EVALUATING THE RELATIONSHIP BETWEEN ACCOUNTING INFORMATION SYSTEMS AND THE PERFORMANCE OF SMALL AND MEDIUM SIZE ENTERPRISES IN LIMBE
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Accounting processes has moved from manual process to being automated. Economic competition has created a lot of pressure on the cost of information which a company needs to access and utilise during decision making. The objective of the research aimed to carry out a study on the relationship between accounting information system and the performance of small and medium size enterprises in Limbe utilise accounting information technology in their financial reporting process. The research analysed how Accounting Information System (AIS) affect small and medium size enterprises. The sample of the study consisted 22 enterprises in Limbe selected through the purposive sampling technique.
The method of analysis used in this study is the regression analysis which was used to analyse the data. The study found that there is a positive relationship between accounting information systems and organisation efficiency. The results are consistent with empirical reviews which indicated that there exist a relationship between accounting information system and organisational performance.
The study concluded that accounting information system has an impact on the efficiency of small and medium size enterprises in Limbe in terms of effective management, decision making and controlling operations. The key recommendation of this study is that enterprises desiring to increase their efficiency in terms of profitability and adaptability to market changes can achieve that by investing in a good accounting information system in their financial accounting processes.
Recently, the objectives of business organisations have shifted from the earlier times which were only working towards profit making and survival. Today, the objectives of business organisations and financial institutions are beyond profit making. Furthermore, technology cannot be cut out. One of the paramount technology systems in financial institutions or enterprises is Accounting Information System (AIS). Accounting Information System contains a series of devices used to undertake a set of common business functions such as accounting, human resource management and stock management. The core nature of a comprehensive accounting information system is to computerised business processes and most importantly, to produce data in real-time.
Saira et al. Stated that Accounting Information Systems(AISs) are responsible for analysing and monitoring the financial condition of companies, preparation of documents necessary for tax purposes, providing information to support the many other organisational functions such as; production, marketing and strategic planning. Accounting information system is an automated accounting information that relies on computer and accounting software to capture and process the accounting data in organisations.
These software systems vary from small accounting software systems, such as Peachtree and QuickBooks, to large accounting software systems that are integrated with enterprise-wide software, such as, enterprise resource planning (ERP), system including system applications and products (SAP) that are implemented, particularly by large organization. Accounting information systems are also known as a tool which when incorporated into the field of information technology system, are designed to help in the management and control of topics related to organizations economic financial areas.
Notwithstanding, the stunning advance in technology has opened up the possibility of generating amusing accounting information from a strategic viewpoint. Accounting information is vital to all organisations (Clark, 2003; Rahman Et Al, 2002.) and perhaps each organisation either profit or nonprofit oriented needs to maintain the accounting information operations.
On the other hand, an accounting information is the whole of the related components that are put together to collect information, raw data or ordinary data and transform them into financial data for the purpose of reporting them to decision making to better understand the term accounting information system. The three words which constitute accounting information will be elaborated separately. Firstly, literature documented that accounting could be identified into three components which includes; Information System, Language of Businesses and Source of Financial Information. (Wilkinson 2004: 6-7). Secondly, information is a valuable data that when processed provides a basis for making decisions, taking actions and fulfilling legal obligations. Finally, a system is an integrated entity where the framework is focused on a set of objectives.
Accounting literature argues that strategic success of business is considered an outcome of accounting information system (AIS) designed. Several studies have analysed the impact of accounting information system in strategic management, examining the attributes of accounting information system under different strategic priorities (Ittnerand Larcker, 1997; Bouwens and Abernethy, 2000). It has also been analyzing the effect on performance of the interaction between certain types of strategies and different designs of accounting information system.
The appropriate design of accounting information supports strategies in ways that increase the organisations performance (Chenhall 2003). Innovation is the incentive with which a virtuous circle will be put in place, leading to better firm performance and the reduction in organization and financial obstacles.
In managing an organization and implementing an internal control system, the impact of accounting information system is crucial. Benefits of accounting information system can be evaluated by its impact on improvement of decision making process, quality of accounting information, performance evaluation, internal controls and facilitating company’s transactions (Bolon, 1998).
Performance of an enterprise was succinctly defined by Draft (1983) as ‘the degree to which an organisation realises its goals’. However, Mondy, 1990 defined it aptly as ‘the degree to which an organisation produces intended output’. As Draft rightly argued organisations pursue multiple goals and such must be achieved in that face of competition, limited resources and disagreement amongst interest groups. Oguntinehn (2001) submitted that organisations performance is the ability to produce desired results.
Performance can be measured in different ways, some of which include; Productivity, Turnover, Stability and Decisions. The rational perspective focuses on the achievement of previously set goals and on output variables such as; Quality productivity and Efficiency. Natural system perspective focuses on the support goals of the enterprise like employee satisfaction, morale and interpersonal skills. Open system perspective focuses on the exchanges of the environment which include information processing, profitability, flexibility and adaptability.
Accounting information system is a crucial ingredient for most of the managerial and financial decisions. Each year, these decisions are worth billions of dollars in developed economies. Sometimes, these decisions are deficient in quality. It is necessary to conduct studies that could incite managers about the importance of the quality of information available in the organisation, which could lead to better decision-making in the organisation of a developing country. If research studies could influence the managers by giving them insights into the use of accounting information systems for making their decision process better, stakeholders will benefit.
Several authors, e.g., Hussein et al. (2005), Lerwongsatien and Wongpinunwatana (2003), Thong and Yap (2009) analyzed the impact of top management support and accounting manager’s knowledge on the AIS in developed countries about two decades before comparing the role of accounting managers’ knowledge of the alignment and non-alignment of AIS. There is a lack of research studying the impact of accounting managers’ knowledge and top management support on AIS implementation in the developing country context, where SMEs started adopting technology recently.
Thus, it is important to analyse the impact of top management support and accounting managers’ knowledge on the AIS in a developing country along with the further impact of AIS.
Borthick and Clark (2000) state that the need for information is the reason for the existence of accounting. To keep it relevant in the business, accounting data should respond quickly to the needs of users and more particularly to the needs of investors. Usually, investors do not assess the performance of a target firm where they invest or intend to invest. Financial reports are the source of information for the investors, which are usually prepared by the management of companies. The prime objective of the financial reports is to provide information about the financial condition of the company, cash flows, changes in control of the firm and its operational results.
Chang (2001) states that accounting information systems plays a significant role in increasing the effectiveness of organisations in the global competitive environment. Financial statements are still an important source of financial information to external stakeholders (Doms, Jarmin and Klimek 2004). Despite the continuous advancements and extensive usage, accounting practices have not kept pace with tremendous technological advancements and rapid economic development, which consistently impact the significance of accounting information system. Onaolapo and Odetayo (2012) argue that massive accounting frauds reported in the developed countries and rapidly changing economic conditions, as well as some empirical studies, show the declined significance of accounting information system.