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Accounting Software Packages Of Fortescue

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Question:

Discuss about the Use of Accounting Software Packages in your Chosen Company.

 

Answer:

Introduction:

The assignment studies the importance and application of accounting software in a Australian company. The paper considers Fortescue, the Australian metal company as the base of study. It is divided into two parts each divided into four subparts. The first part delves into the organisational structure, its software acquisition method, its sales process and control problems it face in operating the softwares. The second part deals with development of accounting software, its current market size, leading software companies and recommendations to them to help the customers acquire these software more easily.

Organisation structure:

Fortescue Metal Group follows a tall structure led by the CEO and the board of directors. that the organisation structure is led by the apex board chief executive officer, chairman of the board, lead director and four other directors. The second layer of management consists of the chief financial officer, corporate affairs and secretary, finance and secretary, director of business development, director corporate services, external relations, sales and marketing and operations. The second stratum of management reports directly to the chief financial officer. The third layer of management consists of group manager Fortescue people and group manager, health and safety.  The second and the third line of management people are led by the chief executive officer (Fortescue Metals Group Ltd., 2017).

Operational problems Fortescue can likely face due to its organisational structure:

Fortescue Metal Group owing to its tall organisational structure of can face several operational problems like lack of dynamism in decision making and execution. Zakrzewska-Bielawska(2016) states that CEOs in the manufacturing companies perceive the impact of organisational structure and strategies on each while making decisions. Bridges and Bridges (2017) state that complex organisational structure prevents dynamic decision in manufacturing organisations which impedes fast operations.

The next operational problem faced by Fortescue due to its complex and tall organisational structure is in the area of accounting. Wu(2013) states that the complex accounting processes of the manufacturing  companies of  two types, production activities consisting of transactions which are directly related to production of goods and non production expenses which refer to transactions committed towards supporting activities. Christopher(2016) states that manufacturing companies need to maintain and account for a large number of transactions relating to their complex supply chain management. This complex accounting procedure and vast expanse of business requires prompt decision making from the management and the CFO. However, the tall organisational structure of Fortescue and its bureaucratic layout impedes smooth decision making which often result in loss of business opportunities. This analysis shows that tall and complex organisational structure of Fortescue creates problems in smooth operations and decision making.

 

Most likely system acquisition method:

Fortescue uses Tax Monster as its accounting software which is a commercially available Enterprise Resource Planning(ERP) software (taxmonster.com.au 2017). The company is an iron ore mining and iron articles manufacturing company which engages in several types of transactions. The transactions are of two types, production related or productive expenditure and the non productive transaction which are not related to production activities. Laudon and Laudon (2016) state that ERP accounting software packages like Tax Monster help the manufacturing companies integrate their complex transactions pertaining to both the categories of flow of capital into and out of the organisations. Leon (2014) states that these software packages help in ERP planning of in manufacturing planning and helps the concerned departments integrate the accounting transactions and use them to form decisions like allocation of resources to areas of operations and production.

A system flowchart of the sales procedures at Fortescue:

The system flowchart shown below outlines the sales procedure followed at manufactirng companies like Fortescue. The sales process at Fortescue starts when clients place the purchase order(PO) stating the particulars and requirements like specifications of the product, expected characteristics in the finished product, quantity and so on. When the sales department acquires the orders and the Pos, it enters the particulars in the prescribed internal format and gets it approved by the clients. The contact agent then reviews the order and sees whether the terms of sale are according to the policies of the company, lawful and so on. If the contacts agent finds that the particulars of the order are accurate, the shipment department processes the order and the finished goods are shipped. If the orders are not according to the requirements, the agents requests approval from the management or the concerned person at Fortescue. If the authorised person approves the order, the contact agents too approves it and the order is processed by the logistics departments for shipment. The accounts departments records the transactions in both these cases as sale of articles. If the authorised person does not approve the order, the agent cancels the order and it is not shipped. The sales department or the customer care department notifies the customer about the cancellation of orders from the side of Fortescue             

Figure 1. Figure showing sales processes

(Source: Author)

Control problem in the system and possible frauds in the system:

Ismail and King (2014) states the manufacturing companies face certain control problems while using accounting software. The accounting softwares are very costly and require heavy investments in controlling and maintaining them. Tax Monsters charges around $500 for company tax returns filing using its software whereas book keeping services cost  around $ 40. Thus, it is evident from the discussion that though the account software packages are designed to meet the varied accounting requirements of the big companies, the services the offered are charged spate which adds to the costs of the company to control, update and use them.

