Week 10 Accounting Information Systems in an Integrated System Douglas M Schutz MIS 2101 Management Information Systems Based on material from Concepts in Enterprise Resource Planning Second Edition Ellen F Monk and Bret J Wagner M W Thomson Course Technology 2006 Also includes material by Cindy Joy Marselis Munir Mandviwalla and Mart Doyle Learning Objectives Know the difference between financial and managerial accounting Know the types of problems associated with accounting and financial reporting in un integrated systems Describe how implementing ERP systems can resolve financial and managerial accounting reporting problems in un integrated systems Describe how the Enron scandal and the SarbanesOxley Act affect accounting information systems 2 Introduction Accounting tightly integrated with other functional areas 1 Purchasing 2 Marketing and Sales 3 Supply Chain Management Accounting activities are necessary for decision making Types of Accounting What is the difference between Financial Accounting and Managerial Accounting Sales Process 1 Where does Accounting have an interest 2 Is this Financial Accounting or Managerial Accounting 3 Can you identify examples of each 5 USDA Nutrition Label Enables one to see what s inside before one buys How do investors know what s inside a company before they buy 6 Financial Accounting Statements Balance Sheet Shows account balances Picture of the overall financial health of a company Income Statement Shows sales cost of sales and overall profit for a period of time quarter year Accounting Information Before integrated systems Data gathered by each un integrated functional area No real time access for the Accounting Department Accountants and clerks had to research their own company With integrated systems ERP Materials Management records a goods receipt for the Warehouse as an increase in inventory Accounting records a goods receipts as an increase in the value of inventory The same transaction provides information for both at the same time The General Ledger GL in an Integrated System GL is the main accounting record of business What are some of the types of items recorded in a GL What kinds of problems can result from un integrated systems How often is the GL updated in an Integrated System systems SAP Module Feeds to GL 1 Sales and Distribution SD Sales to Customer 1 Accounts Receivable AR Entries 2 Materials Management MM Purchase Orders made in 2 Entries 3 Payroll Processing HR 3 Expense Entries 4 Financial Accounting FI Manages the AR and AP items created in SD and MM 4 GL accounts closed in FI at end of a fiscal period Credit Management Companies extend credit to customers to make purchases Balance between granting credit for sales yet not overextending resulting in defaults Credit is limited With each purchase available credit is reduced With each payment or return available credit is increased What are some options a company has if a new sale will put a customer over their credit limit How many other purchases this week Have we received any payments this week Sales Process Have they made any returns this week Credit report How would this look with an integrated system sent weekly 11 Problems with Accounting Data and Profitability Analysis in Un integrated Systems Flawed analysis bad decision making due to 1 Inconsistent incomplete record keeping 2 Inaccurate inventory costing systems 3 Problems consolidating data from subsidiaries What are some of the causes of these types of data problems 1 Inconsistent Record Keeping Marketing divisions keep their own sales records with different information Direct Division records sales by region e g Northeast Southeast etc Distributor Division records sales by state Consolidated reporting is challenging and time consuming Production records are paper not electronic How can errors can be introduced How would this be different with ERP 2 Inventory Costing Systems Background Accurately knowing how much it costs to make products Enables manages to identify which products are profitable and which are not Manufactured item s cost is made up of three parts Material costs Labor Overhead everything else e g electricity ABC Activity Based Costing overhead activities are identified and then records are kept on the costs and activities 2 Inventory Costing Systems Question How difficult would it be to answer this question with an integrated system 2 Inaccurate Inventory Costing Systems With un integrated systems unable to accurately determine How much does it cost to make an individual product and where to get all of this information Which products are profitable and which are not since unable to determine costs Effects on costs when production is interrupted Using an ERP system will enable the automatic gathering of accounting data and make ABC feasible 17 3 Complications for Companies with Subsidiaries In order to produce financial reports for a company with subsidiaries need to 1 Convert currencies to that of the parent company for subsidiaries in different countries exchange rate varies constantly 2 Eliminate transactions between the parent company and the subsidiaries e g selling products between each other 3 Complications for Companies with Subsidiaries ERP System Can be Configured to 1 Automatically convert foreign currency exchange rates daily 2 Automatically eliminate profits for transactions between a parent company and its subsidiaries Case Study Microsoft Microsoft consolidates financial information from 130 subsidiaries Pre SAP each subsidiary had separate accounting Each used different systems with different field sizes types of characters account structures Transmitted the files to another system where manipulation of the data was required Consolidation took over a week With SAP Microsoft can look directly at financial activity at any subsidiary around the world Case Study Cisco and One Day Close Streamlining Accounting Companies periodically summarize the balances in the books of their accounts at the end of financial periods This is called closing the Difficult time consuming and inaccurate due to unintegrated systems Need to track down numbers from various different systems Inconsistencies between systems Greater risk for inaccuracies in financial statements Can take weeks months Case Study Cisco and One Day Close Streamlining Accounting Switching from un integrated systems to Oracle ERP Companies have benefitted from the efficiencies of streamlining their supply chains through ERP