THE CPA AND THE COMPUTER

March 2000

CLIENT/SERVER FINANCIAL REPORTING: A PRIMER FOR ACCOUNTING PROFESSIONALS

By Gary M. Fleischman, C. Michele Matherly, and Karen B. Lanese

Gone are the days when management would wait for days, weeks, or even months for a practitioner or accounting department to distribute a report or chart. The latest client/server technology gives managers real-time access to an integrated database that permits them to query the financial system. Client/server technology enables managers to obtain financial statements, budgets, and ratios that highlight exceptions or trends needing their immediate attention.

Because the contemporary client/server environment changes the way companies do business, CPAs need to understand this environment to serve their clients more effectively. The client/server environment is also changing the role of the accountant: The CPA is evolving into an analyst who devotes additional time to activities such as cash and financial management, capital budgeting, and tax and investment planning.

Client/Server Technology

The term "client/server" refers generally to receiving information through a computer network. The personal computer linked to the network is referred to as the client, whereas the main computer that stores and manages the data is referred to as the server.

Multiple users (clients) such as executives, managers, accountants, or any other authorized personnel can access the same centralized integrated data managed by the main computer (server). This centralized data is commonly referred to as the financial data warehouse. Network computing replaces the traditional computing that permitted only accounting professionals to access financial data online. Under an older system, managers generally obtained data through printed reports produced and distributed by the accounting department. Traditional financial accounting software also required posting to the general ledger, which involved moving either summarized or detailed records from feeder systems, such as accounts receivable, to the general ledger.

Client/server technology, on the other hand, eliminates the need to post accounts receivable and payable transactions to the general ledger. In a client/server environment, the financial data warehouse predefines the relationship between the general ledger account balance and the detailed transactions from the feeder systems. The client/server approach processes feeder system transactions in real time, allowing users to seamlessly move from general ledger account balances to the underlying detailed transactions. This detailed query capability, referred to as "drill down" capability, permits zero closing time for transactions at the end of the accounting period.

CPAs are concerned about the various steps of transactions processing and want to ensure a proper audit trail. For example, the purchasing department receives a purchase requisition and then writes a purchase order. Once the firm receives the goods, the accounts payable clerk matches the purchase order to the receiving documents before approving a vendor's invoice for payment. These steps in transaction processing can be viewed as transaction flows. Traditional financial systems usually automate the transactions themselves; however, the transaction flows are still manual. Consequently, traditional systems rely on hard copies of purchase orders, purchase requisitions, receiving reports, and invoices.

Client/server technology, on the other hand, computerizes transaction flows, using what is called workflow technology. Transactions are automated through each step and may be routed directly to any user or group on the network. The primary benefits of workflow include streamlining company processes, integrating the functional areas of the business, minimizing waste and duplicated labor, and easing financial accounting system maintenance through real-time updating. For example, a department head can electronically forward a requisition to other managers for necessary approvals before routing it to purchasing. This internal business transaction flow is captured once, at the source, and entered into the financial data warehouse.

To implement workflow technology effectively, an organization usually needs to reengineer its business processes, which can be difficult and time-consuming. For transaction flows to be forwarded efficiently from user to user, job responsibilities must be defined, security issues must be investigated, and entire business processes must be scrutinized by everyone involved. These procedures often require months of management planning, application development, and testing.

Because, in its purest form, client/server technology can fully integrate the accounting, finance, and materials management processes with the marketing and management functions, companies should be viewed from an interdisciplinary perspective rather than as separate functional divisions. Considering the firm as an integrated whole will reduce data redundancy and synergize efforts among functions or departments.

Software Choices

The latest releases of comprehensive client/server software can run entire companies and automate their business processes. Software giants such as SAP, Oracle, Lawson Software, PeopleSoft, and Systems Software Associates supply these integrated suite enterprise packages. Table 1 provides a partial listing of enterprise software suppliers. Because vendors of enterprise software traditionally serve Fortune 1000­type businesses (in which costs of the software and related implementation vary greatly and often run into the millions of dollars), larger firms may be more interested in this range of options. Many of these vendors often "partner" with Big Five accounting firms to provide software consulting and implementation, and modify software packages for particular industries to partially standardize implementation.

Until recently, enterprise software was so costly and complex that software designers focused exclusively on very large businesses. However, this trend is changing. In fact, the enterprise software giants are now scrambling to entice mid-sized firms by offering tools and techniques to make implementation of their client/server software faster, cheaper, and easier.

Obviously, not all companies are ready for these state-of-the-art, all-encompassing enterprise packages. However, other software choices exist for the small to mid-sized company. For instance, it can acquire client/server software that is less comprehensive than the enterprise software. Table 2 provides information about several more affordable vendors' software.

A company, regardless of its size, can also pursue a "best-of-breed" approach, which involves selecting various software applications from different vendors rather than purchasing one integrated package suite from one vendor. For instance, one vendor may have an exceptional general ledger package while another a more effective payroll system. The current trend, however, is toward single-vendor, enterprise-wide solutions for both large firms and mid-sized companies. Financial software suites are now more complete, decreasing the demand for best-of-breed module supplements. In addition, the best-of-breed, mix-and-match software approach often creates serious integration problems.

Integration Issues

The most effective and successful integration occurs when a company develops a vision that results in a common set of business practices agreeable to management. Then, the client/server software technology can be built around these integrated common business procedures.

A company that wants to switch to client/server technology has three basic options for fully integrating its software:

* Partner with the software vendor,
* Work with one of the vendor's business integration partners, or
* Hire consultants to do the integration work.

Integration and implementation are crucial because the cost can run anywhere from 3 to 10 times the cost of the software. Switching to client/server technology often takes longer, costs more, and is more complex than a company originally anticipates.

Although integration can be aggravating, it is generally worth the effort. The synchronized multidisciplinary applications result in overall cost savings, time savings, and reductions in data redundancy and duplication of employee tasks, and increase management's access to real-time data and querying report generators.

Many off-the-shelf small business accounting software packages available at retail outlets are simply not designed for the client/server environment. Examples include Quicken's Quickbooks and the DOS versions of ACCPAC and Cougar Mountain Software.

Assessing Client/Server Software

The following questions should be asked when assessing potential client/server accounting software packages:

* How has the business changed over the last five years?
* What kind of changes are anticipated over the next five years?
* How long will the system last before becoming obsolete?

Prospective software vendors should be asked the following questions:

* Is the package specifically designed for the client/server environment?
* Can the software adapt to dynamic business changes?
* After the new system is installed, how easily can functions be added or processing rules changed?
* What difficulties are typical when integrating and implementing the software?
* What technical support does the software provide for integration and problem diagnostics?

Value-Added Services

The days of the accounting monopoly on providing basic financial reports to management decision-makers are ending. Client/server technology allows management to access this information themselves and to perform queries and generate reports that previously were the sole jurisdiction of the accounting department. *