Abstract

The advent of personal computers has offered significant improvements in how business transactions are processed, given their volumes and complexity in recent times. In However, the pattern seems not to be so with small and medium sized enterprises particularly in developing countries like Cameroon and as a result, there is an ineffective and inefficient information flow in the recording, processing, and analysis of financial data.

The researcher is therefore interested to assess the effects of such computerized accounting systems on the financial reporting of these small and medium sized enterprises in the Buea Municipality. Specifically, the study sought to identify the extent to which accounting systems (CASs) have been embraced by SMEs in the Buea Municipality; explore the various accounting software packages; examine the role played by CAS in financial reporting of SMEs and investigate the most common threats to a computerized accounting system affecting SMEs in the Buea Municipality.

To achieved these objectives, the study employed a structured-questionnaires to sample 100 SMEs using simple and random sampling techniques. Collected data were analysed by means of descriptive statistics and hypothesis tested using regression in SPSS (25.0). The results of the study show that 66.0% of small and medium sized enterprises in the Buea Municipality have adopted computerised accounting systems. The accounting packages widely used though with limited features are Sage and QuickBooks and they are used in the midst of many challenges.

Though there is a limited use of computerized accounting packages, this study reveals that computerized accounting packages play a significant role in running small and medium sized enterprises in Buea Municipality; there is speed improvement in handling transactions, accuracy, error reduction on the financial statement, simplification of the recording procedure, data security, payment of salaries of employees and deduction of taxes.

Based on these findings, the study suggested that SMEs should embrace computerized accounting systems and fully utilize all the features that the packages offer. It is also recommended that the government should supervise the building of a generalised accounting package which takes into consideration the OHADA system of accounting used in Cameroon and together with academic institutions join in the sensitization campaign by means of conferences, seminars and workshops.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Accounting is the art of recording, classifying andsummarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof (Kariuki, 2009 cited in AICPA, 1953). Accounting has long been an organizational function especially with the advent of non-owner managers who need to be constantly updated about what is happening in the organization. Therefore, maintaining, preparation and presentation of accounts for effective decision making is crucial for the success of a business organization whether it is a non-profit making organization or profit making because they have to report to the stakeholders of the organization by means of financial reports (Amveko, 2011).

Accounting therefore, plays a critical role in the success or failure of business institutions particularly in contemporary times. Every business must keep track of financial information that relates to its business activities. This may be achieved manually or through a computerized system. Both manual and computerized accounting systems perform basically the same processes, the accounting principles and concepts are the same with differences lying in the technicalities of the process (Olive, 2014). However, as the business grows, acquires new customers, enters new markets and keeps pace with constant changes in information technology (IT), companies need to maintain highly accurate and up-to-date accounting, inventory and statutory records which can easily be achieved by the use of the computerized accounting system (Dindi, 2013).

There was a need for a system that could store and process accounting data with increased speed, storage, and processing capacity due to a significant increase in the volume of accounting transactions and an increase in the exposure of information to errors due to the complexity of these accounting transactions.This led to the development and introduction of accounting software packages. Prior to the advent of personal computers, businesses were limited to manual methods for keeping track of financial data. According to Tavakolian (1995), the manual accounting systems consisted of paper ledgers, typewriters and calculators. Typewriters were used to type invoices and cheques, and all calculations were performed using calculators. However, with this system it is possible for errors to be introduced into the data and go undetected for quite some time or never be detected at all. Like many other industries, the accounting industry changed with the arrival of personal computers thus the name computerized accounting system (CAS).

The computerized accounting system (CAS), which comes under the broad definition of Accounting Information Systems (AIS), is a computer software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll and trial balance (Venkateswarlu and Theekshana, 2010). It may be developed in-house by the organization using it, may be purchased from a third party (off-the-shelf packaged software such as Sage, QuickBooks, Thompro, Peachtree etc.), or may be a combination of a third-party application software package with local modifications. It varies greatly in its complexity and cost. Today’s packaged accounting software not only records financial transactions and produce accounting reports, but they include functionality for managerial decision making aimed at gaining competitive advantage (Venkateswarlu and Theekshana, 2010).

According to Marivic, 2009 an accounting system records accounting transactions using a computer and accounting software; it is a method or scheme by which financial information on business transactions are recorded, organised, summarized, analysed, interpreted and communicated to stakeholders through the use of computers and computer based systems such as accounting packages. It is one of the database-oriented applications wherein the transaction data is stored in a well- organized database. The user operates on such database using the required interface and also generates the required financial 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.

Due to the rapid change in technology, many small businesses prefer to track monetary transactions with computerized software than keep track of all financial activity manually through the use of physical ledgers (Dindi, 2013). The advancement in information technology has eventually led to the introduction of Accounting Systems (AS) among small and medium sized enterprises (SMEs) to help produce relevant and faithful representative financial reports for both management and external users for decision making at all times.

Computerized accounting tends to involve dedicated accounting software and digital spreadsheets to keep track of a business or client’s financial transactions. It is a beneficial use of current technological advances. Not only has it revolutionized the traditional paper methods of accounting, but it has also created new types of accounting applications for business. Companies now create entire accounting information systems that integrate all business operations, including external suppliers and vendors. Computerized accounting systems is replacing manual-based accounting systems in virtually all business organizations; providing accountants, managers, employees and stockholder’s access to vital accounting information and financial reports at the touch of a button. Computerized accounting systems automate the accounting process – improving efficiency and cutting down costs. And it tends to be more accurate, faster and easier to use, and generate reliable financial information which is less subject to error than its manual counterpart (Lewis, 1999). A computerized accounting system is able to handle financial data efficiently, but the true value of an accounting system is that it is able to generate immediate financial reports regarding the company at any time required (Amidu et al, 2011).

