CHAPTER ONE

INTRODUCTION

This chapter contains the background to the study, statement of the problem, the objective of the study, research hypothesis, scope of the study, significant of the study and organization of the study.

1.1 Background to the study

Accounting has been of major importance to every organization especially in the past where there was need to separate ownership from control and principals hired agents whom they relied upon to provide updates of the day to day management of their businesses.

Recording the day to day transactions of every business is crucial for both survivals in a long run and for effective decision making be it a profit making organization or a non-profit making Organization in order to make available financial reports for stakeholders.

However, there has always been incomplete recording of transactions, lack of secured record keeping as well as delay in preparation of financial information which led to the need of the creation of a more secured way of preserving financial records as well as a more timely delivery of financial records.

A computerized accounting system consists of software designed to track all of your company’s accounting transactions, with the goal of producing financial output for monthly reports, annual financial statements, tax return information and other report configurations used to analyse your company’s operations, efficiency and profitability (Cynthia Gaffney, 2018). While free or low-cost online software systems do not offer much customizability to your specific business, larger companies often a computerized accounting system software package that has been installed on a company’s mainframe computer servers and made available to several users. 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 the rapid increase in the number of transactions, as a result of the continuous expansion of businesses.

It can be noted that, financial reporting and accounting plays an important role in operating a business organization. Financial reporting and accounting has numerous processes; some simple and others complex and burdensome. But as the business grows, acquires new customers, enters new markets and keeps pace with constant changes in information systems, companies need to maintain highly accurate and up- to-date accounting, inventory and statutory records.

With a substantial increase in the volume of accounting transactions, and an increase in exposure of information to errors due to complexity of these accounting systems, there was a need for a system which could store and process accounting data with increased speed, storage, and processing capacity. This led to the development and introduction of accounting software packages. A computerized accounting system records accounting transactions using a computer and accounting software packages. It is one of the database-oriented application in which the transaction data is stored in well-organized database.

 

The user operates on such database using the required interface and also takes the required 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.

Nowadays, the computerized accounting systems plays major role in business organizations and facilitates decision making. This are associated with a number of benefits like speed of carrying out routine transactions, accuracy and reporting, timeliness and quick analysis (R Pirayesh, 2D 18).

It is no longer necessary to have a huge room full of ledgers and records; there is accuracy and efficiency in keeping records, low case of omission and loss of accounting records using computers. These changes in financial reporting might be due to several factors. In Cameroon, micro financial institutions 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 yearend financial reports.

Munide (2013) indicated that the heart if fiscal management in any Organization is a good accounting system that is appropriate to that Organization. To achieve a prudent financial accountability, it is advisable to establish a standardized system of accounting practices. Regardless of the size of an Organization, an accounting system is designed to collect, process and report- periodic financial information about the entity (Oluoch, 2014). Several tools such as annual reports, audits, quarterly reports, financial accounts, performance assessments and independent evaluation derived from computerized accounting systems.

 

With the fall of CONFINEST, one of the major micro financial institution inCameroon, 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, MF1s in Cameroon have adopted and are applying ICTs 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 debit and credit cards, inter-regional money transfer, using computerized accounting systems in the recording, preparation and presentation of their financial reports.

This has however prompted the researcher to access the role of computerized accounting system on the quality of financial reporting in Micro financial institutions. More light will be thrown on having an insight on the quality of financial reporting in MFI’s in Buea Cameroon.

1.2 Statement Of The Problem

Recent reports on the use of computer in the banking operation has helped management to effectively control and monitor the efficient use of limited resources thereby improving upon performance. With the aid of computer technology in recording, MFIs are supposed to deliver quicker service to their customers and proper storage of financial data.

Despite the huge benefits these accounting systems play, many Micro financial institutions still use manual accounting systems which are mostly associated with, keeping a large number of books with errors in recording huge volumes of transactions. Such problem includes insufficient supply of skilled knowledge about computerized accounting system, huge setting up and maintenance cost

 

Otieno and Oima (2013) studied the implementation of computerized accounting system in Kisumu, Kenya and discovered that despite the recent upgrade on the accounting system by the use of computer soft wares, most micro financial institutions have been unable to fully exploit its benefits on the quality of financial reporting. Thus, this study intends to fill this research gap by assessing the role of computerized accounting system on the quality of financial reporting in MFI’s in Buea. The following research questions are set to guide this study.

The main question is what is the role of computerized accounting systems on the quality of financial reporting in Micro Financial Institution (MFI’s) in the Buea municipality? This is broken down to the following specific research questions.

1.3 Research Questions

1. What reasons has compelled microfinance institutions in Buea to computerize its accounting system?
2. How has computerized accounting system improved on the quality of financial reporting?
3. What is the influence of computerize accounting system on financial reporting?

1.4 Objectives Of The Study

The main objective of this study is to investigate the role of computerize accounting systems usage on the quality of financial reporting in Micro Financial Institutions in Buea municipality. The specific objectives of this study include:

1. To examine the reasons as to why microfinance institutions in Buea has computerized its accounting systems.
2. To determine how computerized accounting system has improved on the quality of financial reporting in microfinance institutions in Buea
3. To examine the influence of computerized accounting system on financial reporting