THE EFFECT OF COMPUTERIZED ACCOUNTING AND FINANCIAL REPORTING ON THE PERFORMANCE OF SMALL AND MEDIUM SIZED ENTERPRISES IN THE BUEA MUNICIPALITY

CHAPTER ONE

INTRODUCTION

1.1 Introduction

The first chapter which is the introductory part of the research deals with the background of the study, statement of the problem, objectives of the study, hypothesis of the study, significance of the study, definition of concepts and organization of the study. The second chapter deals on reviews of related literature on conceptual and theoretical as well as empirical literature pertinent to the objective of the study. Chapter three presents the methodology of the study, which includes the method of data collection, and method of data analyses. Chapter 4 entails the presentation and discussion of results. Finally, the summary of the study, conclusion, policy implication and recommendations are presented in chapter five.

1.2 Background to the Study

The case for reliable, accurate and timely financial reporting (full disclosures) for corporations all over the world has been strengthened in the twenty first century due to the failure of accounting and auditing in assuring the accuracy of financial statements (Adeyemi and Asaolu, 2013). The dramatic collapse of the Enron Corporation, an American company, in 2001, and the subsequent dissolution of Arthur Andersen, which was then one of the “Big five” audit and accountancy partnerships in the world is a scandal that will always highlights the deficiencies of accounting and auditing. The failure of Enron Corporation, collapse in 2002 of WorldCom and the global financial and economic crunch of the early 2000s resulted in increased attention to improve and enforce financial reporting disclosures worldwide in order to reform the global economy (Adeyemi and Asaolu, 2013).

The Small and Medium Size (SMEs) sector plays a significant role for the development of the economy of any country (Nyor, 2013). SMEs play a crucial role in economic development, both in developing and developed countries. The contributions of SMEs to the economy can be seen through the value added every year such as employment, export participation, revenue generation for the government through payment of taxes, poverty alleviation etc. In low income countries, it is undeniable that most of the corporations are small scale and their labour force also works mostly for small enterprises. The investment and growth of these SMEs is a major driver and indices for the level of industrialization; modernization; urbanization, gainful and meaningful employment for all those who are able and willing to work, equitable distribution of income, the welfare, income per capital and quality of life enjoyed by the citizenry (Aremu & Adeyemi, 2011). The SMEs subsector is viewed as an important force of driving the economic growth and employment creation in both developing and developed countries especially in developing economies where SMEs make up more than 70% of the (Ariyo, 2008; Kpleai, 2009; Birch, 1989; and Storey, 1994). Through the multiplier effect, this employment provides income to regions which stimulate local economic activities and in turn drives wealth and further employment generation (Walker & Webster 2004). These firms are considered the backbone of every economy as the produce the necessary goods needed for sustenance of life (Culkin & Smith, 2000). No wander governments around the globe are increasingly promoting and supporting their growth as part of their overall national development strategy (Abdullah & bin Dakar, 2000).

Due to strategic position help by small and medium size enterprises the world economy, their performance and sustainability is not something to be overlooked. Therefore, a lot of emphasis is laid on how well small and medium size enterprises fare. Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues over a given period of time. The financial performance of SMEs is the function of internal and external factors. The internal factors are the SMEs specific factors which originate from the activity of the enterprises and reflected in the balance sheets and profit and loss accounts. Enterprise-specific determinants such as capital base, productivity and expense management significantly affect their profitability. The external factors are not originated from the activity of enterprises but reflect the overall economic environment which affects their performance of. External factors such as gross domestic product, interest rate and inflation etc. all have an impact on performance of SMEs. Thus, the performance of SMEs basically depends on its own activities (internal factors) and the overall performance of the economy (Shrestha, 2020). If the management of SMEs and regulatory authorities identifies the factors affecting the performance of SMEs and takes proper actions then they can achieve their goal and contribute to the economies of their nations.

