American Journal of Scientific Research

ISSN 1450-223X Issue 7 (2010), pp.106-118

© EuroJournals Publishing, Inc. 2010
http://www.eurojournals.com/ajsr.htm

The Necessities of Paperless Accounting System

M. Krishna Moorthy
Lecturer, Faculty of Business and Finance,Universiti Tunku Abdul Rahman
Perak Campus, 31900, Kampar,Perak D.R., Malaysia
E-mail: krishnam@utar.edu.my

A. Seetharaman
Professor (Strategy),S. P. Jain center of Management
Singapore 119579
E-mail: a.s.seetha.raman@spjain.org

M. Gopalan
Lecturer, Faculty of Management, Multimedia University,Persiaran Multimedia
63100, Cyberjaya, Selangor Darul Ehsan, Malaysia
E-mail: gopalan@mmu.edu.my

Lee Har San

Deputy dean,School of Accounting and Finance,Legenda group of Colleges
71700, Mantin,Negeri Sembilan,Malaysia
E-mail: leeharsan@legendagroup.edu.my

Abstract

Paperless system has become a need for business process. Particularly, companies
are eager to maintain uninterrupted growth and overcome the challenges to compete in the
marketplace by improving their effectiveness nowadays. Automation is one way to move
towards more effective accounting process, and Information Technology (IT) is the answer.
Automation will create a more efficient and reliable accounting as well as reduce the costs
of accounting. It also leads to greater efficiency by altering the methods of working and
attitudes. Paperless system is used for automating the accounting information processes.
This paper integrates accounting literatures on paperless system which involves human
capital. This paper analyzes how a complete paperless accounting system helps to redefine
business process, especially for Small-Medium Enterprises (SMEs). One of the actual
concepts of a complete accounting system is the interaction of human resource
management system, including time management system and payroll system. The research
identifies six modules of the paperless accounting system for human resources
management, which are leave module, claim module, appraisal module, training module,
resource requisition module, and employee profile module. The research also discusses the
Employee Self-Service (ESS), a web-based system that integrates client system.

Introduction
Paperless system has become a need for business process. James Blaylock (2005), a CPA (Certified
Public Accountant), believed that, “Going paperless is no longer an option, but must. With the trend of
moving in this direction, it is imperative to go paperless in order to keep up with the competition”. It
The Necessities of Paperless Accounting System 107

might be because paperless system involves technology which could make the business much more
effective. Ramirez and Cosme (2008) have discussed the importance of technology in their article, “It
is certainly no secret that technology has evolved to the point that no modern business enterprise can
survive without it”. It is shown by the fast-increasing number of paperless solution provider companies
in the recent years.
Many organizations are attempting to improve their effectiveness nowadays. Particularly,
companies are eager to maintain uninterrupted growth and overcome the challenges to compete in the
marketplace by developing information technology on their business system. Tuunainen (1999)
explained that the age of information technology provides possibilities for an effective coordination of
business process. By electronic commerce, economic transaction between different partners and parties
will be facilitated in value chain.
Automation is one way to move towards more effective accounting process, and Information
Technology (IT) is the answer. Automation on accounting department makes it more efficient and
more reliable while it reduces the costs. Information Technology, which is growing at a high pace
nowadays, changes the ways of presenting the accounting information. Paperless system is used for
automating the accounting information processes. Gulkvist (2002) defined that “Paperless accounting
is an accounting, where transactions, accounting entries and data are received, transferred, and stored
electronically. Some of these technological and electronic solutions in financial accounting could be
summarized as electronic ordering, invoicing, payment, and archives”. Automation in accounting
system means reducing the paper dependency, and it will provide effectiveness. Larrivee (2005)
explained paperless, in terms of the 2005 environment, “The ideal situation is that paper is replaced by
electronic formats (imaging), resulting in electronically created information that reduces paper
dependency and provides automating processes that effectively make using paper an option rather than
a necessity”.
Accounting system will be different for each firm, because of the difference in the business
process. To achieve the best performance and efficiency, accounting system needs to be well designed
at the first place. However, the accounting system might also be redesigned for the sake of greater
performance. As every day the demand of business is changed, accounting system is also to be
modified. The easier way to redesign the accounting process might be by redefining the business
process.
This paper shows the complete concept of paperless accounting system which involves human
resource management system and time management system that are integrated, and how a complete
paperless accounting system is analyzed and identified. This paper allows the board of director of a
company or institution to justify whether the cost of adopting a paperless accounting system is
reasonable over the benefits they can receive after understanding how a complete paperless accounting
system helps to redefine the business processes.

