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About Digital Accounting
Digital Accounting: The Effects of the Internet and ERP on Accounting provides a
foundation in digital accounting by covering fundamental topics such as
accounting software, XBRL (eXtensible Business Reporting Language), and EDI. The
effects of the Internet and ERP on accounting are classified and presented for
each accounting cycle, along with a comprehensive discussion of online controls.
Digital Accounting: The Effects of the Internet and ERP on Accounting provides a
conceptual approach to handling the latest developments at the intersection of
the accounting and IT fields.
About the Author:
Dr. Ashutosh Deshmukh is an Associate Professor of Accounting & Information
Systems at the Pennsylvania State University-Erie. He received his M.B.A from
the University of Alabama and Ph.D. from the University of Memphis. His research
and teaching interests are in accounting information systems and auditing. He
has published over 20 articles and made numerous conference presentations in the
areas of accounting information systems and auditing. He is a Chartered
Accountant, Certified Information Systems Auditor, and Certified Fraud Examiner;
and has practical experience in public and industrial accounting. A bean counter
by profession and a byte counter by choice, he has also consulted with numerous
organizations. He is a member of American Accounting Association, Institute of
Charted Accountants of India, Information Systems Audit and Control Association,
Association of Certified Fraud Examiners, Phi Kappa Phi, and Beta Gamma Sigma.
He lives in Erie, PA with his wife and son and enjoys Tae Kwon Do, Chess, and
Science Fiction in his spare time.
Digital Bearer Cash
Following is a speculative discussion of the possible uses of digital cash
within companies, or closed trading environments.
Digital cash has been technically possible for some years, under a variety of
techniques (some blinded, some not, some requiring a server online someplace at
the time of exchange, some not, etc)
Evangelists for pure, anonymous digital bearer securities or digital cash say it
would be orders of magnitude more efficient than currencies, banks and bank
transactions. They say it would be so much cheaper, the economy itself would
undergo beneficial changes. In any case, if real Digital Bearer Cash is as
efficient as they say, businesses might shift substantially to use the first
credible digital money that emerges. Of course, authorities block this
development for a number of reasons.
One result of DBC would be that accounting and supply chain software would
become vastly simpler, and different in structure.
Much of the historical cause of our whole accounting software architecture (cash
accounting, POs, invoicing, later settling of Accounts Payable and Accounts
Receivable in aggregates, etc.) arose out of needs to conduct business in spite
of the inconvenient and disruptive workflows for handling cash, writing checks,
dealing by mail, going to banks with piles of checks from customers, etc. It is
the nature of our money (and to a lesser extent, the paper postal system) that
caused all of the whole workflows which contemporary software is designed to
ease. Bank reconciliations, invoicing, paying bills, etc. would all disappear.
Many people right now are building new e-business processes on internet. The
accounting aspects of these new websites and business models, at least in the
small business market, are fairly primitive. They usually have "accounting"
mechanisms merely for closing sales, charging credit cards etc.
The best of these systems reflect a new paradigm, in which one or another form
of transaction now lives in repositories at a central point visible on internet
rather than in any one company's server. You see it in SCM and shared project or
manufacturing or time/billing systems. By keeping the data structures for the
Supply Chain on a shared server visible on internet, they eliminate whole
categories of errors and differences and data redundancy in the separate
systems. Here, http: for example.
But even these new-technology web-based transaction environments could be dust,
if DBC happened. Why would each party to the various business environments
maintain messaging interfaces to a shared server and maintain complicated
systems of financial accounting in big ERP systems, when they could just remit
money itself embedded within their messages, and run their whole Extranet on a
point-to-point architecture? If you receive the XML message with money embedded,
you would perform the action. Otherwise, it would go into the error pile.
I would love to read a thorough academic analysis of the effects DBC may have on
accounting workflow. The interesting question is, what portions would remain and
what new functions or opportunities would result?
For example, why couldn't digital cash be implemented by ERP or SCM vendors, for
internal use by corporations or groups of trading partners? It could result in
some major breakthrus in efficiency.
Perhaps it would be some adaptation of DBC having cargo space for a little XML
message in it, containing purchasing, or delivery, or accounting data. Look at
it another way: you might say, the Digital Cash was embedded within the XML docs
such as Biztalk, Rosetta, CBL and all the rest.
