Abstract

Accounting information systems is a very important topic when it concerns the quality of information needed in an enterprise. That is why for information to be effective, it has to be accurate, reliable and properly organized. This has led to the increased need for accounting information systems (AIS). In line with that, this study therefore tends to examine the effect of Accounting Information Systems (AIS) on the financial reporting quality of non-governmental organisations in the Buea Municipality.

Accounting Information Systems is been divided into system reliability and system control. We therefore had as specific objectives to look at each of these AIS elements on the financial reporting quality of NGOs in the Buea municipality. To do that we used a judgmental sample technique and the instrument used was a questionnaire to collect data from a sample of 35 NGOs out of the NGOs in the Buea municipality.

We analysed the data collected using descriptive and inferential statistics. In line with descriptive analysis, we used table frequencies, mean values and standard deviation, whereby, with inferential statistics, we used regression analysis and most especially the ordinary least square technique. After this analysis, the results showed that system reliability and system control had a significant effect on financial reporting quality. Therefore, based on the results we recommend more focus should be put on system reliability and system control respectively.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study 

Over the years, businesses have prospered due to information. To make decisions about investments and future goals for the company, they rely on information. Businesses can determine which available resources to use to expand their market share, generate revenues, and generate returns thanks to the information that is obtained. However, for this data to be accurate, dependable, and effective, it must be correctly arranged, which will raise the demand for accounting information systems (Kanakriyah, 2017).

When making decisions, organisations employ a range of instruments. Numerous academics agree that the accounting information system is one of the most crucial and useful instruments that the organization’s accounting staff uses for critical decision-making, control, and performance management.

In addition to offering a systematic approach to organising crucial accounting data on various transactions that are used in business operations, accounting information systems enable the organisation to assess business transactions and the economic environment to identify the problems that are impacting business operations (Wilkinson, 2000). They help to lessen and occasionally even remove the ambiguity that comes with making decisions, particularly when information is scarce. This implies that jobs are well understood when a robust accounting system is available.

For several years, the southwest region of Cameroon has been dealing with several issues, including civil conflicts, economic instability, and the movement of refugees from one nation and region to another. NGO action has been necessary as a result, and these businesses have been putting in endless effort to try to eliminate poverty, lessen its effects on the economy, and provide the basic requirements of the impacted population. However, to guarantee accountability, transparency, and compliance with pertinent laws, processes and systems must be established.

The municipality of Buea lacks standardised accounting information system procedures for non-governmental organisations. Because of this, it is difficult for NGOs to monitor financial records and transactions. Nonprofits are answerable to the donors from whom they receive funding, and there should be a high degree of transparency so that the use of these funds can be clearly explained.

Because it is necessary to make sound financial decisions, accounting information is crucial, and since it comes from the accounting information system, it is significant. Additionally, management depends on accounting and financial data to enable them to make sound strategic choices.

This helps them establish projections and budgets, as well as crucial long-term decisions that aid in strategic decision-making and the accomplishment of the organization’s long-term objectives. Rahman (2016) asserts that accounting information systems give management access to critical data on the organization’s corporate vision. Furthermore, the organisation may suffer long-term repercussions if this is not done. As a result, they are crucial to the effectiveness of the decision-making process.

Since accounting information systems are essential for determining the correctness and dependability of the company’s financial status, they also help to improve the quality and efficacy of financial data. The accounting function is in charge of creating the financial statements that both internal and external stakeholders require. These stakeholders then use this information in a variety of initiatives, such as investment research and cost-benefit analysis before the company embarks on a project, ensuring that stakeholders and management make well-informed decisions (Tunji, 2012). Furthermore, a strong accounting information system increases the likelihood of making sound financial decisions that maximise profits and allocate limited resources within the company in the best possible way.

It should be highlighted that accounting information systems cannot operate efficiently on their own, but they are also responsible for ensuring validity through the auditing and accountability processes (Gebremedhin, 2019). For the accounting information system to be successful and efficient, a well-designed workflow must be in place (Kanakriyah, 2017).

An accounting information system needs to be properly designed, built, organised, maintained, and protected. Furthermore, the accounting system needs to be reliable and of the highest calibre because it is composed of multiple parts that cooperate.   This implies that all of the components of hardware, software, databases, and others should be operating steadily and effectively. Accounting information systems must be adaptable, user-friendly, and efficient to generate trustworthy data that can be used to make decisions on time since they are utilised for critical tasks including forecasting, decision-making, coordinating, and planning.