Research Problem
Many researchers have come across to discuss the importance of setting up paperless accounting
system. For example, it redefines business processes and making the company efficient in making
decisions by drawing out the information from the accounting information system easily. Similarly,
researchers had researched quite a number of areas in setting up paperless accounting system such as
its impacts, obstacles and general concept of setting up. However, none of them discussed about what
are the specific businesses processes to be reengineered and the concept of paperless accounting
system does not merely about account receivables and account payable only. Thus, two main research
problems are justified in this paper.
• Research Problem 1: The complete concept of paperless accounting system which does not limit
to accounting system but also human resource management system and time management system.
• Research Problem 2: The actual benefits of business processes that a company or institution can
benefit with.
108 M. Krishna Moorthy, A. Seetharaman, M. Gopalan and Lee Har San

A complete accounting system takes every issue that involves cost. For instance, when a
company wants to requisite more human resources, the managing director (or the representatives) will
contact the print media to advertise vacancy notice, it costs at least RM300. Then, when there’re
candidates coming for interview, their data will eventually be captured into human resource
management system under pending or KIV status. After that, when the whole interview session has
ended, one or a number of successful candidates will be chosen as the company’s employee with stated
basic salary. The cost incurred during the process of resource requisition involves human resource
management system and accounting system and likewise to time management system which it is inter-
related to the whole flow as well. This is because time management system stores the employee’s work
schedule and attendance of work.
Defining and researching the research problems are crucial for the board of directors to
understand how the complete paperless accounting system can really help to reengineer business
processes and thus they can justify the real benefits for adopting a complete paperless accounting
system than the cost of setting it up.

Objectives of the Research

The extreme purpose of writing this research is:
a. To understand the complete concept of paperless accounting system which involves human
resource management system and time management system that works as a whole.
b. To analyze, identify and understand how a complete paperless accounting system helps to
redefine the business processes.
c. To have an understanding of to what extent the complete accounting system can go paperless.
d. To allow the board of directors of a company or institution to justify whether the cost of
adopting a paperless accounting system is reasonable over the benefits they can receive after
understanding how a complete paperless accounting system helps to redefine the business
processes (from item b).

Scope of the Study

In order to have a very in-depth and precise survey, the scope of this literature is limited to Small-
Medium Enterprises (SMEs) only. For furthermore understanding, a SME generally is an enterprise
with full-time employees not exceeding 50 or annual sales turnover not exceeding RM 5million
(National SME Development Council, Bank Negara Malaysia, September 2005).
Furthermore, different agencies define SMEs based on their own criteria, so there are some
specific SME definitions for different sectors such as primary agriculture, manufacturing,
manufacturing-related services and services (including information and communications technology)
that can be used for special purposes. In this research we used general definition of SMEs.
The scope of this study is to examine and analyze how a complete paperless accounting system
helps SMEs to redefine their business processes. Also, this research attempts to determine how a
paperless accounting system involves human resource management system and time management
system in SMEs. Finally, an evaluation and review on what extent the complete accounting system can
go paperless in SMEs, will be focused.

Study of Literature
The survey of literature is sub grouped into:
a. Approaches and principles of paperless accounting system
b. Information Technology in Accounting system
c. Aspects on paperless Accounting system
The Necessities of Paperless Accounting System 109

