Page 60 - Accounting Information Systems

C H A P TER 1 The Information System: An Accountant’s Perspective 31

REA is a conceptual model, not a physical system. Many of its tenets, however, are found within
advanced database systems. The most notable application of REA philosophy is seen in the proliferation
of ERP systems, which are discussed in the following section.

ENTERPRISE RESOURCE PLANNING SYSTEMS
Enterprise resource planning (ERP) is an information system model that enables an organization to
automate and integrate its key business processes. ERP breaks down traditional functional barriers by
facilitating data sharing, information flows, and the introduction of common business practices among all
organizational users. The implementation of an ERP system can be a massive undertaking that can span
several years. Because of the complexity and size of ERPs, few organizations are willing or able to com-
mit the necessary financial and physical resources and incur the risk of developing an ERP system in-
house. Hence, virtually all ERPs are commercial products. The recognized leaders in the market are SAP,
Oracle, J.D. Edwards & Co., and PeopleSoft Inc.
ERP packages are sold to client organizations in modules that support standard processes. Some com-
mon ERP modules include:

Asset Management
Financial Accounting
Human Resources
Industry-Specific Solutions
Plant Maintenance
Production Planning
Quality Management
Sales and Distribution
Inventory Management
One of the problems with standardized modules is that they may not always meet the organization’s
exact needs. For example, a textile manufacturer in India implemented an ERP package only to discover
that extensive, unexpected, and expensive modifications had to be made to the system. The ERP would
not allow the user to assign two different prices to the same bolt of cloth. The manufacturer charged one
price for domestic consumption, but another (four times higher) for exported products. That particular
ERP system, however, provided no way to assign two prices to the same item while maintaining an accu-
rate inventory count.
Organizations that hope to successfully implement an ERP will need to modify their business proc-
esses to suit the ERP, modify the ERP to suit their business, or, more likely, modify both. Often, addi-
tional software applications need to be connected to the ERP to handle unique business functions,
particularly industry-specific tasks. These applications, often called bolt-ons, are not always designed to
communicate with ERP packages. The process of creating a harmonious whole can be quite complex and
sometimes fails, resulting in significant losses to the organization. ERP packages are enormously expen-
sive, but the savings in efficiencies should be significant. Organization management should exercise great
care in deciding which, if any, ERP is best for them.
The evolution of information systems models outlined in this section provides a framework for much
of the material contained in this book. Chapters 2 through 8 deal with business processes, security, fraud,
controls, and a variety of other issues related to traditional (manual, flat-file, and early database) systems.
Chapters 9 through 12 examine advanced database systems, the REA model, ERP, and other emerging
technologies.

The Role of the Accountant

The final section of this chapter deals with the accountant’s relationship to the information system.
Accountants are primarily involved in three ways: as system users, designers, and auditors.