Furthermore, accounting information systems impact not only the accounting function but also the marketing and finance departments. For this reason, the system must be more efficient and of high quality for the integration to be successful. Failure to do so would lead to inaccurate information, which would have a detrimental effect on a company’s performance and could even be expensive. For instance, if the business makes decisions based on inaccurate information, it may lose clients, suffer from a damaged reputation, and become less profitable, among other consequences (Faride, Jalili, & Nia, 2014).

Depending on their form, nongovernmental organisations receive funding from a variety of sources, including donations, grants from the government, endowment contributions, loan insurance, commercial banks, member contributions, friends, and family. When it comes to spending, nonprofit organisations invest in membership development and community and public service. Furthermore, non-governmental organisations do not disclose their revenues or losses because they are not-for-profit entities. The difference between revenue and expenses is used by nongovernmental organisations to record a surplus or deficit, which cannot be taken back.

1.2 Statement of the Problem 

Financial reporting is aimed at improving the reliability, accuracy and completeness of a company’s finances. However, this process has been tainted over the years by the malicious intensions of some accountants who want to defraud an organization or simply by the errors the people in charge of this information make.

These errors and omissions have made several organizations adopt AISs. However, there is a problem with the integration of the system which impedes efforts to develop a good portfolio quality and has hampered the development of strong internal control systems and the application of sound business planning (MF Transparency, 2011). For instance, Reach Out NGO’s accounting information system is improperly connected, which restricts the degree to which its goals and objectives are being fulfilled. The importance of accounting information systems in defining high-quality financial reporting in Indonesia was investigated by Meiryani, Tsudrajat, and Daud (2020).

The study sought to explore how accounting information systems could be relevant in the production of accurate, reliable and fraud-free financial reports because organizations in Indonesia were facing challenges in delivering relevant financial reports. Their study revealed that organizations with no accounting information system found it hard to achieve accuracy, reliability and fraud detection in financial reporting because of the time wasted and errors encountered in producing manual reports. They also found out that organizations which implemented weak accounting systems were losing financially because the system was not profitable for them since they provided weak results to the enterprise. As the study has shown, an accounting information system is the solution to the problems of reliability, accuracy and fraud detection of financial reports which most organizations face.

This absence of proper integration of accounting information system has hindered in most cases the proper follow-up of the number of persons met during humanitarian outreaches, the quality of financial justification of funds received from Donors, fraud and the quality of financial reports submitted to Donors Also, commercial and non-governmental organizations both produce and report financial statements. However, non-governmental organizations are not for profit therefore their reporting is often different from commercial companies.

Research on accounting information systems is scarce (Bredmar, 2012; Grabski, 2011). Since the topic is thought to have little bearing on the accounting and information system, there is little interest in it, claims Granlund (2011). Nonetheless, the corporate world is dynamic, which means that a lot of things are happening, particularly with the ongoing advancements in information and technology. This indicates that the system must be continuously examined to make sure it is in line with changes in the outside world.

To guarantee and maintain the accuracy of financial statements and their dependability so that they can always be relied upon to reflect the true position of the company, it is essential that new information and any changes be depicted early on, given that the accounting system is vulnerable to illicit activities (Awosejo, Kekwaletswe, Pretorius, & Zuva, 2013). At this stage, a study of the accounting information system is also required to see if there have been any new developments on the topic.

Furthermore, non-governmental organisations have historically been used as schemes to commit fraud and even launder money because they do not have the same level of accountability from the government as public companies, which makes them more vulnerable to fraud detection and accountability, according to Carolyn Cordery (2019).

It is difficult to create uniform accountability procedures that work for all of them, though, because of how diverse their operations are. Therefore, a study such as this one may provide some answers and directions for the construction of an efficient accounting information system, or at the very least, it may provide information that can steer stakeholders in the proper direction and allow management to detect fraud.  Finally, the most powerful asset a business can possess is information.

Lack of precise and trustworthy information can result in poor judgements, some of which cannot be undone, and can have a negative impact on the company’s financial performance, profitability, and reputation (Susanto, 2015). As a result, research into the development of an efficient accounting information system is crucial. Because accounting information systems lower risk and uncertainty, the information generated by the system is now more reliable (Esmeray, 2016).

1.3 Research Questions 

1. How does the reliability of the accounting information system affect the quality of financial reporting of nongovernmental organizations in the Buea Municipality?
2. To what extent does accounting information system control affect the quality of financial reporting quality of nongovernmental organizations in the Buea Municipality?

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