impact

Electronic copy available at: http://ssrn.com/abstract=1734052

THE IMPACT OF INFORMATION TECHNOLOGY ON MANAGEMENT ACCOUNTING PRACTICES

by

Gary Spraakman School of Administrative Studies

York University Toronto, ON M3J 1P3 Canada 416 736 2100, extension 22155

416 736 5963 (fax) [email protected]

and

Cristobal Sanchez-Rodriguez

School of Administrative Studies York University

Toronto, ON M3J 1P3 Canada 416 736 2100, extension 22983

416 736 5963 (fax) [email protected]

December 2010

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mailto:[email protected]

mailto:[email protected]


THE IMPACT OF INFORMATION TECHNOLOGY ON MANAGEMENT ACCOUNTING AND PRACTICES

Abstract

The purpose of this research was to study the impact of enterprise resource planning (ERP) systems at large, profitable Canadian firms. Of the respondents, only 56.8% said their firms had ERP systems. Only 12% of those firms were deemed by respondents to have fully integrated ERP systems. There was general support for the hypotheses. Management accounting techniques such as budgetary control, cost control, profit analysis, sales analysis and variance analysis use ERP systems. Those same management accounting techniques plus budgeting have been required to change due to ERP systems. The work of management accountants has changed: less involvement in data entry activities, more involvement in design of business processes, and the need to be more IT savvy. ERP systems have contributed to the work of management accountants: more effective, more efficient, better decisions, more responsive to accounting problems, more accuracy of forecasts, and better understanding of cost behaviour.

Key words: management accounting, ERP systems, information technology

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THE IMPACT OF INFORMATION TECHNOLOGY ON MANAGEMENT ACCOUNTING PRACTICES

Introduction

Information technology (IT) has taken over the firm’s financial ledgers and

reporting systems, and management accounting is no longer possible without it (Granlund

and Mouritsen, 2003, p. 78). However, the relationship between IT and management

accounting has been studied insufficiently and more empirical research is needed

(Granlund, 2007, pp. 3-7).

The purpose of this paper is to study the impact of IT on management accounting,

particularly on performance measures and practices. IT includes, but is not limited to

enterprise resource planning (ERP). The researchers were told by some Canadian

controllers that ERP systems are “setting the standard,” which must be achieved for

survival (Cooper and Kaplan, 1998). Relatedly, an argument can be made with

transaction cost economics that inventions like the telephone, telegraph, and, possibly,

ERP systems reduce transaction costs, and as management improves they increase the

effectiveness and size of firms. The possible corollary is that firms that do not adopt the

technology of ERP systems will be disadvantaged and/or even cease to survive.

ERP systems are technological changes, and if prevalent, they could change the

context in which management accounting must function. Based on Roberts’ (2004)

complementarity, it can be hypothesized, briefly, that the prospering and surviving firms,

with ERP systems will develop new management accounting measures and practices.

Existing research will be examined for answers to this working hypothesis that

management accounting must change to “fit” with ERP systems.

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There are six more sections to this paper. The second or next section is the

literature review. Section three puts forth the hypotheses that were developed from the

literature review. The sample and method are discussed in the fourth section, which is

followed by the findings from testing the hypotheses. The discussion and conclusion are

contained in the sixth and seventh sections, respectively.

Literature Review

There is a lack of agreement that ERP systems are essential for a firm’s success

and survival. Conventional best of breed (BoB) or standalone system components are

often used successfully to integrate operations (Booth et al., 2000; Davenport, 2000;

Light et al., 2001; Scapens et al., 1998). These BoB systems need to be considered as

alternatives to ERP systems.

In considering BoBs and ERP systems as alternatives, it is important to recognize

that ERP systems evolved from BoBs via inventory ordering in four stages (Umble et al.,

2003, pp. 242-244). First, in the 1960s firms could afford to carry relatively large

amounts of inventory. Economic order quantity (EOQ) was used to minimize ordering

and carrying costs. Second, firms in the 1970s could no longer afford as much inventory.

This led to materials requirement planning (MRP) systems, which were computer

simulations that also answered additional questions such as what, how many, and when

inventory items were needed.

In the third stage, in the 1980s increased power and affordability of IT led to

improvements to MRP, which resulted in manufacturing resource planning or MRP II.

This fully integrated system planned production jobs using the usual MRP method, and

also calculated resource needs such as labour and machine hours in addition to inventory.

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Fourth, the 1990s saw continuing improvements in IT which allowed MRP II to

be expanded to incorporate resource planning for the entire enterprise. Thus, the term

enterprise resource planning was coined. Subsequently, ERP systems were offered to

non-manufacturing firms wanting to enhance competitiveness by efficiently using

inventory in addition to other resources.

It needs to be recognized that there are a number of stages with IT to reach the

ultimate, an ERP system. In addition, the actual adoption of ERP would be on a

continuum, rather than a question of “yes” or “no” (Hyvonen, 2003, p. 157). ERP

systems are complex with substantial implementation costs. Firms may not always

implement, even with time, all modules available to their ERP systems.

To date, research on the impact of ERP systems on management accounting has

been robust, qualitative, and accumulative. Three journals - Accounting, Organizations

and Society, European Accounting Review, and Management Accounting Review – have

been the most involved with publishing research on this topic. Some of the relevant

research from these journals will be discussed.