Approaches and Principles of Paperless Accounting System

Briefly defined, Accounting is the information system that measures business activity, process the data
into reports, and communicates the results to decision makers, which could be Individuals, Business,
Investors, Creditors, or Taxing Authorities (Horngren, Harrison, 2007). It shows that accounting
system has three main processes which have to be integrated. Accounting system will be different for
each firm, because of the business process differences. To achieve the best performance and efficiency,
accounting system needs to be well designed. However, the accounting system might also be
redesigned for the sake of greater performance. Every day the demand of business is changed,
accounting system has to be modified. Automation allows companies to change the business process
more easily.
Automation is one way to move towards more effective accounting process, and Information
Technology (IT) is the answer. Automation on accounting department makes it more efficient and
more reliable while it reduces the costs. Information Technology, which is growing at a high pace
nowadays, changes the ways of accounting system presenting its information. Paperless system is used
for automating the accounting information processes. Gulkvist (2002) defined that “Paperless
accounting is an accounting, where transactions, accounting entries and data are received, transferred,
and stored electronically. Some of these technological and electronic solutions in financial accounting
could be summarized as electronic ordering, invoicing, payment, and archives”.
Paperless system has become a need for business process, especially for a company that has
higher volumes and more transaction because it will demand a computerized system (Webster 2004).
James Blaylock (2005) believed that, “Going paperless is no longer an option, but must for a CPA
(Certified Public Accountant)”. With the trend of moving in this direction, it is imperative to go
paperless in order to keep up with the competition. In 2005, PCPS/Texas Society of CPAs National
Management of Accounting Practice (MAP) surveyed that 41% of CPA respondents indicated that they
would consider going paperless, and 20% already have done it. 25% of the firms are planning to go
paperless, but 13% will not consider it. But then in 2008, the CCH Incorporated, parts of Wolters
Kluwer, publisher of Accountancy, has done a survey with accountancy practitioners who have
implemented paperless system. 95% of those surveyed by CCH would recommend implementing a
paperless office system to other potential users. Paperless accounting system has been proved for
helping the company improve effectiveness.
For CPA, the reasons why they decide to adopt paperless accounting system are vary, but all of
them seek the same reason, benefit, even it will need huge investment. Based on the survey of CCH
(2008), 95% of those surveyed by CCH, which have implemented paperless accounting system, cited
secure backup or ease of access to client files as their main reason for making the switch, 89% said that
they were motivated by administration and storage cost saving, 84% said a reduced risk of human
error, and 67% cited environmental concerns. The CCH research also found that 79% of all
accountancy firms have gone paperless in some respect, even though a whopping 37% has just
introduced online filing for tax returns.
Replacing accounting paper records with computer records surely has many advantages. The
advantages include: easier access to accounting information, increased accuracy of accounting
information, and improved quality of accounting information (Pincus, 1999) Keeping records on
computers can ease access to accounting information. More people can simultaneously access a
computerized databank of information that could read a written accounting record. Using computers
for accounting calculations can improve mechanical accuracy. There are differences in accuracy
between paper and electronics system. Cameron (2006) explained, “Anytime you move a piece of
information from one place to another or one user to another without re-entering it on a keyboard,
you’ve removed an opportunity for error”. The author describes in his articles about his firm that they
routinely move data between accountants, and between their firm and the firm’s client, and it greatly
increases the work effectiveness and improve the accounting performance. It could happen because
computers make fewer mistakes adding up long columns of numbers than people do. Even if there are
110 M. Krishna Moorthy, A. Seetharaman, M. Gopalan and Lee Har San

mistakes, it is able to be fixed. Computers also present new opportunities for accountants to provide
better information to users with its Graphic User Interface (GUI).
Gullkvist (2002) found out that by paperless accounting, greater efficiency can be achieved and
will reduce the costs of accounting. The first objective for many vendors focus on primary reason for
making a move to paperless is cost reduction (Davis 2005). By performing paperless system, a
company would improve the management of the cost, which could be financial, time, or material costs.
Cameron (2006) explained that by using paper-based accounting, there is the cost of material, time, and
money. When a piece of paper becomes a document, it has to be filled and stored, and it costs for
storage space, securing, heating, and air conditioning the space. Regular purging of old files will time
consuming, and misfiled document will hard to search for and retrieve it. In 1996, The National
Archives and Records Administration (NARA) compared the costs for storing paper in ordinary office
and in Federal Records Centers. For office space, a cubic foot of records was estimated to costs $23.24,
when, for Records center, the cost was $1.56/ft3. In both cases, it was only the cost of leaving the
records in place, while the cost of employee time to prepare the records for storage, access them as
needed, and determine when they can be disposed of is usually much larger. The accounting records
can also be kept longer if it is stored electronically. Paper storage has large scale and weight, so it has
to be purged manually from time to time. Electronics storage of financial and tax information, since it
involves letters and numbers rather than pictures or other graphic images, is quite inexpensive. As a
result, client files could be kept as long as required by state or federal regulations (Cameron 2006).
A company’s use of IT to organize the office leads to a digital makeover and new business.
Setting up paperless accounting system is one of the digitalization the companies could make. Phelan
(2003), a technical manager in personal financial planning at the AICPA, shared a paperless success
story of Atlanta’s Habif, Arogeti & Wynne LLP (HA&W) in the late 90’s on her article. The company
had moved quickly, performed 100% paperless audits and achieved 100% paperless tax season in
1999. Their management is relentless about training, which was the key to a successful transition to a
paperless office within two years only. What the company had done is to set up a committee to protect
and maintain technology projects to generate efficiency. Its mission was to reduce manual and
repetitive tasks, file retrieval time, trips between the office and work sites, wasted office, and to offer
better client service.

