A CONCEPTUAL PAPER ABOUT THE EFFECT ON THE INTERNAL CONTROL OF

BANKING CORPORATION LISTING IN 2017-2019 IN PHILIPPINE STOCK EXCHANGE

UNDER THE IMPLEMENTATION OF ERP

Introduction:
This concept paper will discuss the Enterprise Resource Planning (ERP)

implementation of the company's internal controls in financial reporting aspects. A user-

interfaced information system, such as an Enterprise Resource Planning (ERP) system, is

meant to deliver information to support an organization's strategy, operations,

management analysis, and decision-making functions. Because it spans across all functional

units, the implementation of an ERP system has an impact on users at all levels of the

business. These users include everyone from top management to low-level employees that

utilize the system daily. Based on financial resources required, the number of people

involved in the process of adoption and the scale of implementation demanded by ERP

systems makes them the largest systems that most organizations work with [CITATION Cha08

\l 1033 ]. [CITATION WuJ07 \l 1033 ] state that it integrates core corporate activities and diverse

functions of the enterprise by incorporating best practices to facilitate rapid decision-

making, cost reduction, and greater managerial control. Because of this promise of

integration and facilitation on rapid decision-making, more organizations and institutions

globally are implementing ERP systems [CITATION Mar00 \l 1033 ].

The banking company that has complete data and has been listed on the

Philippine Stock Exchange from 2017 to 2019 will be used as the sample in this study. The

selection is done by the banking company sector that have more risk (eight primary risks)

compared to other sectors. In the Philippines, research on enterprises in this industry is

still uncommon, but it is expected to contribute to the development of comparable

research. The years 2017 to 2019 have been chosen as being relevant to the study's time

frame. Researchers' expectations to expand the number of samples to three years have

become more consistent because of the research.

Internal control is one way that companies use to reduce agency costs. [ CITATION

Bar93 \l 1033 ] it has been demonstrated that having a high level of internal control can help

agencies save money. [ CITATION Bro05 \l 1033 ] as part of the broader effort to detect and

decrease fraud in the financial reporting process, organizations must report on the efficacy

of internal controls in the financial statements. Carried out research by [CITATION Doy08 \l

1033 ] says that a lack of internal control indicates a higher level of profit management

activity. [ CITATION Deu08 \l 1033 ] even though the Sarbanes Oxley Act does not demand it,

aware corporations are expected to report internal control reports.

Internal controls can help a corporation enhance its performance and attain

effective corporate governance. With the ERP implementation, the corporation realized the

importance of internal controls. ERP implementation in Philippines in recent years has

increased significantly.

Internal control was examined in relation to ERP installation, firm size, and leverage in

this study. The logarithm of the number of audit committee meetings held within a year is used

to assess internal control. ERP implementations in corporations are scored using dummy

variables, with a score of 1 for those who have implemented ERP and a score of 0 for those who

have not. The natural logarithm of total assets is used to assess company size, while total debt

divided by total assets is used to determine leverage. The ERP implementation was divided by
the researcher as independent variables, firm size and leverage as control variables and internal

control as the dependent variable.

During the three-year period from 2017 to 2019, the sample consisted of 274 banking

businesses. The information was gathered from the Philippine Stock Exchange's official website

and the company's website. Researchers focused primarily on organizations that consistently

submit annual reports and financial reports, as well as the completeness of discount data, in this

study. Companies that do not have the complete data will be terminated.

The findings of this study add to the literature and are significant enough to be used as a

debate point by many parties, particularly in the areas of ERP and internal control. The goal of

ERP implementation will be to improve the company's internal control. The implementation of

this system, on the other hand, accommodates misinformation that is no longer isolated to one

sector of the organization but is transmitted throughout the entire corporate environment (Lynn

and Madison, 2000). To get the desired objectives, the organization must carefully analyze and

examine the high costs of implementing this system.

Review of Relevant Literature

Management, as the group in charge of the company, has access to more information

than the shareholders. As a result, ERP deployment is done in the hopes that owners will be

able to get the information they want and that management will take fewer actions or do

things that harm the company, one of which is earnings management. ERP
implementations also help the company's internal control. Internal control is important

because it encourages businesses to practice excellent corporate governance.

The signaling theory explains how a corporation sends a signal to readers of

financial statements with information regarding policy management done for the owner's

advantage. The implementation of an ERP system signals that the organization will

improve its internal controls. When it comes to the application of Good Corporate

Governance, signal theory can be employed to avoid information asymmetry. Signal theory

aids the organization when it comes to implementing excellent corporate governance and

creating a high-quality corporate environment[ CITATION Sub09 \l 1033 ].

Asymmetry of information refers to a situation in which one party obtains more

information than the others. As a result of this, the corporation was forced to make the

incompatible decision, posing a risk. Investors, creditors, and other outside stakeholders

rely on management's knowledge to make sound investment and finance decisions.

Therefore, the company's information quality plays a vital part in determining the

company's destiny.

