lack in generalizability of the results .and The higher cost associated with implementation the ERP system will decreased the companies that use these systems.

Literature review

C Spathis, S Constantinides on there studies examines via an exploratory survey of 26 companies, the underlying reasons why companies choose to convert from conventional information systems (IS) to ERP systems and found that (ERP) systems offer many advantages in this new business environment as they reduce cycle times, lower operating and increase customer satisfaction.

Ariela Caglio examines how the adoption of a new Enterprise Resource Planning (ERP) system challenges the definition of the expertise and roles of accountants within organizations. he propose to conceptualize the potential change in accountants' expertise as a structuration process and ERP systems as modalities of structuration providing new interpretive schemes, norms and co-ordination and control facilities.

Joseph F. Brazel and Li Dang examine whether ERP system implementations have impacted the decision usefulness of accounting information. They found that ERP adoptions lead to a trade-off between increased information relevancy and decreased information reliability for external users of financial statements. After implementing the system, firms concurrently experience both a decrease in reporting lag and an increase in the level of discretionary accruals.

Scorta Iuliana when studying the Critical Success actors in Romanian SME 's ERP implementation said " Because there is evidence that the overwhelming majority of ERP implementations exceed their budget and their time allocations, researchers have begun to analyze ERP implementation in case studies in order to provide an implementation framework that maximizes efficiencies and knowledge on how to manage high-risk projects like ERP implementations".

Gary Spraakman Found from the respondents that ERP systems are allowing capital budgeting, budgeting, operating statements, forecasting, performance measurement, and costing to be more detailed, more accurate, and quickly reported. And said "it is inferred that the adoption of ERP systems is at an early stage and that there are other unidentified factors contributing to management accounting changes".

Cook et al.'s study suggests that ERP systems can increase the effectiveness of capital budgeting by anchoring financial numbers to activities rather than stopping at monetary measures with pre-ERP practices. There arguments were convincing, but they could not be verified.

James E. Hunton and others investigates the extent to which investors believe that enterprise resource planning (ERP) systems enhance firm value by examining changes in financial analysts' earnings predictions before and after they receive an announcement that a firm plans to implement an ERP system. And the results of there current study indicate that a key group of information consumers, financial analysts, reacted positively to the announcement of ERP implementation plans.

Hayes, D. C., and others founds that the market reacted favorably to ERP announcements, as cumulative abnormal returns surrounding the announcement date were significantly positive. Additionally, they hypothesized that market reactions to small healthy and large unhealthy firms would be more positive than the reaction to small unhealthy firms.