Information Technology in Accounting System

Technology is the solution to overcome the challenges of an accounting profession. All future-thinking
companies are putting today’s most advanced technologies and innovations in place to standardize
procedures and create workflow processes that basically run themselves. Standardization and
automation are achieved via integrated product suites, paperless system, virtual offices outsourcing,
and leadership approach (Teresa 2008). Sutton (2000) described that the accounting change towards
the use of Information System indicate recognition of two key changes in the business environment:
(1) information technology has enabled companies to focus on their key competencies and shift other
activities in the value chain to business partners with more competencies in these areas; and (2) the
financial reporting model must eventually shift to something closer to a continuous reporting model,
and assurance on this information can only be provided in a timely manner by focusing on the
reliability of the systems that generate the information. Banker et al., (2002) had made a study on five
accounting officers of an international firm, that at the recently time had made a large IT investment,
primary in audit software and knowledge-sharing application. The results from both regression analysis
and Data Envelopment Analysis (DEA) indicate significant productivity gains following IT
implementation, documenting the value impact of IT in a public firm. Their qualitative evidence
suggests that audit software reduces the time for working paper preparation.
Technology enables business process to perform real-time accounting. Real-time accounting
allows management to quickly adapt to opportunities and address problems. Daily reporting could
greatly ease the stress for accountants involved in preparing quarterly and yearly financial statements.
The Necessities of Paperless Accounting System 111

Management executives, accountants, and other business professionals are able to spend more time on
more useful tasks, such as financial management, product development, and costumer relation, rather
than spending long hours in preparing periodic financial statement. One of Paul case examples (2008)
involves Cisco System. With $22.2 billion in sales for the fiscal year ended July 2001, Cisco used
Oracle’s ERP software to generate a consolidated balance sheet and income statement within about
half a day of a fiscal quarter’s close, compared with two weeks for 1996. In 1996, Cisco’s finance
department spent 65% of its time processing transaction and preparing financial reports, and only 35%
helping managers use the reports to make better decisions. After Cisco implemented real-time
reporting, these percentages reversed. Additionally, the finance department’s expenses as a percentage
of total company revenue decreased from 2% to 1.3%. All of this occurred even as Cisco added
personnel to keep pace with growth. Real-time accounting has given Cisco an accurate measure of
revenues, expenses, margins, and profits every day of every month.
Information technology in accounting system can be used also for management purpose.
Management is responsible for making plans, specifying strategies the organization will use to achieve
the goals which has been set before. But the goals and plans will be unproductive if there is no
mechanism to ensure that the plans are carried out as intended and the progress towards goals is
regularly reviewed. This mechanism is the internal control system. To accomplish goals effectively, the
internal control system has steps to: (1) assign responsibility, (2) establish standards, (3) motivate and
reward performance, (4) monitor performance, and (5) communicate progress and take corrective
action (Pincus, 1999).
One of accounting tools which is used for going paperless system is Accounting Information
System. Auditors and accountants have to know well about the importance of accounting information
system. A study of accounting information system will enhance understanding of the basic concept of
manual data processing and how this processing is being carried out with the use of computers.
Studying accounting information system will help auditors understand how to review computer-based
system and help them in their planning and execution of audit procedures using computers.
Accountants will work with computerized systems as part of their daily routine and will also become
involved in the development of new computer system (Aseervatham and Anandarajah 2003).
Briefly defined, Accounting Information System (AIS) is “an information system that is
specially designed for accounting and finance”. An accounting information system records, processes,
and reports events using accounting methods to achieve predefined accounting objectives. This system
is designed to handle common business transaction which generally grouped into 5 categories: (1)
Revenue, (2) Expenditure, (3) Production, (4) Human Resource Management, and (5) Reporting
(Aseervatham and Anandarajah 2003). This mini-research touches The Human Resources Management
categories only.
The Human Resources Management (HRM) section within an organization is responsible for
the hiring of personnel. It involves all the decisions that in some way affect or influence the people
who work for an organization. There are two approaches to human resources management, hard and
soft. Hard HCM is financially hard-nosed with a focus on the bottom line. It is more about function and
place management prerogatives above the concerns of employees. Soft HRM is quite the opposite in
that it applies the concept of developmental humanism, or helping employees to improve and further
their experiences and education, rather than engaging in wholesale redundancies and terminations.
Additionally, the soft HRM approach tends to regard employees as assets that help to build a
sustainable competitive advantage for the firm. The present trend amongst organizations is to adopt a
softer, more strategic HRM approach. Effective HRM has the following main objectives: (1)
Organizational productivity, (2) Increased quality of work (3) Improved quality of working life, and (4)
Statutory and legal compliance (Aseervatham and Anandarajah 2003).
The payroll cycle is the system that manages the calculation and payment of remuneration to
employees. The remuneration is broadly divided into two types, wages and salaries (Aseervatham and
Anandarajah 2003). “Paperless payroll is a growing trend in the payroll industry and offers many
benefits for businesses”, that is what PayMaxx, Inc believes (2004). The article explains that the
112 M. Krishna Moorthy, A. Seetharaman, M. Gopalan and Lee Har San

