144 ISSN 1392-1258. EKONOMIKA 2009 88 ASSESSMENT OF THE INTEGRATION OF THE ACCOUNTING INFORMATION SYSTEM IN SMALL AND MEDIUM LITHUANIAN ENTERPRISES Arūnas Butkevičius Doctoral Student Department of Economic Information Vilnius University Sauletekio al. 9, room 411 (II building) Vilnius, Lithuania Tel. (8 5) 249 70 44 E-mail: [email protected]Abstract. An accounting information system (AIS) plays a key role in providing the financial in- formation for decision making within an organization. The degree of usability and value of the information provided by an AIS largely depends on its timeliness and quality. Both can be improved by the participation of the non-financial stakeholders in its preparation, and by its reuse across multiple business processes. The goal of the research was to investigate AIS integration models in Lithuanian small and medium enterprises, and to determine the prerequisites and obstacles for their integration with the business processes and external information systems. A number of Lithuanian business companies were visited to investigate their information systems. Interviews with the accounting personnel were conducted and the related documentation was inspected. The object of the research was a set of problems concerned with the use of the information provided by the entity’s accounting informati- on system in other functional areas for decision making purposes. Issues involving the preparation and communication of the accounting information for the use of external stakeholders were con- sidered as well. The results of the research showed that the degree of integration of the accounting information sys- tems of small and medium Lithuanian enterprises with their business partners and state institutions remains low, although prerequisites for the integration in some cases are in place.. Obstacles that preclude closer integration with external the systems are the relative inflexibility of the accounting software, the lack of use of the contemporary information and communication technologies, and high investments. To encourage closer integration within the systems, the Service Oriented Architec- ture should be provided, and be open for Data Integration, easy customization, and extensibility. Keywords: accounting information system, business process integration, e-Government. Introduction The dynamic and competitive environment of the business world makes high demands on the timeliness and reliability of the infor- mation used for decision making. The suc- cess of a business largely depends on the quality of decisions made, and the quality of further decisions depends on the relevance and timeliness of the information.
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ISSN 1392-1258.EKONOMIKa 2009 88
ASSESSMENT Of THE INTEGRATION Of THE ACCOUNTING INfORMATION SYSTEM IN SMALL AND MEDIUM LITHUANIAN ENTERPRISES
Arūnas Butkevičius Doctoral StudentDepartment of Economic InformationVilnius University Sauletekio al. 9, room 411 (II building) Vilnius, LithuaniaTel. (8 5) 249 70 44E-mail: [email protected]
Abstract. An accounting information system (AIS) plays a key role in providing the financial in-formation for decision making within an organization. The degree of usability and value of the information provided by an AIS largely depends on its timeliness and quality. Both can be improved by the participation of the non-financial stakeholders in its preparation, and by its reuse across multiple business processes.The goal of the research was to investigate AIS integration models in Lithuanian small and medium enterprises, and to determine the prerequisites and obstacles for their integration with the business processes and external information systems. A number of Lithuanian business companies were visited to investigate their information systems. Interviews with the accounting personnel were conducted and the related documentation was inspected. The object of the research was a set of problems concerned with the use of the information provided by the entity’s accounting informati-on system in other functional areas for decision making purposes. Issues involving the preparation and communication of the accounting information for the use of external stakeholders were con-sidered as well.The results of the research showed that the degree of integration of the accounting information sys-tems of small and medium Lithuanian enterprises with their business partners and state institutions remains low, although prerequisites for the integration in some cases are in place.. Obstacles that preclude closer integration with external the systems are the relative inflexibility of the accounting software, the lack of use of the contemporary information and communication technologies, and high investments. To encourage closer integration within the systems, the Service Oriented Architec-ture should be provided, and be open for Data Integration, easy customization, and extensibility.
Keywords: accounting information system, business process integration, e-Government.
Introduction
the dynamic and competitive environment of the business world makes high demands on the timeliness and reliability of the infor-
mationusedfordecisionmaking.Thesuc-cess of a business largely depends on the quality of decisions made, and the quality of further decisions depends on the relevance andtimelinessoftheinformation.
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Decisionsaremadethroughoutvariousdepartmentsofanorganizationandareusu-ally based on the information prepared and storedbythosedepartmentsthemselves.Itmay be presumed that the lack of integra-tion between departments tends to result in the duplicate and inconsistent information, whichisthecauseofinefficiencyandinac-curacyinmakingdecisions.Furthermore,departmentsmaytendtooptimizetheirde-cisions for achieving goals set for them and thus neglect the overall goals of an organi-zation.Thesereasonsclearlydemonstratethe need for a closer internal integration of businessprocessesbetweendepartments.
the primary goals of a business entity are maintaining its short term liquidity and earning profits in the long run. The suc-cess of a business in achieving these goals ismeasuredbyfinancialterms.Thelowerlevel goals of individual departments that contribute to the achievement of these overall goals are usuallymeasured in fi-nancialfigures.Thisfinancialinformationis produced by an accounting information system.
the accounting information system records events and transactions, and pro-duces information for the evaluation of the overall success of a business entity, i.e. information on its financial position,financial performance and cash flows. Italso serves as a basis for facilitating future decisions. Conversely, financial informa-tion ishistorical. It is a representationofpast events and transactions that may be irrelevant for the futuredecisionmaking.Still, it serves as a good basis for realistic futureplans.
the role, which the accounting infor-mation system plays in measuring the suc-
cess of an entity and providing information for the decision making, makes it the back-bone of the information system of an orga-nization.Thisisillustratedbythefactthatimplementing their Enterprise resource Planning (ErP) system nearly all compa-niesadoptfinancialandaccountingmod-ules(Juozapavičiusetal,2009).Integratedmanagement of organizational processesis a prerequisite for the improvement of competitiveness.An accounting informa-tion system plays athe role of an integrator oftheinformationprocesses.