In an earlier study by Granlund and Malmi (2001, pp. 302, 305) data were

gathered from10 European firms with an exploratory field method. The purpose was to

understand how ERP systems change (1) management accounting and control system

characteristics, and (2) management accountants. They found (pp. 312-313) that ERP

systems had little effect on management accounting and control systems. This was

because many of the management accounting techniques operated on systems separate

from ERP systems. In addition, the work of management accountants started to de-

emphasis the more routine tasks such as data entry in favour of analyses.

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Scapens and Jazayeri’s (2003, pp. 224-229) longitudinal study of an ERP

implementation had similar results:

In this case, although there were no fundamental changes in the nature of the management accounting information used following the implementation of SAP, there were changes in the role of management accountants – in particular: (i) the elimination of routine jobs; (ii) line managers with accounting knowledge; (iii) more forward looking information; and (iv) a wider role for the management accountants. However, it is not claimed that SAP was the driver of these changes; rather it is argued that the characteristics of SAP (specifically, its integration, standardization, routinization and centralization) opened up certain opportunities and facilitated changes which were already taking place within the firm.

In commenting on the impact of centralizing records (kept virtually on a central

server at a distance from operations) and decentralizing accounting analytical work, both

caused by ERP systems, Quattrone and Hopper (2001, p. 421) say there is a transition

from centralization of control by accountants to where everyone in the firm acts as a

controller. With ERP, everyone has access to information and the opportunity to exert

control.

Lodh and Gaffikin (2003) undertook a field study of the implementation of an

integrated accounting and cost management system. They were particularly interested in

the impact on the role of management accountants. Their findings are stated verbatim:

- IT is a challenge for accountants - Accountants are business process analysts. - Accountants are involved with process improvements at all levels. - In an integrated business system environment there will be less number

crunching for accountants. Rather, they will be doing more analysis and reporting types of work.

- Accounting is moving to the two extreme points, that is, to users’ desk or input desk and to the centrally controlled offices.

- Accountants need to have multidisciplinary knowledge with a cross-functional focus …

- Accountants need a change in attitude to manage cost management systems on a real-time basis.

- Accountants will have more direct control in activity inputs or business processes.

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- Some accountants will become (information) systems administrators. - There is a greater scope for change to open up new opportunities for

managing cost management and other systems in an integrated business system environment than in the financial accounting ... (pp. 114-115).

From a case study using structuralation, Caglio (2003) was able to study the

impact of an ERP system on the roles of accountants in a single firm. He observed “a

higher degree of standardization of accounting activities and practices; a stronger need

for integration and interfunctional collaboration; and a more prominent role of the

accounting department in the management of the new IT system” (pp. 140-141). The

effect on accountants was the creation of hybrid positions (p. 146), i.e.,

Hybridization between professional groups is a trend that has been widely cited in the accounting literature, yet without analyzing both its causes and direction. Drawing on the findings of our case study, we can try to explain the hybridization process of accountants’ positions and expertise referring to the fact that before the implementation of the ERP system, practices and their related outcomes were strongly linked to specific organizational positions. With the new ERP, certain forms of mutual knowledge, i.e., technical accomplishment and, to a lesser extent, professional expertise, have become increasingly disembedded, being lifted out of positions, incorporated into the IT system and re-articulated across all the position-practice incumbents who can draw upon the ERP in the accomplishment of their day-to-day activities. In this sense, our study has shown that the emergence of hybrid accountants is linked to the mobility and transferability of tools and techniques between them and other groups of experts (Miller, 1998; Hopwood, 1992).

Dechow and Mouritsen (2005) used actor-network theory to understand how two

firms pursued the integration of management and control through ERP systems. They

found that ERP systems assisted both firms with increasing the precision and timeliness

of financial accounting, and improved inventory control at one of the firms (pp. 700,

717). They also noted techno-logic attributes of ERP systems, which integrated

accounting information with non-financial information (pp. 703, 723). With these firms,

the ERP systems led to information use shifting from accounting to non-accounting (pp,

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706, 724-725). The authors say control in an ERP setting is not limited to accounting;

ERP systems enabled non-accounting information to be more dominantly used for control

(p. 727). Specifically, they say, “control cannot be studied apart from technology [i.e.,

ERP systems] and context because one will never get to understand the underlying

‘infrastructure’ – the meeting point of many technologies and many types of controls (p.

691).

Similarly, with actor-network theory as used by Dechow and Mouritsen (2005),

Quattrone and Hopper (2005) examined two firms for, in this case, the impact of ERP

systems on distance and management control. They started with the premise that ERP

systems eliminated distances because they are integrated and real-time (p. 738) and that

management control systems are maps that guide managers. They found that ERP

systems reduced distances but did not always centralize control (p. 761), i.e.,

Accounting categories defining centres and peripheries and accounting reports enacting action at a distance disappeared: everyone is an accountant now. This produced a flatter organization … but eliminating distance did not centralize control.

There have been numerous literature reviews that provide understanding of the

impact of IT on management accounting. Granlund (2007, pp. 7-9) found that IT has

tended to be the “essential carrier” of management accounting information. These

systems are replicated and installed in subsidiaries and new acquisitions. IT is the main

reason a “management accounting system may become shaped: standardized, localized,

and disseminated in an organization.” IT was the most important driver of recent changes

to management accounting.

