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Accounting in ERP Systems
As mentioned in Chapter 2, SAP and other manufacturers improved the ability to
analyze data without reducing system performance by creating Business Warehouse (BW)
products. A BW system is a completely separate information system that extracts data from
the ERP system. With BW, users have the ability to create reports and perform analyses in a
system that does not compete for system resources with transaction processes. However,
current BW systems do require aggregation of data, a process that is complicated and time
consuming. In addition, data aggregation creates limits on what data can be analyzed.
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A new era of data analysis is dawning with the introduction of in-memory computing.
With in-memory computing, aggregation of the data is not required, eliminating the
time-consuming process that limits analyses. With in-memory computing, detailed records
(rather than aggregated data) are maintained in a separate system so the ERP system
performance is not affected, and because the system works on the detailed data records,
there is no limit on the types of analyses that can be performed. Chapter 8 provides more
detail on in-memory computing.
As the previous sections illustrate, an ERP system is a key component in creating
management reports. Managerial accounting reports help the company’s managers
understand how the company is making money—what products are profitable, where costs
may need to be reduced, and so on. Financial accounting reports are used to inform
external parties—shareholders and government agencies—how well the company is doing
financially. The importance of accurate accounting reports cannot be overstated, as you
will see in the next section.

THE ENRON COLLAPSE

On October 16, 2001, Enron Corporation, then one of the world’s largest electricity and
natural gas traders, reported a $618 million third-quarter loss and disclosed a $1.2 billion
reduction in shareholder equity, related in part to transactions between the company and
several partnerships run by its chief financial officer (CFO), Andrew Fastow. Until that
time, Enron had been a rapidly growing firm that was revolutionizing the energy trading
business and making millionaires out of its investors. CEO Jeffrey Skilling, who resigned
on August 14, 2001, for personal reasons, had helped transform the company from a
natural gas pipeline company to a global marketer and trader of energy. Along the way,
the company had encouraged its employees to invest large portions of their 401K
retirement savings accounts in Enron stock by matching employee contributions.
On October 17, the day after Enron reported its tremendous third-quarter loss, the
SEC—which is dedicated to protecting investors and maintaining the integrity of the
securities markets—sent a letter to Enron asking for information about the loss. Enron’s
high-flying business practices immediately began unraveling. On October 22, 2001, Enron
announced that the SEC was conducting an inquiry into a possible conflict of interest
related to the company’s dealings with the partnerships run by CFO Fastow. Shares of
Enron sank more than 20 percent on the news. Two days later, Enron ousted CFO Fastow
in an attempt to restore investor confidence. On November 8, Arthur Andersen, Enron’s
financial auditing firm, received a federal subpoena for documents related to Enron, and
on December 2, Enron made the largest Chapter 11 bankruptcy protection filing in U.S.
history. Clearly, the accounting records made public by Enron, which were released
quarterly and were not audited, did not reflect the financial health of the company.
Enron began as an oil pipeline company in Houston in 1985. With the deregulation of
electrical power markets, starting in the mid-1990s, Enron began working as an energy

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