World class ErP systems such as SaP, Oracle or MS Dynamics AX are costlyand hardly affordable for the majority of small and medium lithuanian enterprises (SME).Smallercompanieschooselocallydeveloped accounting systems with a lim-ited functionality that fail to integrate eas-ily with the other information systems in use.Thissituationleadstotheduplicationof information and to subsequent ineffi-ciency.Theproblemsoftheintegrationoftheinformationsystemswereanalyzedbylithuanian researchers and practitioners (Juozapavičiusetal,2009,Kiauleikisetal,2006,Bagušytėetal,2007).Juozapavičiusetal.(2009)analyzedthedemandfortheautomation of process management sys-tems in lithuanian SME, the current situ-ation of automation, described the weak-nesses of the systems in use, and provided recommendations for overcoming those weaknesses.TheresearchbyJuozapavičiusetal.wassupportedbytheEUco-financedproject “Integrated, Flexible and OpenSystemofAutomatedOrganizationalPro-cess Management for Small and Medium Enterprises:AppliedResearchandtheDe-velopmentofaSoftwareDemoVersion”.
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Theirfindingscanbeused in furthersci-entificresearchandinthedevelopmentofsoftware packages for the business process managementsystems.Theproblemscon-cerning the creation of an integrated ac-counting information system within the LithuaniancontextanditssubcomponentswerealsoanalyzedbyDomeika(2008).
Object of the research. the object of theresearchisasetofproblemsutilizinginformation provided by an entity’s ac-counting information system in other func-tionalareasfordecisionmakingpurposes.Issues regarding the preparation and com-munication of the accounting information fortheuseofexternalusersareconsideredaswell.
Goals of the research. typically, all companies have an accounting informa-tion system for processing transactions that haveanimpactontheirfinancialposition,financialperformance,andcashflows.Theaim of the research was to examine theintegration of an accounting system with otherbusinessprocesses,i.e.tofindouttowhatextentotherbusinessprocesses relyon the accounting information in making decisions (internal integration), how ex-ternal users base their decisions on the ac-countinginformation(externalintegration)and, on the basis of the research results, to provide recommendations for the develop-ment of integrated accounting information systems.Theintentwastoanalyzetheroleof an accounting information system as an information system integrator for a busi-nessentity.
to achieve this aim, the following ob-jectiveshavebeendealtwith:- to investigate the current state of the
internal (within an organization) inte-
gration of the accounting information system in small and medium sizedLithuanianenterprises(SME).Thisin-cludesdeterminingtheextenttowhichthe accounting information system processes and stores information that originates in other functional areas of business entities, such as manufactur-ing, supply chain management, cus-tomer relationship management, hu-man resources, investments, etc.Howthis information contributes to the deci-sion making was a point of interest as well.
- to investigate the accounting infor-mationflowstotheexternalusersandevaluate the level of integration with theexternalinformationsystems.
- to outline the best practices and pre-requisites for determining the possibili-tiesforthefurtherinternalandexternalintegration.Research methods. the method used
for the research was the analysis of the in-formation gathered during visits to small and medium enterprises, observation of their operations, and researching of their information systems. The main businessprocesses in lithuanian business entities wereidentifiedandtheleveloftheirauto-mation and integration with their account-ing information was analyzed. Specialattention was paid to the processes suscep-tible to integration that can yield the larg-estsavingsincosts,increaseinefficiencyandcompetitiveness.
52 business entities from various in-dustries were selected for the research purposes.Theresearchwasconductedto-getherwiththefinancialstatementauditofthosebusinessentities.Amongotherpro-
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cedures, an audit involves the assessment of the information system, including the related business processes relevant to the financialreporting,andcommunication,aslaid down by the International Standard on Auditing315.
In most cases, the information systems were reviewed in companies that are sub-jecttoastatutoryaudit.Suchcompaniesareusually larger,withamorecomplexorga-nizationalstructureandbusinessprocesses,and possess more sophisticated information systemsthanaveragebusinessentities.Onaverage, the balance sheet total (total as-sets) of the companies reviewed was ltl 14.6mln.,withanaverageincomeofLTL18.3mln.Theaveragenumberofemploy-eeswas69.5,withthelargestcompanyhav-ing asmanyas602.The companieswerelarge enough to justify the analysis of their accounting system integration with their otherbusinessprocesses.
Interviews and inspection of a business entity’s documentation were targeted at the determination of the communication and dataflowpatternsbetweentheaccountingpersonnelandotherareasoftheorganiza-tion. Interviews were held with employ-ees, and primarily with those in charge of the preparation and presentation of the accounting information. The analysis ofinformation systems also involved a re-view of the accounting software used, and the procedures established for the initiat-ing, processing and recording of business transactions as well as the procedures con-cerned with the accounting of the entity’s assets, liabilitiesandequity.Theanalysisof software was based on the evaluation of its functionality (operation) and design (database structure), with the emphasis on
its suitability for the integration with other businessprocesses.
Accounting information system
One method to improve the productivity of management and other employees is the automationof information systems.Con-temporary information systems have more or less automated processes. The majorreasons for implementing automated infor-mation systems are the savings in employ-ee time in executing business processes,cost savings, and increases in competitive-ness (Juozapavičius et al, 2009). Higheroperating effectiveness and efficiencyhelp to reduce employee time, which ob-viously leads to the payroll cost savings.On the other hand, automated information systems improve income growth pros-pects by extendingmarkets and enablinga better satisfaction of customer needs.Consequently, it can be generalized thatautomated information systems contribute to the achievement of the main business goaloflong-termprofitabilitybyloweringcostsandincreasingincome.
another improvement method is the in-tegrationofinformationsystems,i.e.linkingthemtogether.Justasinthecaseofautoma-tion, system integration assists in achiev-ingorganizationalgoalsbytheincreaseinthetransactionprocessingefficiencyandinthequalityofdecisionsmade.Thesuccessof information systems in achieving these goals largely depends on the initial analysis ofthesituationandtheidentificationoftheopportunitiesforimprovement.Oneimpor-tant area of such analysis that contributes to theefficiencyisthepossibleintegrationofthe new systems with the other systems in use(Simanauskas,2008,pp.39–46).
