Abstract

This study examines the effect of computerized accounting systems on the quality of financial reporting by Small and Medium-Sized Enterprises in the Buea Municipality. The study makes use of both primary and secondary data in order to accomplish the research objectives.

Primary data was collected using a questionnaire and 60 Proprietors managing Small and Medium-sized Enterprises were selected using the purposive sampling technique. The data analysis technique used was regression analysis and the analytical tool for testing the hypothesis was SPSS.

Descriptive analysis was also used to explain the demographic characteristics of the respondents. Results show that, the proprietors of Small and Medium-sized enterprises prefer the use of Computerized Accounting Systems over manual accounting systems in order to improve the quality of their financial reports, improve decision making, improve customer support, efficiency, and effectiveness as well as properly secure their financial records.

Furthermore, the results obtained reveal that proprietors of Small and Medium-Sized enterprises are optimistic about the benefits that come alongside the installation and use of Computerized Accounting systems but at the same time, they are concerned about the significant costs and challenges associated with the use and implementation of these systems such as installation and maintenance cost, software failure and inadequate information technology expertise.

This study, therefore, recommends that the government through its educational system should reinforce its computerization policy for SMEs and players in the financial sector.

The study equally recommends that the ultimate solution to mitigate software failure is by constantly monitoring the system to alleviate all issues that can lead to a failure of the software and only well-trained experts should be involved in the development of these systems.

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Accounting has been of major importance to every organization especially in the past where there was a need to separate ownership from control and principals hired agents whom they relied upon to provide updates of the day-to-day management of their businesses.

Recording the day-to-day transactions of every business is crucial for both survivals in a long run and for effective decision making be it a profit-making organization or a non-profit making organization in order to make available financial reports for stakeholders.

However, there has always been incomplete recording of transactions, lack of secured record-keeping as well as delay in the preparation of financial information which led to the need of the creation of a more secured way of preserving financial records as well as more timely delivery of financial records.

A computerized accounting system consists of software designed to track all of your company’s accounting transactions, with the goal of producing financial output for monthly reports, annual financial statements, tax return information, and other report configurations used to analyze your company’s operations, efficiency, and profitability (Cynthia Gaffney, 2018).

While free or low-cost online software systems do not offer much customizability to your specific business, larger companies often a computerized accounting system software package that has been installed on a company’s mainframe computer servers and made available to several users.

The application is to support, advanced technologies that enable firms to use computer programs to perform tasks, which were previously done manually. The need for computerization of the accounting system is due to the rapid increase in the number of transactions, as a result of the continuous expansion of businesses.

According to Kogan (1986), accountability refers to a condition under which a role holder renders account to another so that judgment may be made about the adequacy of performance.

Lerner and Tetlock (1999), equate accountability not only to reporting but also to the justification of performance, they continue to describe accountability as implicit and explicit explanations that anyone may be called upon to justify one’s belief, feelings, and actions to others.

Lewis (1999), in his study, mentions that Computerization saves time on transactions hence reliable and accurate information can be generated thus necessitating study.

It can be noted that financial reporting and accounting play an important role in operating a business organization. Financial reporting and accounting have numerous processes; some simple and others complex and burdensome.

But as the business grows, acquires new customers, enters new markets, and keeps pace with constant changes in information systems, companies need to maintain highly accurate and up-to-date accounting, inventory, and statutory records.

With a substantial increase in the volume of accounting, transactions, and an increase in exposure of information to errors due to the complexity of these accounting systems, there was a need for a system that could store and process accounting data with increased speed, storage, and processing capacity.

This led to the development and introduction of accounting software packages. A computerized accounting system records accounting transactions using a computer and accounting software packages. It is one of the database-oriented applications in which the transaction data is stored in a well-organized database.

The user operates on such a database using the required interface and also takes the required reports by suitable transformations of stored data into information. Therefore, the fundamentals of computerized accounting include all the basic requirements of any database-oriented application in computers.

It helps simplify, integrate, and streamline all the business processes, cost-effectively and easily helps presents the true picture of all the business undertakings to users of financial reports. Nowadays, computerized accounting systems play a major role in business organizations and facilitate decision-making.

These are associated with a number of benefits like the speed of carrying out routine transactions, accuracy and reporting, timeliness, and quick analysis (R Pirayesh, 2D 18).

It is no longer necessary to have a huge room full of ledgers and records; there is accuracy and efficiency in keeping records, low case of omission, and loss of accounting records using computers.

These changes in financial reporting might be due to several factors. In Cameroon, micro-financial institutions have adopted the use of computers in many sections of their activities such as recording of daily collections, recording of customer’s savings (account details), preparation and presentation of their year-end financial reports.

Munide (2013) indicated that the heart of fiscal management in any organization is a good accounting system that is appropriate to that Organization. To achieve prudent financial accountability, it is advisable to establish a standardized system of accounting practices.

Regardless of the size of an organization, an accounting system is designed to collect, process, and report- periodic financial information about the entity (Oluoch, 2014). Several tools such as annual reports, audits, quarterly reports, financial accounts, performance assessments, and independent evaluation are derived from computerized accounting systems.

With the fall of CONFINEST, one of the major micro-financial institutions in Cameroon, many MFIs in Cameroon have changed their systems of operations from manual to computer-based systems. With the advent of ICT, packages, and computerized accounting software, Small and medium-sized enterprises in Cameroon have adopted and are applying ICT in almost all areas of their actions, due to its inter-sectional link.

It appears to be reaping most of the benefits of revolution in technology, as can be seen by its application to almost all areas of its activities such as: using debit and credit cards, inter-regional money transfer, using computerized accounting systems in the recording, preparation, and presentation of their financial reports.

This has however prompted the researcher to assess the effect of computerized accounting systems on the quality of financial reporting by small and medium-sized enterprises in the Buea municipality. More light will be thrown by having an insight into the quality of financial reporting in SMEs in Buea Cameroon.

1.2 Statement of the problem and Justifications of the Study

Recent reports on the use of computers in banking operations have helped management to effectively control and monitor the efficient use of limited resources thereby improving upon performance.

The many advantages from the use of computerized accounting systems have led many to conclude that CAS in Corporate reporting is the “engine of growth” in business Organizations. (Frenzel, 2006).

Despite the huge benefits these accounting systems play, many small and medium-sized enterprises still use manual accounting systems which are mostly associated with, keeping a large number of books with errors in recording huge volumes of transactions.

Such problem includes the insufficient supply of skilled knowledge about computerized accounting system, huge set up and maintenance cost

Otieno and Oima (2013) studied the implementation of a computerized accounting system in Kisumu, Kenya, and discovered that despite the recent upgrade on the accounting system by the use of computer soft ware’s, most small and medium-sized enterprises have been unable to fully exploit its benefits on the quality of financial reporting due to problems such as software failure, inadequate training on how to use computerized accounting systems which have led to the misuse of these systems and improper software maintenance.

Thus, this study intends to fill this research gap by assessing the effect of the computerized accounting systems by small and medium-sized enterprises on the quality of financial reporting in Buea Cameroon. The following research questions are set to guide this study.

The main question is what is the effect of computerized accounting systems used on the quality of financial reporting by small and medium-sized enterprises in the Buea municipality? This is broken down into the following specific research questions.

1. What are the types of computerized accounting systems used by 60 SMEs to improve financial reporting in the Buea Municipality?
2. What is the effect of a computerized accounting system on the quality of financial reporting by small and medium-sized enterprises in the Buea municipality?
3. What major factors should be considered before choosing suitable software to be used in SMEs in   Buea Municipalities?
4. What are the most common threats to a computerized accounting system affecting SMEs in the Buea Municipality?