تجزیه و تحلیل افشای گزارش سالانه ERP

Investments in enterprise resource planning systems (ERP) are increasingly significant and critical to the success of the firm. Prior research finds capital markets value information about firms' investments in technology. This study develops a sample of firms with and without disclosures about ERP in their annual report to examine disclosure choice. Results indicate that firms often choose not to disclose ERP in their annual report and that the choice to disclose is significantly associated with capital market transactions, firm performance, firm size and industry. For those firms choosing to disclose, the study also reports a descriptive analysis of the disclosures and summarizes significant diversity of disclosure practice along the primary dimensions of costs, goals and risks. Given the conceptual foundation of accounting, that comparability between firms increases the informational value of disclosure, the study's findings suggest a need to develop additional standards to enhance the value of annual report disclosures about technology.

This study examines firms with annual report disclosures related to enterprise resource planning systems (ERP) and compares these firms to firms that choose not to disclose ERP information in their annual reports. Current regulatory standards are unclear and incomplete regarding disclosure of investments in ERP in annual reports such that significant variations in practice are possible. Variation in disclosure practice can cause annual reports to be less informative. According to the Financial Accounting Standards Board (FASB), informative disclosures help investors and creditors understand the company better thereby making the capital allocation process more efficient (FASB, 2001). Prior research supports this premise by documenting that extensive voluntary disclosure is generally associated with improved stock liquidity, reduction in the cost of capital, and increased following by financial analysts (Healy and Palepu, 2001). FASB Concepts Statement No. 2 establishes the importance of comparability and consistency and the role each plays in producing high quality, valued accounting information (FASB, 1980). A primary means of achieving comparability and consistency is through disclosure of items in the annual report. Disclosure of financial issues and activities surrounding ERP implementation should be important to users of financial statements. Prior research finds that the capital markets reward firms for adopting ERP with higher market valuation and suggests that disclosures about ERP implementations are informative (Hitt et al., 2002 and Hayes et al., 2001). Further, the American Institute of Certified Public Accountants' (AICPA) report on improving business reporting (Jenkins' report) suggests that users need information about a firm's activities, processes, and events (AICPA, 1994). ERP implementations are increasingly prevalent (Hitt et al., 2002) and often represent the firm's largest single investment in information technology (IT) (Sumner, 2000). ERP systems can directly affect many of the primary activities and processes in a firm and ERP implementation is generally a major event (Poston and Grabski, 2001). In particular, the Jenkins' report recommends disclosure of costs of key resources and forward-looking information about opportunities and risks (AICPA, 1994). ERP systems provide opportunity to dramatically change and improve operations in a firm but also introduce significant risk (Hitt et al., 2002). Based on the Jenkins' report, we suggest investors need information about ERP implementations and that companies should disclose information about the costs, goals (opportunities) and risks of ERP. The extent to which disclosures improve the capital allocation process depends on their credibility because management has incentives to distort or not fully reveal information (Healy and Palepu, 2001). Given the voluntary nature of ERP disclosures, it is likely that disclosure practice varies considerably. Therefore, we first analyze the disclosure choice by examining the determinants of the decision to disclose ERP in the annual report. We then examine the comparability and consistency of ERP annual report disclosures across firms choosing to disclose. Specifically, we searched all US Securities and Exchange Commission (SEC) annual report filings from 1998 to 2001 and identified 453 firms with ERP-related annual report disclosures. Additionally, we searched Lexis-Nexis press releases for the same time period and identified 134 publicly traded firms with an ERP implementation but without ERP-related annual report disclosures. Finally, we also obtained partial client lists from two major ERP vendors and identified 102 additional publicly traded firms implementing ERP in the same time period without related annual report disclosures. Our sample suggests that many firms do choose to disclose ERP information, but that at least a third of firms implementing ERP do not disclose anything about their implementation in their annual report, a nontrivial percent. Logistic regression analysis of the disclosure choice decision finds that annual report disclosures are increasing in firms issuing debt or stock, firms with higher than median return on assets (ROA), and in the manufacturing industry and decreasing in firm size, consistent with predictions from economic theories of voluntary disclosure. These results also provide an initial indication that ERP-related disclosures are not currently comparable or consistent across firms. Analyzing the 453 firms that chose to disclose their ERP implementation in the annual report, we find significant diversity in the information disclosed. Slightly less than a third of the firms disclosed cost of implementation. Firms varied in the percent of costs capitalized from complete expensing to complete capitalization. Approximately 62% of firms disclosed ERP goals while less than 50% disclosed either risks or problems with the implementation. These results again suggest that disclosures across firms are not comparable or consistent, even among those firms choosing to disclose. Given that investments in ERP include both tangible (such as software and hardware) and intangible (such as training) costs, more definitive disclosures would assist the investor in understanding the total investment in ERP. Additionally, though this study is unable to determine the types of costs that are capitalized versus expensed, the descriptive information about costs may indicate a lack of consistency in accounting for the costs of ERP implementations across firms suggesting that additional research should determine the need for more definitive regulatory guidance on capitalization of ERP costs. Therefore, our primary conclusion is that more guidance from standard setters is needed to improve disclosure practices related to ERP investments. The remainder of the paper is organized as follows. Section 2 reviews economic theory about the role of disclosure and develops expectations about disclosure practices. Section 3 presents the sample selection and methodology, Section 4 describes the results, and Section 5 presents discussion and conclusions.