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the diversity of elements, subsystems, and their relationships determines a huge range of information system variety. Acommon way to classify information sys-temsisbytheirfunctionality,e.g.[23]:- transaction processing systems- Management information systems- Decisionsupportsystems- Expertsystems- OfficeAutomation- Businessintelligence.
Probably the most widely used are the data processing systems for the processing ofaccountingdata.Algorithmsforthepro-cessing of accounting information are usu-ally simple and made of basic arithmetic and aggregation processes (Simanauskas, 2008,pp.41).
the accounting information system (AIS)isthefocusofaccountingdiscipline.It can be subdivided into several sub-disci-plines,includingfinancial,managerial,au-diting,tax,andtheaccountinginformationsystem as shown in
as depicted in Figure 1, the aIS has closer links with auditing and managerial accounting.TheAIStendstobebasedontheneedsofitsinternalusers.Hence,theAIShascloserlinkswiththose,(i.e.man-agers) who use the information for decision making and auditors who review the design
and evaluate the operating effectiveness of theAIS.Theinformationrequirementsoftaxandfinancialaccountingareusuallysetby the outside authorities and are designed just to meet the legal requirements in the firstplace(Baker,2007,p.396-397).
the objective of meeting the informa-tion needs of the internal users in the most efficientwaybyprovidinghighqualityandtimely information at low cost provides the incentive to integrate the aIS with the other information systems within the organiza-tion. Furthermore, integrationwith the in-ternal systems that are under the control of thesameorganizationismucheasiertoac-complish, rather than with systems that have been developed externally. Nonetheless,there are attempts to integrate the aIS with theexternalpartiesaswell.Theotherreasonthatprioritizesinternalintegrationoverex-ternalisthattheinformationflowbetweenthe internal users ismuchmore extensivethanwiththeexternalusers.Theinternalus-ers consume information to make their day-to-daydecisions.Externalcommunicationisdone in a less intense pattern, and usually in timeperiodssetbythelegalrequirements.It tends to be a one-way communication of eithergatheringexternaldataorsubmittinginformationtotheexternalusers.
Figure 1. The sub-disciplines of accountingSource: Baker, 2007, p. 396
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A key element of a computerized ac-counting information system is software.the use of accounting information for the recording of transactions and decision making in other business processes de-pendstoalargeextentonthefunctionalityoftheaccountingsoftware.
Software programs used in the com-panies researched ranged from primitive accounting packages with basic function-alitytothesophisticatedERPsystems.Astable 1 indicates, lithuanian companies prefer locally developed accounting soft-ware.Only12percentof thecompaniesreviewed had extensive ERP systems(SAP,MSDynamicsAX,Scala)installed.Predominantly, larger companies opt for an imported system, whereas smaller com-panieschoosesystemsoflocalorigin.Onaverage, the assets, income and number of employees are smaller in the companies
Table 1. Accounting software installations in researched companiesManufacturer Software
UAB“Būtenta” Būtent 2 VisualFoxPro 222.377 11.625 5
SaP SaP 1 SAPMaxDB 4.659.600 17.723.545 70
UAB“Prototechnika” Euro Skaita 1 MSSQL 3.218.749 9.031.387 18
Total: 52
thatuselocalsoftware(seeTable1).Themain reasons for choosing local software are that it is cost effective and tailored to local settings. Conversely, ERP systemsoffer more flexibility for processing andusing information that originates in other business processes. Therefore, they aremore readily accepted by non-accounting personnel. This increases the chances ofsuccessful integration of business process-eswiththeaccountingfunction.
the information in table 1 is not in-tendedtoreflectthepopularityofaccount-ing software in lithuanian companies be-cause of the small number of companies researched, but instead serves as a broad indicator.
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Accounting information system in-tegration with external information systems
Models of the External business process integration
External integration can be analyzed inthe context of businessmodels. There isnoformalclassificationofbusinessmod-els, but the following are used widely (Jovarauskienėetal,2009,p.85):- Business-to-business(B2B)model:busi-
business processes between businesses andstateinstitutions.
- Business-to-consumer (B2C) model:business processes between business entitiesandfinalconsumers.Business-to-business. Probably, the
most obvious way for the integration of an accounting information system with external business partners is through thereplacement of paper documentation with electronicdocuments.Thetransferofdocu-ments electronically enables the integration ofdistant business applicationsbyutiliz-ingthemeansofinformationexchangeinapredefinedformatbetweenseparateenti-ties.Thisenablescommunicationbetweenindependent information systems without manualintervention.Thegoalistoreplacepaperdocumentationwithelectronicfiles.Theexchangeofpaperlessdocumentsal-lowsfaster,morereliable,andcheaperex-ecutionofbusinessprocesses.Encryptionand digital signatures also means better protection of information than tradition-allysignedpaperdocuments.
the research showed that this is an un-explored area in Lithuanian companies.
None of the companies reviewed employed methodstoexchangedocumentationelec-tronicallyinapredefinedformatwiththeirpartners.Theprimaryobstaclepreventingitisthelackofstandards.Therequirementof the electronic data interchange is that messages should have a well-structured standard format (Vlčková, 2006, p. 130).this is an opportunity for an immense improvement in efficiency and cost sav-ings by the integration of the accounting information systems with customers and suppliers.Therefore, the creation of dataexchange standards, e.g. based onXML,shouldbeapriority.Moreover,Lithuanianentities exchange documentation withtheir business partners in a form that is readily receptive to standardization, suchasinvoicesandgoodsorderforms.E.g.theLaw on the ValueAdded Tax prescribesinformation that must be contained on a sales invoice. Obviously, there is a needtodevelopastandardfortheexchangeofinvoice data or goods order forms between business partners electronically.The ideaof the standard can be similar to that of lI-taS-ESIS – a standard developed by the LithuanianBankAssociationforexchang-ingpaymentdetailsbetweenbanks.