reasons for this transition are numerous and include records storage, improved accessibility and
environmental friendliness. There are many facets of paperless payroll, including applicant tracking,
employee self service, direct deposit, payroll cards, and online payroll reports. Recording the hours
worked by an employee is the starting point of the payroll system. Time Management System is also
included in the calculation of payroll system. In wages computation, recording of the time worked
quantifies the normal hours worked and the overtime hours worked. For salaries, time recording is
sometimes used for controlling the attendance of employee (Aseervatham and Anandarajah 2003)

Aspects on Paperless Accounting System

The change of paper into paperless system is an important movement towards an improved accounting
system. But there are also some aspects that should be considered when performing paperless system.
Going paperless is not just about replacing paper with computer system. Bhansali (2005) argued that
no firm, especially for small, one to five partner firm, has increased its productivity significantly solely
by eliminating paper in its offices. The author hypothesized that to increase a firm’s productivity the
goal should be to find the most efficient means of using data and documents in client engagements,
storing and retrieving them, and sharing them with the clients.
Going paperless needs time. LaRue (2006) described in his article about 7 mistakes that should
be avoided when going paperless. One of them is “Trying to go completely paperless overnight”. The
author explains that going paperless is a progressive transition. Trying to go completely paperless
quickly can be overwhelming and create frustration with the entire process. Starting off at a pace that is
right and progressively moving to a paper-free environment is recommended.
There are many rewards for accounting firms that choose to go paperless, but there are risks as
well. Mongeon (2008) believed the risks can include a loss of control, and confusion among
accountants and staff about their role on a new, paperless environment. The loss of control of their files
when adopting a new technology is one of the greatest risks for many accountants in going paperless.
This can be particularly true when they use third-party vendor with proprietary storage system and
databases managed by one vendor. It will be time and financial consuming when the firm wants to
maintain the technology, or even change the vendor. By carefully considering how paperless
documents are filled, stored and categorized, accountants can minimize this risk and maintain control
of their own data. The author also explains that in the paper world, accountants and staff typically have
very clear roles, but in the paperless world, such roles can be realigned or reshaped into the most
desirable means. Realignment can increase efficiencies as firms are attempting to more fully utilize
administrative staff to free up professionals for the high-level tasks they must perform. But, however,
realignment can also lead to confusion about who needs to act and when. With good workflow
planning, firms can help ensure that engagements proceed as smoothly and even more efficiently than
the work they managed on paper.
A firm’s workflow system is one of its strategies and assets because it can revolutionize
effectiveness with tools to monitor, trend, forecast, and control all the aspects of their business. By
tying together people with system, and content with workflow, firms can improve efficiency and
operational consistency to deliver greater business value (Massie 2008). But when going paperless,
firms should clearly articulate how process and workflow will change. Going paperless requires some
readjustment in the way that engagement process and workflow is managed. Mongeon (2008)
commented that “If accounting firms don’t adequately prepare for their transition to paperless, they can
easily bite of more than they can chew”. Unprepared firms could overload departments, individuals, or
force unnecessary workflow bottlenecks that hinder processes and lead to costly errors. He added,
“This risk is commonly realized when a firm doesn’t plan accordingly and takes on a new technology
first and then as an afterthought, attempts to establish new better practices”.
Computer may change the manual routines for those working with accounting and auditing
(Sutton 2000). Gullkvist (2002) has found that there is a resistance towards paperless accounting
among the accountants and auditors. While they feel comfortable of using traditional system, they are
The Necessities of Paperless Accounting System 113

