Research Key

The Impact of Information Technology on Accounting Systems in Financial Institutions

Project Details

Department
ACCOUNTING
Project ID
ACC278
Price
5000XAF
International: $20
No of pages
75
Instruments/method
QUANTITATIVE
Reference
DESCRIPTIVE
Analytical tool
YES
Format
 MS Word & PDF
Chapters
1-5

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Most, if not all companies apply accounting because it is generally accepted that companies have to reveal certain financial and management information to the owners,  government and public users and of course because accounting is an indispensable tool in the business decision-making process. Accounting Theory, reveals that the accounting cycle includes steps such as journalizing the transactions, posting them to ledger accounts, preparing trial balance, making adjustment entries, preparing adjusted to end-of-period trial balance, preparing financial statements and appropriate disclosures, journalizing and posting the closing entries, and preparing after-closing trial balance at last. From the first look it is not very difficult and it is so indeed, but when there are thousands or millions of transactions, the situation dramatically changes.

Lots of transactions that must be processed in the accounting cycle make this process routine and even a little mistake or inaccuracy can cause all the cycle from the very beginning in order to find and correct the mistake.

Every transaction (event that change the financial resources or obligations of the company) must be recognized, classified and documented; in addition there must be corresponding accounts identified and changed. The transactions are recorded in appropriate journals (general journal, sales journal etc) with transaction data, affected accounts’ titles, debit and credit of each affected account and explanation specified in the journal record.

The above procedure is used for each transaction. All the journal records must be posted to the ledger on a periodic basis (daily or weekly), which is a group of accounts put together and classified (assets, liabilities, revenue, expenses and equity)–in other words general ledger summarizes all the transactions within a period of time. In addition there is a subsidiary ledger can be used, which is a more detailed source, where individual items comprised (inventory, accounts payable and accounts receivable). General ledger contains controlling accounts which summarize the content of subsidiary ledger.

At the end of accounting period with the help of general ledger, there is a trial balance calculated to make sure that debit and credit are in balance (if they are not equal it means that there is an error somewhere). Then there must be appropriate adjustments made like depreciation and income tax expenses, adjusted records posted to the ledger and adjusted trial balance calculated. After this there are financial statements should be prepared, which include balance sheet, income statement, statement of retained earnings and statement of cash flows. Then journal entries of temporary accounts are closed to permanent accounts and posted to the ledger, and at last after-closing trial balance can prepared.

In order to stay on top, companies have to analyze the performance of all organizational cells (starting from unskilled workers and operating personnel, and finishing with top managers and other key personnel) and discover all the deviations from the plan, their causes, and finally companies’ management has to take corresponding measures to avoid such deviations in the future. These are captured in the end of period financial statements.

All of these procedures put together were formerly captured and processed by employees. That is, before the bringing into being of information communication technology, employees use to perform the entire accounting cycle manually. On a periodic basis, they will calculate trial balances, journalize transactions, and prepare financial statement reports and other routines. This takes much time, resources and efforts in large organisations.

The cost in time, resources and efforts in manual accounting systems rapidly spear-headed the transition into computerised and networked accounting systems, thereby leaving today’s modern day business relying heavily on ICT solutions in order to develop and grow (Asgarkhani and Young, 2010).

Nowadays, there are very few businesses which do not use a computer for at least some of their data processing tasks. In some cases, this may simply involve the accountant using a spreadsheet as an extended trial balance, the data being input having been obtained, in the first place, from the manually maintained ledgers. Once the final adjustments to the trial balance have been made, the spreadsheet would then be used to produce the financial statements.

In other cases, computers may be used for most, or even all, of the accounting tasks. Whatever the level of use of computers in accounting, accountants need to be able to understand how data is being entered and processed so that they can understand and have faith in the reliability of the figures produced. It has been suggested, for example, that over 60 per cent of spreadsheet programs have errors. This is something accountants need to guard against (Wood and Sangster, 2008).