Another area for the external integra-tionise-banking.Themajorityofbusinesstransactions end up in a cash receipt or disbursement.Banksandentitiesbasicallyhold the same information on the pay-ments.Thesynchronizationofsuchinfor-mation and the elimination of duplication should lead to considerable cost savings.Furthermore, banks themselves exchangeinformation on the payments in a pre-defined standard format.TheAssociationofLithuanianBankshasanapprovedstan-
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dard format (lItaS-ESIS) for the bank statements and the import-export data ofpaymentdocuments.Thesameformatcanbe used for the import and export of thedatabetweenanentityandabankaswell.
although nearly all accounting soft-ware reviewed was implemented to sup-porttheexportofpayments,hardlyanyofit was implemented to support the import data function.This isdue to the fact thatdisbursements are prepared on the basis of the structured information existing in anaccountingsystem.Onthecontrary,importdata is less structured because it originates fromtheexternalsources.
Business-to-government.Althoughtheresearch showed that integration between lithuanian business partners is virtu-allynon-existent,business-to-governmentmodels showed better practices. Legisla-tion prescribes obligations for business en-tities to provide state institutions with the information on various aspects of t busi-ness. This makes them primary externalusersofaccountinginformation.Theprep-aration and provision of the information for governmental users is considered to be one of the most important tasks of the ac-countinginformationsystem.Thisisespe-cially noticeable in smaller entities, where the owner-manager has a good grasp on the business himself. In such companies,the accounting is done primarily to comply withthelegalregulations.
Despitetheimportanceoftheprovisionofinformationtoexternalusers,theanaly-sis of practices in business entities showed that there is no automated integration be-tween their information systems and the informationsystemsofexternalusers.Re-ports are prepared manually and sent to the
institutionsviainternet.Allmajorstatein-stitutionshaveapredefinedformatofdatafilesforthesubmissionofinformation.TheXMLstandardisusedinmostcases.Eventhough the information to the state institu-tionscanbesubmitted inelectronicfiles,the process of submission involved the manual interventionof employees: formsfor submitting accounting information are filledoutmanuallyandsubmittedeitherbye-mailor throughawebportal.Thiswasthe case in all the companies researched.the vast majority of them communicated information to the state institutions via in-ternet, but the preparation of the electronic fileswasmanual.
the analysis of patterns and methods for the submission of information to the state institutions revealed that companies most often have to deal with the following stateinstitutions:
State Social Insurance Fund Board of the Republic of Lithuania.Sincethebegin-ning of 2008, the Social Security Insurance Fund has implemented the Electronic In-surerServiceSystem–EDAS(Elektroninėdraudėjųaptarnavimosistema).Thesystemenables insurers to submit reports and ap-plication forms electronically and to query the social security database. Nowadays,entitieshavecomputerizedaccountingandpayrollsystems.Dataprocessedbythesys-tems is used for the preparation of reports to theSocialSecurityInsuranceFund.
TheEDASsystem isopen for the in-tegration with the information systems of insurers. The system of the State SocialInsurance Fund Board accepts electronicfiles through the web portal and utilizesthe more advanced technology of Web Services. The exchange of information
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can be executed bymeans of two publicwebservices.Oneisintendedtoautomatethe submission of an electronically signed report toEDAS.Theother isused in theverification of the template version andin downloading a template for the visual presentation of data. These web servicesenable the manufacturers of payroll data processing systems to implement the func-tionality of automated preparation and submission of electronic reports directly fromtheaccountingsoftwaretotheFund.E.g.whenanewemployeeisrecruitedandhis data is entered into the payroll system, one mouse click is enough to generate and submitanotificationofemploymenttothesocialsecurityauthorities.
State Tax inspectorate. The StateTaxinspectorate has implemented an Electron-icDeclarationSystem–EDS(Elektroninėdeklaravimosistema).Thesystemacceptsandprocessesthemajorityoftaxreturns.Taxreturnscanbesubmittedeitherbye-mail, by an upload though a web portal, or byfillingoutformsinteractivelyinawebportal.Anexchangeofmessages throughweb services is also possible. The EDSsystemprovidestwowebservices:oneforsubmittingfiles, the other for checking afile’sstatus.Unfortunately,submittedfiles
Register of Legal Entities. the regis-ter of legal Entities has implemented the System of Electronic Services of the Cen-tre ofRegisters –CEPS (Registrų centroelektroninių paslaugų sistema). Businessentities are legally obliged to present fi-nancial statementsandothernotificationstotheregister.Theprocessisusuallycar-ried out once a year after the approval of thefinancialstatements.Due to its rarity,itsautomationwouldbringfewbenefitstothebusinessentities.
Department of Statistics under the Government of the Republic of Lithuania. The information system of the Depart-ment of Statistics is called the System for Collecting Statistical reports – SaESS (Statistinių ataskaitų elektroninio surin-kimosistema).Thepurposeofthesystemis to collect statistical reports from compa-nies.Itonlyoffersthebasicfunctionalityof uploading pre-filled statistical reportsviaaweb-portal.
Department of Customs under the Min-istry of Finance of the Republic of Lithua-nia.IDAISisaninternetbasedinformationsystemoftheDepartmentofCustomsfor
Table 2. Options for submitting electronic files to the information systems of state institutions
Ways for submission of electronic filesState institution IS name
acronymE-mail Upload of pre-
filled forms in a Web portal
Interactive filling of forms in a Web
portal
Web services
register of legal Entities CEPS No yes yes No
StateTaxinspectorate EDS yes yes yes yes
Social Insurance Fund EDAS No yes yes yes
DepartmentofStatistics SaESS No yes No No
DepartmentofCustoms IDAS No yes yes No
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collecting and processing data on foreign trade within the European union member states.ThesystemacceptsIntrastatreportsonthedispatchesandarrivalsofgoods.
a summary of the various options for submitting information to the state institu-tionsispresentedinTable2.
The Bank of Lithuania. The Bank oflithuania provides several Web services for transferring statistical information to theWebserviceclients.TheISoftheBankcanbequeriedforofficialexchangerates,interestratesoftheBank’slendingfacili-ties, the liquidity situation in the bank-ingsector,VILIBIDandVILIBORrates,functionsfortheverificationofpayments,andasecuritysettlementsystem.Themostimportant services for the accounting soft-ware are found in retrieving official ex-change rates and verifying the validity of theIBANaccounts.
