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Chapter Six

Chapter Six. ACG 5458 EDI, Electronic Commerce, and the Internet. EDI, Electronic Commerce, and the Internet. Traditional EDI Systems Value Added Networks (VANs) Financial EDI EDI Systems and the Internet XML and XBRL for Web-Based EDI Implications for the Accounting Profession.

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Chapter Six

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  1. Chapter Six ACG 5458 EDI, Electronic Commerce, and the Internet

  2. EDI, Electronic Commerce, and the Internet • Traditional EDI Systems • Value Added Networks (VANs) • Financial EDI • EDI Systems and the Internet • XML and XBRL for Web-Based EDI • Implications for the Accounting Profession

  3. What is EDI? EDI refers to the exchange of electronic business documents between applications EDI Characteristics: • Identified trading partners • Expensive initial investments • Dedicated leased line or utilization of a Value Added Network (VAN) • Standard, inflexible data sharing • US standard: ANSI’s x12 • UN standard: EDIFACT • Batch connectivity • Low transaction costs

  4. EDI Growth • During the 1990’s, EDI use grew 30% each year • Currently growing at 15% per year • 1999 total EDI transaction value $3 trillion • Estimated 2003 value $4 trillion

  5. Buying CompanyFULL EDI Selling Company 1) Identify Need 2) Research Vendors 3) Select Vendor 4) Place Order EDI 5) Receive purchase order prepare sales order, check credit, and check inventory 6) Pick and ship inventory shipping notification bill of lading 7) Receive inventory (verify accuracy) 9)Receive Invoice (verify accuracy) 10) Prepare check and remittance advice 11) Mail check and remittance advice EDI 8) Prepare and send Invoice 12) Receive Payment prepare deposit and update records

  6. VANs Value Added Networks (VANs) • Third-party network services • EDI translation software • Security assurances • Independent audit trails • Reliable transmission (redundant systems) • EDI systems development assistance • Employee training • Exact, explicit contracts with trading partners • Authorized data sharing

  7. Company X Company Y Purchase Order Sales Order Inbound Outbound ASC X12 Format Translation Translation . Company Z . . Sales Order Purchase Order Inbound Outbound Translation Translation Figure 6-5 ANSI ASC X12 Translation

  8. Figure 6-6 ANSI ASC X12 formatting Interchange Control Header – electronic envelope Functional Group Header – type of document Transaction Set Header – specific document Data Segment Header – fields identified Data Elements – contents of field Data Segment Footer – end of fields Transaction Set Footer – end of document Functional Group Footer – end of document set Interchange Control Footer – close the envelope

  9. Response to RFQ (843) Department of Defense Trading Partner Purchase Order (850) Request for Quotation (840) Contract Award (838) PO Acknowledgment (855) PO Change (860) PO Change Acknowledgment (865) Order Status Inquiry (869) Order Status Report (870) Shipping Schedule (862) Shipping Notice (858) Receiving Advice (861) Invoice (810) Payment Order (820) Material Safety Data Sheet (848) Project Cost Reporting (839) Figure 6-7 Depart of Defense sample transaction sets

  10. Advantages of EDI • Lower processing costs • Tighter relationships between suppliers and customers • Lowered error rates • Decreased lead and cycle times • Decreased inventory shortages and problems • Increased product differentiation • Better information for all trading partners

  11. Financial EDI Financial EDI is the • electronic exchange of payments, payment-related information, or financially related documents • in standard formats • between established business partners. Automated Clearing House (ACH) network between financial institutions for electronic payments • Large cost savings over paper checks • Faster access to funds (loss of float for payor)

  12. Figure 6-8 Trends and Statistics about Financial EDI During the 1990’s: • Debit card payments from $188 million to almost $7 billion • Direct deposit of payroll increased from 10% to 56% • Almost $2 billion consumer bills were electronic payments, saving consumers $600 million in postage • The federal government made 96% of payroll payments and 76% of social security payments by direct deposit. • The federal government’s electronic federal tax payment system has more than 3 million businesses enrolled, collecting more than $ 1.3 trillion in 1999

  13. Transaction Data (Amount & Remittance Advice) Originator’s Financial Institution Payor (Originator) Forwarded Transaction Data Authorization to transfer funds electronically Automated Clearing House Forwarded Transaction Data Receiver’s Financial Institution Payee (Receiver) Transaction Data & Funds Available Statement Figure 6-9 The ACH Network

  14. EDI Systems and the Internet Utilizing the Internet (involving Browsers and a markup language, e.g., HTML) for electronic transactions: • Much lower initial investment costs • More connectivity: greater sharing and tracking of data • Allows for new partners • More flexibility with XML • Creates serious security concerns • Risk of loss of packets or sniffed packets • Loss of third-party audit trails and authentication • Electronic Data Interchange – Internet Integration (EDIINT) currently defining standards for encryption and digital certificates

  15. Full Web-EDI w/ Intelligent Agents Fully Integrated EDI Partially Integrated Web-based EDI Sharing of Data Partially Integrated EDI Non-EDI systems Connectivity Figure 6-1- Comparison of EDI systems

  16. EDI-Web Browser Translation Software • Many VANs providing services • Low cost example: Harbinger’s Express • XML is extensible markup language • Provides a universal data format • Allows data objects to be serialized into text streams • Is easy to parse, so it can be used to pass data between processes • Allows for custom tags, which can be passed easily over a variety of network protocols • Has companion standards to support browser presentation, hyperlinks, and querying Jonathon Rich, Cambridge Technology Partners, June 1999

  17. Standardized Document Type Definitions (DTDs) • Xschema – from the W3C for vertical industries • adXML – to automate online advertising market • AIML - astronomical instrument markup language used by NASA • cmdXML – for construction and manufacturing distribution data exchange • RIXML – Research Information Exchange Markup Language for financial services firms • Students should go to Course Web site and get “PowerPoint Slides on XBRL”

  18. Elements of Insight.com’sWeb/EDI solution • Real-time EDI inventory links with suppliers • Integrated delivery links with FedEx • Web-Based Sales

  19. Figure 6-14 Insight’s Web-based ordering system Internet-EDI Illustration Inventory Data Suppliers’ Inventory Data base Insight’s Computer Inventory System & Customer Database Order Data 94% of all Sales are Drop/Ship Goods Shipping data Price quotes, item searches, credit card payments, account history, and trace shipments Insight’s Warehouse 6% of all shipments Home Shoppers Business Shoppers Insight’s Shipper Fed Ex

  20. Implications for the Accounting Profession • EDI/Internet Solutions increase the demand for accountants to know • How the audit has become more complex • The risks surrounding Internet business processes • Reliance on data from the Value Added Network • Trading partners’ data integrity and system reliability • Encryption of data • Authentication of trading partners • Digital Signatures and Nonrepudiation • Firewalls

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