One of the authors examined the impact of the ERP system on the management

accounting practices of the Hudson’s Bay Company. The firm had the typical

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management accounting techniques of planning, capital budgeting, budgeting, operating

statements, and internal audit, which have not changed to any significant extent since the

1970s. However, since 2000 inventory recording changed, and significantly, for the first

time in more than a century. Instead of inventory being tracked in financial terms,

inventory is now tracked in real physical terms because of the implementation of an ERP

system. Inventory requirements can be ordered and tracked in physical terms from

requirements, ordering, transportation, etc. to sales. There is no need to aggregate with

monetary terms, thus qualitative attributes can be preserved with the Retek ERP system.

Retek has a very detailed chart of accounts for operating the merchandising or

inventory systems. The information on physical inventory is joined to the financial chart

of accounts through the Firm’s Oracle financial ERP system. The Oracle ERP system has

a specialized retail accounting module, an HR module, etc. These two ERP systems

operate as one ERP system allowing the financial chart of accounts to be part of a supply

chain. In effect, HBC is competing with its supply chain, using an extended chart of

accounts that tracks physical inventory with barcodes. The chart of accounts is no longer

restricted to monetary abstractions (Dechow & Mouritsen, 2005, p. 706).

Norreklit (2000, pp.68-71) has argued that the relationship between non-financial

measures and financial measures is one of logic rather than cause-and-effect or empirical.

In contrast, the Hudson’s Bay Company’s ERP system explicitly transfers actual physical

inventory items into financial numbers. There is complete coupling. There are logical

relations between plans, capital budgets, budgets, financial statements, and, previously,

inventory records. However, now the relationship between physical inventory items and

the corresponding financial transactions on the balance sheet and income statement

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demonstrate a causal relationship.

Visibility improved with the Hudson’s Bay Company’s Retek ERP system. By

tracking actual inventories, the ERP system incorporated signs that reflect physical

reality, without financial aggregation or uncertainty. The ERP system incorporated

qualitative attributes in addition to exchange values. Consequently, the ERP system

ensured that the firm increased its efficiency and effectiveness through the physical

management of inventory. The Hudson’s Bay Company’s ERP system was a means for

integrating and thereby improving calculation (Dechow & Mouritsen, 2005, p. 693). It

integrated the financial and the physical or non-financial, not just logically as with the

traditional management accounting techniques but empirically (Norreklit, 2003, p. 596).

Moreover, the Firm’s Retek ERP system shrunk distances, particularly in making

centralized or shared services possible (Quattrone & Hopper, 2005, pp. 737-738).

Hypotheses

Recent research suggests that ERP systems have led to some changes in the work

of management accountants. Management accountants need to understand IT and ERP

systems and other parts of the organization, because increasingly they are business

systems analysts. They are more likely to work on systems than to input data and their

expertise is being shared throughout the organization. These findings are summarized as:

IT is now a major part of the work of every management accountant.

The literature is less clear on whether ERP systems are crucial for success and

survival. There is evidence to indicate that alternative systems – best of breed – may have

equally competitive functionality as ERP systems. Four hypotheses will be developed to

predict the impact of ERP systems on management accounting.

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For the first hypothesis, the literature is clear about the power of IT and ERP

systems to provide for the integration of sub-systems. Of course ERP systems lead to a

greater standardization of information. These systems provide accurate information, and

reports are quickly produced. The result is that a firm’s operations are more transparent

or visible. For example, from a survey of 349 Danish firms, Rom and Rohde (2006, pp.

61-62) found that

ERP systems have not significant relationships to reporting and analysis, budgeting, non-financial, external and ad hoc management accounting, and allocation of costs. However, a significant and positive relationship is found between ERP systems and data collection and organizational breadth of management accounting. It is confirmed that ERP systems are powerful tools with regard to transaction processing and integration of the organization, as data collection can be considered a proxy for transaction processing, and organizational breadth of management accounting a proxy for integration.

Rom and Rohde further reported that respondents were more satisfied with their ERP and

integrated information systems when there were strategic enterprise management systems

for reporting and analysis.

Gradlund (2007, p. 27) has concluded from the literature that ERP systems:

are about integration, standardization, and centralization (Scapens and Jazayeri, 2003). They also manifest best practices in the industry and foster benchmarking activities within companies as information is generally consistent and thus commensurate. They propose significant enhancements in corporate management: [ERP systems] introduce companies with process ideology, management-by-facts (no place/need for intuitive decision making), and real time management (as [ERP systems] work in real time). Overall, ERP systems can be seen as passive management control system packages … that can integrate various (formal) accounting and non-accounting control systems. H1: Higher level of ERP integration is positively associated with usage of ERP

in management accounting techniques.

The management accounting techniques include: activity-based costing, budgeting,

capital budgeting, budgetary control, cost control, profit analysis, sales analysis, and

variance analysis.

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H2: Higher level of ERP integration is positively associated with changes in accounting techniques.

As with the first hypothesis, the management accounting techniques include: activity-

based costing, budgeting, capital budgeting, budgetary control, cost control, profit

analysis, sales analysis, and variance analysis.

Kallunki et al. (forthcoming, pp.7, 16) distributed a mail survey to receive 96

responses from Finnish controllers and chief financial officers. They found that ERP

systems affect financial performance but not directly. ERP systems positively affect

formal management control systems, which are positively related to non-financial

performance, which then positively affect financial performance. The impact of ERP

systems on finance performance is real and positive, but not direct.

