ERP

IFRS is an international accounting framework, a set of accounting standards developed by the International Accounting Standards Board (IASB). Correctly organize and report financial information. It is derived from the statement of the London International Accounting Standards Board (IASB)

Currently, this is the accounting framework required by most countries around the world. IFRS requires companies to report their financial performance and financial status using the same rules; this means that unless any fraudulent operations are performed, the financial reports of all companies that use IFRS are quite uniform, which makes comparison and comparison of their financial The result becomes easier.

And here are all the IFRS standards:

• IFRS 1 First-time Adoption of International Financial Reporting Standards ” IFRS standards “
• IFRS 2 Share-based Payment
• IFRS 3 Business Combinations
• IFRS 4 Insurance Contracts
• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
• IFRS 6 Exploration for and Evaluation of Mineral Resources
• IFRS 7 Financial Instruments: Disclosures
• IFRS 8 Operating Segments

IFRS 9 Financial Instruments:

IFRS 9 is effective for annual periods beginning on or after 1 January 2018 with early application permitted.

IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.

IFRS 9 requires an entity to recognize financial assets or financial liabilities in its statement of financial position when it becomes a party to the terms of a financial instrument contract. At initial recognition, the entity measures the financial assets or financial liabilities at their fair value plus or minus; for financial assets or financial liabilities that are not measured at fair value and whose changes are included in the current profit or loss, they are directly attributed to the financial asset or financial liability Transaction costs. Purchase or issue financial assets or financial liabilities.

Financial assets When an entity first identifies a financial asset, it classifies it based on its business model for managing assets and the contractual cash flow characteristics of the asset, as follows:

Amortized costs of financial assets that meet the following two conditions are measured at amortized cost: Assets are held in a business model whose purpose is to hold assets to collect contractual cash flows; and

The contractual terms of financial assets generate cash flow on a specified date, which is only the payment of principal and outstanding principal interest.

– The fair value measured through other comprehensive income-If a financial asset is held in a business model that achieves its goal by collecting contractual cash flows and selling financial assets, it is classified and measured at fair value through other comprehensive income.

– Measured at fair value and its changes are included in the current profit and loss-Any financial assets that are not held in one of the above two business models are measured at fair value and their changes are included in the current profit and loss.

When and only if an entity changes its business model for managing financial assets, it must reclassify all affected financial assets.

• IFRS 10 Consolidated Financial Statements

• IFRS 11 Joint Arrangements

• IFRS 12 Disclosure of Interests in Other Entities

• IFRS 13 Fair Value Measurement

• IFRS 14 Regulatory Deferral Accounts

• IFRS 15 Revenue from Contracts with Customers:

IFRS 15 takes effect during the annual reporting period beginning on or after January 1, 2018, allowing early application.

IFRS 15 establishes the principles that entities apply when reporting information about the nature, amount, time, and uncertainty of revenue and cash flows from contracts with customers. According to IFRS 15, an entity recognizes revenue in an amount that reflects the consideration that the entity expects to be entitled to in exchange for these goods or services, to express the transfer of promised goods or services to customers.

Read More: What is ERP System?

In order to recognize revenue based on IFRS 15, entities should use the following five steps:

-Determine the contract with the customer.

-Determine the performance obligations in the contract. Performance obligations are commitments to transfer significantly different goods or services to customers in the contract.

-Determine the transaction price. The transaction price is the amount of consideration that the enterprise expects to transfer the consideration goods or services to the customer in exchange. If the consideration promised in the contract includes a variable amount, the entity must estimate the consideration it is expected to be entitled to in exchange for transferring the promised goods or services to the customer.

– IFRS 16 Leases

IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019, and allows early adoption (as long as IFRS 15 is also adopted).

The purpose of IFRS 16 is to report the following information: (a) faithfully represent the lease transaction, and (b) provide a basis for financial statement users to evaluate the amount, timing and uncertainty of the cash flow generated by the lease. To achieve this goal, the lessee should recognize the assets and liabilities arising from the lease.

IFRS 16 introduces a single lessee accounting model and requires the lessee to confirm all leased assets and liabilities for leases longer than 12 months unless the value of the underlying asset is low. The lessee must recognize the right-of-use asset on its behalf to use the underlying lease asset and the lease liability on its behalf to pay the lease payment obligation.

– IFRS 17 Insurance Contracts

IFRS 17 is effective for annual reporting periods beginning on or after January 1, 2021, and allows the simultaneous adoption of IFRS 9 and IFRS 15.

Insurance contracts have the functions of financial instruments and service contracts. In addition, the cash flows generated by many insurance contracts over a long period are highly variable.

After explaining all the IFRS standards our mission is to develop and provide an ERP software to manage IFRS that brings transparency, accountability, and efficiency to financial statements to raise understand the relationships between different accounts in your business.

Most business owners are often looking for a powerful system that can manage their enterprise, deal with their administrative workloads and provide them with accurate financial reports. If you seek to gather your company departments under one umbrella to ensure successful management and high levels of control, you are at the right place.

