Digital Accounting: The Effects of the Internet And Erp on Accounting

409 Pages·2005·7.69 MB·English

by  Ashutosh Deshmukh

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Ashutosh Deshmukh
Pennsylvania State University – Erie, USA
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Hershey • London • Melbourne • Singapore
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Copyright © 2006 by Idea Group Inc. All rights reserved. No part of this book may be reproduced,
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Library of Congress Cataloging-in-Publication Data
Deshmukh, Ashutosh, 1959-
Digital accounting : the effects of the Internet and ERP on accounting / Ashutosh Deshmukh.
p. cm.
Summary: "This book provides a foundation in digital accounting by covering fundamental topics such
as accounting software, XBRL (eXtensible Business Reporting Language), and EDI"--Provided by
publisher.
Includes bibliographical references and index.
ISBN 1-59140-738-9 (hardcover) -- ISBN 1-59140-739-7 (softcover) -- ISBN 1-59140-740-0
(ebook)
1. Accounting--Software. 2. XBRL (Document markup language) 3. Electronic data interchange. 4.
Internet--Economic aspects. 5. Business planning. I. Title.
HF5679.D47 2005
657'.0285'5--dc22
2005022460
British Cataloguing in Publication Data
A Cataloguing in Publication record for this book is available from the British Library.
All work contributed to this book is new, previously-unpublished material. The views expressed in this
book are those of the authors, but not necessarily of the publisher.
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This book is dedicated to Hema, my wife, for her unrelenting support
through many ups and downs that led to the publication of this book.
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Preface ..........................................................................................................................ix
Chapter I.
A Framework for Digital Accounting............................................................................1
Digital Accounting, E-Accounting and the E-Thing..........................................1
Roots of Digital Accounting................................................................................2
The Internet and Digital Accounting..................................................................3
Costs and Benefits of Digital Accounting.........................................................10
Structure of the Book ........................................................................................12
Summary ............................................................................................................13
References..........................................................................................................13
Endnote .............................................................................................................14
Chapter II.
The Evolution of Accounting Software........................................................................ 15
History of Accounting Software ........................................................................15
What Constitutes Accounting Software?..........................................................27
Looking Ahead..................................................................................................32
Summary ............................................................................................................34
Appendix A: A Checklist for E-Commerce Features.........................................38
References..........................................................................................................35
Endnote .............................................................................................................14
Chapter III.
The XML-Based Web Languages and Accounting..................................................... 42
XML: What’s in it for Accountants?..................................................................42
History of Markup Languages ..........................................................................44
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What is XML? ....................................................................................................48
XML Document.......................................................................................48
XML Supplementary Technologies ........................................................56
XML Tools and Software........................................................................61
Advantages and Disadvantages of XML ................................................62
XBRL..................................................................................................................63
Structure of XBRL...................................................................................64
XBRL Taxonomies...................................................................................64
XBRL Instance Documents......................................................................72
XBRL Tools and Software.......................................................................77
Audit and Control Issues in XRBL..........................................................78
Conclusion ........................................................................................................80
Summary............................................................................................................80
References..........................................................................................................81
Endnotes............................................................................................................84
Appendix A: Applications of XML-Based Languages
in Accounting................................................................................................84
Chapter IV.
Electronic Data Interchange....................................................................................... 88
What is Electronic Data Interchange? .............................................................88
EDI Standards and Standard-Setting Organizations.......................................90
Infrastructure for EDI Solutions........................................................................96
Accounting Software and EDI...........................................................................99
Financial EDI..................................................................................................103
EDI in the E-Era..............................................................................................110
EDI/XML...............................................................................................110
EDIINT..................................................................................................114
Internal Controls in EDI .................................................................................118
Benefits and Costs of EDI................................................................................122
Looking Ahead................................................................................................126
Summary..........................................................................................................126
References........................................................................................................127
Chapter V.
The Revenue Cycle....................................................................................................131
Revenue Cycle Activities.................................................................................131
Sales Orders.....................................................................................................133
SAP CRM Tools ....................................................................................135
CRM and Sales Orders .........................................................................141
Credit Approvals.............................................................................................143
Warehousing and Shipping.............................................................................149
Billing..............................................................................................................152
EIPP and EBPP Processes....................................................................153
Models for EIPP and EBPP..................................................................155
Infrastructure for EIPP and EBPP........................................................160
Advantages and Disadvantages of EIPP and EBPP............................162
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Receivables and Collections...........................................................................165
Online Management of Receivables.....................................................165
Electronic Payment Methods ...............................................................168
B2C Payment Methods .........................................................................169
B2B Payment Methods..........................................................................181
Electronic Lockboxes...........................................................................183
A Word on Digital Cash .......................................................................183
Summary ..........................................................................................................185
References........................................................................................................186
Endnotes..........................................................................................................189
Chapter VI.
The Expenditure Cycle..............................................................................................190
Expenditure Cycle Activities...........................................................................190
Ordering, Receiving and Paying for Goods....................................................192