There have been numerous predictions that ERP systems change the work of

management accountants. For example, a number of studies have indicated that ERP

systems have changed the work of management accountants from “bean counters” to

“business analysts” (Caglio, 2003; Scapens and Jazayeri, 2003). Granlund (2007, p. 13)

from a survey of literature concluded that firms tend to select software rather than

develop their own systems, which he said would mean management accountants would

be more involved in strategic/managerial system design, software selection, and

integration rather than technical system design. Granlund (2007, pp. 20, 22, 23) also

surmised from the literature that with the prevalence of IT, management accountants

would be affected by hybridization as there was an “inseparability of and mutually

constitutive relationship between accounting and IT.” Management accountants,

according to Gradlund, were becoming developers, analyzers, software purchasers,

consultants, trainer and system auditors.

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From a review of the literature on management accounting and IT, Berry et al.

(2009, pp. 12-13) found that management accountants increased “their responsibilities

and legitimized competencies”. At the same time, they found that non-accountants

became more involved with management accounting activities of “scorekeeping,

attention-directing, and problem solving”. They concluded by saying that there is a

complex relationship between IT/ERP and management accounting, which requires more

research.

H3: Higher level of ERP integration is positively associated with changes in the job of management accountants.

The literature suggestions the following changes to the work of management accountants:

less involved in data entry; more involved in design and improvement of business

processes; more involved in selection of software vendors; more knowledge of IT; and

more use of non-financial performance measures.

Granlund (2007, p. 28) concluded from a survey of the literature that financial and

non-financial information from ERP systems will be much more consistent among units.

Chapman and Kihn (2009) examined the impact of information system integration (ISI)

from a common database, which is an integral attribute of ERP systems. They built this

research on the common claim for ISI that it “enables more flexible forms of analysis

leading to enhanced performance” (p. 153). Findings from a mail survey of 300 business

unit managers in 86 firms (p. 157) revealed a direct association between ISI and

perceived system success, but not between ISI and the other aspects of performance such

as repair (refers to the breakdown of control processes, providing capabilities for fixing

them), local transparency (understanding the working of local processes), and global

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transparency (refers to the understanding of where and how local processes fit into the

organization as a whole) (p. 166).

H4: Higher level of ERP integration is positively associated with greater performance.

Greater performance is measured by: job effectiveness; job efficiency; decision making;

reduce inventory costs; reduced production costs; improved customer service; and

increased responsiveness to accounting problems.

Sample and Method A postal questionnaire was used to test the hypotheses. Three ERP consultants

were interviewed to discuss the impact of ERP systems on management accounting.

These interviews took between 60 and 90 minutes each. The interviews assisted with the

development of the questionnaire. The consultants also completed an on-line

questionnaire that required them to estimate from their experience the stage of

development of ERP systems at the initial 200 Canadian firms being proposed for the

survey. Based on the consultants, the sample was reduced to the largest independent 190

firms. Large, profitable firms were chosen because they are more likely to have ERP

systems. Theses firms were was obtained from The Globe & Mail’s 2008 Report on

Business magazine. The target respondents of the questionnaire were the chief financial

officers (CFOs).

Of the sample of 190, 18 firms had to be eliminated because they had been or

were being merged, they had been detected to be subsidiaries, they moved their corporate

office to a foreign firm, and the questionnaires were returned with no availability of

alternative addresses. Consequently, the final sample was 172 firms.

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The questionnaire response was 44 firms with a response rate of 25.6%, which

was acceptable. Three mail requests were made in April, July and August of 2009;

telephone reminders were used to increase the anonymous responses.1 The questionnaire

could be completed in paper form or on-line. With the demanding economic conditions of

2009, prospective respondents frequently lamented that difficult economic times

prevented them from having the time to complete our questionnaire.

Respondents came from a variety of industries (see Table 1). Among all the

industries, energy oil and gas, manufacturing, and financial services account for over

50% of respondents in the total sample. Overall firms had an average size of 5,919

employees.

(Table 1 – about here)

Table 2 specified that CFO was the most frequently mentioned among the

respondents’ titles, with 27.2% followed by different vice president (VP) positions (14

firms : 31%), controller representatives (9.0%) and a number of other positions (38.8%).

With respect to number of years that had passed since accountants graduated, 51% of

respondents had graduated between 20 to 29 years ago. A second group of almost 25% of

respondents indicated that they had graduated between 10 and 14 years ago. The average

number of years since graduation was 20 years (standard deviation = 7.5 years) as shown

in Table 2.


Findings

1. The survey was for testing the hypotheses. To start respondents were asked to

indicate whether they had implemented an ERP system in accounting or not. For 1 Our University’s ethics committee required that the respondents be anonymous.

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those firms with ERP system, we also asked them to indicate the level of ERP

integration which was measured with a four point scale.

As seen in Table 3, 19 firms (43.2%) had no ERP systems in accounting and 25 firms

(56.8%) had ERP systems in their accounting department. Of the latter group, most firms

had implemented several ERP modules, although in some cases only a few ERP modules

were fully functional (10 firms; 22.7%) and in other cases most of them were fully

functional (12 firms; 27.3%). See Table 3. On average, firms had had their ERP systems

in place for five years.


The next few tables provides context for understanding the results from

hypotheses testing, which are shown in the last four tables. For a context, Table 4 reports

the names of the ERP software vendors. As it can be seen the large software vendors

products were the most frequently cited by respondents; Oracle was the most common

ERP system among the firms in the sample followed by PeopleSoft (owned by Oracle),

SAP and Microsoft Dynamics Great Plains.


