CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

People have been saving, retrieving, manipulating, and communicating information since the Sumerians in Mesopotamia developed writing in about 3000 BC but the term information technology in its modern sense first appeared in an article published in the Harvard Business Review. Based on the storage and processing technologies employed, it is possible to distinguish four distinct phases of IT development: pre-mechanical (3000 BC-1450AD), mechanical (1450-1840), electromechanical (1840-1940), and electronic (1940- present).

Electronic computers using either relays or valves began to appear in the early 1940s. The electromechanical Zuse Z3 was completed in 1941 and was the world’s first programmable computer and by modern standards one of the first machines that could be considered a complete computing machine.

The first recognizably modern electronic digital stored-program computer was the Manchester Small-Scale Experimental Machine (SSEM) which ran its first program on 21st June 1948. The development of transistors in the late 1940s at Bell Laboratories allowed a new generation of computers to be designed with greatly reduced power consumption.The 21st century is the new age of technological revolution and innovation, and information technology (IT) has outrun other industries in this field. The powerful convergence of computer, IT, and communications has given rise to new models of business (Frishamar, 2002).

The ever-increasing advances along with rapid changes occurring within the activity range of various enterprises have amplified to provide and offer qualitative financial information by economic units. Financial information is considered qualitative if it possesses specific features and can offer benefits to users of financial information and help in making decisions.

Some of these features are relevance, reliability, and comparability. Thus, there is hope that the quality of this information can improve through IT usage, and this paper aims to make the role of these technologies obvious in financial reporting (Salehi, Rostami and Moghada, 2010).

IT is one of the most important variables which have become a fact of life in the organizations of today. IT plays a key role in removing time and place limitations and causes information to become available to users more quickly and in a more satisfactory way. It also changes the way of performing tasks and transforms paper methods into electronic ones. This is called the electronic exchange of information. The changes provide conditions in which the time needed for information exchange is shorter (Salehi, Moradi, and Ariyanpour, 2010).

Nowadays the business world is changing at a faster pace. The reasons given for this are globalization, high IT investments, and the rapid pace of technological change in combination with escalating costs of research and development (Frishamar, 2002). The role of information technology (IT) has shifted over the last decades (Teng & Calhoun, 1996) to become an important part of how companies manage and control their resources.

Organizations are responding in different ways and at different rates to the wide range of IT-based opportunities and pressures (Johnson et al., 1986). Decisions regarding the building of technical IT architecture should be closely linked to decisions made in designing the IT organization that should be linked to the organizational design of the company itself. As a result, “Information technology plays a critical role in modern business, especially regarding the accounting function” (Efendi et al, 2006:117).

IT has radically transformed the nature of business and accounting practice (Hunton, 2002). “The initial interest in the relationships between accounting and information technology was gradually taken for granted; accounting was simply not possible without information technology, and the assumption appears to be that information technology is the platform for accounting data and it allows certain sophisticated queries to be performed” (Granlund & Mouritsen, 2003:78).

Advances in IT have transformed many firms in professional services industries, but perhaps not as much as those in the public accounting industry. Once a slow-paced and conservative industry, public accounting underwent tremendous changes at the turn of the millennium, sparked largely by the rapid changes in its IT environment (Elliott 2000).

Audit software and knowledge-sharing applications are two crucial components of these changes. Automation of audit tasks and the use of specialized audit software has substituted IT for labor and changed the structure of audit teams.

Equally important is the use of advanced systems to share knowledge bases across different parts of the organization that has enabled professional services firms to leverage their human resources more effectively (Gogan et al., 1995).

With rapid advances in IT, numerous articles have appeared in practitioner-oriented accounting journals that discuss how to invest in IT to keep up with the current technology (Smith 1997; Zarowin 1998). To justify an IT investment, managers need to understand the potential benefits resulting from the investment. Although there is a general perception that IT investments by public accounting firms can improve firms’ productivity (Lee and Arentzoff, 1991), the impact of IT on firm performance is not directly observable. Public accounting firms need to understand how the technology can transform their work and whether such transformation will ultimately lead to productivity gain.

While the recent IT research literature documents a positive marginal contribution of incremental IT expenditure using cross-sectional analysis across several firms (e.g., Brynjolfsson and Hitt 1995; Lichtenberg 1995), empirical evidence at the firm level has not been reported. Longitudinal analysis before and after IT implementation is important to support a causality argument leading from IT deployment to improvement in the firm’s productivity. This is especially of interest in a public accounting firm where information utilization is the core competence.

Information Technology is that area that manages technology and spans a wide variety of areas that includes accounting and auditing . Information Technology performs a variety of professional functions that range from installing applications to designing complex computer networks and information databases.