Establishing a committee, which implies that the organization is better in terms of

supervision, is one of the signals to increase the quality of information.

ERP's impact as a tool for internal control. Regardless of the company's internal

control structure, powers and procedures are critical. As a result, the company's activities

require a necessary division of authority. The division of authority is done in the hopes of

obtaining a decision quickly and accurately so that the company's operations can operate

smoothly and eventually result in a rise in the company's value.

 The ERP system is a software package that integrates data and information-base

processes both inside and outside of an organization's functional domains. Integration

refers to the system's incorporation of data from the company's many divisions for later

use, such as data sharing and communication. ERP also gives the organization the ability to

present data in real time. When businesses need to make quick decisions, ERP is one of the

options available.

Some ERP and internal controls research have been conducted, with inconsistent

results. [ CITATION Mor11 \l 1033 ] Companies that implement ERP improved their internal

control after SOX issued directives, according to the author. Internal control over at least

the internal control deficiencies revealed when the company implemented ERP grew

because of the rise. While [ CITATION Doy08 \l 1033 ] many determinant internal control

factors have been found. Specific features of the company's ownership have been

transformed into something unique, requiring adjustments to the selection control

procedures, which are not constrained by ERP implementation.

The development of this hypothesis will be explained as follows:

ERP is for enterprise resource planning system, and it is a software package that

integrates information systems and information-based process data from both inside and

outside a company's functional domains. In this situation, the integration entails gathering

and combining data from the company's divisions for usage by interested parties. ERP is

also utilized to keep track of the company's whole resource pool. Furthermore, ERP

systems aid in the generation of real-time management information, which is used to make

critical business decisions.

 [ CITATION Mor11 \l 1033 ] those that have implemented ERP have demonstrated to

improve internal controls, according to the SOX ruling, when compared to companies that

do not utilize ERP. Internal controls have improved as evidenced by the fact that

organizations that have implemented ERP have reported fewer internal control issues.

Research Aim of your proposed Study:

In this study, researcher only focused on companies that consistently publish

annual report and the financial report as well as the discount data completeness.

Companies that do not have the completeness of the data will be removed from the

population. The goal of this research is to determine the factors of ERP implementation on

the company’s internal control. The sample use is the listed corporate banking in the

Philippine Stock Exchange in 2017 to 2019. The researcher will used hypothesis testing for

the result of Enterprise Resource Planning (ERP) implementation effect on the company’s

internal control (cost variable and it leverage).

Specific data Outputs

A general outline of the research topic. The subjects were from 2017 through 2019

corporate banking listed in Philippine Stock Exchange. Purposive sampling yielded the

following number of samples:

NO. Criteria Amount

1 Corporate Banking listed in Philippine Stock Exchange 274
from 2017 to 2019

2 Corporate Banking that do not have 0

completed data
 Number of Sample: 274

The researcher will base the given data above to get the expected result. The
hypothesis test will be shown 3 hypothesis H1: Implementation of Enterprise Resource
Planning (ERP) on internal controls at a corporation. H2: Firm size effect on the company's
internal control. H3: Leverage effect on the company's internal control and presented by
figures.

Research Methodology
After this conceptual paper, a researcher’s manual that will cover the said topic is
expected. The conceptual framework is as follows:

The population in this study is banking sector companies listed on the Philippine
Stock Exchange from 2017 until 2019. Sampling using purposive sampling with criteria
published financial statements and annual reports as well as a complete display data for
research purposes. The independent variable in this research is the implementation of
ERP, measured by a dummy variable, a score of 1 for companies that have ERP and 0 for no.
Using a control variable firm size measured by the natural logarithm of total assets and
leverage is calculated by dividing total debt by total assets. While the dependent variable is
the internal control and measured by the natural logarithm of the number of meetings held
by the audit committee within one year. This study using multiple linear regression
analysis to determine the effect of the implementation of Enterprise Resource Planning
(ERP) of the company's internal control. The effect of implementing Enterprise Resource
Planning (ERP) of the company's internal control was determined in this study using
multiple linear regression analysis. This study's multiple linear regression model is as
follows:

IC = a + β1ERP + β2Size + β3Lev + e

Where: IC - Internal control; a - constants; β - The regression coefficient; ERP - ERP
implementation; Size - company size; Lev - leverage; e – error

Significance of the Study

The contribution of this study is expected to aid in the advancement of comparable
studies. The years 2017 to 2019 have been chosen as being relevant to the study's time
frame. Researchers' expectations to expand the number of samples to three years have
become more consistent because of research. The oversee findings of this study add to the
literature and are significant enough that they can be utilized as a starting point for
discussions among diverse stakeholders, particularly in the areas of ERP and internal
control. Internal control is supposed to be improved by ERP installation.
This research has a few limitations. Post-studies are expected to increase and expand
the sample size, which will not be confined to the banking sector of the corporation, to
discover the findings of research conducted on the object when a larger and more diverse
sample size is available. Future research is also expected to enhance the amount of time of
study to achieve better results and the highest number of years of observation.

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