Research and Development Methodology

Research and Development Methodology Literature Review On The impact of ERP Implementation on Management Accounting Reports Sami Abuzineh s042740 17/01/2005 HANKEN- Swedish School of Economics and Business Administration 1

Table of Contents: 1.0 Introduction 1.1 Background 1.2 The Project Objective 1.3 Structure of Project 2.0 Management Accounting Systems: 2.1 An Introduction 2.2 ERP System Implementation. 2.3 Management Accounting Dimensions. 2.2.1 The main role for management accounting in the organization. 2.2.2 Attributes of a good management-accounting system 2.3 The impact of ERP implantation on management accounting system. 3.0 ERP Implementation and Management Accounting Reports 3.1 An introduction 3.2 Basic Criteria of management accounting Reports 3.3 Oobjective of management accounting reports 3.4 How are reports addressed by ERP system? 3.5 The limitations of a management accounting reports into ERP system 4.0 Conclusions 5.0 References 2

1.0 Introduction: 1.1 Background: A swift shift from individual modules to more integrated systems on one hand provided lot of opportunities and cost savings and on the other hand created few challenges and complications for the management at different levels in an organization. In my subject literature review I would discuss some challenges and problems created by integrated systems like ERP. The implementation of ERP is frequently shown to demand business process developments, this may lead to process management accounting, The ERP system implementation has directed more attention to the processes of management accounting, elimination or increasing the automation of internal transactions, analysis of information needs and redesign of reports, and the design and implementation of new system interfaces, [Markus and Teemu 2002] the ERP system is created to offer a good and new prospective for business practices and will be aid the processes into organizations. In general terms, the ERP-implementation enhance of accountants demonstrate the need for a good understanding of the business, management and accounting processes, and communication and team working skills, especially because implementation necessitates a lot of cross-functional co-operation. [Markus and Teemu 2002] so that I think the organization still talk too much about new system instead of the potential for doing financial analyses in new ways. 1.2 The Project Objectives: The aim of this paper is to demonstrate the impact of ERP implementation as a new system on management accounting practices, precisely the implications of changes on reporting system within management accounting into ERP system. 1.3 Structure of Project The management accounting and ERP system will be introduced and clarify how are they working together; demonstration the basic criteria of management accounting reports and the objective of those reports; then how are reports addressed by ERP system; and the limitations associated of management accounting reports during ERP implementation. 3

2.0 Management accounting and ERP system 2.1 An introduction This chapter will view a definition of an ERP system implementation, defining the management accounting, the dimensions of management accounting such as the roles and attributes of management accounting, finally implications of impact ERP implementation on management accounting 2.2 ERP system implementation ERP (enterprise resource planning) is an industry term for the broad set of activities supported by multi-module application software that help a manufactures or other business manage the important parts of its business, including product planning, parts purchasing, maintaining inventories, interacting with suppliers, providing customer service, and tracking orders [ Olson 2004]. Under this issue the management is much interested to know about the health of the organization, and this consider an attractive objective to adopt ERP implementation. Enterprise resource planning (ERP) demonstrate an insight business strategy, as ERP adoption involves business process improvement, best practices implementation, intraenterprise integration and inter-enterprise coupling. Potential benefits of an ERP system include productivity and quality improvements in key areas, such as product reliability, customer service, and knowledge management. As a result, ERP systems are expected to enhance market value and firm performance through efficiency and effectiveness gains [James, Barbara and Jacqueline 2002]. If the ERP system has been implemented and conducted by the company then the reporting system within an ERP system can provide the suitable information, with that should satisfy the needs of the users and the management to enhance all the previous stuff. 2.3 Management accounting dimensions 2.2.1 The main role for management accounting in the organization Management accounting is a system of measuring and providing operational and financial information that guides managerial action, motivates behaviors, and supports and creates the cultural values necessary to achieve an organization s strategic objectives [ Jan, Shahid, Homas and Arol 1999]. 4