Table 5 reports the reach of ERP implementation. Firms seemed to have

implemented their ERP system across all business units or in some business units. When

the results are broken down by level of ERP integration we can see that firms with fully

integrated ERP systems or that have adopted several modules, most of them fully

functional, tend to implement their ERP systems across all business units. In contrast,

firms that had implemented several modules with limited functionality tend to implement

them only in some business units. These results are in line with what would be expected

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since full ERP integration is achieved when the system is adopted across all business

units.


Respondents in ERP firms were also asked four questions related to their level of

involvement in the ERP implementation process. As Table 6 shows, all respondents

agreed that the implementation of the ERP system was initiated by the accounting

department. The level of agreement increases with the level of ERP integration.

Respondents also indicated that the implementation of the ERP system was a joint effort

of the accounting department and IT department and that all accountants received training

in the new system. However, it is interesting to note that software vendor of the ERP

system was not always the one to provide the training, which was likely to have been

provided internally or by hired consultants.


Table 7 reports the use of other systems by both non-ERP firms and ERP firms.

Both groups of firms tend to use spreadsheets applications with the most frequency

(daily) and digital dashboards with the least (a few times a year). In contrast, ERP firms

also tend to use supply chain management systems, customer relationship management

systems, and business intelligence applications with more frequency than non-ERP

firms. However, these differences cannot be assessed statistically due to the limited

sample size.


Table 7 also reveals that as the level of ERP integration increases so does the

frequency of use of other systems among ERP firms; this is true in the case of supply

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chain management, customer relationship management, and digital dashboards where

firms with fully integrated ERP systems tend to use these systems with more frequency

than ERP firms with several ERP modules that were not all fully functional.

When asked to report the obstacles to ERP implementation, respondents in firms

with no ERP systems indicated that these systems are not viewed as cost effective, there

are more pressing business problems, and they are not viewed as relevant for their kind of

business (see Table 8). On the other hand, respondents in firms with ERP systems

identified the lack of familiarity and being faced with more pressing business problems as

the top major factors inhibiting the adoption of an ERP system.


Table 8 also reports obstacles by level of ERP integration. It is interesting to note

the existence of factors specific to firms with high levels of ERP integration such as lack

of familiarity, insufficient training, and software difficult to use. Due to the limited

sample sizes we could not conduct analysis to evaluate if the differences among groups of

firms were statistically significant.

The more integrated is the ERP system (i.e., adoption of many ERP modules and

integrated) the greater the efforts to make ERP systems used across the firm including

accounting. The level of ERP usage in management accounting was measured using a

five point scale (1= never; 2= a few times a year; 3= once a month; 4= weekly; 5= daily)

and by asking respondents to indicate to what extent ERP was used in conducting the

following list of management accounting techniques/activities: activity based costing,

budgeting, capital budgeting, budgetary control, cost control, profit analysis, sales

analysis, and variance analysis.

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A first look at Table 9 shows that ERP systems are not used with activity-based

costing, and only a few times a year in the case of capital budgeting and budgeting. The

other managerial accounting activities showed values over the threshold value of “3”

indicating that ERP systems are used with a monthly average frequency (sometimes

weekly). ERP is most frequently used in cost control activities, but also with budgetary

control, profit analysis, sales analysis, and variance analysis.


A quick comparison between the different ERP integration groups for each

management accounting activity reveals that as ERP systems become more integrated,

more frequent is the use of ERP in three managerial accounting activities: budgetary

control, profit analysis, and sales analysis. If one only compares those firms with several

modules implemented, the results indicate that more ERP integration is accompanied

with more frequent use of ERP systems in all activities except for Capital budgeting,

Budgeting, and Cost control (see Table 9).

The more integrated is the ERP system (i.e., adoption of many ERP modules and

integrated) the larger the number of business processes that would affected by the

changes and the more profound those changes would be including accounting business

processes. Therefore, it is expected that as ERP integration increases, management

accounting activities in accounting business processes would also be affected.

In relation to the changes to management accounting activities Table 10 shows

that two managerial activities were below the threshold value of “3” suggesting that the

introduction of ERP systems did not lead to any changes in activity-based costing and

capital budgeting. On the other hand, respondents agree that the introduction of an ERP

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system has driven changes to variance analysis, cost control, profit analysis, budgetary

control, and sales analysis.


A quick comparison between the different ERP integration groups for each

management accounting activity in Table 10 reveals that budgeting and sales analysis

were the only two activities where a more integrated ERP system is accompanied with

greater change in management accounting activities. Most of the changes in management

accounting activities seem to happen when the firm moves from having several modules

with only some fully functional to having several modules but most of them fully

functional.

Table 11 reports the changes to management accountants’ job as a result of the

implementation of ERP systems. Overall, respondents agreed (values above the “3”

threshold value) that ERP implementation leads to management accountants being more

involved in design and improvement of business processes, need to be more IT savvy,

and less involved in data entry activities. In contrast, respondents did not consider that the

use of ERP systems in management accounting led to accountants being involved in the

selection of software vendors nor to more intensively use non-financial performance

measures.


However, when we compare the means among firms with different levels of ERP

integration, it can be seen that as the level of ERP integration increases, the role of

management accountants also changes as denoted by the increase or decrease in mean

averages. Specifically, as the adoption of ERP systems aims toward a more fully

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integrated system, accountants need to be more IT savvy, less involved in data entry

activities, and rely more on non-financial performance measures to manage the business.

