week 10: accounting process mis2101: management information systems based on material developed by...
TRANSCRIPT
Week 10:
Accounting process
MIS2101: Management Information Systems
Based on material developed by C.J. Marselis
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Introduction
Accounting tightly integrated with other functional areas PurchasingMarketing and SalesSupply Chain Management
Accounting activities are necessary for decision making
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Types of Accounting
Financial Accounting Documents all transactions that impact the firm Uses this transaction data to make external reports for
various agencies (FASB, SEC, IRS) Managerial Accounting
Determine profitability of a company’s activities Managerial information is used for planning and to
control a company’s day-to-day activities Tax Accounting
Specialized field that uses Financial Accounting information
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Financial Accounting Statements
Income Statement
Shows sales, cost of sales and overall profit for a period of time
(quarter, year)
Balance Sheet
Shows account balances Picture of the overall financial
health of a company
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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
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The General Ledger (GL) in an Integrated System
All accounts are kept in the general ledger Input to the GL occurs simultaneously with
business transaction in functional moduleSAP Module Feeds to GL
Sales 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 Entries
Financial Accounting (FI) - Manages the AR and AP items created in SD and MM
GL accounts closed in FI at end of a fiscal period
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Accounting Data and Profitability Analysis
Inaccurate or incomplete data leads to flawed analysis
3 main causes of data problemsInconsistent record keeping
• Much of work done manually including analyses• Manual entry leads to errors
Inaccurate inventory costing Problems consolidating data from subsidiaries
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Inaccurate Inventory Costing Systems
Inventory is expensiveCost of raw materials used in the itemLabor used specifically to produce the product
(direct labor)Overhead (all other costs)
• Factory utilities• General factory labor (custodial services, security)• Manager’s salaries• Storage• Insurance
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Case Study – Cisco and One-Day Close
Closing bookszeroing 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
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Even More Complicated for Companies with Subsidiaries
Must prepare Financial statements for each subsidiary Consolidated statement for entire company
Different currencies and transactions Must consider changes in exchange rates Sales from one subsidiary to another within a
company do not result in a profit or loss, because no money has entered or left the consolidated company
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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
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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
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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
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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 controlsBut controls cannot necessarily prevent effort
to circumvent standard processes But companies with ERP systems will have
an easier time complying with Sarbanes-Oxley
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Archiving And Fraud Detection
Why it’s hard to delete information in SAP!
If data could just be deleted, an unscrupulous employee could: Create a fictitious vendor Post an invoice from the vendor Make payment to a Swiss bank
account Delete all records of
transactions so fraud won’t be detected
In SAP, most data must be archived before it can be removed from system, so auditors can reconstruct company’s financial position at any point in time
Data on a company’s materials cannot be deleted directly, but must be archived for deletion
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Integrated System (like an ERP) and Fraud Detection
Changes to data are tracked
SAP R/3 maintains detailed records on all changes made to material master data
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Integrated System (like an ERP) and Fraud Detection
User authorization More than one employee often
required to perform critical business processes
Employees can only perform transactions required for their job
SAP’s “Profile Generator” used to create user authorizations based on the functions (transactions) user should be allowed to perform
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Integrated System (like an ERP) and Fraud Detection
Tolerance groups Can set limits on the
size of a transaction that employee can process
Tolerance limits can be set on items like: Line items in a
document Total document
amount Payment difference Discounts
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Integrated System (like an ERP) 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
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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
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…to the documents that created them
Figure 5.13 Details on $10.00 line item in G/L account for raw material consumption
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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