This study describes the disclosure practices of 453 firms with annual report disclosures and compares these sample firms to 236 firms without annual report disclosures (134 firms from press releases and 102 firms from vendor provided client lists). We find significant diversity in current disclosure practice. At least 34% of firms do not disclose information about ERP implementation in their annual report. We find that firms with capital market transactions, higher performing firms, smaller firms, and firms in the manufacturing industry are more likely to make annual report disclosures. These results provide a concrete example that economic theories of the voluntary disclosure decision apply to ERP disclosure decisions in addition to disclosures of management earnings forecasts and broader analysts’ disclosures. Of the 453 firms that do disclose information, firms disclosing the cost of ERP also disclose more information about the ERP implementation. However, less than one-third of the firms disclose the cost of ERP or whether costs are capitalized or expensed. Further, details on the measurement process are generally lacking. The most frequent type of disclosure is ERP goals (62.03%). Risks (42.60%) and problems (10.60%) are less frequently disclosed. These results suggest that while disclosure practices of firms choosing to disclose ERP in their annual report provide information consistent with the Jenkins’ report, there is little consistency across firms. Prior to discussing the specific implications of the study, several limitations should be noted regarding the study. First, we simply compiled information that was disclosed in the annual report. Firms generally do not give a definition of terms such as start and finish dates. To the extent that different firms disclose information based on differing interpretations of such terms, the data reported in the tables may not be comparable across firms. In addition, all of the firms from vendor provided client lists had completed the ERP implementation within the time frame of the disclosing firms (1998–2001). Since disclosures are not always complete, it is often unclear what stage of implementation the firms with annual report or press release disclosures were in. However, based on a review of the 239 firms with annual report disclosure that report either start, finish, or start and finish dates, only 47% of the annual report disclosures were after the ERP project was completed. Thirty-seven percent disclosed during implementation but prior to completion. The remaining 16% disclosed prior to project completion and we do not know if they also disclosed after completion because finish dates were not given. The result is that the disclosing firms are not strictly comparable to the non- disclosing firms. However, the median assets for a subset of 112 firms that disclosed only after ERP completion are not statistically different from the remaining firms with annual report disclosures suggesting that completion date is not determining disclosures. These results suggest that the goal of SOP 98-1 of eliminating inconsistencies in practice has not been met. One specific implication is that more definitive standards should be developed for disclosure of significant investments in IT. Prior research findings imply that such disclosures would be informative ( Hitt et al., 2002; Hayes et al., 2001; Barron et al., 1999 ). Given that management incentives lead to diversedisclosure behavior, regulation of disclosures can enhance the credibility of manage- ment disclosures and reduce processing costs for investors by providing a commonly accepted language that managers can use to communicate with investors. Another implication is that accounting standard setters need to revisit the standards for expensing versus capitalizing investments in ERP. System implementation methodologies and current practices have changed (and are continuing to change) since the current accounting standards were issued suggesting a need to revisit the standards for capitalization versus expense. The authoritative guidance follows a more traditional methodology consistent with the systems development life cycle (SDLC) approach used for the past several decades ( Marakas, 2001 ). The SDLC approach has many variations, but primarily its roots center around custom-programmed systems typically built from b scratch Q , rather than an approach where a system is acquired and then modified to meet user needs, as is commonly the case with ERP systems. For internally developed software built from scratch the majority of the costs most likely occur in the applications development stage. This may not be the case for internally developed software built from purchased ERP software. For instance, Baker (2003) reports that software and hardware average only 21.5% of the total cost of ERP implementation. Implementing an ERP system is more like a business project rather than a software installation ( Parr and Shanks, 2000 ). Implementation stages of ERP systems are documented in previous studies ( Bancroft et al., 1998 ). A key element of these ERP models is a focus on the considerable time spent on process analysis and implementation. This is partially due to the fact that many organizations transition from a functionally oriented organization to a process-oriented organization as they implement ERP. Time spent on redesigning or reengineering processes can be lengthy, but is necessary in order to realize the true potential of an ERP system ( Sandoe et al., 2001; Markus et al., 2000 ). The change to process-orientation can fundamentally affect all key activities within an organization and consequently, most firms hope to see a significant return on their investment in process redesign. In order to measure this return, it is necessary to measure costs spent on this process as completely as possible. However, EITF 97-13 requires expensing of these costs and management may not disclose them at all. If the costs of the project are treated more consistently, disclosures of costs may also be more consistent. The results also suggest several avenues for future research. First, it is unclear why firms in service industries are less likely to disclose in their annual report. Future research could examine these industry effects in more detail. Second, more details regarding the actual capitalization versus expense policies of firms would provide important data to assist standard setters. This study contributes to the literature by providing descriptive information about firms’ ERP-related annual report disclosures. Brynjolfsson et al. (2002) suggest that the success of investments in IT, such as ERP systems, depends on the investment in complementary organizational structures such as highly skilled workers, decentral- ization of decision rights, and team-oriented production. Yet we find very little descriptive information about how firms implement ERP to help an investor understand the firms’ chances for realizing performance improvements with their investment in IT.