Can you imagine how much simpler the accounting and administrative systems could
become? Within a company it could serve as the whole system of budgetary and
fiscal control for departments and business units. The whole supply chain could
function without any centrallized controller knowing what the departmental parts
are doing. Corporate profits and accounting measurement could be derived off of
certain streams in the message flows. Whew.
Or within wider systems like vertical industries. The cash would inevitably
spill out of the supply chain and become a new sort of currency. The issuers
would reap gains from seignorage, etc. etc. (I seem to recall that technologies
exist for encoding self-computed interest, so that upon any exchange or ultimate
redemption, the amount of DBC automatically reflects a yeild..
The Effects of the Internet and ERP on Accounting
Accounting and Information Technology have been constant companions since the
days of tabulating machines. Accounting -- an art and science of financial
information -- has evolved in tandem with Information Technology. The
distinctions between the accounting message and Information Technology medium
are blurring faster and faster. The advent of the Internet and Enterprise
Resource Planning (ERP) has not only continued, but accelerated, the trend. The
rise and fall of the e-revolution has been spectacular; however, the promised
work goes on. The changes are fast and furious, even in the e-bust period. This
book is an attempt to capture these changes in accounting workflows, internal
controls and tools due to the e-age, e-era and e-confusion!
WHAT IS DIGITAL ACCOUNTING
The term digital refers to digits or numbers; however, in the Computer Science
lexicon, this term refers to the representation of the information in 0s and 1s,
which can be read, written and stored using machines. The prefix “e” refers to
electronic, meaning the use of electricity in powering machines such as
computers. Digital Accounting, or e-Accounting, as a corresponding analog,
refers to the representation of accounting information in the digital format,
which can then be electronically manipulated and transmitted. Digital Accounting
does not have a standard definition, but merely refers to the changes in
accounting due to computing and networking technologies. The term Digital
Accounting is used in this book to capture the changes in the accounting cycles,
processes and functions due to the Internet and ERP systems. The primary focus
is on accounting, and secondary focus is on related finance functions. The level
of coverage in financial functions is primarily restricted to intra-business,
and topics such as Web-based stock investments and portfolio management are
excluded.
The terminology, jargon and lingo spawned by the computer era are unprecedented,
and the title and the subject matter of the book has been debated and questioned
repeatedly. In covering various topics, I have erred on the side of caution. I
have covered a number of technologies and topics that may only be peripherally
related to the main theme of the book. This book is still version 1.0, and I am
sure topics will be found that escaped me. I welcome your comments and
criticisms.
Integrating e-commerce/e-business in the accounting literature has been a
challenge. Neither the pervasive effects of e-commerce on internal and external
accounting processes are clearly articulated nor a conceptual approach for
handling these changes has been formulated. There is no consensus in the
coverage of underlying networking technologies, changes in accounting software
and new xRM (Relationship Management) tools.
This book, though by no means definitive, presents a way to understand these
developments. This book provides a foundation in Digital Accounting by covering
developments in accounting software, Web-based financial reporting languages and
Electronic Data Interchange (EDI). Then the effects of the Internet and ERP on
accounting are classified and presented for each accounting cycle. Such an
approach in handling the e-developments in the accounting context allows us a
comprehensive examination of the changes in the established accounting cycle
framework.
Chapter I expands on this theme and provides a framework for developments in
accounting due to the Internet and ERP. This chapter also deals with the
description and history of Digital Accounting. The next three chaptersare the
foundations of Digital Accounting. These chapters cover the Evolution of
Accounting Software, XML (eXtensible Markup Language) and XBRL (eXtensible
Business Reporting Language), and EDI, respectively. Accounting software is no
longer accounting software, but is being sold even by mid-level vendors as
business software. Accounting software not only integrates the internal
functions but comes pre-packaged with a number of e-commerce/e-business
functionalities. XML directly affects data transfer and data analysis. The most
famous XML-based language for accountants is XBRL. XBRL is discussed in-depth to
get a better understanding of changes in financial reporting. EDI, the
forerunner of e-commerce, is not dead but is going strong and is getting adopted
for XML and the Internet. A large installed base and heavy monetary investment
characterize EDI; this important technology needs to be properly understood by
accountants. I believe an in-depth understanding of these three areas is
necessary to understand the effects of the Internet and ERP on accounting and
finance functions.
