Questions on Open Source Accounting Software
By Thomas Tribunella and James Baroody
JULY 2008 - Open source systems (OSS), such as Linux, have become
a viable choice for operating platforms and servers. Currently,
open source software programs are emerging with accounting, financial,
and enterprise applications. The 20 questions answered below address
the concerns of CPAs and managers interested in learning more about
the implementation of OSS within their organizations.
areas of concern include functionality, compatibility, stability,
pricing, software licensing, technical support, and maintenance
costs. While accounting and financial OSS are still in the early
stages of development, CPAs and managers should understand the
technology in order to evaluate the suitability of these systems
for their needs.
1. Why Are Open Source Accounting Systems Important?
As competition increases in the business environment, managers
must search for new ways to operate more efficiently. OSSs have
matured and gained widespread acceptance in the technical infrastructure
domain. With the emergence of full-function open source accounting
systems, they are now a feasible alternative for organizations.
OSSs can be downloaded free of charge and often have the same
functions as expensive proprietary systems, allowing clients to
migrate to OSS at a low total cost of ownership (TCO).
Open systems, such as Linux, have proven to be extremely stable,
in part because the open source development model promotes the
rapid correction of problems. While OSS accounting software packages
are not as widely deployed and their track record is limited,
the authors anticipate that they will prove to be stable applications.
2. What Are the Licensing Differences Between Open Source
and Proprietary Software?
Traditional accounting systems are sold under a proprietary license
agreement designed to protect the intellectual property of the
developer. Under the OSS philosophy, a community of developers
creates the accounting systems, and the intellectual property
is open to the community. Users are able to read, redistribute,
and modify the source code. They regularly improve the OSS by
adapting it to various applications and fixing bugs. With an OSS,
the user actually owns the software; under proprietary (closed
source code) systems, the copyrights are leased. The General Public
License (GPL) is the standard template typically used by OSS creators
and vendors. In this same spirit, improvements that users make
to the software must be made publicly available.
An OSS brings a remote but inherent risk of copyright violation
claims. Users must be sure that there are no claims of copyright
infringement. There have been isolated cases in which licensed
or copyrighted software has been duplicated and placed into the
OSS public domain. Unwitting users may then find themselves subject
to licensing claims.
3. What Is the Relevance of OSS to Accounting and Enterprise
Historically, OSSs have focused on technology components such
as the Linux operating system and the Apache web server technologies.
Open source business applications are beginning to emerge. The
most familiar of these is OpenOffice, an office suite that supports
word processing, presentation, and spreadsheet applications. A
variety of accounting and enterprise applications are now available
in OSS. Reflecting the potential these products have, venture
capital is flowing into open source business applications.
4. How Extensive Is the Use of Open Source Accounting
The adoption of OSS accounting and enterprise systems is not
widespread. Proprietary systems, such as QuickBooks, Peachtree,
and Microsoft Office Accounting, dominate the market for small
business systems. Closed source developers, such as SAP, Oracle,
and Microsoft, dominate the enterprise systems market.
OSSs have been adopted in a number of commercial enterprises
and industries, indicating that it is only a matter of time before
development spreads to accounting and enterprise systems. OSSs
will not replace existing Windows systems, but they will provide
the market with a viable alternative. Accordingly, some open source
accounting systems are gaining market share. For example, Compiere
reported 930,000 downloads of its enterprise system, and is supported
by 44 partners on a worldwide basis.
5. Is There a Framework for Understanding the Maturity
of Open Source Accounting Systems?
Maturity is important in an OSS because immature systems will
not have a critical mass of support, consulting, training, vendors,
and users. To address this issue, there are maturity models, such
as the Open Source Maturity Model (OSMM), that measure the software’s
stage of development. The template for this model is shown in
The software elements, listed on the left-hand side of this exhibit,
are scored based on their maturity. Each element is then given
a weighting factor based on its importance to the organization.
