Abstract

The study aids to determine the impact of computerized accounting systems on the quality of financial reporting in MFIs in the case of the National Ports Authority Cooperative Credit Union Limited (NPACCUL).

Primary data were collected from 20 respondents through a self-administered questionnaire (simple random sampling) using the Likert Scale.  Data were analyzed using SPSS 20V for descriptive and inferential analysis.

The Pearson correlation coefficients established that there exists a positive, strong relationship between the computerized accounting system and quality of financial reporting in National Ports Authority Cooperative Credit Union Limited.

The study thus recommends that the government and private sector has to provide a special program that will influence institutions’ innovation on the use of accounting and financial reporting.

In addition to that, Shareholders should be motivated not only financially but other means other to participate in different business matters, let it be seminars, international meetings, conferences where they can get different information, business skills on how to manage the business by using computerized accounting and take propel auditing by keeping good records.

Lastly, Customers should also participate in motivating bookkeepers to keep accounting records, and as well as Suppliers can also issue an invoice whenever goods are supplied to the business owners through electronic devices (computerized systems).

CHAPTER ONE

INTRODUCTION

  1.1 Background to the Study

Accounting has long been an organizational function especially with the advent of non-owner managers who need to update what is happening in the organization.

Maintaining, preparation, and presentation of accounts is crucial for business success as well as organization for effective decision making whether it is a non-profit making organization or profit-making because they have to report to the stakeholders of the organization through financial reports.

The primary objective of an accounting function in an organization is to process financial information about the activities of the organization and prepare financial statements at the end of the accounting period.

The modern method of accounting is based on the system created by an Italian monk Fra Luca Pacioli. He developed this system over 500 years ago. This great and scientific system was well designed that even modern accounting principles are based on it (deSantis, 2010).

According to the OHADA uniform act, all companies are obliged to keep proper books of accounts with respect to their financial positions and changes therein.

These books shall be kept in respect of all sums of money received and spender by, or on behalf of the company and the matters in respect of which the receipt and expenditure take place; all purchases and sales of property, goods, and services by the company; the assets and liabilities of the company and the interest of the members therein must be kept in the proper books of account.

According to the International Accounting Standard Board (IASB) framework for preparation and presentation of financial statement, the objective of financial statements is to provide information about the financial position of a company that is useful to a wide range of users in making economic decisions.

These financial statements are usually directed towards the common information needs of these users and as a result, it serves as their major source of financial information.

Users of this financial statement include shareholders, prospective investors, employees, customers, and the government.

The act of communicating financial information to these users is known as financial reporting.

Financial reporting can be defined as the process of presenting financial data about a company’s financial position, the company’s operating performance, and its flow of funds (Rose & Hudgins, 2008).

Financial reporting is thus, the presentation of a complete set of financial statements which consists of a;

• Statement of financial position at the end of the period (Balance sheet)
• Statement of comprehensive income for the period
• Statement of cash flows for the period
• Notes and explanatory notes to the accounting policies used (Greuning,2006).

However, there was inefficient financial reporting due to loss of records, delay in preparation of records, and its associated problems.

The computerized accounting system is the application of the computer-based software used to input, process, store, and output accounting information (Millichamp, 1995).

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 an increase in the number of transactions, as a result of the policy of continuous expansion of the business.

It is noted that business accounting records cannot be accurately maintained when the firm expands and when the system is not computerized.

It is a computer-based system that the firm can use to post numerous transactions to the right ledgers and prepare proper financial statements.

It is from this need that MFIs consider it very important to computerize their systems and different functions as it considers two mandatory rules that govern its operations. These rules are:

1. Technology must benefit your business and,
2. If technology does not benefit your business, then you don’t need it.

For this reason, the accounting section which the institution considers very important is highly computerized for the purpose of improving on record-keeping, proper maintenance of different loss of cash, or loss of accounting records. Computerized accounting system in a commercial organization, which will help to integrate, simplify and streamline all the business processes and transactions cost-effectively and easily (Indira,2008).