It can also be concluded that only the EDSandEDASsystemsimplementtheser-vice-oriented architecture (SOa) through theuseofwebservices.Webservicessup-port interoperable machine-to-machine in-teractions over a network and enable the highestlevelofsystemintegration.Havingthe metadata of a web service, system de-velopers can implement the full integration of theaccountingsystemswith theexter-nal informationsystems.Thismeans thatfor the time being, accounting information systems can achieve full integration only with the EDS and EDAS.Unfortunately,other state information systems fail to raise integration possibilities based on the web servicesorotherSOAtechnologies.
the use of information and communica-tion technologies in the provision of public services is referred to as Electronic Govern-
ment,ore-Government.Thesophisticationof the E-government service depends on thestagesofitsmaturity.Theextentofthepossible system integration can also be as-sessed by the maturity stage that has been reachedbyastate institution.Aclassifica-tion of maturity stages is presented below (Kašubienėetal,2007,p.71):1. Providinginformation(enablingaccess
totheinformationontheinternet).2. Two-way communication (services
through web forms, email and bulletin boards).
3. Transaction services (the handling oftransactionswithbusinesses).
4. Transformationprocesses(governance,e.g.onlinevoting).the information systems of the lithua-
nian state institutions have already reached their 2nd or 3rdstages.Thishasalsobeenconfirmedbyahigh-rankingreadinesssur-veyintheUnitedNationse-Government.In 2008, lithuania ranked 28th among 192 countriesoftheworld[24].
Irrespective of the maturity stage that governmental information systems have reached and their service orientation, the current level of integration in small and medium-sized Lithuanian companies re-mains low, because the client systems fail tomake use of the services offered.Themost obvious reason for this must be the fact that the automation of the submission processes to state institutions would only savealimitedamountofmanualwork.In-vestments in extending software in orderto add to the functionality of an SOa client wouldnotpayoffinashorttime.
Business-to-consumer. End consum-ers are usually private persons who do not have information systems implemented.
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there are neither the means nor the de-mand for the integration of the accounting information systems with private consum-ers.However,institutionalconsumersmayhave information systems open for the integration,e.g.publicprocurementinfor-mationsystems.
Prerequisites for external integration
High investments and subsequent main-tenance costs preclude many businesses from pursuing integrated external solu-tions.Therefore,assomeauthorspointout(Vlčková,2006,p.131),smallerbusiness-es implement the elements of integration onlyuponbeingurgedbystrongpartners.In such cases, the benefits of integrationmaynotoutweighitscosts.
It can also be concluded that integration of the accounting systems depends on the features of the external information sys-tems.Externalinformationsystemsshouldhavefeaturesthatenableintegration.Theimplementation of service-oriented ar-chitecture (SOa) increases the chances of successful integration. SOA can alsosupport enterprise-wideBusinessProcessManagement(BPM),whichassistsinopti-mizingthebusinessprocessesinsideanor-ganization(Bajwaetal,2008,p.16).SOAnotonlyhelpstodevelopflexiblesoftwareapplications, but also enables integration withothersystems.
Service oriented architecture is a con-cept used in the systems development and integration. It views the functionality ofbusiness processes as services.A serviceis a self-contained function that performs a specific task. SOA packages this func-tionality into software modules that can be
SOa enabling technology facilitates Webservices.Webservicesareastandardmethod to support SOA. Web servicesare computer programs for the exchangeof data between computers using XML-based standards –WSDL (Web ServicesDescriptionLanguage)todefineservices,SOaP (Simple Object access Protocol) to invoke services, andUDDI (UniversalDiscovery,DescriptionandIntegration)tolocateservices(Trembly,2009,p.20).Theimplementation of Web services is not a costly undertaking that requires technical expertise;SMEscanalsoaffordWebser-vices to integrate their information systems with those of their partners and customers (Vidgenetal,2004,p.372).
Web services may not only be a meth-od to support operations, but can also be a sourceofthecompetitiveadvantage.Vid-genetal.(2004,p.376)define5levelsofbusiness transformations brought about by theuseofWebservices.Whereeachlevelprovidesmorebenefitsforanorganization,italsoentailshighercosts:
1. Web Service Enhancement –Webservicesare integrated into theex-isting IS applications. E.g. the ac-counting software may use Web ser-vices to submit information to the social security authorities instead of printing and submitting paper docu-ments.
2. ApplicationSourcing–Webservicebased IS applications are sourced.At this level, an organizationmayacquire complete applications for the business process management, suchasERPorCRM.
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3. ApplicationBrokerage–integratedIS applications are sourced. Orga-nizations acquire applications thatinteract with each other and with legacy information systems. Or-ganizational structures change asbusiness processes are redesigned to accommodate the installation of newsystems.
4. Collaborative Commerce – Webservices are used to build process networks.Webservicesareusedtocollaborate with the business part-ners,e.g.inSupplyChainManage-ment.Businessprocessesaresharedacrossorganizations.
5. Businessreconfiguration–acceler-atinggrowth.Thewholeenterpriseis transformed and the business missionisreassessed.
Integration of the accounting information system with the internal business processes
the purpose of an accounting informa-tion system is to supply information to the externaland internalsources fordecisionmaking. The extent to which other busi-ness processes rely on the accounting in-formation depends on its availability and reliability.Availability and reliability canbe increased through a better integration of the accounting systems with the other informationsystemsofabusinessentity.
an accounting information system servesasafirminfrastructurethatsupportstheprimaryvalue-addingactivities.Intheperformance of this role, it often acts as a centralizeddatastoragearea,e.g.whenanERPsystemisinstalled.Thus,anaccount-ing system integrates information flows
among the information systems of an or-ganization.
Models of integration with the internal business processes
the design and operation of business pro-cessesvarygreatlyamongbusinessentities.Many factors such as the nature of opera-tions, organizational structure and corpo-rate culture dictate the actual implementa-tion of business activities that make up a business process. Despite their diversity,business processes are aimed at achieving commonorganizationalgoals.Toachievegoals, tasks constituting a business process areperformed.Theperformanceof thesetasks entails the use of resources (inputs) andproducesoutputs.Animportantinputis the information that is used for decision making.Anoutputcanalsobeinformationthatistoberecordedandutilizedinsubse-quentprocesses.