Auditors have special computer programs designed to test the reliability of computerised accounting systems but it is obviously better to ensure that the computers are being used appropriately and correctly in the first place, rather than relying on an auditor to discover that some aspect of the system is not operating correctly – no one will, for example, wish to discover that for the previous year he has been giving all his customers a 10 per cent cash discount, even when they have not paid the amounts they owe! Thus, when computers are used in accounting, the accountant involved needs to ensure that they are being used appropriately and that the records they are creating and the output they produce is both valid and meaningful.

 

1.2) Background History

Accounting has evolved over thousands of years from record keeping to systems designed to measure and document changes in economic activities. Similarly, the technology used to manage economic data has evolved from clay tokens and jars to punched cards and computer systems. Throughout their development, changes in data processing technology and accounting frequently have been interrelated. Punched cards and computer systems in particular have led to significant changes in many of the data management and information system functions of accounting. Current advances in information technology indicate that more profound changes may occur in future. Insights into how information technology may impact accounting systems can be gained by examining the historical relationship between data processing technology and accounting.

     Archaeological evidence indicates that record keeping was an integral aspect of man’s early economic activity. Record keeping in early societies was implemented through clay tokens and pictorial markings on clay tablets (Schmandt Besserat, 1978. P.52 and Green, 1989, p.5153). Today, records are maintained on magnetic storage devices and processed on microprocessors made of silicon.

     The use of electronic devices and computers actually saw its dawn in the Cameroon banking system in the 1980s. The intensification of competition and the use personal computer (PC) got proletarian, Cameroonian banks began to use them in back-office operations and later tellers used them to serve clients. Advancement in computer technology saw the banks networking their branches and operations thereby making the one-branch philosophy a reality. This is the story of the National Financial Credit (NFC) Bank today.

Electronic and communications technologies used in Cameroon were mainly office automation devices. Telephone, telex and facsimile were employed to speed up and make more efficient, the process of serving clients. For decades, they remained the main information and communication technologies used for transacting bank business (Banahene, 2002).

The most revolutionary electronic innovation in this country and the world over has been the Automated Teller Machines (ATM). In Cameroon, banks offering ATM services have increased their utility to customers. It is a common phenomenon in the major national cities today to find many bank customers carrying out their bank transactions using just the ATMs.

Such are very prominent in banks like the BICEC Bank, Ecobank, Standard Chartered Bank Cameroon, Union Bank of Cameroon, etc and even some big micro-finance institutions like the Credit Communautaire d’Afrique (CCA), among others. The ATM has been the most successful delivery medium for consumer banking in banks and banks that delayed the implementation of their ATM system, have suffered considerably (Banahene, 2002).

To date, these banks have embarked on the introduction of various forms of electronic and debit cards. (Agyei Mensah, 2009). Internet coverage has accelerated and ameliorated the use of ICT in the manner of operations for almost every organisation. An increasing number of organizations including Banks have been engaged in as well (Boahen, 2002).

 

1.3 Statement of the Problem

It seems that the use of Information and Communication Technology (ICT), by large or small firms has been a challenge to some users and companies. It is presume that growth within management accounting and Information system is coming alive with the advent of Information and Communication Technology (ICT), such as Enterprise Resource Planning (ERS) system, software and ancillary equipment such as Automated Teller Machine (ATM), debit cards, electronic commerce, computer hardware, database, internet, intranets, Extranet, Telecommunication, Oracle, Structural Adjusted Program (SAP), Peachtree, Tax Software(Turbo Tax) and Statistical Package for Social Sciences (SPSS). 

      Technological Advancements as well as the need to make the world a global village has called for the implementation of ICT into many business processes. Financial institutions of late have led the match into data and communication system transformation. The increases in customer base as well as increase in demand for more innovative products and services have necessitated the need for ICT in the banking industries world wide.

In African countries however, banking institutions have been subjected to so much criticisms for not providing their customers with innovative and convenient banking services, with the results that some customers especially businesswomen (“buyam sellams”), find it more convenient keeping their savings at homes than in the banks (Safe and Andoh, 1990). These loops have pushed academic minds to the drawing board for a formal enquiry into the situation with the aim of scientifically and objectively finding a lasting solution to the problem.