Sismatix ERP Software

sismatix provides you with a bundle of modern solutions that will help you manage your project and give you precedence and excellence through providing an ERP system to manage the IFRS. 

Operating expenses or OPEX refer to the expenditures associated with operating or running a business. They are necessary in order for the company to produce revenues. They are the muscle that makes things happen. Operating expenses consist of selling, general and administrative expenses (SG&A), research and development, and depreciation.

SG&A expenses are expenditures that are not directly tied to a service or product such as overhead costs.

Selling, general and administrative expenses (SG&A) include expenditures such as sales commissions, management salaries, office supplies, advertising, and accounting and legal fees. The amount of SG&A expenses does not mean much by itself but becomes more meaningful when compared either to total revenues or gross profits.

Generally, the best businesses spend fewer revenue dollars on these activities than their competitors do.

Some companies sell such a valuable product or service that they do not have to advertise much because customers do the selling through word of mouth. This is the best kind of advertising because it is free. If, on the other hand, a business is selling a product or service that is just average and people do not really need it, then a significant amount of resources needs to be spent convincing people to buy it.

The cost of goods sold

The cost of goods sold represents the direct expenditures associated with manufacturing a product. These expenditures include the raw materials, labor, and manufacturing overhead. When reselling a product, the cost of goods sold represents the cost of purchasing it from the manufacturer. When the company provides a service instead of selling a product, the cost of goods sold is replaced with another term – the cost of revenue.

What is important to note is that the cost of goods sold only appears on the income statement when the company is actually “selling” or “reselling” its products or services. What if the company is not able to sell its products? The cost of goods sold does not appear on the income statement because the preparation of financial statements of publicly traded companies has to adhere to GAAP (Generally Accepted Accounting Principles). Under GAAP, companies must follow accrual basis accounting, which means that expenses must be matched with corresponding revenues. If the company is not able to sell its products, it does not have any revenues for the corresponding costs to be matched to, and therefore, the production costs are not expensed through the cost of goods sold on the income statement. Investors can prevent unpleasant surprises by monitoring inventory levels on the balance sheet and comparing them to total assets and revenues. A significant accumulation of products in inventory without a similar increase in revenues may mean that the company is unable to sell it products, and as a result, may need to write down the inventory costs through the income statement as a loss without a corresponding increase in revenues.

The Real Difference between Expenses and Cost of Goods Sold

Operating expenses and cost of goods sold measure various ways in which resources are spent in the process of running an operation.
When an income statement is generated, the COGS and operating expenses are shown as separate line items subtracted from total revenue or sales.

Examples of operating expenses include:

• Utilities.

• Rent.

• Legal costs.

• Insurance costs.

• Payroll.

• Office supplies.

• Sales and marketing.

Examples of COGS include:

• Depreciation of the manufacturing plant.

• Labor directly tied to production.

• Direct materials needed for the production of goods and services.

• Utilities of the facilities tied to production.

• Taxes on the production facilities.

Read More: What is ERP System? What does it stand for and why should your business care about it?

Matix ERP All You Need in One System

MatixERP is a complete ERP software that is developed with great care to gather everything business managers need in one place.MatixERP helps you transform your business processes to meet today’s needs and tomorrow’s challenges.

By the end of this article, you will be know what is ERP and familiar with the definition of ERP system and how it’s going to affect the flow and management of different processes in any organization. In addition, you will know when to use an ERP system and how it’s going to be implemented and what are the industries that can implement an ERP solution.

What is ERP System?

ERP stands for Enterprise Resource Planning. ERP system is a business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology, services and human resources.

Instead of relying on several software vendors with different standalone data vessels; ERP system relies on a centralized database to store and retrieve data in real time to manage day-to-day processes in different departments which keeps the integrity of data and eliminate data duplication.

Organizations may implement ERP system for the following reasons:

• They need to computerize organization’s workflow and business processes instead of using papers or spreadsheets.
• Replace out of date ERP system.
• Replace old ERP system that is not qualified enough for new expansions and non-flexible to upgrades or customizations.

History

what is ERP? In 1960s, the need to speed up the manufacturing processes and to balance the production with customer demands came up with creating a software known as MRP – Manufacturing Materials Planning. This type of computer software helped in manufacture planning, maintain stock levels and define purchase strategies.

Because of the improvements in hardware and mainframes developed by IBM in 1970s, MRP was implemented in several large manufacturing factories, and by the 1980s, especially after developing a financial management system for the first time, MRP got more capabilities and improvements, hence, it was named MRP II or Manufacturing Resource Planning.

By 1990s, the ERP term raised for the first time when these type of software systems were extended to not only manage inventory and production, but also to control and manage other functions such as Human Resources (HR) and Accounting to become that ERP we know this days.