According to Alrabghi and Tiwari (2015), the next control problem of accounting software is that they maintenance is very complex. The integrated accounting softwares are connected to other system softwares in the companies like HR software and admin software. Thus, upgradation of these accounting softwares lead to changes in the related softwares which makes controlling and maintenance extremely complex. Asllani and Naco (2014) state that the accounting software are susceptible to accounting frauds like inappropriate and exaggerated  accounting entries. Thus the management of manufacturing companies like Fortescue cannot depend on the accounting results shown by these softwares which makes decisions making difficult. Biener, Eling and Wirfs (2015) supports the view of Asllani and Naco and points out to the biggest threats to accounting softwares and the companies using them, cyber security and data theft. They state that cyber security results in massive losses to companies like loss of crucial data which are interrelated, unauthorised accession into the company’s financial data and so on. Thus, it can be inferred from the discussion that the three problems faced by the accounting software in companies are difficulty in maintenance, high expenditure, frauds and cyber threats.

Development and adoption of the accounting software packages:

Gereffi and Fernandez-Stark (2016) stated that development and accounting software packages led to integration of accounting works in the companies. The introduction of Turbo Cash in 1987 in South Africa which automated the system if preparing trial balance, balance sheet and income statement. Ryan(2017) states that around the same time IBM launched personal computers which made preparation of trial balance in form of spread sheets using Lotus 123 accounting software. IBM brought about the system of continuous upgradation by the companies using the accounting software packages. Taipaleenmäki and Ikäheimo (2013) points out that today companies adopt technology backed software packages which allow them to integrate all the activities in the company involving flows of financial capital like payment of salary and purchase of raw materials to form financial statements.  Tayeh, Al-Jarrah and Tarhini(2015) point out that this adoption of technology based accounting software packages help the companies to measure their standard of business excellent at any given point of time and facilitate formation of business strategies based on these results.

 

Market size of accounting software packages:

The account software package market size is growing at about a rate of 6 percent with the new accounting software packages being introduced. The growing demand of more integrated softwares which allow the companies to incorporate the financial transactions of all their departments is driving innovation and upgradation in the software package market(technavio.com 2017). The companies today are ready of invest in advanced softwares which can help the accounts departments to record transactions like loan applications, online sales, stock and commodity in hand  and recruitment of human resources. Warren, Reeve and Duchac (2013) state that these integrated recording of diverse transactions help the management to forecast future requirements of materials, capital and human resorces. The accounting recordings are today are linked to the knowledge data bases of the companies and can be used by the authorised employees to make decisions.  Ryan (2017) states that the accounting software market is geographically segmented into markets like the American market, the Australian market, the Asian market and the European market. These markets are experiencing emergence of requirements of new types of accounting software to meet the business requirements of the companies in these markets. This growing need, technological advancement, continuous innovation and new accounting software packages are encouraging dynamic growth of the market of accounting software packages. The entry of multinational companies and their continuous innovation have led to the market of accounting software become very profitable and competitive.

Leader in the accounting software package market and their competitive advantages:

Oracle:

Oracle manufactures Net Suit accounting software which integrates stock management, warehouse management, accounting and financial management. The software driven by advanced technology also facilitates customer management. These wide varieties of functions all integrated into one software is the main competitive advantage of Oracle’s Netsuit. The largest competitive advantage of Oracle which has made the company a leader in accounting software its software  license and support services to the users(oracle.com 2017).

 

Fishbowl Manufacturing:

The Fishbowl is an Utah based inventory management software manufacturing company which manufactures the accounting software called Fishbowl Manufacturing. The software provides platform for business automation and electronic inventory management facilities. The competitive advantage of Fishbowl is that it is one of the largest inventory management softwares manufactured internationally. The software helps the companies to control their material requirement, forecast their material requirement in the future, manage office floor, customised inventory reporting and manufacturing process monitoring(fishbowlinventory.com 2017).

The current gaps or challenges encountered by users and recommendations:

Costly:

The current gaps in the software packages are that they are very costly and requires huge continuous investment to install and update them. this high expenditure limit the small companies from installing accounting softwares which affects their accounting operations.

Limited external integration:

The second gap in the accounting software is that though they integrate the internal operations like inventory management and acquisition of assets with the company, they are not advanced to integrate the external financial transactions like withdrawal of money from the banks. This requires the companies to incorporate bank transactions separately the accounting statements which is very time consuming.

