IT APP midterm

LESSON 1
 1960-1970 - Computer hardware and software
developed rapidly

 1965 - Intel employee Gordon Moore observed

that number of transistors that could be built into
a computer chip has the capabilities of computer
hardware

 1980 - Managers became aware that important - Reducing errors

business information was being stored on  Other advantages
individual PCs, but sharing information
electronically is not easy. 1. Savings in money and time: As EDI automates
the process which was previously handled manually
 Mid 1980’s - Telecommunications developments results in saving of time. There are no paper and
allowed users to share data and peripherals on fewer humans involved in EDI as compared to
local networks. traditional methods which will result in the saving of
money.
 end of 1980’s - Much of the hardware needed to
support the development of ERP system was in 2. Improvement in efficiency and productivity:
place: fast computers, networked access, and EDI is capable of sharing more and more documents
advance database technology in a less period of time. This results in the
improvement of efficiency and productivity of the
 Early 1990s - caused many companies to company.
dowmire and reorganize These overhauls were
a stimulus to ERP development. 3. Improvement in traceability and report: All the
electronic data can be integrated with a wide range
of IT systems. This will help to support data
collecting and analysis.

4. Customer satisfaction: when all the transactions

are done with perfection and within time, there is a
point of customer satisfaction.

5. Fast response: As all the data is stored in one

software itself, any kind of query can be sorted as we
 Electronic Data Interchange (EDI) - direct can access. the data at fingertips.
computer-to-computer exchange of standard
business documents, allowed companies to 6. Payments: not only data and documents, but
handle purchasing process electronically, even payments can also happen online in EDI.
avoiding the cost and delays resulting for paper Customers can pay money through net banking and
purchase order and invoice systems. The SCM PayPal integrated with the EDI software.
began with sharing long-range production
schedules between manufacturers and their  1972, five former IBM business analysts in
suppliers Mannheim, Germany -
1. Dietmar Hopp
- When two business companies collaborate to work 2. Claus Wellenreuther
together, a lot of data exchange takes place 3. Hasso Plattner
4. Klaus Tschira
• Bills, Invoices, payment documents, shipping 5. Hans-Werner Hector formed Systemanalyse und
details Programmentwicklung (Systmes Analysis and
Program Development or SAP (S-A-P)
- an online based software, called as a service
product, which collects all the data from the •SAP's goal was to develop a standard software
various departments and keeps it stored up to product that could be configured to meet the
date in the cloud. needs of each company.
• Founders wanted the data available in real time, 2. Material Management (MM) module - manage the
and they wanted the users to work on a computer acquisition of raw materials inventory, from
screen, not on printed outputs. suppliers and the subsequent handling of raw
materials inventory, from storage work-in-progress
 Software modules - are individual programs goods to shipping of finished goods to the customer.
that can be purchased, installed, and run
separately but that all extract data from the 3.Production Planning (PP) - module maintains
common database. production information. Production is planned and
scheduled, and actual activities are recorded.

4. Quality Management (QM) module plans and

record quality control activities, such as product
inspections and material certifications.

5. Plant Maintenance (PM) module - manages

maintenance resources and planning the
preventive maintenance of plant machinery, to
minimize equipment breakdowns.

6. Asset Management (AM) module - helps the

company to managed fixed-asset purchase (plant
ant and machinery) and related depreciation.

