How ERP System (Oracle) Facilitates Companies in Auditing Process

How ERP System (Oracle) Facilitates Companies in Auditing Process

Technology is now playing a pivotal role in our day to day life matters. There is no doubt in it that usage of technology makes our life not only easy but more productive too. We can now handle multiple tasks at the same time which were not possible in the past. If we talk about oracle software (ERP system) then it’s also one of those inventions which gave us relieve and productivity in our daily work life. An oracle software is extensively using in most of the manufacturing and services industries.

The textile industry is also one of those industries which are getting multiple benefits from this technology. As it’s not only fulfilling the needs of finance but along-with that it’s also performing productive functions of accounting too. In general, if we closely look into the broader prospects of ERP system. Then it covers recording, summarizing and interpreting of accounting and finance data into more precise and efficient manner.

Why We Need ERP System (Oracle)?

The beauty of ERP system is that even an ordinary user can easily understand it within no time. And if we talk about the cost of ERP system then there is no doubt in it that it’s a bit high. But when we compare it with its benefits then it outweigh the cost from all aspects. Most of the big textile firms have their own internal audit functions due to the magnitude of financial transactions. Internal audit department uses different tools to carries out the audit of finance and accounting function. And this could only be fruitful if company uses highly integrated software system. The technology which is not only helps to summarize the data within no time. Along with that the authenticity of the summary/result could not be challenged anywhere.

ERP system makes life easier for auditors as it provides the best solution for auditing of financial and accounting transaction. Since the big organization’s transaction magnitude is so huge. So, the small or less integrated software cannot give the ultimate results in terms of speed and accuracy.

The usage and importance of technology varies company to company. In public limited companies, where people have invested their life savings in shape of investment in shares. So, being investors, they expect accurate, transparent financial position of the company time by time. The external auditors are normally hired by the shareholders to know the exact position of the company. These auditors have task to provide their opinion on the financial data of the company. If the company uses oracle then it makes it easier for external auditor to form their opinion on the financial data. Since there is no question about the accuracy and functionality of this highly sophisticated technology. So, the required outcome is normally obtained without any hassle.

Internal Audit of Purchases through ERP System:

The progress of company normally matters on different factors. A good marketing and production team cannot assure this thing that a company will progress. The financial and purchasing departments are also equally responsible for getting positive outcome. And for a company, the outflow of money equally concern as inflow of money. Because if you don’t have any appropriate check and balance on your financial activities. Then the efficiency of your sales and production teams couldn’t drag the organization on the way of progress. The ERP system didn’t ignore this important aspect too and it also efficiently manages the outflow payables of the organization.

Purchases Audit in Textile Company:

In order to know the in-depth of ERP system, we have to review the complete procedure that how it works in an organization. Let’s take the example of  Textile Company where most of expenses are on material requisition. When an audit of purchases carries out, you need to make sure that you have access to all modules in ERP. And it includes: Purchase requisition (PR), Purchase order (PO), Inward gate pass (IGP), Goods receipt note (GRN), Purchase Invoice (PI) and Purchase invoice voucher (PIV). Once you have complete access on these modules then it will really helpful to view the whole trail of transactions. Auditing these modules shall help to make opinion whether the purchases acquired through systematic procedure.

The purpose of purchase audit is to ensure that expenditures on purchases are actually for the use of the business. Further, we need to check this thing that all the materials are purchased according to agreed cost and units. In some firms, this audit is also called as reverse costing which gives the management about the clear picture of order after dispatch.

Where to Start?

The auditor normally starts with purchase order which is actually a main reason of every activity of order processing. After having the purchase order, he needs to the see all the purchase requisitions which were raised during order processing. And these are mainly includes; fabric requisition, accessories and trims requisitions etc. The purchase requisitions (PR) normally issued by marketing department who is responsible for delivery of goods to Customer. All the PRs normally signed by authorize person of department. The main motive for auditing the PRs is to check whether quantity and cost is in accordance with agreed value.

Purchase Order:

Once purchase requisitions are audited then the auditor normally moves on to Purchase department’s purchase orders. These purchase orders are normally issued against the purchase requisitions by the marketing department. While auditing purchase orders, the auditor is more curious about the quantity and unit price of the material. As these two things must be approved by the authorized person of the top management. All the purchase orders normally have an authorization person’s name on it. The good thing about ERP is that Purchase department’s POs fetches data from PRs. If there is no purchase requisition then no purchase order can be generated. So, the probability of extra or useless buying is not possible if you are using ERP system. But here the auditor normally reconfirms the quantities which are fetches from purchase requisitions.

Inward Gate Pass: 

Inward gate pass (IGP) is normally formed when goods arrived into production facility.  The IGP only signifies the date and time of arrival of goods against specific purchase order. It also shows the total quantity received against PO though. IGP is a proof of a delivery arrival which normally confirms that goods are delivered against specific PO. As the purchase order number is normally mentioned on the IGP. The Auditor normally needs to cross check the quantities of IGP with respect to its generated purchase order. In ERP system, IGP fetches data from purchase order so that each every received unit is checked under the light of demand paper.

Goods Receipt Note:

Goods receipt note is normally created when store & inventory department counted the material quantity. During Audit, the auditor checks the GRN to ensure that it has relevant PO, Quantity, Unit price. Further, he also checks this thing that all the documents are duly signed by the authority that controls the Store & inventory department. ERP integrates GRN with PO and IGP. So, GRN cannot be prepared until or unless the approvals of purchase order.

Invoice Posting:

The auditor needs to reconfirm whether the invoice posting against the PI is correct. Whether, it has proper tax rates, net values traces back to GRN and PO? If these are correct then make sure that PIV prepared on the basis of the whole data correct also. PIV had the correct nominal account in debit side with corresponding credit side. i.e. Purchases and Trade creditors. All these checks is normally performs within no time while using ERP system. Since, the integration of all document into one system can make this thing possible to compare and check value easily.

Opinion: 

An appropriate opinion can be made when an efficient audit is carried out through ERP which integrates each purchasing activity from purchase requisition to stock stacking. Although cost of implementation and maintenance of Oracle is high but the benefits are long lasting from every aspect.

 

ERP system

Author: admin

Fakhar is a textile professional with more than 15 years of experience in the fields of Marketing, Merchandising, Sourcing, Liaison, Training & Development, Industrial Relations. Being a keen observer, he constantly tracks the textile innovations and other notable events. And whatever he thinks, is interesting and informative, share the same along with his own understanding and opinion. He loves book reading, cricket and chess.

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