Companies seek to automate their most labor-intensive processes, where automa-tionwouldbringthelargestbenefitsandin-vestments can be reclaimed in the shortest period.Furtherbenefitscanbeobtainedbythe integration of the automated process-ing.ResearchcarriedoutbyJuozapavičiusetal(2009,p.107)indicatedthatcompa-nies prefer to automate and improve the followingbusinessprocesses:- Sales- Human resource management- Qualitycontrol- Contract management- Documentationmanagement- Management of the provision of serv-
For research purposes, general busi-nessprocessesthatareexposedtoalargenumber of transactions and are likely to occur in every business company were identified, namely: sales, procurements,warehousing, operations (manufacturing), payroll,andfixedassets.
Sales. the research showed that a sales cycle is most likely to be integrated with theaccountingfunction.Evenifprimitiveaccounting software packages are used, it is quite common to set up access to the ac-counting system for salespeople. Printedsales invoices are immediately booked in a general ledger and an accounts receivable ledger.
In 78 percent of all the information systems reviewed, invoices were prepared and printed from the accounting software, thus enabling an immediate booking into the general ledger, accounts receivable ledger,inventoryrecords,andotherbooks.In more than half of these cases, invoic-ing was performed by salespeople enter-ing the billing information directly into an accountingsystem.Theotherhalfofthesecases did not show any real integration of the sales process, because the invoicing was done by the accounting personnel and the process was based on the information receivedinformallyfromsalespeople.Fur-thermore, although billing in many compa-nies was done directly from an accounting system, only in a few cases did the ac-counting systems serve as a repository for the sales related information, such as cus-tomerorders,pricesandpaymentterms.
Companies operating in the retail sector have demonstrated good practices regard-ing the integration between the accounting andsalesprocesses.Retailcompaniesusu-
ally have to record a large number of sales involvingsmallamounts.Theduplicationoftherecordingwouldbeveryinefficient;therefore, POS (point of sale) terminals were integrated with the accounting sys-tems,i.e.salesinformationwastransferredto theaccountingbooksautomatically. Inaddition, most of the companies with in-tegrated POS terminals also used barcode scanners for the automation of the sales process.
Specifically, the accounting softwareapplications examinedwith POS integra-tion were Pragma, Agnum, Būtent, Fin-valda,EdranaandRivilė.Ingeneral,POSintegration was implemented in all major locallydevelopedaccountingsystems.Thehigh occurrence of integration can be at-tributed to the straightforward technology of operating POS terminals from the ac-counting software by means of the func-tionsintheDynamicLinkLibraries(DLL)providedbytheterminalmanufacturers.
Procurement. Contrary to the salesprocess, the accounting for purchasing in-volves posting documents that were pro-ducedbytheexternalentities.Purchasingdocumentation varies greatly in format and content. The lack of standardization pre-vents automatic processing and involves manualwork.
the analysis of business companies showed that the purchasing process is rare-ly integratedwith theaccountingsystem.In most cases, the accounting personnel were only responsible for posting purchase invoices into the books after checking for the necessary approvals and in preparing payments. In largerentities thathadERPsystems implemented, more activities of the purchase process, such as the genera-
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tion of purchase orders, order approval, sending orders to suppliers, and posting dispatch notes and invoices were auto-mated.
Warehousing. Warehouse attendantshave to keep records for their reference.an accounting department also needs in-formation on the quantities of inventories for the accountability purposes and on their cost for the financial reporting purposes.However, keeping records of inventory movement is a labor intensive task. Theduplication of the inventory records would beverycostly,inefficientanderrorprone.When processing a transaction companies that deal in a large number of inventory items (such as retail, wholesale and manu-facturing companies) have their inventory transactionsrecordedbytheemployees.Itis very unusual for the accounting person-neltomaintaininventoryrecords.
the accounting software of the com-panies researched implemented modules for the inventorymanagement.Only onecompany maintained its inventory records in another system that was not integrated withitsfinancialaccounting.
Operations/manufacturing. Compared to other business processes, the produc-tion process is usually very specific to abusiness.A largevarietyofoperations inbusinesses is an obstacle to the standard-ized automation. To solve these prob-lems, businesses tend to either engage in the in-house development or to purchase specializedsoftware.Specializedsystemsto process operational processes are likely to be disconnected from the accounting system. 11 out of 52 Lithuanian compa-nies under investigation used some kind of software other than an ErP system in their
operations.In4cases, itwasanin-housedeveloped software because no suitable commercial off-the-shelf software was available. None of the specialized infor-mation systems was really integrated with the accounting information system. Atbest, datawas exchanged by utilizing animportfunctionality.
large ErP system manufacturers offer industry solutions for the processing op-erations specific toan industry.E.g.SAPoffers solutions to banking, automotive, public service, education, healthcare, insur-ance and a wide range of other industries [19].However, suchsolutionsareafford-able only for large and well-established companies.Anotherdrawbackofthestan-dard solutions is that companies are forced to adapt their business processes to suit the modelofanERPsystem.AlthoughanERPsystemmayreflectthebestpracticesofaparticular industry, its adoption may mean losing a competitive advantage, because the business processes are managed in the same manner as those done by the com-petitorsusingthesameERPsystem.
Payroll. Payroll processing is highlyinfluenced by the local laws and regula-tions.Itprovestobemoreefficienttopur-chase a locally developed payroll package ratherthanadaptimportedsoftware.Manypersonnel and payroll accounting systems developed locally offer the functional-ities of storing permanent employee data, work time records and calculating payroll, but fail to address other human resource management information needs, such as employment planning, recruitment and se-lection, evaluation, motivation and career planning.