forced to learn new technology. The author explains that according to normative isomorphism, the
implementation of new professional practices might be influenced by professionals. As auditor, they
are developing the legal accounting standards and principles and it may seem fair to believe that fellow
auditors may adopt the new standards faster than other accounting professionals. The author finds out
that, “Auditors are more in favor of paperless accounting than accountants”. Auditors in general have a
more positive attitude towards paperless accounting than accountants working in accounting agencies.
Keenan (2008) revealed that “Auditing your existing process and adapting them for your new
technology, and then documenting them, are important steps and may take some time. Getting your
firms’ entire employees, from the top to down, to follow the new process is the bigger challenge – that
goes back to the change management issue”. Workflow automation doesn’t solve the change
management problem, even though it solves the work management problem, which is an integral facet
of process change and standardization. Implementing technology and eliminating paper is not enough
for performing paperless system. Workflow automation should not mean simply automating specific
processes. It should empower people and teams to work more effectively in all departments across the
firm. It standardizes processes, centralizes knowledge, and helps the staff manage their responsibilities,
while creating the accountability, the firm and its people need to be successful. Individual differences
among the users and technological skills should also be considered also, as these factors may affect the
attitude. One of the problems of using technology for accounting system is the awareness of individual
users, who have just been introduced to advanced technology. It is important for accounting
practitioners to have an understanding of IT.
To compensate with the risks of going paperless is very important. While there are many risks
to going paperless, accounting firms can minimize virtually all the risks with proper planning.
Understanding the risks to technology, process, and people before you buy a paperless technology will
allow you for more strategic plan, a seamless integration strategy, and the highest probability of
success (Mongeon, 2008). One of the best ways to get started with implementing the paperless office is
to develop a plan that contains easy-to-follow steps and sets of reasonable milestones. “The plan
should contain the paper-reducing goals of your firm, how you envision achieving them, how you plan
to organize your digital files, and your target deadlines for meeting your firm’s desired level of
paperless”, said LaRue (2006).

Research Methodology
This study covered only the small and medium size enterprises (SMEs). The data for the research were
collected from different journals, bulletins and web sites as listed below:

Journals
• CPA Journal
• Journal of Information Systems
• International Journal of Accounting System
• Accounting Today
• Practical Accountant
• Accountancy
• AICPA Online Publications articles, the practicing CPA
• Accounting Technology

Bulletins
• e-Business Research Center
• Boomer
114 M. Krishna Moorthy, A. Seetharaman, M. Gopalan and Lee Har San

Web Sites
• http://www.knowledge.org
• http://eetd.lbl.gov/paper/counting/html/fedstorage.html

In order to understand the complete concept of paperless accounting system and its impacts on
human resource management system and time management system in SMEs, some cost-related sub
functions such as Leave Module, Claim Module, Appraisal Module, Training Module, Resource
Requisition Module, and Employee Profile Module were analyzed. Also, the benefits and limitations of
setting up a paperless accounting system in SMEs were studied in aspect of individuals, decision
makers, human resource/finance, and third party points of view.
Our research framework is illustrated in Figure 1.

Figure 1: Research framework on paperless accounting system

Training Resource
Requisition
Appraisal
Claim
Benefits
Employee
Leave Profile
Human Resource
Setting up Management System
Paperless
Accounting
System

Time Payroll
Management System
Aspects and System
Limitations

Discussion, Analysis, and Findings

Understanding the Accounting Concept
One of the actual concepts of a complete accounting system is the interaction of human resource
management system, including time management system and payroll system. The accounting system
doesn’t work alone without taking considerations of human capital (or employee) and other business
tasks. Employee operates the business tasks and there are many different type of costs incurred during
the employment. Such costs incurred by employees are stored under human resource management
system. Furthermore, the functions of human resource management system have catered sub functions
(or modules) such as leave, claim, appraisal, resource requisition, training, loan and employee profile.
The sub functions mentioned are cost-related but there are also non cost-related sub functions such as
bulletin and alert which simply works as an additional tool to help users in one way or another.
However, it is important to analyze and understand whether the sub functions can be fully utilized so
that the manager can justify the cost of implementing the paperless accounting system over the actual
benefits received. Bear in mind that the cost of implementing the whole complete accounting system is
The Necessities of Paperless Accounting System 115