The element maturity scores are multiplied by the weighting factor,
to generate element-weighted scores. In the final phase of the
analysis, the element-weighted scores are totaled to produce a
product maturity score. These are then compared to determine the
best OSS. A well-designed maturity model should help managers
understand the development and stability level of an OSS product.
6. What Are the OSS Functional Application Modules? Can
They Be Mixed with Modules from Proprietary Systems?
Accounting software modules support specific functions, such
as general ledger, accounts receivable, accounts payable, purchase
order, sales order, inventory management, and fixed assets. OSS
modules that are based on the same operating systems are often
mixed and combined with the help of consultants. Software written
to support this combination usually becomes publicly available.
Most proprietary systems do not operate well with OSS modules
at the functional application level.
7. Can OSSs Support Enterprise-Level Applications?
A few OSSs do operate at the enterprise level, including support
for operations like inventory and manufacturing. For example,
Compiere can do this with integrated business processes such as
Quote-to-Cash, Requisition-to-Pay, CRM (Customer Relationship
Management), PRM (Partner Relationship Management), Supply Chain
Management, Performance Measurement, and Web Store. Exhibit
2 lists several popular enterprise applications and their
8. Are OSSs Stable, Reliable, and Able to Process Transactions
with Multiple Simultaneous Users?
The larger OSS enterprise software can accommodate many users.
Because they run on stable servers and operating systems such
as Linux and Windows, OSS applications run with stability and
have little downtime.
9. Who Are the Major Vendors That Supply OSSs?
The major players and their related operating platforms, operating
systems, and databases are listed in Exhibit
10. What File Servers Support the Various Open Source
Microsoft Windows, Linux (Red Hat), Solaris (Sun), OS-Independent,
Mac OS X, and Unix all have accounting applications that run on
their platforms. OSS software will run on the most popular servers,
such as Apache, which is the most common server with over 50%
of all installations. Sun also supports some OSS accounting applications.
11. Where Can an Organization Get Support and Training?
Support and training depend upon the maturity and market penetration
of the OSS accounting system. Mature, industry-leading systems
have many partners and value-added resellers (VARs) that sponsor
training and conferences. If support is needed, vendor websites
will list training seminars and consulting partners. Before choosing
a VAR, managers should ask the following questions:
- How long has the VAR been in business?
- What does the VAR charge for support?
- What is the VAR’s experience and client base?
- Can the VAR support any customization of the software that
may be required?
12. How Is Enterprise Level OSS Supported with Consulting?
To address the business processes within an individual organization,
enterprise systems may require a significant amount of customization
to meet specific requirements. Before adopting an OSS enterprise
application, an organization must analyze the capability of the
candidate software to support this customization. If the candidate
software does not meet the needs of the organization as delivered,
the organization must consider what tools and processes can be
used to customize the enterprise system. Proprietary systems,
such as SAP ERP and Oracle applications enable “configuration,”
which customizes the application to the business requirements
without writing software. If configuration is not supported, then
management must assess the possibility of adapting the software
to meet the organization’s needs.
Closely aligned with customization is another strategic question.
The open source model generally requires that changes to the software
be shared with the open source development community. Frequently,
the specialization of business processes within an organization
is a source of competitive advantage. Management should ask: What
is the competitive threat from sharing these modifications with
the open source community? To what extent might the organization
be forced to disclose its unique business processes?
13. What Are the Costs Associated with OSS Accounting
The costs for an information system fall into several categories
4). The primary savings for an organization adopting OSS come
from the purchase cost. Generally, open source software is available
for free or at a very low cost. Hardware requirements for Linux-
and Unix-based operating systems (OS) are low because they run
efficiently and can operate on old or used equipment. Consulting,
training, and change management are usually very expensive when
an organization converts to an OSS or any other system. Ongoing
administrative and maintenance costs are unlikely to be significantly
different for open source applications.