According to Pandey (1998), Financial reporting to the company’s stakeholders for instance the government, customers, public, donors is a statutory obligation for every organization. (Saleemi,1981) defined financial reporting as the process of supplying financial information which is reliable, accurate, and complete to the various stakeholders for making economic decisions. This is always informing of financial statements such as statement of comprehensive income, statement of financial position and cash flow statement and other financial annual reports which provide an overview of the company’s current financial strength.

The experience of advanced countries is that managing complex FMIS (financial management information systems) projects require considerable management skills.

However, this is typically in short supply in DCS (Distributed Control System).

Top managers may not be computer literate. The consequence is often the binding constraint when introducing FMISs is not the technical capacity to create them but the capacity to manage them. (Keating & Frumkin,2003).

In most MFIs, funds from customers are poorly managed and their accounting systems are in poor order.

Many MFIs do not have qualified accountants and have problems preparing accurate and timely financial reports, which is one of the major customer and stakeholders’ requirements.

Rural finance was practiced in Ireland and Germany in the 16th and 17th centuries (Steinwand,2001).

In Germany, Friendrich Wilhelm Raiffeisen created a credit cooperative, which is one tool of the microfinance provider, after the “hunger year” of 1846 (Hollis & Sweetman,1998).

The credit cooperative provided loans to poor farmers in rural areas and by 1910, it had successfully served 1.4 million farmers in Germany and been replicated in Ireland and Northern Italy (Morduch,1999a).

The credit cooperative model, known as the “Raiffeisen Model”, was replicated by the British and Dutch during their colonial eras in India and Indonesia.

Bank Rakyat in Indonesia (BRI), one of the successful microfinance institutions in the world today, is based on the “Raiffeisen Model” (Seibel,2005).

In Cameroon, many MFIs 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, etc. With the fall of CONFINEST a major microfinance institution 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, MFIs 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 of debit and credit cards, inter-regional money transfer, using computerized accounting systems in the recording, preparation, and presentation of their financial reports.

For this reason, the researcher is prompted to assess the impact of computerized accounting systems on the quality of financial reporting in Microfinance institutions.

Therefore, the researcher focuses on investigating the impact of computerized accounting systems on the quality of financial reporting in MFIs in the case of the National Ports Authority Cooperative Credit Union Limited (NPACCUL).

1.2   Statement of the Problem and Justification

Technology plays a key role in today’s business environment. Many companies greatly rely on computers and software to provide accurate information to effectively manage their business.

It is becoming increasingly necessary for all businesses to incorporate information technology solutions to operate successfully (Benjamin et al., 2004).

Information technology and systems have a tremendous impact on the productivity and performance of both manufacturing and service organizations.

The advancement in information technology has eventually led to the introduction of a computerized accounting system in corporate reporting to help produce relevant and faithful representative financial reports for both management and external users for decision making (Greuning,2006).

Particularly, accounting has been affected to a high degree. There is less paperwork and less guesswork (Leigh M, 2007).

Tavakolian (1995) noted that an accounting package is usually one of the first major computer packages that a company purchases and it is one of the two business applications often used.

However, using IT methods has its own troubles; as it may lead to ease of tampering with accounting information, which is difficult to detect unless the internal control system (ICS) keep pace with the technological developments and are able to detect and prevent the occurrence of manipulation and also inadequate expertise are huddles that hinder microfinance organizations from the use of accounting software.

Studies to evaluate the impact of using this technology to generate financial reports are limited.

This study intends to assess the impact of a computerized accounting system on the quality of financial reporting in microfinance institutions in the case of National Ports Authority Cooperative Credit Union Limited (NPACCUL).

1.3 Research Questions

This study tries to answer the following questions:

1. What is the effect of CAS on the understandability of financial statements prepared in NPACCUL?
2. What is the impact of CAS on the accuracy of financial reporting in National Ports Authority Cooperative Credit Union Limited?
3. How does CAS impact the reliability of financial statements prepared in National Ports Authority Cooperative Credit Union Limited?
4. What challenges does National Ports Authority Cooperative Credit Union Limited face in using CAS in producing quality income statements?