In contrast, as the level of integration increases, the level of involvement in design and

improvement of business processes decreases, although the overall value is still above the

threshold value of “3” for all ERP firms. The use of non-financial performance indicators

is only relevant for firms with fully integrated systems. Respondents in firms in their

early stages of ERP implementation consider being involved in the selection of software

as a relevant change to a management accountant’s job.

Table 12 reports the respondents’ perceptions in relation to their firm’s ERP

system effectiveness. Overall, respondents agreed (mean values greater than 3) that the

introduction of ERP in accounting contributed to greater job efficiency (taking less time

to do the same task), better decision making, job effectiveness (do the job when expected

without mistakes), greater responsiveness (solve accounting problems faster), more

accuracy of forecasts, and better understanding of cost behavior.


When we compare the responses according to their level of ERP integration,

respondents show greater level of agreement as their level of integration increases (see

Table 12). For example, when we consider firms with ERP systems “with several

modules but only some fully functional,” the survey reveals that only two benefits receive

values above the “3”threshold – responsiveness to accounting problems and job

efficiency. In contrast, ERP firms with “several modules most of them fully functional”

show seven benefits with average values above 3 – job efficiency, decision making, job

effectiveness, accuracy of forecasts, responsiveness to accounting problems, better

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understanding of cost behavior, and reduced production costs. Firms with “fully

integrated” ERP systems show the same benefits as the previous group of ERP firms plus

reducing inventory costs. Therefore, the evidence seems to suggest a positive relationship

between level of integration and benefits achieved from ERP implementation.

Discussion The response rate was an acceptable 44 firms or 25.6%. Of the responding firms,

25 of the 44 had ERP systems. However, of those firms with ERP systems, only three had

fully integrated systems. As firms added more ERP modules, they tended to increasingly

implement them across business units. Management accountants were active with ERP

implementations, and firms with ERP systems tended to be computerized with supply

chain, customer relationship management, and business intelligence systems.

There was general support for H1, higher level of ERP integration is positively

associated with usage of ERP in management accounting techniques. Table 9 showed

that for ERP firms ERP systems are used with (i.e., above the “3” threshold) budgetary

control, cost control, profit analysis, sales analysis, and variance analysis. Activity-based

costing, budgeting, and capital budgeting were not affected by ERP systems. Although

there was general support, the small sample of firms with fully integrated ERP systems

made it impossible to statistically support the hypothesis.

There was even stronger general support for H2, higher level of ERP integration

is positively associated with changes in accounting techniques. As in H1, budgetary

control, cost control, profit analysis, sales analysis, and variance analysis were found to

have been changed by ERP systems. In addition, Table 10 also showed budgeting was

changed. Only activity-based costing and capital budgeting remained unchanged by ERP

22

systems. Once again there was general support, but the small sample of firms with fully

integrated ERP systems made it impossible to statistically support the hypothesis.

There was general support from Table 11 for H3, higher level of ERP integration

is positively associated with changes in the job of management accountants. ERP systems

definitely changed the jobs of management accountants, particularly less involvement in

data entry, more involvement in design and improvement of business processes, and need

to be more IT savvy. Although there was general support, the small sample of firms with

fully integrated ERP systems made it impossible to statistically support the hypothesis.

The general support was even stronger for H4, higher level of ERP integration is

positively associated with greater performance. Table 12 showed that ERP systems

improved the work of management accountants, specifically job effectiveness, job

efficiency, decision making, responsiveness to accounting problems, accuracy of

forecasts, and better understanding of cost behavoiur. Again, the small sample of fully

integrated firms (i.e., three firms) made it difficult to statistically confirm that more

integration leads to management accounting greater performance

Conclusion With the hypotheses, we were seeking to demonstrate the impact of ERP systems

on management accounting in two stages. First, we wanted to prove that management

accounting changed with the implementation of ERP systems. Second, we wanted to

prove that that as a firm’s ERP implementation went from a few partly functional

modules to a fully integrated system, there would be more changes to management

accounting.

In testing these hypotheses, two shortcomings occurred. One shortcoming

occurred when, as shown in Table 1, only 56.8% of the respondents had ERP systems.

23

We had expected a higher percent of the respondents to have had ERP systems. The

second shortcoming was when only three or 12% of the firms with ERP systems had fully

integrated ERP systems. See Table 3. The scale was also problematic that none of the

firms was classified with “few modules, but not fully functional.” Consequently, we were

not able to statistically show that as ERP systems intensified, so did the impact on

management accounting. We had to accept that ERP systems affected management

accounting.

ERP systems are a new technology that many, but not all, Canadian firms have

implemented. They ensure that systems and information are integrated. To fit in this

changed context, we expected that management accounting would also need to change.

General support for the hypotheses explained that management accounting does change

with ERP systems. Management accounting techniques such as budgetary control, cost

control, profit analysis, sales analysis and variance analysis use ERP systems. Those

same management accounting techniques plus budgeting have been required to change

due to ERP systems. The work of management accountants has changed

because of ERP systems, i.e., less involvement in data entry activities, more involvement

in design and improvement of business processes, and the need to be more IT savvy.

ERP systems have contributed to the work of management accountants, i.e., more

effective, more efficient, better decisions, more responsive to accounting problems, more

accuracy of forecasts, and better understanding of cost behaviour.

24

Table 1 Respondents’ industry and size.