Today’s ERP system is more advanced and complicated than ever for sure; it can be installed on premise with a centralized server in your company, or on the cloud. It can be a desktop application or web based application. Nowadays, some significant tasks can be performed using mobile devices. ERP system extended to have advanced reporting services, integrated with Marketing Automation and Customer Relationship Management (CRM).

The value of using ERP system

The growth of investments in ERP solutions is an indication of how important this type of software for organizations, not only those working on production factories, but almost all industries. Any business consists of different functions; hence, the use of ERP solution and purchasing ERP modules – which we will come up to next – will depend on your organizational needs and what is meant to be achieved. The main business benefits of using an ERP system are:

• Minimize operational costs through adopting best practices in different activities.
• Improve efficiency by enhancing and clarifying business processes.
• Improve data consistency and integrity by reducing error and eliminating duplication.
• Fewer point of failure and the need to work with different software vendors to manage daily tasks.
• Improve accuracy of financials.
• Increase data security at all phases.
• Reporting and alerting on critical conditions.

The main goal of using ERP system is to centralize and share data between different departments and individuals in the organization to streamline business processes, while managers rely on ERP systems to analyze financial data, organizational performance and to improve decision-making processes.

ERP Modules

As I mentioned earlier, ERP system consists of several modules, each to manage a specific function inside your organization. One of the main characteristics of an ERP system is its modularity, and the success of one depends on the ability and flexibility to fulfil organizations’ requirements with all their differences and customizations. A small business may just need an inventory and financial management systems, while a larger one may need in addition to that, a Human Resource, Payroll and Production management system.

Main ERP Modules can be summarized as follows:

• Financial Accounting: General Ledger (GL), Fixed Assets, Payable and Receivable, Cash Management.
• Human Resources (HR): Employee File, Recruiting, Attendance Management, Training, Payroll, Benefits and Deductions, Promotions.
• Manufacturing: Bill of Materials (BoM), Quality Control (QC), Job Orders, Manufacturing Process, Production Planning.
• Sales: Sales Order, point of Sales (POS), Quotation and Price Lists, Sales and Invoicing, Shipping and Sales Commissions, Customers Management and Sales Reporting.
• Supply Chain: Purchase Order (PO), Purchase Invoices, Stock Levels and forecasting, Vendors and Payments.
• Inventory Management: Out/In transactions, Stocktaking, Stock movement, Stock Open Balance.
• Customer Relationship Management (CRM): Potentials and Customers’ contacts, commissions, campaigns, tasks and meetings.

We need to mention that sometimes CRM is not considered part of ERP system, but it can be easily integrated to ERP system to automate and streamline the business process.

ERP Implementation

Adopting an ERP solution itself does not guarantee its success in an organization. Purchasing an ERP solution must be consisted of and followed by well-formed implementation processes, which may involve some – if not all – of the following:

• Preparing network infrastructure.
• Bringing suitable devices with recommended specifications.
• Installing ERP system.
• Moving data from other data sources if exist to the new system.
• Configure users and their privileges.
• Training end-users, which considered one of the most important phases in ERP implementation process.
• Follow up with ERP end-users to strengthen their experience and solve issues that may occur during the first period of implementation.
• Evaluate the success of ERP solution.

ERP implementation is a critical step toward the success of any ERP solution, no matter how good the solution is, or how many modules it consists.

ERP Implementation time varies, for small businesses it may take 6 months, and it may take a year for large businesses depending on business size, number of modules, customizations and how ready are the organization to take the wheel and go live.

Industries

What industries use ERP system? Simply we can say ERP system can cover any type of businesses as long as it has one of the functions mentioned in the ERP modules section. We may categorize these types of business in:

• Retail: Super Markets, Mobile Shops, Clothes.
• Manufacturing: Food and Beverages, Pharmaceutical Manufacturing, Feeds, Plastic manufacturing, metal manufacturing, Furniture manufacturing, Printing and advertising.
• Services: VIP services, Transportation, Consulting, Financials.
• Construction and Real estate.
• Medical industry such as hospitals and medical centers.
• Hospitality: Restaurant, Hotel.
• Education Industry for Schools or Universities
• Publishing and advertising.

Trends

Every day’s inventions and new technologies have a great impact in the development of ERP systems. The most important trends we may heard about and is continuing to expand are:

• Cloud Computing: where the organization has not to worry about hosting servers inside its building or pay a huge amounts of money to purchase equipment and backup devices. Throw this heavy load to another vendor and focus on your core activities. SaaS (Software as a service) is an implementation of cloud computing where you can use an ERP system and your vendor will be responsible for providing you with the 24/7 availability and support, secured data centers, hosting and backing up your data, upgrading devices and computer hardware, all that for a little amount of money that you can pay in annually, quarterly or monthly basis.
• Mobile Application: Anytime, anywhere, you can perform your key business functions using mobile devices through applications designed specifically to serve that purpose.

Conclusion

Adopting an ERP solution may cost you money, but when implemented in the right way you’ll find a great potentiality to success. A great ERP system is the one fits you the most tied to the flexibility to changes and customizations.