 

Recommendations:

The following recommendations can be made to the software companies to increase the utility of the software packages to the companies and customers using them:

  1. The software packages should be offered at more reasonable and low prices. This will help the customers to install and upgrade these packages at lower prices which will lead to save of capital. This lowering of the prices will encourage even the small companies to install accounting software.
  2. The accountings software should be advanced so that they are directly able to obtain data from important financial statements like bank statements and loan statements. This will help the companies using them maintain better financial control.

Conclusion:

It can be summed up that accounting software packages have revolutionised accounting in companies. They have led to integration of the various fields like inventory management, floor management and so on. However, the accounting software manufacturing companies should offer software at more affordable rates

 

References:

Alrabghi, A. and Tiwari, A., 2015. State of the art in simulation-based optimisation for maintenance systems. Computers & Industrial Engineering, 82, pp.167-182.

Asllani, A. and Naco, M., 2014. Using Benford’s Law for Fraud Detection in Accounting Practices. Journal of Social Science Studies, 2(1), p.129.

Biener, C., Eling, M. and Wirfs, J.H., 2015. Insurability of cyber risk: An empirical analysis. The Geneva Papers on Risk and Insurance Issues and Practice, 40(1), pp.131-158.

Bridges, W. and Bridges, S., 2017. Managing transitions: Making the most of change. Da Capo Press.

Christopher, M., 2016. Logistics & supply chain management. Pearson UK.

Fortescue Metals Group Ltd. 2017. Executive Team. [online] Available at: https://fmgl.com.au/about-fortescue/executive-team/ [Accessed 21 Aug. 2017].

Gereffi, G. and Fernandez-Stark, K., 2016. Global value chain analysis: a primer.

Global Business Accounting Software Market 2017-2021 | Market Research Reports - Industry Analysis Size & Trends - Technavio. (2017). Technavio.com. Retrieved 21 August 2017, from https://www.technavio.com/report/global-enterprise-application-global-business-accounting-software-market-2017-2021

Gordon, E.A., Raedy, J.S. and Sannella, A.J., 2016. Intermediate Accounting. Pearson.

Ismail, N.A. and King, M., 2014. Factors influencing the alignment of accounting information systems in small and medium sized Malaysian manufacturing firms. Journal of Information Systems and Small Business, 1(1-2), pp.1-20.

Laudon, K.C. and Laudon, J.P., 2016. Management information system. Pearson Education India.

Leon, A., 2014. Enterprise resource planning. McGraw-Hill Education.

Manufacturing Software. 2017. Fishbowlinventory.com. Retrieved 21 August 2017, from https://www.fishbowlinventory.com/solutions/manufacturing/

Online Tax Returns - From Only $49.95* - Ph1300 829 666 - Tax Monster Accountant - Professional Affordable Tax Agent & CPA Accounting Firm - Australia Wide. (2017). Accountant & Bookkeeper - Fortescue WA 6716 | Tax Monster. [online] Available at: https://taxmonster.com.au/accountant-tax-agents-bookkeeping-bookkeeper/Fortescue-6716/ [Accessed 21 Aug. 2017].

Oracle | Integrated Cloud Applications and Platform Services. (2017). Oracle.com. Retrieved 21 August 2017, from https://www.oracle.com/

Ryan, E. (2017). THE EVOLUTION OF ACCOUNTING SOFTWARE: PAST, PRESENT AND FUTURE – GAA Accounting. Gaaaccounting.com. Retrieved 21 August 2017, from https://www.gaaaccounting.com/the-evolution-of-accounting-software-past-present-and-future/

Taipaleenmäki, J. and Ikäheimo, S., 2013. On the convergence of management accounting and financial accounting–the role of information technology in accounting change. International Journal of Accounting Information Systems, 14(4), pp.321-348.

Tayeh, M., Al-Jarrah, I.M. and Tarhini, A., 2015. Accounting vs. market-based measures of firm performance related to information technology investments.

Warren, C.S., Reeve, J.M. and Duchac, J., 2013. Financial & managerial accounting. Cengage Learning.

Wu, J.Z., 2013. Inventory write-down prediction for semiconductor manufacturing considering inventory age, accounting principle, and product structure with real settings. Computers & Industrial Engineering, 65(1), pp.128-136.

Zakrzewska-Bielawska, A., 2016. Perceived mutual impact of strategy and organizational structure: Findings from the high-technology enterprises. Journal of Management & Organization, 22(5), pp.599-622.

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