As we noted there are four main ideas contained in this definition of management accounting. These ideas are talking about the nature, scope, purpose, and attributes of management accounting. These concepts will improve the understanding of management accounting: - The nature management accounting is a measurement process for management accounting. - The scope of management accounting includes financial information, such as cost, and operational information, such as percentage of defective units produced. - The purpose of management accounting is to help an organization reach its key strategic objectives. It is not meant for mandated financial and tax reporting purposes. 2.2.2 Attributes of a good management-accounting system The management accounting can be success if contains some attributes which enhance it s process such as the following attributes: [Jan, Shahid, Homas and Arol 1999] - Technical it enhances the understanding of the management accounting and provides relevant information for strategic decisions. - Behavioral it encourages actions that are consistent with an organization s strategic objectives. - Cultural it supports and/or creates a set of shared cultural values, beliefs, and mindsets in an organization and society. 2.3 The impact of ERP implantation on management accounting system; There is actually no published material that studies directly management accounting and the ERP implementation. However, so far there exists little published scientific evidence on the implementation processes and their effects on management accounting in particularly, The fact that management accounting tools included in ERP system, such as budgeting and forecasting do not offer such user-friendly functionality as the most sophisticated accounting software may make accountants confused as well as they concerned minor change[markus and Teemu 2002], the ERP system automate and standardize existing conventional practices within existing structures may be secondary effecting. However, fully integrated collapse traditional notions 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 [Dr Paolo and Trevor 2003] as well as One person can find the in accounting system from bookkeeping to develop several reports that are needed [Markus and Teemu 2002] under this argument the change into management accounting 5

comes through a changed management practice and changes in business processes, whereby caused by ERP system implementation. In assessing the influence of ERP system on management accounting methods, ERP system did not influence these on the companies decisions to adopt ABC, as several of companies were already familiar with the ABC, ERP system complexities did not influence accounting logic and that companies planning to update the ABC and build it into ERP system once the ERP implemented. [Markus and Teemu 2002] I supposed the ERP system should integrated such ABC system and enhance them to conduct all aspects of accounting system to be more efficient and effective. 3.0 The impact ERP system implementation on management accounting reports; 3.1 An introduction The particular attention into this chapter is paid to the presentation of basic criteria of management accounting reports, the objectives of those reports, and I mentioned how the reports are addressed by ERP system as well as some of limitations that faced reports during ERP implementation. 3.2 Basic Criteria of management accounting Reports: The accounting reports should contain the following criteria to satisfy the management needing for information to support decisions making process; either the organization is going to implement an ERP system or keep up with old system. (James Don 1995) and ( Elaine and Sandra 2004) mentioned these criteria - Narrative comments, the reports should be more informative and interesting to the readers. - Trend statements the organization and content of the report should be based on the trend of the main idea because the readers will become interested to read the basic data presented in a particular manner - The accounting executive, who prepared a repots, must be leave the decision making process to other executives The success of any accounting executive is depending in part on his ability to express his ideas and interpretations of the operating figures on his company in such fashion that his management can understand them - Statistical data, the method of presenting basic financial trends should be given careful consideration. - Readability the final report must be readable; the information should be presented in a manner readily understandable by management. 6

The change in accounting report made up when the company is engage to reorganization by adopting and implementing new systems such as ERP system, The interesting point in this argument the reports could be compiled for non accountants and there for should be designed so that the new ERP system and an accountants will aid management in the progressive constructive development of the mental picture of what have transpired into the report of accounting to be creative tool to support decision making process, Without destroying the basic criteria of management accounting reports. 3.3 The objectives of management accounting reports. I think the objectives of the reports will be the direct guide during and after implementing an ERP system, and they will be a coherent indicators for success of failure of ERP system. [Casey Robert 1995] and [James Don 1995] - The management reports should be provide information that is useful to management, the information should be comprehensible to those have a reasonable understanding of business and economic activities and willing to study the information with reasonable diligence. - Provide information to help a management to assess the amount, timing, and uncertainty of cash flow prospective about the enterprise - Provide the mangers with information about the resources of an enterprise and claims to those resources. 3.4 How are reports addressed by ERP System? In the Management accounting, ERP system have left more time for analysis instead of routine tasks [Jan, Shahid, Homas and Arol 1999]through integrated all aspects of organization into one system, and one source for information access [Dr Paolo and Trevor 2003] I don t know if the ERP system has more time for analysis and reduce of routine reporting? And enhance the communication within organizations to reach decision making process? The reporting practice has a direct effect by implemented ERP system especially in the content, form as well as scheduling. The ERP has direct effect on management accounting practices, for instance, reporting practices in the content, form and scheduling. Indirect effects occur when the change to management accounting comes via a changed management accounting practice and/or changes in business processes, initiated by the ERPS implementation [Markus and Teemu 2002] indirect changes such as move from accounting method to another one that need to make superior changes into management accounting practices 7

