The Impact of Enterprise Resource Planning Systems on Management Accounting: An Australian Study Abstract Information technology is significantly changing the operating practices of an increasing number of companies globally. These developments have important implications for the accounting profession and in particular accounting practices in the twenty-first century. This study examines the development of enterprise resource planning (ERP) systems as a means of illustrating how changes in information technology allows all systems in a company to be linked to manage operations holistically. The study investigates the change in accounting systems using a sample of Australian companies with emphasis on the adoption of ERP systems including the potential impact of ERP on capital budgeting processes. The results show that ERP systems are changing management accounting practices, although at this stage, the impact on capital budgeting techniques appears to be limited. The findings contribute to the emerging body of literature on the development of ERP systems and its impact on management accounting teaching and research. Key words: Management accounting, capital budgeting, enterprise resource planning systems, information technology. 1. Introduction During the past decade an increasing number of companies have been impacted by information technology in terms of computerized transaction processing and electronic telecommunications such as that done with the Internet, intranet, and extranet. For competitive reasons, companies have had to change from manual and then mainframe systems to what has been called enterprise resource planning (ERP) systems. An ERP system has a common database or data warehouse that links together all systems in all parts of a company including, for example, capital budgeting with financial, control, manufacturing, sales, fixed assets, inventory, human resources modules, etc. An ERP system, by linking all systems through a data warehouse, allows a company to manage its operations holistically. A second impact of ERP systems has been a general shift to manage at the activity level rather than at the more abstract level of financial transactions. This means that management accounting, with its focus on activities, can be most effective when it is used with ERP systems to incorporate the activity level for costing and performance measurement. To be effective an ERP system will contain an extensive chart of accounts or codes for activities such as accurate recording and tracking of activities, revenues and costs. The coding incorporates stable entities of a business, such as divisions, plants, stores, and warehouses. At a detailed level there are codes for functions such as finance, production, sales, marketing, and materials management. There are also the traditional financial account codes such as assets, liabilities, revenues, and expenses, and the central ERP feature of coding processes, activities, and sub-activities. There must be consistent coding among all parts of a company in order for them to relate to one another. As the ERP system incorporates activities in terms of quantities of resources, including labour, a record of resource use is maintained. Therefore, performance can be measured in physical terms and compared to standards, which allows for the calculation of variances. This performance measurement at the activity level serves as a feedback system on efficiency and effectiveness. The confusion from abstract monetary measures is erased, and what is actually happening with the conversion of resources into goods and services can be seen. ERP systems have the potential to change management ccounting systems with more detailed, more integrated, and faster produced information. To date the research on the impact of ERP systems on management accounting can best be described as preliminary. It has involved case studies of one or two companies at a time and some field studies. The findings from these studies have been largely anecdotal. Also, some have been deductive in that arguments based on ERP attributes have been made on how management accounting should be affected. For instance, in a field study, Cook et al. (2000) described activity-based capital budgeting at a division of a US telecommunications company. The findings from Cook et al.’s field work suggests that ERP systems can increase the effectiveness of capital budgeting by anchoring financial numbers to activities rather than stopping at monetary measures with pre-ERP practices. The goal of this paper is to investigate the change in accounting systems using asample of Australian companies with emphasis on the adoption of ERP systems including the potential impact of ERP on capital budgeting processes. Prior research in the Australian environment has indicated that the economic/institutional setting is significantly different from the US and European environments as Australian companies are smaller, with fewer multinational subsidiaries and more homogenous management background in terms of culture and educational background (Matolcsy et al., 2005). Given these differences in the Australian environment Matolcsy et al claim that the benefits of ERP systems are likely to be more pronounced and measurable, at least in the short run in Australia. The significance of the study is its contribution to the emerging body of literature on the development of ERP systems and has the potential to provide useful contrast and/or confirmation of the limited research from mainly US based studies. Furthermore this study contributes to the body of knowledge of the impact of ERP on management accounting teaching and research using a broadly based sample of corporations in an Australian setting. In ascertaining the impact of information technology on management accounting, this paper will have the following additional sections. The second section contains a literature review of the impact of information technology on management accounting. With the literature review, the third section develops the research method and determines the sample used to ascertain the impact of ERP systems on management accounting practices of Australian companies. The fourth section will contain the findings, while the fifth and sixth will be the discussion and conclusion, respectively. Recommendations for future research will be included in the conclusion.