not cheap. According to Raymond Sudo, the Managing Director of Orisoft Technology Berhad, an
accounting system provider, the cost can be ranged from RM 160,000 to RM 350,000 for Small to
Medium Enterprises, excluding the hardware such as database server or web server. Likewise to human
resource management system, time management system stores information and data consists of work
schedule, employee attendance and often used for overtime calculation. Time management can paired
with additional tool such as a clock-in system to auto record the attendance every time the employee
clocks-in and clocks-out. Finally, all the data is eventually synchronize in payroll system for pay-out.
Time management is more likely to be used for company or institutions with many shift workers. For
example, Petronas- an oil manufacturing company, News Straits Times Paper (NSTP) - a newspaper
company and Sunway Hotel.
In the next few sections, we will analyze the general purpose of each sub function and find out
who can benefit the most out of these sub-functions. After that, we will find out to what extent that an
accounting system can go paperless.

Leave Module
It is normal employee could absent from work due to different reasons. Generally the common ones are
annual leave, paternity leave, maternity leave, emergency leave, hospitalization leave, examination
leave, Haj leave (specifically for Malays) and unpaid leave. Over time, a confirmed employee will be
rewarded a number of days for certain leaves without having to deduct their salary. If the employee is
exceeding the permitted days, the rest of the days will be considered as unpaid leave which will be
deducted from the employee’s salary. Thus, it is to know that there are a few benefits of having leave
module. First, it creates the rewarding leave day to the right employees by running a process
automatically. Second, approved leave will synchronize to payroll system to determine if such leave
will be deducted from salary or not. Third, it speeds up the deduction calculation with the facility of
applying various leave calculation formula for different group or rank of employees such as
management level, executives level, non-executives level and drivers. Forth, it stores all the leave
record of employees for the ease of information retrieving purpose during annual performance review.
Thus, this is best utilized by companies which have hundreds or thousands of employees with different
ranking, calculating their leave is just a few clicks away.

Claim Module
Claim is fully utilized by employees who travel to different work places. Jobs such as marketing
managers and sales persons, consultants, support assistants, drivers and managers claim the most.
Furthermore, the claim types available are medical claim, mileage claim, mobile charges claim,
entertainment claim, accommodation claim and miscellaneous claim. Thus, the claim module helps to
set budget for each rank of employees, for example management level can claim up to RM3000 yearly
while executive level can claim up to RM1000 yearly only. The claim balance is automatically
calculated every time when a claim application is approved. The data is eventually synchronized to
payroll system.

Appraisal Module
Appraisal also means performance review and the person could be promoted to a higher rank or
demoted to a lower rank and finally the salary adjustments. When a person moves to a different rank,
the budgets for each module, the formula for any calculations and the entitlements could be different.
So, the appraisal module creates a hassle free tool to move employee to any rank by running a process
with a few clicks.

Training Module
There are internal and external training provided by company. Internal training is held by internal
employee itself and external training is held by the third party. Certain course is designed for selected
type of employees and if there are other employees who are not supposed to register for the course, has
116 M. Krishna Moorthy, A. Seetharaman, M. Gopalan and Lee Har San

applied, their supervisors are notified. By having this training module, the supervisor does not need to
check the eligibility manually; it will auto filtering out the applications for special confirmation.
Material cost, instructor cost and other cost under a budget will be synchronized to payroll system.

Resources Requisition Module

The process of acquiring new resources can be quite cumbersome without having a proper system.
First, it needs to go through the supervisors for approval. Then, approved request will need to be
published in media like newspaper, Internet or through head hunters. Applicants will submit their
resume and the resource requisition takes down all the information including the interview comments
and further stage of process, whether he or she will be recruited as an employee or as KIV.
Correspondence letters will be mailed or emailed to these applicants. With resource requisition
module, massive data can be stored, retrieved and updated easily. Sub module like correspondence
module will store several templates to fasten the process speed.

Employee Profile Module

Lastly, employee profile module can be said as the core and basic module among the rest. A lot of data
can be stored, such as personal details, family details and employment details. All modules rely on this
core module to run some processes, for example, leave module takes joined date and probation period
to determine the leave entitlements. Training module takes division, department and position data to
determine if the applicant is allowed to go for this training or not.