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there is no need for the tight integra-tion between the payroll processing soft-ware and the general bookkeeping soft-ware. Payroll is prepared on a monthlybasis and only its totals are transferred to thegeneral ledger.Thepostingof apay-roll fails to involve a lot of manual work and it is acceptable if there is no automatic posting.Somecompanieschoosetoadapta payroll processing system that is not in-tegratedwiththeaccountingsoftware.
the review of the information systems of lithuanian companies indicated that the major accounting software packages includedmodules for payroll processing.However, 32.7 percent of the companiesreviewed did not process payroll with their accountingsoftware.Almosthalfof suchcompanies had manual systems (based on MS Excel spreadsheets). The other halfchosespecializedpayrollprocessingsoft-ware.Themost popular specialized soft-warewasVikarina(2/3ofallcases).ThefindingsleadonetopresumethatLithua-nian managers believe that payroll integra-tion with an accounting information system brings minimal savings in employee time, because its totals have to be transferred to thegeneralaccountingonlyintermittently.
Interestingly, a high rate of disconnect-ed information systems in regard to their HrM and general accounting functions was noticeable in the companies that had the sophisticated ErP systems of foreign manufacturers installed. The reason forchoosing local payroll software was that the standard HrM solutions of foreign manufacturers often fail to comply with lo-callegislationconcerningpayroll.Specificpayroll calculation rules and social secu-rity systems require additional effort for
the localization. Probably because of thesmall market, foreign manufacturers do not bother to adapt their payroll module to thelocalsettings.Moreover,suchsystemsare relatively costly to install and can only justify themselves in very large companies withmanyemployees(Juozapavičiusetal,2009,p.109).
Some authors (Juozapavičius et al,2009, p. 109) argue that the payroll andwork time processing systems currently used in lithuanian companies are not ad-equate for the true human resource man-agement(HRM).Theylackapplicationstoprocess selection, recruitment, personnel planning, career planning, employee as-sessment,andsimilarHRMtasks.
Investments/fixed assets.Theacquisi-tionanddisposalofthefixedassetsoccurirregularly. Compared to other areas ofaccounting, the processing of fixed assettransactions is not a labor intensive activity (Simanauskas,2008,p.226).Alowrateoftransactions does not call for its integration withotherprocessesfordecisionmaking.In most of the cases reviewed, the account-ingsoftwarehadamoduletoaccountfixedassets.Fixedassettransactionsinallcaseswere processed by the accounting person-nel after the appropriate approval o fthe management. Ad hoc reporting fulfilledtheneedoftheinternalinformationusers.
Itcanbesummarizedthattheinteractionof business processes with the accounting functiontakesplaceintwoperspectives:- reusability of master reference data
among business processes in process-ingandrecordingtransactions.
- Decisionmaking based on the infor-mation collected and recorded in other businessprocesses.
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Special attention has to be given to the analysis of the integration of business pro-cesses with the function of outsourcing.Theaccounting function requiresspecifictechnical knowledge and skills. Smallercompanies tend to outsource the account-ingfunctiontotheexternalserviceprovid-ers, because they fail to posses the required knowledge.Themain reasons for choos-ing an external serviceprovider are cost,service quality, and the ability to focus on theirmainactivities(Daňko,2006,25p.).although smaller entities are usually own-er managed with few employees, which means that their functions are not segre-gated and by their nature are integrated, outsourcing creates an additional demand for the integrationofexternalaccountingwith the information system of the com-pany. Documentation to the service pro-viders is usually submitted after the end of the month. Consequently, accountinginformation is prepared with a time lag which makes it less usable for operational decisionmaking.Some service providerstry to close the time and logistical gap by usingtechnologiessuchasRemoteDesk-topConnection.Still,itcanbeconcludedthat the integration of business processes in smaller entities is very weak and virtu-allynon-existent.
Prerequisites for internal integration
Data integration. One of the most impor-tant prerequisites for the seamless business process integration is data integration. Itinvolves combining data from different information systems into a single database andprovidingaunifiedviewofthisdata.From the management perspective, a syn-onym for the data integration is Enterprise
InformationIntegration.It isaprocessofintegrating information to provide a single interfaceforusersaccessingthedata.
In establishing the design of a database structure, it is important to follow the prin-ciples of good database design, e.g. datashouldnotbeduplicated;itshouldbere-corded once and reused whenever possible (Simanauskas,2008,p.169).Thus,allus-erswithinanorganizationshouldbepro-videdwithaunifiedviewofthedatathatisachieved by integrating data from different sourcesintoasingleview.Thisisachievedby storing permanent reference data in a singlelocation.Permanentreferencedata,which is also called master data, includes data that is persistent and non-transactional innature.Inabusinesscontextitdescribesbusiness objects, i.e. it is data of perma-nent reference about customers, vendors, inventory items, employees, departments, locations,generalledgeraccounts,etc.Itisused to support the business processes that areexecutedbyseveralfunctionalgroupswithin an organization. The multiple us-age of the same data in several functional groups may be the reason for storing the data in different systems within an orga-nization.Suchdisconnected systemspro-vide data with the risk of duplication and subsequent inaccuracies. Fortunately, therisk can be avoided by referencing data centrally.
the need for the data integration of business processes can be illustrated by the analysis of the master reference data of ERP systems. The extent of the reus-ability of the permanent master data across business processes can be estimated by the number of ErP database tables that con-tain foreign keys referencing primary keys
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ofthemasterdatatables.Forthepurposesoftheanalysis,theRivilėERPsystemwasselected because it was the most popular system among the lithuanian companies under investigation . The database con-tains 78 tables for storing master reference data and 95 tables for storing transactional data(excludingthepayrollmodule).Somemaster data tables were selected and the number of tables referencing them was established.Majorbusinessprocessesthatmake use of the master data were also noted.Theresultsoftheanalysesarepre-sented in table 3they show that the master data is used in different business processes alot.Therateofthereferencingofmaster
dataisashighas1/3ofallthetablesinthedatabase referencing the most often used masterdatatables.
yet another rather theoretical concept of data integration is a federated database system.Afederateddatabasemanagementsystem integrates autonomous databases intoasingleviewwithoutmergingthem.users view a collection of databases as a single federated database, which is also called a virtual database. The advantageof a virtual database over the merging of databases is that the constituent databases remain autonomous and retain flexibilityandhighperformance.
