Abstract

Given the volume and complexity of business transactions in recent times, the introduction of personal computers has resulted in significant improvements in how they are processed. However, this pattern does not appear to be true for small and medium-sized enterprises, particularly in developing countries such as Cameroon, resulting in 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.

The study used structured questionnaires to sample 100 SMEs using simple and random sampling techniques to achieve these goals. In SPSS, collected data were analyzed using descriptive statistics, and hypotheses were tested using regression (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 of the Study

Accounting in these recent times has become an instrument in the day to day dealings of any business operations. This Accounting is the art of recording, classifying and summarizing in to financial statements a company’s transactions that create assets, liabilities, equities, revenues and expenses. It is a means of satisfying users’ demand of the financial information that arises from the forces of complexity, remoteness and consequences which far originate from Bookkeeping. In these present days modern accounting is still founded on the system of keeping transactions developed by an Italian monk Luca Pacioli over 500 years ago and the creation of software by Bill Gate. This great scientific system was so well executed that even current accounting principles are based on it (de Santis, 2010).

Manual accounting system requires a greater understanding of how to book keep; it can only be easier to manage once the concept of double entry of bookkeeping has been understood. Tavakolian (1995) emphasized that the manual accounting system consisted of books ledgers and calculators. Consequently, with this system of accounting recording there was high amount of errors and detection could not be done on time. The record in a paper based accounting system is susceptible to several harms such as by water, fire and different hazards.

Also, this system takes in consideration a lot of time consuming due to the fact various accounts need to matched where the necessity comes in irrespective of the numerous transaction being carry out during and more over a period of a month which is as a result of the different steps carried for the recording of the different transactions.

For example, if a business pay their rent, a check has to be written, an entry must be recorded into the check register, and the transaction has to be posted to respective ledgers: in this case, a debit to the rent company’s ledger account and a credit to bank.

What’s more, where there exists numerous transactions to record in a business the sheer volume of transactions are run, not talking of the stress and boredom of extracting trial balance and financial statements which are state of comprehensive income (profit and lost), cash flow statement and statement of financial position (balance sheet). This has led to the introduction and development of computerise accounting system (CAS).

As time is passing the world is improving at any state point so do technologies likewise with accounting actually. So, moviric (2010) contented that computerized utilization offers assistance to limit human mistakes, loss of monetary exchange in computer, using computerized accounting system was the safest rather than keeping financial activity manually by using ledger transactions. The presentation of automated bookkeeping framework creates great and exact budgetary report for both administration and outcast for decision making.

Computerized accounting system spread all over the world globally in business environment in which the computerized accounting became the engine of growth in business organizations. This provides a number of benefits such as speed of carrying out routine of transactions, timelines, quick analysis, accuracy and reporting. The process of keeping enterprises financial transaction have become primary importance for Small and Medium scale Enterprises, since it has led to the improvement of checking out financial performance.

Small and medium size enterprise (SMEs) form a large part in any economy. The SME sector are important for economic and social reasons given that the sector has a crucial role in creating new jobs, economic growth and innovations, these economic units are worldwide acknowledged as the key actors of socioeconomic development (Hande-Karadag, 2015).

The small and medium sized enterprises out number large companies by a wide margin and also employ many more people and it’s not only vitally important for developing countries but it is also important for advance economies well. In Australia 97% of businesses makes up SMEs and it employs 4.7 million people and produces one third of the total GDP and also represent 90% of all goods exporters and over 60% of services exports.  (Aga et al 2015).

According to a study carried out by the Shandong university of china 60% to 80% of new jobs are created solely by SMEs sector annually and in Europe 75% of the total enterprises form SMEs with 67% of the total employment and 58% of gross value added (EC,2012).

In Korea, small and medium enterprises represent 99% of the total number of companies and correspond to 43% of the country’s exports (Ayyagari et al., 2005). Regarding SMEs as an important component of the market. SMEs have indeed played a significant role in industrialized countries during the 20th century (Quilies, 1997).

The development role of SME sector in developing countries has been highly recognized. They serve as engines through which the growth objectives of developing countries can be achieved SME are necessary engines to achieving national development goals such as economic growth, poverty alleviation, democratization and economic participation, employment creation, strengthening the industrial base and local production structure (Abeygunnasekera & Fonseka 2012). Furthermore, it has been noted that SME sector has become a major sector of private sector in developing countries (MED 2002). Therefore, it could be argued that Cameroon can gain economic benefit by developing the SME sector. The government of Cameroon has taken various steps to promote this sector though the outcome has not been properly measured.

The National Statistical Institute states that SME account for over 90% of enterprise of Cameroon’s economy with a share of the GDP estimated at 34% (world Bank 2013). In view of this, it is clear that the present contribution to the economy is not at a satisfactory level hence there is a need to study SMEs in order to harness their full potential. Therefore, for developing countries, it is important to accelerate the growth of SMEs to gain sustainable development.

In the context of SMEs, accounting information is important as it can help firms in managing their short-term problems in critical areas like costing, expenditure and cash flow by providing information to support monitoring and control (Mitchell et al, 2000).