      The reasons to these are obvious. To begin with, the manual accounting systems of the yesteryears have been a bitter pill to swallow to so many corporate personnels. If not for the reason that the manual system was crude and exhaustive to users, it has certainly been because it was time consuming and could not yield readily available results. As a consequence therefore, accounting data could not be timely provided for concrete managerial decisions to be built, particularly to meet the ever increasing financial needs of bank customers who need liquidity more often for effecting economic flows.

     The introduction of modern ICT devices into this sector has been prompted by the demerits of the manual accounting system. These include among other factors, the fact that:

  • There is speed inadequacy and time wastage; that is, recording transactions manually take a long period of time, thereby making the execution rate slower.
  • There is arithmetic inaccuracy resulting from human weaknesses and fatigue in manual transaction processing.
  • Opportunities for Fraudulent recordings abound. With manual accounting systems, fraudsters can easily misrepresent facts and go unnoticed for a long period of time. Equally, recorded facts can easily be altered due to inadequate methods of safeguarding manual accounting data or book.
  • There are inadequate carrying and storage capacities in the manual accounting systems. The record of transactions is more often restricted by volume of books and documents required (and if not, then it is not feasible to keep numerous books).
  • Delays abound in the preparation of financial statements using the manual system. Where such delays are overcome, manual presentations are not always the best.

Alam and Noor (2009) confirmed that ICT offers enterprises improved efficiency in business transactions. Fink and Disterer (2006) also advocate that ICT offers many potential benefits to organizations so as to make them more efficient, effective and competitive.

      One stumbling obstacle to the emergence of African economies in the past has been her backwardness in technology. Tracing its origin from the western civilization, Africa can only but emulates technological practices from the western nations. Due to this reliance, African economies in general and the Cameroonian economy in particular tend to rely on the western world for technological transfer. ICT transfer to our nation is a prey to this web. Inadequate capital, infrastructure, personnel as well as the absence of the will, has left the ICT sector wanting. Consequently, only a few persons afford training in modern ICT. The question of competence still arises even among the few ICT trained persons, thereby, leaving many with a questioning mentality. With this mentality, there is a general lack of public trust in the few ICT users within the country. This is because the training accorded these practitioners has been user-oriented, rather being design and maintenance-oriented. The lack of this vital expertise among ICT practitioners has left many people in different domains dissatisfied and disgruntled because of unexpected break downs and multiple successive failures in these systems.

     Since this study sets out to assess the effect of the introduction of ICT in accounting systems in financial institutions, the study will not be complete unless the following questions are given answers:

  • Where are ICT tools applicable in financial institutions?
  • Which types of Accounting Systems exist and are used in financial institutions?
  • Which ICT tools are put in place to augment the accounting systems in financial institutions?
  • Who are those charged with the design and institution of modern ICT tools in accounting systems in financial institutions?
  • Do the system designs and applications (ICT tools put in the accounting systems in financial institutions) produce desired or intended results?
  • How can ICT be instituted in the accounting Systems?
  • Does the incorporation of ICT into accounting Systems in financial institutions reduce fraudulent practices and boast accuracy and speed?
  • Do they comply with the System of internal controls and audit put in by the top executives to foster goal accomplishment?

 

1.4 Research Objectives.

ICT is presume to have affected accounting systems positively in so many ways, research in these area have shown that ICT and its perceived importance due to its usage across several groups of business firms, especially in the banking sector.

The main objective of this study is to investigate the role, impact or effect of introducing and using ICT in accounting systems in financial institutions.

     In an attempt to achieve the main objective of this work, this paper is set out to accomplish the following specific objectives which all total up to the main objective:

  • To determine how a sound ICT-based accounting system can be maintained in financial institutions
  • To assess the limitations of the manual accounting system in financial institutions.
  • To identify the problems associated with ICT and Accounting Information Systems (AIS)
  • To make recommendations regarding the use of ICT in AIS in financial institutions.

 

1.5 Research Hypothesis.

     This fact-finding mission is designed to test the following hypothesis;

Ho: Information and Communication Technology does not significantly improve performance of accounting systems in financial institutions.

H1: Information and Communication Technology significantly improves performance of accounting systems in financial institutions.

     These hypothesis will be tested and accepted or rejected according to the testing results

 

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