Table 3. Extent of referencing the selected master data tables of an ERP system
Master data table table name Primary key
No
of re
fe-
renc
ing
tabl
es
Gen
eral
ledg
er
Sale
s
Purc
hasi
ng
Paym
ents
War
ehou
sing
Payr
oll
accounting journals I01_DKZR I01_KODAS_ZS 4 x
Chart of Gl accounts N01_ACCT N01_KODAS_SS 38 x x x x x x
Cost centers N06_OBJ N06_KODAS_OS 48 x x x x x x
Departments N07_IMON N07_KODAS_IS 61 x x x x x x
Vendors N08_KLIJ N08_KODAS_KS 36 x x x
Customers N08_KLIJ N08_KODAS_KS 36 x x x
location N09_VIET N09_KODAS_VS 17 x x x x x
Taxes N12_TAX N12_KODAS_XS 4 x x
Payment terms N14_TERH N14_KODAS_TS 6 x x
Employees in charge N15_MEN N15_KODAS_MS 34 x x x x x
Inventory items N17_PROD N17_KODAS_PS 49 x x x x
unit of measurement N18_MAT N18_KODAS_US 50 x x x x
Services/expenses N25_KOD N25_KODAS_BS 4 x
Banks N34_BANK N34_KODAS_WS 5 x x
Currencies N45_VAL N45_KODAS_VL 22 x x x
Employees N60_ASM N60_KODAS_SM 25 x x x x x x
Storage bins N65_LOKA N65_KODAS_LC 5 x
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Dataintegrationalsocanbeimplement-edbydataimportandexportfunctionality.Nowadays, most of the accounting soft-ware packages use SQL based databasemanagementsystems(DBMS)thatprovidetables for direct access (see table 1 for the DBMSusedforthemanagingdatabaseofaccounting information in the companies researched).DBMSenablesdirect accessto database tables by bypassing the graphi-cal user interface. This makes it easy toimportdatadirectlyintoadatabase.How-ever, software vendors rarely represent documentationintheirdatabasestructure.Itmaytakeagreatdealoftimetofindouttheright table todumpdata into.Forex-ample, when a sales transaction is posted in the popular accounting package Fin-valda,informationispostedinto13tables:invoiceheaderanddetailfiles,warehouserecords, accounts receivable and the gen-eralledger,justtomentionafew.
the majority of the accounting software packages reviewed provide the functional-ityofdataexportintothepopularformatssuchasMSExcel for furtherprocessing.However, this import functionality was implementedonlyinafewcases.Theim-portofdataisamuchmorecomplexpro-cess because the data has to be well struc-tured and data validation has to be carried outupon its import.Accountingsoftwarevendors usually only offer their services for importing opening balances when their systemispurchased.
another option for the system inte-gration may be the use of middleware.Middleware is a piece of software for con-nectingapplications.Itallowstheinterac-tionofapplicationsacrossanetwork.Dur-ing the research, no usage of any kind of
middleware was identified in Lithuaniancompanies.
Extensibility and customization. In-formation systems are usually individually tailored to theneedsofabusinessentity.the implementation and maintenance of disparate information systems and their integrationisalengthyandcostlyprocess.Furthermore,suchintegrationisinflexibleandunstable.Uponthechangeinthesys-tem,ithastobereintegrated.Suchasitu-ation is the result of the lack of the stan-dardizedproductthatwouldbeaffordabletosmallerentities.
Currently, there are products on the market that aim to automate all the business processes of a company. However, theyarestillconsiderablyinflexibleandcostly.to overcome this drawback, the system shouldbeopen.Opennessmeansthepos-sibility to implement tailored extensions,i.e.theusersshouldhaveachancetomakemodificationsandaddadditionalfunction-ality to the purchased software. A verygoodexample isABAP(AdvancedBusi-ness application Programming), which is a high level programming language creat-edbytheGermansoftwarecompanySAP.However, software vendors are reluctant to disclose their code for business and se-curityreasons.
Except for imported ERP systems,none of the reviewed accounting software allowed for its extensibility. Only a lim-itedcustomizationofreportswaspossible.However, software vendors seem to be ready to develop additional features them-selves, which is not a very attractive option intermsofcost,time,andflexibility.
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Conclusions
the research indicated that at the present time, many business entities have auto-mated their business processes to various extents.Despiteahighlevelofautomationin the basic business areas such as account-ing,sales,andpayroll,therearestillunex-plored areas of the external system inte-gration.Integrationoftheexistingsystemswithexternalbusinesspartnerswouldleadto increases in the operational efficiency,because business processes can be made faster,morereliable,andcheaper.
Contemporary information technology, based on the Service Oriented architecture andexploitingtheadvantagesofWebser-vices, enables the integration of informa-tion systems between business partners.Major state institutions in lithuania have implemented these technologies. How-ever, its use between business partners is less common because few smaller entities can afford investments into the technical expertise.Moreover, integrationwith theinformation systems of business partners is hampered by the lack of standards for exchangingdocumentation.
lithuanian proprietary accounting soft-ware systems do not have features allowing their integration with the information sys-
temsofmorespecificbusinessprocesses.Fortunately, the manufacturers of account-ingsoftwarepackagesarereadytoextendthe functionalities of their solutions.Tai-loring software to the needs of a business means high development and maintenance costs; this is not always affordable forsmaller companies.The ultimate integra-tion of business processes is possible only inflexiblesystemsthatcanbecustomizedtosuitspecificneeds.
On the basis of thefindings of the re-search, some recommendations can be made forsystemdevelopmentandintegration:- Information systems should implement
Service oriented architecture to en-able seamless integration with business partners.
- XML based standards to define ac-counting documentation should be de-veloped.Thisisapreconditionforthereplacement of paper documents with theelectronicones.
- accounting information systems should make use of the functionalities offered by the information systems of state in-stitutionsthroughWebservices.
- Information systems should be open to easycustomizationandextension.
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