The Further Extends of being Paperless

It is important to understand, having the client system (human resource management system, time
management system and payroll system) alone will still need to rely on massive papers especially
application forms. For example, leave application form, claim application form, training nomination
form, resource requisition form, appraisal form and many more. In addition, it is still cumbersome to
pass the forms around to get approval and the time and effort taken is still not fully enhanced. In
today’s technology, software providers have already come out with Employee Self-Service (ESS)
which is a web-based system that integrates with client systems. Users can login to ESS to obtain all
kinds of application forms and submit through the system. Once it is submitted, the form will be
escalated to the corresponding recipient for further approval. The routing map and viewable pages are
configurable from the system and all the data will be synchronized into the system automatically.

Further Discussion
Nowadays, people are trying to further eliminate the use of papers. For example, more reports are
saved in softcopy without needing to print it out. Databases are being backed up periodically to ensure
there’s always a backup even there’s a burglary, fire or any disasters that could possibly causing the
loss of data. Some even thinks of scanning the receipt or bill and saved in a softcopy but it is yet to be
implemented due to the practicality issues. Moreover, security will be another compulsory aspects that
to think about. It is important to prevent intruders from stealing any data at any way.

Limitation
Setting up paperless accounting system has great risks. Redefining business processes may cause the
confusion on realignment of job description. Lack of knowledge of technology affects the ability to
control the files and document (Mongeon 2008). Computer may change the manual routines for those
working with accounting and auditing. The workflow that has been defined and used for a long time
will be changed if the company decides to go paperless (Sutton 2000). But this research analyzes the
business process on Human Resources Management System, and Time Management System of Small
The Necessities of Paperless Accounting System 117

Medium Enterprise companies which have been established, and proved for its improvements. The
companies have completely adapted its business process with new technology. The resistance of
Technology implementation and the individual differences among the users and technological skills,
which may affect their attitude, are no longer a problem. This research emphasizes on the paperless
accounting system that has been worked and proved well. Therefore, the risks of going paperless are
not discussed.
Accounting Information System (AIS) consist of 5 categories, which are (1) Revenue, (2)
Expenditure, (3) Production, (4) Human Resources Management, and (5) Reporting (Aseervatham and
Anandarajah 2003). This research only covers on the category of Human Resources Management,
which explains the human capital business processes as a whole but not the practical issues that one
may faces. In addition, the system is not intelligent and flexible enough to cater for different occasions
automatically especially when the people are going on long leave such as hospitality or maternity leave
which the duration can go up to 1-3 months. Usually, company would employ a temporary staff to take
over his or her jobs and the job responsibilities should be forwarded to the temporary staff now.
However, the system would not be smart enough to indicate the changes unless the required settings
are to be setup and switch to the temporary staff. Such settings are required especially when the person
is involved in approval processes where the he or she is required to go through the applications and
double check with the hardcopy and details submitted. However, small little changes would turn out to
be a little headache when initially people would just have to go to the temporary staff (in terms of
manual way) but now even more efforts need to be done in configuring the system.
Furthermore, information stored under paperless system can be quite in risk when the world in
filled with intruders or hackers. Normally, system provider will try to safeguard the information by
using all kinds of firewalls, anti-virus, anti-spam or others. However, it is still considered risky because
most of the paperless systems do not have track and alert users when there are intruders trying to
access into their network. Somehow, HTTPS (or secure protocol) is considered one of the safest
protocols to encrypt the information transmitted across the network. However, the real issue is not
many companies except banks, financial institutions or investment institutions insist on using HTTPS
and it is actually a loop-hole for intruders.

Conclusion
The research analyze six sub functions of the client system which are Leave module, Claim module,
Appraisal module, Training module, Resource requisition module, and Employee Profile module. It
defines the paperless system of human resource management system. After analyzing the general
purpose of each, we find out that the actual concept of a complete accounting system is the interaction
of human resource management system, time management system and payroll system. The accounting
system doesn’t work alone without taking considerations of human capital (or employee) and other
business tasks. It is important to understand, having the client system alone will still need to rely on
massive papers especially application forms. Unless we use today’s technology, software providers
have already come out with Employee Self-Service (ESS) which is a web-based system that integrates
with client systems. Users can login to ESS to obtain all kinds of application forms and submit through
the system. Once it is submitted, the form will be escalated to the corresponding recipient for further
approval. The routing map and viewable pages are configurable from the system and all the data will
be synchronized into the system automatically.
118 M. Krishna Moorthy, A. Seetharaman, M. Gopalan and Lee Har San

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