Supplier Selection Strategy .................................................................194
Identifying and Selecting Suppliers.....................................................195
Contract Negotiations and Contract Management.............................196
Supplier Self-Service ............................................................................197
Support for Auctions.............................................................................197
Electronic Invoicing and Settlement....................................................198
Content Management...........................................................................201
Employee Self-Purchasing....................................................................202
Procurement Cards...............................................................................205
Unusual Items and Exceptions .............................................................210
Purchasing Intelligence.......................................................................210
SAP SRM Tools.....................................................................................212
Expenses and Payroll......................................................................................215
Online Management of Expenses .........................................................215
Online Travel Centers ..........................................................................219
Online Payroll......................................................................................221
Fixed Assets.....................................................................................................225
Summary ..........................................................................................................225
References........................................................................................................227
Endnote ...........................................................................................................229
Chapter VII.
The Conversion Cycle...............................................................................................230
Conversion Cycle Activities............................................................................230
Supply Chain Management.............................................................................232
SAP SCM Capabilities....................................................................................234
Supply Chain Planning........................................................................235
Supply Chain Execution.......................................................................237
Supply Chain Collaboration ...............................................................238
Supply Chain Coordination.................................................................243
SAP SCM Tools ...............................................................................................245
Supply Chain Cost Accounting.......................................................................251
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Summary..........................................................................................................256
References........................................................................................................257
Chapter VIII.
The General Ledger Cycle........................................................................................260
General Ledger Cycle Activities .....................................................................260
Closing of the Books .......................................................................................262
Financial Analytics.........................................................................................268
Planning and Budgeting.................................................................................278
Enterprise Portals ...........................................................................................282
Components of an Enterprise Portal....................................................284
SAP Enterprise Portals—A Business View...........................................286
Summary..........................................................................................................289
References........................................................................................................290
Endnote ...........................................................................................................292
Chapter IX.
Financial Management, Strategic Management and Digital Accounting............... 293
Digital Accounting and Accounting Processes..............................................293
Corporate Treasury Functions .......................................................................295
SunGard Treasury System ....................................................................297
SAP CFM Tools ....................................................................................299
Financial Supply Chain..................................................................................304
Corporate Performance Management ............................................................307
SAP SEM Tools.....................................................................................309
Summary..........................................................................................................315
References........................................................................................................316
Chapter X.
Controls, Security, and Audit in Online Digital Accounting...................................318
Internal Controls: What and Why?.................................................................318
Security Issues in the Online World ................................................................322
A Conceptual Framework for Online Internal Controls................................334
Standard Online Internal Control Techniques...............................................336
Security Policy......................................................................................338
Passwords, Security Tokens and Biometics.........................................342
Access Control List (ACL)....................................................................343
Anti-Virus Software ..............................................................................344
Defense Against Social Engineering....................................................344
Cryptology............................................................................................345
Digital Watermarks ..............................................................................349
Firewalls...............................................................................................350
Web Content Filtering..........................................................................352
Virtual Private Network (VPN) ...........................................................353
Message Security Protocols.................................................................355
A Taxonomy of Network Anti-Intrusion Techniques.......................................357
Preventive Techniques..........................................................................358
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Preemptive Techniques.........................................................................359
Deterrent Techniques ...........................................................................359
Deflection Techniques..........................................................................359
Detection Techniques...........................................................................360
System Integrity Techniques.................................................................362
Intrusion Countermeasures (ICE) Techniques ....................................362
A Word on Wireless Networks ..............................................................362
Anti-Intrusion Products........................................................................364
Automated Control and Compliance Tools....................................................364
Searchspace..........................................................................................364
TransactionVision................................................................................367
Privacy and Assurance Issues in the Online World ........................................369
Trust Services........................................................................................372
Privacy Audits ......................................................................................376
Summary ..........................................................................................................378
References........................................................................................................379
Endnote ...........................................................................................................383
About the Author.......................................................................................................384
Index .......................................................................................................................... 385
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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 contin-
ued but accelerated the trend. The rise and fall of the e-revolution has been spectacu-
lar; 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-ac-
counting, as a corresponding analog, refers to the representation of accounting infor-
mation in the digital format, which can then be electronically manipulated and transmit-
ted. Digital accounting does not have a standard definition, but merely refers to the
changes in accounting due to computing and networking technologies. The term digi-
tal 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 the 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