7. Human Resource (HR) module - facilitates

employee recruiting, hiring and training., also
includes payroll and benefits.
 Open Architecture - Third party software
8. Project System (PS) module - allows the planning
companies are encouraged to develop add-on
for and control over new R&D, construction, and
software products that can be integrated with
marketing projects.
existing software. It also makes easy to for
companies to integrate their hardware products,
- allows for costs to be collected against o a project,
such as bar code scanners, personal digital
assistants (PDAs), cell phones, and global and its frequently used to manage the
implementation of the SAP ERP System. PS manage
information systems with the SAP system.
build-to-order items, which are low-volume, high
complex products such as ships and aircrafts.
 PeopleSoft - Founded by David Duffield, a
former IBM employee.
8. Financial Accounting (FI) module - records
transactions in general ledger accounts. This
- Started a software for human resources and payroll
module generates financial statements for external
accounting, and achieve considerable success, even
reporting purposes.
with companies that already were using SAP for
accounting and production.
9. Controlling (CO) module - serve internal
management purposes, assigning manufacturing
 Oracle - Began in in 1977 as Software
costs to products and cost centers, so that the
Development Laboratories (SDL).
profitability of the company's activities can be
analyzed. It also supports managerial decisions.
- Founder Larry Ellison, Bob Miner and Oates, won
a contract from Cen Intelligence Agency (CIA) to
10. Workflow (WF) module - set of tools that can be
develo system Oracle, to manage large volume of
used to automate any of the activities in SAP
data and extract information quickly 1988, Oracle
ERP. It can perform task- flow analysis and prompto
Financials was releases, a set of Financial
employees (by-email) if they need take action.
applications.

 The Significance and Benefits of ERP

 SAP ERP Modules basic functions
- allows easier global integration: Barriers of
1. Sales and Distribution (SD) modules - records
Currency exchange rates, language, and culture can
sales and scheduled deliveries. Information about
be bridged automatically, so data can integrated
the customer (pricing, shipping, billing) is maintained
across international borders.
and accessed from this module.
- integrates people and data while eliminating the
need to update and repair many separate computer
systems.
- ERP allows management manage operations,
monitor them. It allows manager to focus on
improving processes. This focus enhances
management of the company as a whole, a makes
the organization more adaptable when changed is  Managerial Accounting - Determine cost
required. profitability of a company’s activities.

 LESSON 2: Accounting in ERP Systems - Managerial information is used for planning and to
control a company’s day-to-day activities and
Accounting is a functional area that is tightly develop long-term plans.
integrated with other functions like: - Create reports for internal use.

Marketing and Sales

Supply Chain Management

 Accounting activities are necessary for decision

making.

 Accounting Activities
1. financial accounting
2. managerial accounting.  Tax Accounting - specialized field that used
An additional area of accounting, tax accounting. Financial Accounting information.

 Types of Accounting SAP ERP module cause transaction date to be

 Firms require three types of accounting activities entered into the general ledger. Including:

1. Financial Accounting Sales and Distribution (SD)

2. Managerial Accounting Material Management (MM)
3. Tax Accounting Financial Accounting (FI)
Controlling (C)
 Financial Accounting - Documents all Human Resource (HR)
transactions that have an impact on the firm. Asset Management (AR)
External report to SEC or IRS Industrial Credit Management

 Credit management requires a good

balance between:
- Granting sufficient credit to support sales and
- Making sure that the company does not lose
too much money through defaults.

 Industrial Credit Management - setting a limit on

how much money a customer can owe at any
one time

Advantages of using SAP ERP to manage credit

Process is automated
Data is available real time
Orders can be blocked

 Product Profitability Analysis - Need accurate

and complete data for proper analysis
 Main reasons for inaccurate or incomplete data  Management-Reporting and Analysis Tools
1. Inconsistent recordkeeping
2. Inaccurate inventory costing systems
3. Problems consolidating data from subsidiaries SAP R/3 has built-in information systems (SIS, LIS,
etc.) with their own data tables for analysis
 An ERP system minimizes or eliminates these
problems  Business Warehouse (BW) - is a completely
separate system that extracts data from the SAP
1. Inconsistent Recording Keeping - Without an R/3 system
integrated information system, much of the effort is
generating reports is devoted to working around the BW provides greater reporting flexibility and can
limitation of the system combine data from other information systems

2. Inaccurate Inventory-Costing System - Correctly  Enron Collapse

calculating inventory costs is an important and - Enron was a trailblazing energy company that was
challenging task in any manufacturing company revolutionizing the oil and gas business and making
millionaires of its investors
 Companies with Subsidiaries
Companies with subsidiaries must prepare financial On Oct. 16, 2001, Enron’s creative financial
statement for each subsidiary, plus be able to arrangements began to unravel
provide a consolidated statement for the entire
company On Dec. 2, 2001, Enron made the largest bankruptcy
filing in history
Different currencies and transactions between
subsidiary companies can make the consolidation The Enron Scandal
because exchange rates fluctuate daily
The Enron scandal was one of the largest
Example: Microsoft must consolidate financial corporate fraud scandals in the United States
information from 130 subsidiaries and occurred in the early 2000s.

