Week 10:
Accounting process
MIS2101: Management Information Systems
Based on material developed by C.J. Marselis
Introduction
Accounting tightly integrated with other functional areas PurchasingMarketing and SalesSupply Chain Management
Accounting activities are necessary for decision making
Types of Accounting
What is the purpose of “Financial Accounting”?
What is the purpose of “Managerial Accounting”?
4
Sales Process
Where does Accounting have an interest?
Is this financial accounting or managerial accounting?
Can you identify 5 examples?
USDA Nutrition Label
How you know what’s inside before you buy
For investors, how do you know “what’s inside” before you buy?
Financial Accounting StatementsIncome Statement
Shows sales, cost of sales and overall profit for a period of time
(quarter, year)
Balance SheetShows account balances
Picture of the overall financial health of a company
Accounting Information Before integrated systems
Data gathered by each functional area Accounting department didn’t have real-time access Accountants and clerks had to “research” their own company
to get information
With ERP Materials management records a goods receipts 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
The General Ledger (GL) in an Integrated System
What is the “General Ledger”? When is the general ledger updated with a non-integrated
system? How about with an integrated system?
SAP Module Feeds to GLSales and Distribution (SD) - Sales to Customer Accounts Receivable (AR) Entries
Materials Management (MM) - Purchase Orders made in
Accounts Payable (AP) Entries
Payroll Processing (HR) Expense EntriesFinancial Accounting (FI) - Manages the AR and AP items created in SD and MM
GL accounts closed in FI at end of a fiscal period
Credit Management
Companies extend credit to customers to make purchases
Credit is limitedWith each purchase, available credit is reducedWith each payment or return, available credit is
increased What do you do if a new sale will put a customer
over their limit?
10
Sales Process
Credit report sent weekly
How many other purchases this week?
Have we received any payments this week?
Have they made any returns this week?
How would this look with an integrated system?
Accounting Data and Profitability Analysis
Inaccurate or incomplete data leads to flawed analysis & bad decision making
What are some of the causes of data problems?
Inconsistent Record Keeping
Direct Division & Distributor Division keep their own records and keep different information Direct Division records sales region Distributor Division records sales state Can make some reporting extremely challenging
Sales by state within region Production records are paper, not electronic How many places can errors be introduced? How would this look with an ERP?
Inaccurate Inventory Costing Systems
Inventory is expensive!
What are some of your major costs?
Question
How difficult is it to answer this question with an integrated system?
Inventory Costing Systems How much does it cost me to make an individual
product and where do I get all of this information?
Which products are profitable and which are not? Without knowing your costs, are you sure?
What happens to costs when production is interrupted?
Do they really have a clue? What if they had an ERP?
Question
What do we mean when we say a company has do “close its books”?
How often does a company do this?
How complicated is this?
Even More Complicated for Companies with Subsidiaries
What do I need to do to produce financial reports when I have a company with subsidiaries?
What if I have different subsidiaries in different countries?
What if one subsidiary sells products to another subsidiary?
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
Closing books zeroing out temporary accounts
Takes days/weeks/months to get all the financial figures in balance before company can close the financial period
“Virtual closings” during the month can show how well the company is doing
Cisco’s closing went from 2 weeks to 1 day by switching from “un-integrated” systems to Oracle ERP
Enron Collapse
Enron Collapse Energy company revolutionizing the oil and gas business On Oct. 16, 2001, Enron’s creative financial arrangements began
to unravel On Dec. 2, 2001, Enron made the largest bankruptcy filing in
history Key cause: Enron’s partnerships shifted billions of debt off Enron’s
books so Enron could borrow money more cheaply Arthur Andersen:
Respected accounting firm with firm with 28,000 employees - issued annual reports attesting to the validity of Enron’s financial statements
Arthur Andersen indicted for, among other things, destruction of Enron documents
Results of Enron Collapse Enron’s 20,000 creditors will receive
approximately 20% of the $63 billion they are owed
Shareholders will receive nothing Many employees invested large sums of money in
Enron stock via 401K savings plans Arthur Andersen dismantled 31 individuals either have been tried or will be
tried on criminal charges The Sarbanes-Oxley Act was passed
Sarbanes-Oxley Act of 2002 Requires public company’s annual report
contain management’s internal control report Must include documentation of controls An integrated information system provides
tools to implement internal controlsControls cannot necessarily prevent effort to
circumvent standard processes Companies with ERP systems will have an
easier time complying with Sarbanes-Oxley
Archiving And Fraud Detection
Why it’s hard to delete information in SAP?
What could an unscrupulous employee do if this were not true?
What is “Archiving” in SAP?
Data on a company’s materials cannot be deleted directly, but must be archived for deletion
Integrated System and Fraud Detection
Changes to data are tracked
SAP R/3 maintains detailed records on all changes made to material master data
Integrated System and Fraud Detection
What is “User Authorization” all about?
How many employees does it take to do something like create and approve the payment of a large invoice?
Integrated System and Fraud Detection
What are “Tolerance Groups”?
Integrated System and Fraud Detection
Financial Transparency
ERP systems have “drill down” functionality from report to source documents (transactions) that created them
Makes it easier for auditors to verify integrity of reports
Double-clicking on the 8,810.00 debit will provide details on the transactions that make up the item
Line items linked…
Figure 5.12 Documents that make up G/L Account Balance for Raw Material Consumption
Selecting the 10.00 item and clicking on the details icon will provide more information on the item
…to the documents that created them
Figure 5.13 Details on $10.00 line item in G/L account for raw material consumption
Summary Companies use accounting systems to record
transactions and generate financial statements Should have ability to summarize data to assist
managers in their daily and strategic work With “un-integrated” systems, accounting data might
not be current Integrated IS with common database to record
accounting data facilitates inventory benefits Compliance with Sarbanes-Oxley Act facilitated with
integrated systems