The next four chapters focus on chronicling and analyzing digital developments
in the context of accounting cycles. Chapter V deals with the Revenue Cycle.
Here, Web-based sales orders, effects of Customer Relationship Management (CRM)
software on sales orders and accounting data, online credit approvals and its
connection with the accounting system, Web-based tracking of goods and its
implications for accounting, electronic invoice/bill presentment and payment,
electronic payment mechanisms, and online automated receivables management are
discussed. Chapter VI deals with the Expenditure Cycle. Topics such as Web-based
purchase orders, electronic procurement of goods and services, and consequent
posting and payment activities are discussed here. These activities are
increasingly handled by Supplier Relationship Management (SRM) and E-Procurement
tools, which are extensively covered with an emphasis on accounting processes.
Additionally, the areas of procurement cards, online management of expenses and
payroll, and online travel centers are covered. Chapter VII deals with the
Conversion Cycle. The focus in this chapter is not on production activities but
on Supply Chain Management. The production function is now part of an extended
collaborative enterprise in many organizations. Cost Accounting is not merely
assessing product costs but also striving to identify and optimize costs across
the supply chain. Basic principles of Supply Chain Management, software tools
for Supply Chain Management and changes in cost accounting are covered here.
Finally, Chapter VIII considers the General Ledger Cycle. This chapter discusses
the evolution of general ledger and financial reporting. First, managerial and
Information Technology tools for Web-enabled virtual close of the books are
discussed. The rest of the chapter primarily focuses on reporting software,
Business Intelligence tools, Executive Dashboards, Enterprise Portals and its
interaction with accounting data. I have primarily used SAP tools to illustrate
the functionalities; however, these are supplemented with the latest software
tools from other vendors.
Chapter IX deals with the role of Digital Accounting in Financial and Strategic
Management. Developments such as Financial Supply Chain and Corporate
Performance Management that integrate e-developments in comprehensive managerial
philosophies are covered. Finally, Chapter X discusses Controls, Security and
Audit in the online-networked world. This chapter first presents a conceptual
framework for internal controls in the online world. Then, various standard
control techniques are discussed. The new Web-based anti-fraud and anti-money
laundering software is also covered. The discussion of privacy and assurance
issues concludes the chapter and rounds off the book.
This book provides a broad introduction to the effects of the Internet and ERP
on accounting workflows, processes and controls. Specifically, this book is
useful to practicing accountants and auditors who want to familiarize themselves
with the latest developments in this area. This book can be used as a supplement
in introductory Accounting Information Systems or Auditing courses. The
accounting cycle approach will fit perfectly with current approaches of teaching
accounting information systems. The book can also be used as a stand-alone book
in advanced accounting information systems or e-commerce course at the
undergraduate or graduate level. If you wish to use this book for classroom
purposes, and end-of-chapter questions and solutions manual is available on
request from the author.
Ash Deshmukh, Associate Professor of Accounting & Information Systems
Department of Accounting
Sam and Irene Black School of Business
Pennsylvania State University – Erie
Erie, PA 16563
Acknowledgments
I wish to thank the team -- Mehdi Khosrow-Pour, Jan Travers and Michele Rossi at
Idea Group Inc. -- who made the publication of this book possible by accepting
my proposal. My special thanks to Kristin Roth for guiding me through the maze
of publication requirements. This book benefited due to the comments made by
several experts: Neal Hannon (University of Hartford) and Kinsun Tam (University
at Albany) provided insightful comments on the XML/XBRL chapter. Also, Somnath
Bhattacharya (Florida Atlantic University), Jeffrey Romine (Truman State
University), Ido Millet (Pennsylvania State University – Erie) and two anonymous
reviewers provided many helpful comments. I also wish to thank corporations that
allowed me to use their products and screen shots from their Web sites for
illustrative purposes. Finally, I am grateful to Altova Corporation for
providing me with the XML Spy software. All errors are my responsibility.
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