Computerized accounting (accounting software packages) has emerged in recent times as a crucial factor in the functioning of enterprise and how they ultimately deliver their end product of their services. The Accounting Journal describes early accounting software as “handcrafted literally byte by byte over the course of months”. Companies initially relied heavily on proprietary systems but as computers became more powerful, programmers created more generalized software that could serve many different customers. The history of computerized accounting can be traced back to 1978 that saw the birth of Visicalc, the first spreadsheet software (Wardley, 2000). Visicalc made it possible to carry out financial modeling on the computer. A growing number of businesses across Europe and America saw a value in buying computers. Also, in 1978, Peactree Software introduced an accounting software package for the early personal computer. This made it possible for companies to computerize their accounting. Peachtree offered an integrated office suite that included a word processor and spreadsheet. By 1985, most major companies in the United States and United Kingdom had been introduced to electronic data processing to enable them prepare their financial reports effectively with relative ease (Batiz Lazo, 2002) The internet era brought further changes to accounting especially with cloud computing and enterprise resource planning (ERP) which simplified information processing and enabled access to complete databases for accounting and audit procedures. This era also brought about inter organizational data sharing with the use of internet. Corporations were able to assemble large volumes of data into a common pool for their reporting. Computerized accounting systems helps in proper recording of transaction, production of timely and reliable information has definitely improved management activities in SMEs such as controlling and decision making. The importance of adequate and elaborate financial reporting to any corporation cannot be overemphasized because how well or poor the corporations are doing is reflected in reports which is mostly financial while there are also non-financial performance measures that of absolute importance.

According to FASB Statement No.8 (FASB, 1980) and the IASB financial reporting framework, the ability to compare, validate, timely and comprehensible are qualitative features that highlight the handiness of the information that is pertinent and truly allocated. The ability to compare, which enables the investors to recognize and get similitudes and contrasts decreases the expense of getting information and processing them and by that way enhances the general amount of quality and quality of companies‟ information (De Franco et al, 2011). This leads to the allocation of capital efficiency (Chen et al, 2013). Other advantages of comparability include: increasing the quality of available information and consequently increasing the coverage of analysts and their predictive accuracy and reducing their predictive dispersion ( Horton et al, 2013; Lang et al, 2010). In the concept statement No 8 of the Financial Accounting Standard Board, the importance of financial statement comparability has been highlighted that among the most basic reasons for the need for financial reporting standards is increasing the ability to compare the reported financial information and in the theoretical concepts of financial reporting of Iran (Accounting Standards Committee, 2010), it has been argued that if information is relevant and reliable, its usefulness will be restricted if it is not comparable and incomprehensible.

The Cameroonian SMEs sector like that of any other country is crucial to the economic growth and development of the country as they accounts for more than 70% of the country‟s GDP (MINEPAT, 2019). Their survival which depends on how well they perform is paramount to the development of the Cameroonian economy therefore documenting their performance through reports which are both financial and non-financial is of the essence. These reports especially financial reports are necessary for investment decision by the enterprises, providers of funds, individuals and corporations with investment interest and even the government for taxation purposes (Agbor ,2020)..

In recent years, Cameroonian small and medium size enterprises have adopted computerised accounting system to facilitate information processing and enhance financial reporting (Suika, 2018). Computerized accounting software packages such as, Sopra Banking, Temenos, Arttha, Oracle NetSuite ERP, HDPOS Smart, LEAD ERP, Finastra, Sage Business Cloud Accounting, Azideriva Data Interchange etc. are some of the software packages used by enterprises to manage their transactions and accounting. The adoption of computerised accounting systems has definitely enhanced financial reporting and increased disclosures by SMEs as demanded by the national regulations and International Financial Reporting Standards leading to improved performance and restoration of investors and creditors‟ confidence. The software packages enable the enterprises to process and store diverse information in large volumes which enable them to meet up with reporting requirements of regulatory agencies and various stakeholders with different interest in the enterprises. The large volume of data retained by the banks also gives them the leverage to evaluate their activities from different perspectives therefore enable to evaluate their performance and make necessary adjustments for future improved performance.

1.3 Statement of the Problem

According to Raymond and Bergeron (1992), every business has processes; some simple, others complex like the multinational companies on global stage. As the business grows, acquires new customers, enters new markets and keeps pace with constant changes in information technology, companies need to maintain highly accurate and up-to-date financial reports. Computerized accounting system is a new innovation geared towards improving the quality of such reports

Most small and medium sized enterprises are owned and managed by a family unit, however; the workforce is drawn from non – family members. Therefore, SMEs operates under a different environment and is influenced by the management style and the culture that the family inherited from generation to generations (Peter and Buhalis, 2004) Also the rate at which computerized accounting systems are used by SMEs depends on the manager‟s knowledge in information and communication technology and their familiarity with technology.

