ERP\'S in Managerial Accounting Capabilities Managerial Accounting

¶ … ERP'S IN MANAGERIAL ACCOUNTING CAPABILITIES

Managerial accounting intended provide managers information make decisions run company successfully. The information reliable, timely complete. Its provision, dictated

Effect of ERP's in managerial accounting capabilities

ERP systems are implemented to assist an organization become more efficient in the running of their business and also to integrate the different departments within the organization. The automation of the business processes ensures that a business remains competitive in today's business environment Hitt, Wu, & Zhou, 2002.

Adoption of ERP systems is also widespread because of the advancements made in the technology field. Integrating the different organization departments provides for a centralized management system, and makes it easy for reporting. Barriers that may exist between an organizations function are eliminated, thus providing managers unprecedented access to the organization accounting information.

Managerial accounting capabilities

With an ERP in place, an organization changes the way it processes, evaluates and reports its accounting information throughout the business. With seamless flow of information, an ERP makes it possible for management to get real-time information. This will assist the organization to improve it productivity as decision making will be much faster. The system will allow the organization to process its transactions more efficiently, thus reducing the reporting cycle for its accounts Gattiker & Goodhue, 2005.

This ensures information to external users is disseminated quickly. Data capturing is done once across the whole ERP system, thus there is less time wasted by the accountants in searching for records and the amount of time they spend doing reconciliations is reduced as the system has already made the calculations and they only need to confirm the correctness of the amounts. With single data entry, the system ensures that there are no data capture errors and the data once entered cannot be modified thus ensuring the accuracy of the data in the system.

These systems can store large amounts of data, and this makes them good choices for managers as this data can assist them to find out the past financial situation of the company easily and facilitate for better future decisions. Having all this data in the system allows for easy searching of records, and this saves managers a great deal of time. There is also improved efficiency with the use of ERP systems as most queries can be answered from the system thus reducing the amount of time an accountant spends answering and explaining things to managers which gives them more time to concentrate on their work.

Organizations financial reporting process

Considering the tight timelines that organizations have especially during end month, the ERP system has facilitated for faster reporting because of real-time processing. Financial statements are now produced in real-time, and this has saved the accountants the hurdle of having to collect the data whenever they need to prepare these statements Krishnan, 2005.

ERP systems have changed the work of accountants making them concentrate more towards data analysis than data collection as was the previous case before adoption of ERP systems.

With managers directly accessing information from the ERP systems, there is a likelihood that they may influence the overall financial statements in a way to meet their own objectives. Due to lack of checks and balances in the system this might lead to impaired accounting information. Therefore, there needs to be a system to ensure the information produced from the system is correct and is not biased or has been manipulated for personal reasons. Without any system of verifying the data, external users may think the organization is doing well and which might not be the case.

Most ERP systems use the ABC (Activity-Based Costing) standard for costing Cassia, Paleari, & Redondi, 2005.

This would mean that the organization would need to change the way they used to do their costing to adapt to the new system, and this may cause some technical complexities. This change of costing system greatly affects the management accounting methods of the organization and its managerial control.

Limitation of ERP systems

For an ERP system to be successful, the organization implementing it needs to tailor its business processes to those of the ERP and not vice versa. Attempting fit the system to the organisation's business needs, leads to too much customization of the system and eventual failure of the whole system as the core business processes of the system is changed. It is very costly to customize the system, and with the failure rate been so high an organization is advised to avoid this if possible Robey, Ross, & Boudreau, 2002()