3.5 The limitations of a management accounting reports The Reporting system within ERP systems found to deliver high quality of information to satisfy need of management for decision making process [Richard and Philip 2000] I think The question for many enterprises is, what are the features and characteristics that should be add to the management accounting reports after implemented the ERP system, I suppose ERP will not offer some of characteristics and features to support management decisions because the effect will be on the report form and speed of issuing but the content of reports heavily depend on accountants practice. In the organization s management the managers very interested to know about the health of their Businesses, Investment in enterprise resource planning systems are increasingly significant and critical to the success of the firm, [James, Barbara and Jacqueline 2002] so the Managements need to facilitate access to information and resource the new information technology systems may causes modest changes in management accounting and the management need the information for the primary activities and operation processes; [Antti, Tomas, Hannu and Ari 2004], the ERP system should offer this information through provide high quality information which satisfy the needs of the management and other users through reporting system. 5.0 conclusions The future of management accounting is difficult to predict with any degree of certainty but is likely to be a future marked by change [Richard and Philip 2000], the management accounting reports can be included by ERP system that expected to provide the management and other users information to support decision making process, Moreover the ERP system can be provide this information with high flexibility, and reports could be good indicator to determine if the ERP implementation is a success of failure. Since ERP is likely to impact future firm performance and explain a firm s need for information the firm may be more likely and easily to extract this information form the ERP system [Antti, Tomas, Hannu and Ari 2004]. The expectation Gap shown up to be more clearly, the enterprise prospective implying, what is the value that ERP system should add on the reports and what is the add value that ERP system can add on the report, under this issue the enterprises managers were expected from ERP implementation to add new features and characteristics on the management reports to satisfy there needs of information to support decision making process in there enterprises, and the ERP system with new situation and new modules can satisfy the enterprise s need of information through the reports that produced through ERP system s modules. Further researches is I suggest to discuss the impacts of ERP system on reports within management accounting in detail. Implying the limitations of reports and the optimal method to deliver reports within ERP system, and define there will be any continuing for reports, and there is a need for management accounting reports and other reports. 8

6.0 References: 1. The language of quarterly reports as an indicator of change in the company s financial status Camilla Magnusson, Antti Arppe, Tomas Eklund, Barbro Back, Hannu Vanharanta and Ari Visa 2004 2. the future of Financial Reporting in Europe : Its Role in Corporate Governance Richard Baker and Philip Wallage, University of Massachusette- Dartmouth, North Dartmouth MA02747, USA and University of Amsterdam Netherlands [2000]. 3. An analysis of ERP annual report disclosures ARTICLE International Journal of Accounting Information Systems, In Press, Corrected Proof, Available online 27 August 2004, Elaine G. Mauldin and Sandra B. Richtermeyer. 4. Enterprise resource planning systems: comparing firm performance of adopters and nonadopters: james E. Hunto, Barbara Lippincott and Jacqueline L. Reck Department of Accounting, Bentley College, 175 Forest Street, Waltham, MA 02452 4705, USA School of Accountancy, University of South Florida, Tampa, FL, USA 2002. 5. Managerial issues of enterprise resource planning systems: McGraw-Hill/Irwin, cop. 2004, Olson, David Louis 6. Reports to top managements : James Don Edwareds, associate professor, Michigan University, 1995 7. Moderate impact of ERPS on management accounting: a lag or permanent outcome? Markus Granlund and Teemu Malmi / Received 5 January 2001; accepted 8 April 2002. 8. Strategy and management accounting: Jan Bell and Shahid Ansari, California State University Northridge homas Klammer, University of North Texas arol Lawrence, University of Richmond 1999 9. Management control systems in multinational organizations the effects of implementing ERP: Dr Paolo Quattrone /the University of Oxford, Oxford, Professor Trevor Hopper/ the University of Manchester, Manchester, September 2000 10. Implementing a time-reporting system: Casey Roper A. Association management, Washington Feb 1995 Pages 30, 2. 9