Industry Number of respondents

Percentage of respondents

Energy – Distribution 2 4.5

Energy – Mining 3 6.8

Energy - Oil and Gas 8 18.2

Energy – Pipelines 1 2.3

Manufacturing 8 18.2

Services – Financial 8 18.2

Services - Real Estate 4 9.1

Services – Retail 3 6.8

Services – Technology 5 11.4

Services – Transportation 2 4.5 Total 44 100.0

Number of employees Number of firms Percentage

0-99 3 7.1

100-499 6 14.3

500-999 4 9.3

1000-1999 6 14.3

2000-2999 9 21.4

3000- 9999 7 16.7

10000-59999 7 16.7

Total 43 100%

25

Table 2. Respondents’ title and years since graduation Respondent’s title Number of firms Percentage

Chief financial officer (CFO) 12 27.2

Vice president (VP) Finance & CFO 3 6.8

Controller 2 4.5

Corporate Controller 2 4.5

VP Finance & Controller 2 4.5

Finance Manager 2 4.5

VP Financial Reporting 2 4.5

VP Controller 2 4.5

Other * 17 38.6

Total 44 99.7

Years since graduation Number of firms Percentage

5-9 3 7.3

10-14 10 24.4

15-19 3 7.3

20-24 11 26.8

25-29 10 24.4

30-34 3 7.3

35-39 1 2.4

Total 41 99.9% * The following titles were included under category “Other”: VP, VP & CIO, VP Corporate Reporting, VP CTR Info Systems & Risk Mgmt, VP Finance, SAP BW Analyst, Accounting Manager Secretary, Senior Financial Analyst, Cost Accountant Planning & Analytics, Director of Special Projects Finance, Director of Information Systems, Director Financial Analysis & Planning, Director Financial Reporting, Manager Control Services, Manager Financial Planning & Analysis, Manager JD Edwards Application Team, Finance, Manager

26

Table 3. ERP level of integration and years since implementation.

Years since

implementation

Frequency Percent Mean SD*

No ERP 19 43.2 - -

Few modules, but not fully functional 0 0 - -

Several ERP modules, some fully functional

10 22.7 7.30 2.87

Several ERP modules, most of them fully functional

12 27.3 8.58 4.94

Fully integrated ERP system 3 6.8 5.33 2.08

Total 44 100 4.92 4.89

* Standard deviation

27

Table 4. ERP system vendor and level of ERP integration N=25 Name of ERP vendor Frequency %

Oracle 9 26.5

PeopleSoft 6 17.6

SAP 5 14.7

Microsoft Dynamics GP 4 11.8

JD Edwards 2 5.9

Sun 2 5.9

Others: Sage, Epicor, Dynamics AX, Lawson, Visibility Visual, Scala

6 17.6

Total* 34 100

* Some firms reported using more than one ERP system that is the reason why the total number of ERP systems implemented is greater than the number of ERP firms.

28

Table 5. Level of ERP integration and reach of ERP system implementation Breakdown by level of ERP integration

Total ERP

firms

Several modules: some fully functional

Several modules: most

fully functional

Fully integrated

ERP

N=25 N=10 N=12 N=3 Reach of implementation:

Mean* SD Mean SD Mean SD Mean SD

Across all business units

3.36 1.55 2.90 1.52 3.50 1.68 4.33 0.58

Only at office headquarters

1.44 1.12 1.70 1.25 1.33 1.15 1.00 0

Some business units

3.20 1.83 4.10 1.29 2.42 1.93 3.33 2.08

* Note: 1 = totally disagree; 5 = totally agree

29

Table 6. Accounting department involvement in the ERP implementation

Breakdown by level of ERP integration

ERP firms

Several modules:

some fully functional

Several modules: most fully functional

Fully integrated

N = 24 N=9 N= 12 N=3 Management accounting activities Mean SD Mean SD Mean SD Mean SD

Accounting department initiated the implementation in accounting

4.04* 1.08 3.89 0.78 4.00 1.35 4.67 0.58

The implementation of the ERP system in accounting was a joint effort between accounting and the IT department

4.38 0.88 4.33 0.50 4.25 1.14 5.00 0.00

All accountants received training

4.13 1.12 3.78 1.20 4.17 1.12 5.00 0.00

The software vendor of the ERP system provided the training

2.83 1.20 2.67 1.00 2.83 1.47 3.33 0.58


30

Table 7. Other information systems


No ERP ERP firms

Several modules:



Fully integrated;

N=16 N=23 N= 8 N=12 N=3

Other information systems

Mean*

SD Mean SD Mean SD Mean SD Mean SD

Supply chain Management (SCM)

1.81 1.5 3.09 1.8 2.63 1.76

2.92 1.9 5.00 0.0

Customer Relationship Management (CRM)

2.81 1.8 3.00 1.7 2.25 1.38

3.33 1.8 3.67 2.3

Business Intelligence 3.38 1.7 4.00 1.5 4.00 1.51

4.08 1.5 3.67 2.3

Digital dashboards 2.13 1.5 2.17 1.5 1.87 1.45

2.08 1.4 3.33 2.1

Spreadsheets 4.75 0.6 5.00 0.0 5.00 0.00

5.00 0.00 5.00 0.0

Note: 1= never; 2= a few times a year; 3= once a

month; 4= weekly; 5= daily

31

Table 8. Obstacles to ERP implementation


No ERP ERP firms

Several modules:



Fully integrated

N=12 N=23 N=10 N=10 N=3

Obstacles Mean* SD Mean SD Mean SD Mean SD Mean SD

Faced with more pressing business problems

3.33 1.23 3.30 0.97 3.20 0.92 3.20 1.03 4.00 1.00

Not viewed as cost effective

3.67 1.43 3.00 1.17 2.80 1.03 3.10 1.10 3.33 2.08

Lack of familiarity

2.83 1.64 3.39 1.20 2.80 1.32 4.00 0.67 3.33 1.53

Lack of top management support

2.67 1.30 2.17 0.98 1.80 0.79 2.40 0.97 2.67 1.53

Not viewed as relevant for our kind of business

3.33 1.67 1.87 0.92 1.70 0.82 2.00 0.82 2.00 1.73

Lack of funding

2.33 1.30 2.39 0.99 2.40 1.07 2.20 0.92 3.00 1.00

Insufficient training

2.25 1.36 2.87 1.22 2.30 1.16 3.30 1.06 3.33 1.53

Software difficult to use

1.92 1.31 2.78 1.20 2.30 1.06 3.30 0.95 2.67 2.08

Analyses too complex to learn and use

2.00 1.35 2.30 1.02 2.10 0.88 2.50 0.71 2.33 2.31


32

Table 9. Use of ERP in management accounting activities and level of ERP integration


ERP firms

Several modules:



Fully integrated

N = 24 N=10 N= 11 N=3 Management accounting activities Mean* SD Mean SD Mean SD Mean SD Activity-based costing 1.71 1.16 1.70 1.49 1.82 0.98 1.33 0.58 Budgeting 2.46 1.10 2.40 1.08 2.27 1.01 3.33 1.53 Capital budgeting 2.00 1.10 2.30 0.95 1.45 0.69 3.00 2.00 Budgetary control 3.38 1.17 3.20 1.03 3.45 1.29 3.67 1.53 Cost control 3.58 1.02 3.70 0.82 3.45 1.21 3.67 1.16 Profit analysis 3.25 0.94 2.90 0.74 3.45 1.04 3.67 1.16 Sales analysis 3.17 1.09 2.80 1.03 3.36 1.03 3.67 1.53 Variance analysis 3.21 1.14 3.10 0.99 3.36 1.12 3.00 2.00

* Note: 1= never; 2= a few times a year; 3= once a month; 4= weekly; 5= daily

33

Table 10. Changes to management accounting activities and level of ERP integration


All ERP

firms

Several modules:



Fully integrated

N = 23 N=10 N= 10 N=3 Management accounting activities Mean* SD Mean SD Mean SD Mean SD Activity-based costing 1.87 1.33 1.80 1.40 2.10 1.45 1.33 0.58 Budgeting 3.09 1.44 2.90 1.37 3.20 1.62 3.33 1.53 Capital budgeting 2.52 1.34 2.50 1.43 2.30 1.25 3.33 1.53 Budgetary control 3.35 1.27 3.00 1.41 3.70 1.06 3.33 1.53 Cost control 3.43 1.24 3.30 1.34 3.70 1.06 3.00 1.73 Profit analysis 3.39 1.34 3.00 1.49 3.80 1.14 3.33 1.53 Sales analysis 3.22 1.35 2.90 1.45 3.40 1.27 3.67 1.53 Variance analysis 3.52 1.41 3.30 1.34 3.80 1.55 3.33 1.53 * Note: 1 = totally disagree; 5 = totally agree

34

Table 11. Changes to management accountants’ job and level of ERP integration


All ERP

firms

Several modules:



Fully integrated

N = 24 N=9 N= 12 N=3 Changes to management accountants’ job Mean

* SD Mean SD Mean SD Mean SD

Less involved in data entry activities 3.25 1.29 3.00 1.23 3.25 1.42 4.00 1.00

More involved in design and improvement of business processes

3.92 0.83 4.11 0.33 3.83 0.94 3.67 1.53

More involved in the selection of software vendors 2.79 1.38 3.33 1.12 2.42 1.38 2.67 2.08

Need to be more IT savvy 3.67 1.01 3.33 0.71 3.75 1.14 4.33 1.16 Use non-financial performance measures more intensively 2.50 1.22 2.11 1.17 2.67 1.30 3.00 1.00

Rely more on non-financial performance measures to manage the business

2.50 1.18 2.11 1.05 2.67 1.30 3.00 1.00


35

Table 12. ERP performance outcomes in accounting and levels of ERP integration Breakdown by level of ERP integration

All ERP

firms

Several modules:



Fully integrated

N = 21 N=8 N= 10 N=3 Performance outcomes:

Mean* SD Mean SD Mean SD Mean SD

Job effectiveness 3.67 0.91 3.00 0.93 4.20 0.63 3.67 0.58 Job efficiency 3.90 0.70 3.38 0.74 4.30 0.48 4.00 0.00 Decision making 3.76 0.89 3.00 0.54 4.30 0.68 4.00 1.00 Reduce inventory costs 2.48 1.29 2.13 1.25 2.20 1.03 4.33 0.58 Reduce production costs 2.95 1.28 2.38 1.06 3.30 1.49 3.33 0.58 Customer service 2.57 1.25 2.00 1.07 2.90 1.37 3.00 1.00 Responsiveness to accounting problems 3.67 0.86 3.50 0.76 3.80 0.92 3.67 1.16

Accuracy of forecasts 3.62 1.20 2.75 1.28 4.10 0.74 4.33 1.16

New market opportunities 1.71 0.78 1.38 0.52 1.90 0.88 2.00 1.00 Better understanding of cost behavior 3.29 0.85 3.00 0.54 3.40 0.97 3.67 1.16


36

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