Computer servers, the internet wireless, and personal digital devices have forever transformed the way companies conduct business. Software packages have also improved traditional operations and production processes. Accounting has got tremendous advancement thanks to the growth of information technology.

Accounting software automates the traditional paper ledgers and accounting books. The software packages may come with a variety of specialized features that can be customized to current business operations. Companies usually choose accounting programs based on the size of their operations. Accounts are a purely social science that helps to improve the societal economic value of a human being in the society through a current scenario.

Accounting is a branch of science that is a continuous process due to environmental changes from time to time. Information technology is pure science that helps humans for recording, record keeping, controlling, summarizing, and auditing. It also helps in collecting data functioning of its accounting system. Information system allows companies to create individual reports quickly and easily for management decision making in a different field.

The impact IT has made on accounting in the modern world is reflected in the ability of a different organizations to develop and use a computerized systems to track and record financial transactions. Per Ledgers, manual spreadsheets and handwritten financial statements have all been translated into computer systems that quickly present individual transactions into financial reports. Computerized accounting systems have also improved the functionality of accounting departments by increasing the timeliness of accounting information. By improving the timeliness of financial information, accountants can prepare reports and operations analyses which give management accurate pictures of current accounting systems.

As information technologies (IT) grow more advanced, current accounting education is challenged by major changes in the environment in which professional accountants are operating.  One of the major factors that affect this environment is the impact of IT on the accounting profession.  A recent example is that the SEC has mandated the largest companies to start furnishing XBRL with their Q2 2009 SEC filings, and smaller companies to follow one year later.

Mutual funds must begin tagging key information, including risks, fees, and performance, by January 2011. The Institute of Management Accountants and Financial Executives International commissioned research entitled “What Corporate America Wants in Entry-Level Accounts” in 1994.  The findings revealed that information systems design was one of the KSAs considered most important by Corporate America.

Research also found that there was a significant gap between the KSAs that corporations expected from entry-level accountants and the accounting curricula provided by business schools. The Institute of Management Accountants published another study entitled “The Practice Analysis of Management Accounting” in 1996.

The study analyzed the work of more than 800 management accountants and found that ;(1) the use of computerized spreadsheets, and the use of computerized accounting systems were two of the most important KSAs, and (2) computer system operations was one of the activities that are most critical to success on the job. Chang and Hwang (2002) explored educators’ perceived level of importance of emerging IT issues.  Their findings indicated that information security and internal control was the most important topic to be taught in the IT-related courses, followed by database management, business processes, and documentation, information system design, and e-business.

1.2 Problem Statement

Based on a literature review of earlier research and empirical studies, we find that there is very limited knowledge on the impact of the most recent IT developments in the accounting field (Granlund, 2007). Although IT clearly plays an important role in accounting (Efendi et al., 2006) and management control (Dechow et al., 2007), this relationship has not been studied enough. Existing research has focused mostly on the relation between IT investment and company performance (Melville et al., 2004; Huang et al., 2006), notably in studies that attempt to measure the level of IT investment and company productivity (Dedrick et al., 2003) or even the financial return on IT investments (Dehning& Richardson, 2002). But, empirical studies examining the relationship between IT and performance have reported mixed findings (Dedrick et al., 2003; Melville et al., 2004). As well as conflicting results suggest that there is no direct relationship between IT investments and firm performance (Yongmei et al., 2008).

So, the relationship between IT and firm performance seems to be more complex than previously theorized (Stoel&Muhanna,2009). The great intervention of Information Technology (IT) in banks is limited as the manual bookkeeping and accounting entries still take place which is time-consuming, requires a lot of resources, costly and risky especially in big banks.

The purpose here is to identify and analyze reasons for the limited involvement of IT in developing accounting practices in Firms and the Banking sectors of Cameroon. With this limited intervention of information technology, we will find out the relationship of IT to firms and bank performance.

1.3 Research Questions

The great questions arising from this research are as follows:

1. What is information communication technology?
2. What are accounting practices?
3. What factors will be used to measure development in accounting practices?

1.4 Research Objectives

1.4.1 Main Objective

The main objective of this study is to analyze the role of information technology in the development of accounting practices in banks and companies in Cameroon.

1.4.2 Specific Objectives

In order to realize this main aim, the following specific objectives have been established:

1. To identify the problems related to information communication technology and the development of accounting practices.
2. To examine the role of information communication technology on the development of accounting practices in Cameroon.
3. To make recommendations.

1.4 Research Hypotheses

H0: Information technology has no significant role in the development of accounting practices banking sectors of Cameroon.

H1: Information technology has a significant role and part to play in the development of accounting practices of banks and firms of Cameroon.