It is doubtless that the emergence of numerous information technology platforms has created a world of strategic opportunities for business managers, including professional accountants. The increasingly low costs associated with generalized accounting packages for commercial use such as SAGE, QuickBooks, Peachtree, MYOB (Mind Your Own Business etc) as compared to customized applications is a great incentive to SMEs. The emergence of vendors who provide industry specific packages; the growing demand by small and medium sized businesses who are often unable to engage full-time in-house systems development staff; and the trend towards downscaling organizational structures into strategic business units (SBU’s) as well as the resulting move towards distributed data processing systems has made the environment conducive for the use of commercial software packages by SME’s a great appeal (Hall, 2011).

Accountants recognize the need for ASs to be able to capture and support input from financial information for quick processing and generation of impromptu reports for improved decision making in business (Brecht and Martin, 1996). According to Welsch and Short (1987) an accounting system, regardless of the size of the organization, is designed to collect, process and report periodic financial information about an entity. Ultimately, information provided by computerized accounting systems must possess the basic attributes recognized under any generally accepted accounting principles (GAAP) as those of any good accounting information.

1.2 Problem Statement

It has been observed that most SMEs operating in this information technology (IT) era operate without the use of a single computer talk less of an accounting package to tract down its transactions. Though they manage to keep some records about their business transactions manually, these records are often too many and analysing them manually in order to prepare financial reports is always a very tedious exercise at the end of the financial year and hardly is done without errors and omissions and as a result, there is an ineffective and inefficient information flow in the recording, processing, and analysis of financial data. Thus, any decision taken based on such reports is likely to be misleading. This is agreed by Shahwan and Al-Ain (2008) who noted that most small and medium sized companies have improper financial accountability. In addition, they pointed out that only a very small percentage of the companies prepare accounting information internally using accounting software.

Also, research has proven that there is still much use of pen and paper in analysing financial transactions in SMEs. Ismail (2005) revealed that small companies have little management accounting information and poor control and decision making is mostly on informal basis. Findings from the study showed that about 20% of the companies do not prepare income statement and cash flow statement, 40 percent of respondents do not prepare bank reconciliation and balance sheet and over 40 percent do not prepare financial ratios. Reacting to this, Sian and Roberts (2009) argued that most of the managers of small companies seem not to understand that financial information plays a major role in achieving efficient business decisions. Hence, the managers do not foresee and realize the importance of putting in place a systematic and complete financial reporting plan which is easily achieved today by the use of accounting information systems.

Following the significant contribution of SMEs in world economies in general and Cameroon in particular, there is therefore a dire need to ensure optimal performance in financial management of these SMEs and this depends on an efficient financial reporting system employed by these SMEs. Figures from the National Institute of Statistics suggest that, SMEs make up 90 percent of enterprises in Cameroon, and employs 70 percent of the active population (MINFI, 2013). So, if the future of these SMEs is not planned today by implementing tools which enhance the production of quality financial reports both for tactical and strategic business decisions which will ensure the sustainability of the SMEs, 70% of Cameroon’s active population is at the risk financial crises in the nearest future.

The Cameroon government has been making enormous efforts to promote SMEs. Recently, the government has created a one-stop shop to facilitate the start-up registration procedure and a guarantee fund for SMEs to ensure their growth and development. This long awaited fund for SMEs saw daylight following a decision signed on January 23, 2013 by the Minister of Finance on the creation, organization and functioning of a transitory mechanism for financing SMEs. This was a follow-up of law No. 2010/001 of 13 April 2010 signed to promote SMEs in Cameroon. However, it is observed that SMEs are still slow to take measures and enjoy the opportunities offered by IT even though information systems have become very crucial for business management nowadays. The research done by Temtime et al (2003) revealed that there are still very few companies classified under SMEs that adopt IT in their business operations.

Therefore, a relatively poor understanding of financial reporting plan and IT usage require for a thorough study in small and medium sized companies. Thus, this study is a timely intervention. It is hoped that the findings from this research will help the firms to plan, manage, improve and maintain an effective flow of accounting information and financial reports by the help of information technology platforms needed for improved decision making among SMEs. This will enhance survivability in the phase of stiff competition and a challenging business environment.Given the problem expressed above and that there are a variety of efficient and cost-effective computerized accounting packages in the market today designed for SMEs which are flexible enough to be customized to the taste of a cross section of SMEs; this study intends to address the following questions:

1.3.1 Main Research Question

What is the impact of accounting systems on small and medium-sized enterprises (SMEs) in the Buea Municipality?

1.3.2 Specific Research Questions

1. To what extent have accounting systems been embraced by SMEs in the Buea Municipality?
2. What are the various accounting software packages used by SMEs in the Buea Municipality and to what extent are they used?
3. What is the role played by these accounting software packages on financial reporting of SMEs in the Buea Municipality?
4. To identify the most common threats limiting full exploitation of the benefits associated with the use of Computerized Accounting Systems by SMEs in the Buea Municipality.

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