New legislation regarding corporate reporting and accounting practices has whipped the US finance and accounting software market into a frenzy as vendors hurriedly roll out new programs that are compliant with the new laws. The local market, however, has not been so lucky.
Feeding off the excitement of their US counterparts, local vendors are emphasising the possibility of Australian legislation following suit and that the new recommendations recently released by the ASX Corporate Governance Council regarding how ASX-listed companies report their financial data is the first step towards the inevitable adoption of the new laws here.
The new ASX recommendations cover a wide range of financial data reporting and corporate responsibilities. Some of the key recommendations include: CEOs and CFOs must make a written statement to the board that the company’s financial reports are true and in line with approved accounting standards; companies make timely and balanced disclosure of all financial data that may have material impact on a company’s operations; companies provide a commentary of their financial performance to help guide investors and potential shareholders; and companies disclose their risk management structure.
Marketing manager of PeopleSoft Australia/NZ, Bernard O’Brien, said that the ASX recommendations would create opportunities in the local accounting software market.
“The recommendations from the ASX Corporate Governance Council are expected to flow through to specific requirements during 2003,” PeopleSoft marketing manager Australia/NZ, Bernard O’Brien, said.
“The key issue facing [the Australian financial software] market will be the requirement to continually meet prescriptive legislative specifications, as compared to functionality that is ‘nice to have’,” he said. “There will be a greater requirement for real-time systems to accurately respond to information requirements with a consolidated view across all operating entities within a conglomerate.”
Managing director of Hyperion, Grant Greentree, also said that the ASX recommendations would lead to future opportunities for the industry, but would not have a significant impact until the recommendations become legislated.
“It is too early to measure the impact of the ASX recommendations as compliance levels and recommendations for compliance are still being reviewed by the corporate environment,” Greentree said. “It is interesting to note though that some suggest that the ASX should have highlighted the need for disclosure and corporate governance more vigorously and certainly earlier than 2002 [before the collapse of HIH and One.Tel].
“When the ASX announced their recommendations earlier in March of this year, there was a tremendous amount of push back from corporations,” Greentree said. “Company directors are saying that the proposed legislation would favour compliance over performance and that a more balanced approach is required. Much industry facilitation and debate would be required before these recommendations could migrate to implemented legislation.”
According to CEO of Technology One, Adrian DiMarco, the new ASX Corporate Governance Council’s recommendations have had little impetus in driving vendors to change the reporting capabilities of their new software offerings.
“Most financial packages today provide good financial reporting,” DiMarco said. “The ASX Corporate Governance Guidelines are more about the way boards should operate rather than how companies should operate.
“The bigger impact will come from the new Accounting Standards — as Australia adopts the international accounting standards.”
The main driver behind the spate of new accounting and finance software released in Australia this year is an expected upgrade of accounting and finance software across the board as many companies have not refreshed their packages since the GST was first introduced. This, coupled with greater user confidence and knowledge of the full functionality of the software, is expected to drive the next upgrade cycle.
Business applications research vice-president of Gartner Australasia, Kristian Steenstrup, said the majority of SMEs’ financial and accounting programs are now five or six years old and an upgrade is almost a necessity.
“There has been a slight downturn in the licence fee revenue of financial software packages in the Australian market,” Steenstrup said. “We saw a 10 per cent downturn in 2001 and another downturn in 2002. We think this downturn trend will bottom out by the end of 2003 because by 2004 there will be pent up demand for system replacement.
“A lot of companies last upgraded their software programs for GST which means an upgrade bubble could happen in mid-to-large market customers. But what shouldn’t be over-estimated is how much SMEs care about upgrading their accounting software. It’s very difficult to sell an upgrade SME customers or ensure they maintain current financial software. Because they see IT as a tool of trade not as a strategic advantage so they’re not interested in getting the latest product every two years.”
However, BusinessSuite Australia’s Darren Lyon, argued that SMEs wanted to see greater ROI from their software and were seeking greater functionality from their finance and accounting products.
“A lot of BusinessSuite’s recent growth has come from its existing customers looking to expand their accounting software into new roles within their organisations,” said Lyon. “The last time many of these organisations made an accounting purchasing decision was when the new GST system was introduced and they are only just beginning to fully optimise the existing feature set of the products.
“The SME marketplace has been driven by end of the GST cycle and the desire to maximise their investments in their existing software [heightened demand for immediate ROI].”
To a certain extent there is a perception in the market that ERP systems and financial software are synonymous because a lot of businesses buy ERP systems but primarily only use the financial applications modules. But this perception is starting to shift and many SMEs are now looking for greater functionality from their ERP systems.
Technology One CEO, Adrian DiMarco, said, “There has been a movement by companies away from generic tools to built-in tools that are ERP aware and can streamline the process of getting information out of ERP systems and provide more meaningful data.
“Companies have been generally disappointed with generic reporting tools - they are seen as ‘flashy’ and ‘expensive’ but not delivering compared to tools from the ‘ERP’ vendors that are less flashy but work easily and well.”
“We have seen out development direction pushed into customising modules to provide more information or new functionality, rather than increasing the need to report information back out of the software,” Lyon said.
“This has provided resellers with a wealth of new options to evaluate in their ongoing search to find accounting software that they can install and support without major headaches.
“Resellers are looking at solutions they can integrate within their product range with minimal fuss, especially if this means using an improved version of the products they are already selling. This provides them with the opportunity to pursue a new round of revenue from their clients, after a very quiet period over the past few years.”
In 2004 the industry will also see some big marketing pushes from SAP and Microsoft into the mid-market. Gartner expects they will trigger market activity as they will market the benefits of the industry and wake up certain market segments.
While the forecast financial software refresh cycle will certainly present opportunities to local vendors and resellers, DiMarco warns that the market is more astute than it was five years ago and is wary of the grandiose promises of finance software and ERP systems vendors.
“The next stage is what I call ‘Buyer’s Revenge’ — as these disappointed buyers come back to the market a second time — they are highly sceptical of ERP vendors,” he said. “They will look past the demo and talk to reference sites, they will want detail evaluations/trials, they will want strong contractual assurances, and specifically will want the product vendor to take contractual responsibility for the success of the project (and not have a third party/distributor take responsibility).
DiMarco said vendors needed to take greater responsibility in the way they marketed their products and placed more realistic expectations on their channel partners.