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ERP Systems and Financial Accounting

07.23.2020

Is a fully integrated financial accounting solution preferable to external software?

ERP Systems and Financial AccountingThe field of financial accounting is becoming increasingly complex for companies in many respects. For example, its function has long gone beyond mere accounting and includes regulatory and documentary requirements. In particular, internationally positioned companies are also faced with the challenge of having to present their stakeholders financial statements in accordance with various accounting standards. At the same time, internal financial accounting, often together with cost accounting, provides a decisive data basis for the control and optimization of all corporate activities. Especially when remaining business areas are mapped in one ERP system, decision-makers often have to ask themselves which software to use for financial accounting. Should an ERP system including financial accounting be used, or would it be better to use a stand-alone solution? While some ERP providers have their own, fully integrated financial accounting, other providers market their ERP system together with external financial accounting software as a package.

The most important advantage of a fully integrated financial accounting solution: Basic data such as the customer/vendor master, tax keys, terms of payment, etc. only have to be maintained once centrally and form a standardized and always up-to-date basis for the various areas such as purchasing, sales and distribution and, of course, accounting. With the final saving of an outgoing invoice or the release of an incoming invoice, all information for an automatic financial accounting posting is already available - if implemented accordingly. Some accountants may initially be concerned that interactions between other departments may result in bookings being generated without control by the financial accounting department. This concern can be addressed, for example, by using a posting preview in a transition and verification phase before switching to automatic posting. Another problem can be the maintenance of financial accounting relevant fields (e.g. for the correct determination of revenue accounts) in the basic data. This aspect can be met by appropriate training, simple structure and the definition of mandatory fields. Alternatively, a regulation is also imaginable that, for example, an article can only be used after it has been released (via corresponding rights assignment) by the accounting department, which, however, negatively affects the work flow.

The above-mentioned aspects apply not only to a financial accounting solution that is fully integrated into the ERP system but also, in principle, to external financial accounting software connected via interfaces. Basically, it must be clarified whether the ERP system has all financial accounting relevant fields in the basic data. In addition, it must be checked which data can be kept synchronous/transferred via interfaces (basic data transfer or only transaction data?). Can standardized interfaces be used for this purpose, or is special programming necessary? Is special programming in the desired software even possible and/or at which (financial) expense? And what happens if a software provider changes its interface in a release? Moreover, in this constellation there is a constant exchange with several software providers, especially during implementation, which must be coordinated. Basically, every interface and every software that is operated increases the complexity and maintenance effort of the IT structure. From the end user's point of view, the decisive factor is that interface handovers often only take place 1-2 times a day, so there is always a time lag. In addition, different interfaces and several logins must be worked with.

A delayed introduction of ERP and integrated financial accounting is also conceivable. In this case, all data must be entered manually in the financial accounting during the transition period or interfaces must be implemented. While the former involves internal company expenses, the latter increases the implementation costs due to interface set-up, testing and training. It is generally not advisable to "bend" the structure of a system extremely to create a connection to another software. Experience has shown that the greatest common denominator of the two programs must always be found for interfaces, but this often leads to limitations in the flexibility of both programs.

Another important advantage of a fully integrated financial accounting function is the drilldown option. If sales, purchasing, and accounting are represented in one system, Accounting can, for example, jump directly to the sales invoice if it has questions about a specific financial accounting document, in order to view the facts (e.g. with regard to the place of performance for VAT determination). Even a complete cash flow planning, which, in addition to open items and pending recurring entries, takes into account orders/sales orders that have already been placed, must rely on data from both ERP and financial accounting.

Even though this may seem theoretically realisable via interfaces, the drilldown options are only available in the fully integrated solution (e.g. direct calling up of the purchase requisition in the case of exceptionally high negative cash flow). The same applies to budgeting if both financial figures and the underlying sales and purchasing values are planned within one framework budget. Finally, the query of a customer's payment behavior in the context of contract negotiations by the sales employee can be mentioned as an example of reverse integration. Does this make financial accounting, which is fully integrated into the ERP system, the best solution for all companies? This statement cannot be made in such a general way. For certain industries, there are special ERP systems that map exactly the specific processes in the company, but do not have their own financial accounting module. In this case, an external financial accounting system can be more useful than an ERP system with integrated financial accounting that has to be strongly adapted to the specific processes. A similar picture emerges in the case of corporate structures/groups of companies where the individual companies use different ERP software but the financial accounting is processed centrally. Even with separate accounting, consolidations to be carried out, a fiscal unity or financial accounting evaluations at group level can be good arguments for the use of uniform, external financial accounting software. At the same time, standardized administration and expert advice is easier in more complex special cases.

The decisive factor in the end is therefore to be clear about the specific company requirements as well as the advantages, disadvantages and also the costs before selecting the system and to weigh up the possibilities against each other, if necessary together with consultants. Thus an optimal and sustainable solution for the company can be found.

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