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, intra-
enterprise 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.