- Prior to installing SAP R/3, each subsidiary did Background - Enron was considered one of
accounting in its own system, then transmitted the America's most innovative companies in the late
files to another system, where manipulation of the 1990s. It was involved in energy trading, natural gas
data was required pipelines, electricity projects, and other ventures.
However, to maintain high stock prices and hide
 With SAP R/3, Microsoft can look directly at its financial losses, Enron used various
financial activity at any subsidiary around the accounting loopholes and special purpose
world entities (SPEs) that were not included in the
company's financial statements.
 Management Reporting with ERP System
- Reporting accounting information is often Fall from Grace
Challenging Without an ERP system, obtaining the In 2001, it was revealed that Enron's
information needed for a report is frequently a financial position was much worse than it
monumental task had been reported.

 In SAP R/3, Document flow is a tool that finds, Bankruptcy and Aftermath - In December 2001,
organizes and displays a summary of all documents Enron filed for
related to a sales order bankruptcy, which was the largest
bankruptcy in U.S. history at that time.
Sales orders can be very complicated, with: Thousands of employees lost their jobs,
Multiple products and investors lost billions of dollars. The
Multiple shipments scandal also led to the dissolution of Arthur
Multiple invoices Andersen, Enron's auditing firm, due to its
Multiple payments involvement in the accounting misconduct.

Being able to find all related documents easily is  The Enron scandal had far-reaching
important in providing efficient customer service implications, leading to increased scrutiny of
corporate accounting practices and the
implementation of the Sarbanes-Oxley Act in
2002. This legislation aimed to improve Archiving
corporate governance and financial • In SAP R/3, most data must be archived before it
transparency to prevent similar accounting can be removed from the system, so auditors can
scandals in the future. reconstruct the company’s financial position at any
point in time
 Sarbanes-Oxley
 User Authorizations
• The Sarbanes-Oxley Act is designed to encourage
top management accountability • A fundamental tool to avoid fraud is separation of
duties and user authorizations
• Top managers in recent scandals (Enron,
WorldCom, Global Crossing) have claimed ignorance • To complete critical business processes, more than
of accounting abuses one employee must participate so that a single
employee cannot
• Title IX of Sarbanes-Oxley requires a company’s commit a fraud
CEO and CFO to sign a statement that financial
statements comply with SEC rules • User authorizations ensure that employees can
only perform those transactions required for their job
• Penalties can be up to $5 million and 20 years in
prison • SAP R/3’s Profile Generator provides a simple
method for creating user authorizations based on the
• Title II restricts the non-audit services that an functions (transactions) a user should be
auditor can provide allowed to perform

Sarbanes-Oxley and ERP • Pre-defined roles make developing authorizations

easier
• Title IV of the act specifies more stringent
requirements for financial reporting Tolerance Groups - size of a transaction that an
employee can process
• Section 404 requires a public company’s annual
report contain management’s internal control report Financial Transparency - An advantage of an ERP
system is the ability to “drill
• The control report outlines management’s down” from a report to the source documents
responsibility for: (transactions) that created it

• Establishing and maintaining adequate internal “Drill down” capability makes it easier for auditors to
control over financial reporting verify the integrity of reports and financial statements

• Assess the effectiveness of its internal control over

financial reporting
• To meet the internal control report requirements, a
company must document the controls that are in
place and verify that they are not subject to error or
manipulation

 Sarbanes-Oxley and ERP

• An integrated information system provides the tools
to implement internal controls

- Controls cannot necessarily prevent a pervasive

effort to circumvent standard processes by a
company’s leadership (e.g. Enron)

• Companies with ERP systems in place will have

an easier time complying with Sarbanes-Oxley
than those without