The American institute of certified public accountant defines financial accounting as the “art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which in part, at least of a financial character, and interpreting the result thereof”. In order to progress, SMEs are supposed to keep books of account and also several companies irrespective of their size are bound by statutory rules of a particular country in which they operate to prepare financial reports that conform to Generally Accepted Accounting Principles (GAAP).

An accounting system is an orderly, efficiently scheme for providing accurate financial information and control. Regulatory requirements and internal administration policies are key considerations in the design of an effective accounting system. Thus accounting systems show the books, records, vouchers, and files and related supporting data resulting from application of accounting process. It involves the design of documents and transactions flow through an organization.

The uniqueness of small and medium scale of business call for careful consideration in the design of accounting systems. Small and medium scale enterprises are a vast majority of businesses found in variety of primary and intermediate production of the economy. These establishments have tremendous impact on the state and wellbeing of the nation in employment generation, as sources of national outputs and revenues, providing feedback for large corporations. They may lack the sophistication to apply the detailed accounting process, yet the value of accounting systems to these businesses is quite profound.

Accounting and reporting of SMEs are typically governed by principles and accounting standards and other requirements. However, such accounting rules are not designed specifically for them. Consequently, many SMEs especially those lacking resources and expertise, have difficulties when they are required to apply such rules and, in particular to produce financial statements in compliance with accounting standards.

Accounting practices are essential for all organizations including SMEs. Management will not make any sense without knowledge of the principles, concepts and procedures that affect the main solvency. This is useful information from the financial statements helps management in making decisions

The concept and standards for preparing financial statements are the Generally Accepted Accounting principles (GAAP). Thus, when good accounting practices are put in place and accounting information used effectively as a basis for decision making the limited resources solvency.

1.2 Statement of the Problem

Small and medium enterprises play an important role in both developed and developing countries. However, evidence has been found that there are many failures of SMEs in Cameroon, and this failure has been caused by many reasons one of them being “poor accounting records keeping”. Most owners of SMEs in Cameroon lack finances to hire competent bookkeepers and to purchase necessary accounting software and to train employees on how to use the software thus leading to inadequate accounting books and records being kept.

Also, to in recording transactions and preparing annual financial statements, SMEs have to comply with various accounting standards and state laws such as OHADA Accounting laws, GAAP (Generally Accepted Accounting Principles) and International Financial Reporting Standards (IFRS).

The presence of these standards often leads to complication and confusion. There is also a lack of experience in some important business functions, especially accounting and finance and also the use of improper accounting techniques and fraud in Cameroon and its common in all organizations including SMEs. Thus, low performance and growth.

Studies in US, Europe and in some countries in Africa, have revealed that poor accounting record keeping is a cause for business failure. The misuse and inaccuracy of accounting information causes SMEs to inaccurately assess their financial situations, and to make poor financial decisions as well as lead them to face with high failure rate (Byron & Friedlob,1984)

Probably the poor performance exhibited in SMEs could be due to shortcomings in the quality of accounting information in financial reporting which influences decisions made. Except for statutory demands, small and medium scale enterprises hardly give serious thoughts to the process of sound accounting practices, yet the inadequacy and ineffectiveness of accounting process have been responsible for untimely collapse of a host of them (Mukaila & Adeyemi, 2011).

It is important to remember that accounting is an ongoing process and something which needs regular handling and updating. Many SMEs find that the simple process of keeping on top of accounting demands is too much for them to handle. In its 2016 economic outlook report, financial experts as Delliote observed that SMEs are a key source of employment.

There is a need in growing SMEs for the skills of financial analysis which will allow financial statements to be read and understood. In addition to the problem of lack of proper financial records, SMEs also face the following problems; high cost of hiring skilled and competent bookkeepers, complex documentation procedures, high taxes, complicated judicial system, the lack of planning, marketing knowledge, absence of managerial skills and competency of capabilities (Kamyabi & Devi, 2011). Undoubtedly from the above statistics we can acknowledge that SMEs in Cameroon are business entities that could enhance and sustain the wealth of the wealth of the economy in many years to come.

It must be remembered these businesses do have potential to grow and become large companies in the future despite many challenges they encounter by these enterprises include lack of of demand for their product, poor management and administrative skills of the management, insufficient capital, poor record keeping and the use of accounting and financial information in financial decision are other major challenges

Proper accounting and financial system is said to be the engine for sound financial and economic decision and a key determinant for small business success (Stice, 1994). The high failure rate of small business in Cameroon is partially propelled by this problem.

The failure to provide accurate accounting and accurate accounting and financial record to financial institutions will impede their access to capital in later stages and eventually may cease to operate. Why should a sector that has been identified as a major source of employment fail because of poor record keeping? It’s against this background that the study sought to assesses the implementation of the financial accounting process of SMEs in the Buea Municipality.

1.3 Research Questions

1.3.1 Main Research Question

Does the implementation of the financial accounting process affect the financial reporting of SMEs in the Buea Municipality Buea Municipality?

1.3.2 Specific Research Questions

1. To what extent do small and medium scale enterprises in Buea adopt computerised accounting system?
2. What are the various accounting software packages used by SMEs in the Buea Municipality?
3. What is the role played by these accounting software packages in the financial reporting of SMEs in the Buea Municipality?
4. What are the difficulties faced by SMEs in Buea in adopting well developed computerized accounting system?

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