An additional dimension of cost and time affected by open source
systems is the Request for Proposal (RFP) cycle. Much of the RFP
process is invested in analyzing the licensing proposals from
each potential vendor, assessing the payback from the investment,
and negotiating the terms and conditions of acquiring the software.
Organizations utilizing OSS business applications should see this
process shortened and simplified because the software is usually
free and the licensing agreements follow standard models.
The most common model for categorizing cost related to information
systems is the total cost of ownership (TCO). The TCO model is
shown in Exhibit 4. TCO includes all expenses associated with
owning and maintaining work stations within an organization. It
is a holistic view of IT-related cost at an enterprise level.
TCO also includes acquisition costs, control costs, and operation
costs. Acquisition costs account for approximately 20% of total
costs. It has been posited that investing in controls should reduce
many operational costs.
14. Do OSSs Work Well with Relational Databases?
Some open source systems run on open source relational database
management systems (RDMS). For example, WebERP runs on MySQL,
which is a mature and stable open RDMS.
15. Do OSSs Support Web-Based Applications?
Online transactions, such as Internet shopping and electronic
banking, are usually supported, and most web servers are based
on open source platforms, such as Apache servers.
16. What Is the Audit Risk Associated with Open Systems?
Because the code is freely available, one could theoretically
find a weakness in the program and violate the system, but because
these systems are open, they are rapidly patched by users. Those
patches become open and available to other users in the community.
A well-maintained OSS should represent a low risk from a security
point of view. There are very few reports of OSS applications
17. What Factors Should Be Considered When Deciding
to Acquire an OSS?
Factors for selecting an OSS for accounting applications are
the same as for proprietary software:
- Does the application provide the required business functionality?
- Does the application work with the hardware and software
technologies that are currently in use?
- Does the available support meet the needs of the organization?
- What level of training is required?
- What risks are associated with the selection of the OSS accounting
- Has this application been in the market for a significant
amount of time?
- What is the track record of performance and reliability?
- What types of problems do users encounter with this product?
- Can the organization support the OSS with internal capabilities
if vendor support is not available?
18. Do OSSs Support Standard Markup Languages?
The Extensible Markup Language (XML) is a standard created to
overcome the restrictions of HTML by providing mechanisms to extend
the types of information that can be exchanged. XBRL (Extensible
Business Reporting Language) is an extension that was created
using XML for financial applications. It is the markup language
used to tag financial information for the SEC’s EDGAR (Electronic
Data Gathering and Retrieval) database. XBRL is currently being
used by the SEC to accept financial reports.
The creation of languages such as XBRL will allow for the rapid
communication of data between organizations, systems, and networks.
XML and XBRL are both open system languages. Accordingly, most
OSS accounting systems support XML-compliant data.
19. Do Open Source Systems Have Audit Modules?
The more widely used proprietary systems have audit modules that
support the work of external auditors such as CPA firms and governmental
regulators. OSSs are lagging in this area, but one provider, Tiny
ERP, does have an audit module.
20. Where Can One Find More Information About OSS?
OSSs are in a state of rapid development, meaning that the Internet
is the best place to look for current information. The following
is a list of websites to learn more about this technology:
OSS Making Inroads
OSSs for accounting are quickly making inroads into the business
world. They are not well-developed at the enterprise level, but
there are many small business accounting systems with a complete
set of standard modules. Only a few of the systems, however, are
mature, with a network of vendors that support and train users,
as well as provide consulting and installation. The lack of support
should change as more venture capital flows into the OSS industry.
Given their stability and low cost, one can make a strong business
case for implementing an OSS. With time, these systems will gain
greater acceptance from the business community.
Thomas Tribunella, PhD, CPA, is an associate
professor of accounting at the school of business at the State University
of New York at Oswego.
James Baroody, PhD, is a distinguished lecturer
of management information systems at the Saunders College of Business
at the Rochester Institute of Technology, Rochester, N.Y.