The performance of corporations is mostly measured in financial terms in the form of annual financial statements. Financial measures are still popular and preferred to be used to measure performance because non-financial measures such as customer satisfactions, quality, market share and human resources, tend to be subordinated to financial figures and are difficult to quantify in monetary terms. With these improvement in information gathering and processing through computerized accounting systems, has the performance of SMEs in Cameroon improved?

Over the years, SMEs in Cameroon have gone through numerous regulatory and institutional changes due to performance challenges. At the heart of these challenges are inadequate capital, lack of regulatory framework, lack of transparency, management incompetence and corruption. These challenges affected the performance of SMEs and the supposed contribution and impact of SMEs have not been felt in the country (Akon, 2018). Since the 1950s, when technology started to be applied in business (Otieno and Oima, 2013), most developing countries have moved away from the use of pen and a paper and started to adapt to the use of accounting software‟s to facilitate generation of quality, quick and accurate financial reports. However, due to other poverty related issues,there is lack of consistency coupled with irregularities registered in the field of technology which handicap the regular use of computerised accounting system. Studies to evaluate the impact of using this technology to generate financial reports are limited.

As the years go by, greater accountability and transparency in Cameroonian corporations were demanded by customers, creditors and regulatory authorities in attempt to improve performance and cause them to have the desired effect in the economy. The increased demands from the various stakeholders coupled with regulatory disclosures and an ever-changing business environment, technological advancement forced corporations including SMEs to adopt financial reporting standard that are in line with todays‟ business environment (Akanga, 2017). The question however this study seeks to find answers to is whether or not the improved financial reporting has had an effect on the performance of small and medium size enterprises in Cameroon and if it has an effect to what extent is this effect?

The improved financial reporting standards brought significant changes in the way enterprises operates and manage their information. A typical 21st century commercial enterprise operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate. Information and Communication Technology (ICT) is at the centre of this global change curve. SMEs though small, cannot ignore Information Systems because they play a critical role in the success of their organisations Laudon and Laudon, (2005). The application of information and communication technology concepts, techniques, policies and implementation strategies to business services has become a subject of fundamental importance and concern to all businesses and indeed a prerequisite for local and global competitiveness. Small and medium size enterprises in Cameroon have no doubt embraced this wind of change and adopted application of ICT in the management and processing of their operations and information through the use of computerised accounting systems (Akesinro, 2016). This has undoubtedly improved operations and information processing but performance is still a big concern as most businesses are still underperforming and they have not had the desired impact in the economy. This situation has led to this study to know the extent to which computerised accounting systems affects the performance of these SMEs in Cameroon.

1.4 Research Questions

The main research question this study intends to answer is; what is the effect of computerised accounting and financial reporting on the performance of small and medium size enterprises in the Buea municipality?In order to answer the above question, the following specific research questions have been raised

1. To what extent does computerised accounting affect the performance of small and medium sized enterprises in the Buea Municipality?
2. How does computerised accounting affect financial reporting of small and medium sized enterprises in the Buea Municipality?
3. To what extent does financial reporting affect the performance of small and medium sized enterprises in the Buea Municipality?
4. How does financial reporting mediate the relationship between computerised accounting and the performance of small and medium sized enterprises in the Buea Municipality

1.5 Research Objectives

The main objective of this study is to examine the effect of computerised accounting and financial reporting on the performance of small and medium sized enterprises in the Buea municipality. Specifically, the study intends to :

1. To assess the effect of computerised accounting on performance of small and medium size enterprises in the Buea Municipality
2. To Investigate the effect of computerised accounting on financial reporting of small and medium size enterprises in the Buea Municipality
3. To evaluate the effect of financial reporting on the performance of small and medium size enterprises in the Buea Municipality.
4. To Ascertain the mediating effect of financial reporting on the relationship between computerised accounting and performance of small and medium size enterprises in the Buea Municipality

FURTHER READING: ACCOUNTING PROJECT TOPICS WITH MATERIALS

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The Effect of Computerized Accounting Systems on Accounting Practices in Cameroon

The influence of computerized accounting on financial reporting in AZICCUL Ltd Mankon Bamenda

The impact of computerized accounting systems on the performance of Small and medium-sized enterprises in Cameroon

The effects of the computerized accounting system (CAS) on the growth of microfinance institutions (MFI’s) in Bamenda Municipality

The effect of computerized accounting systems on the quality of financial reporting in micro finance institutions in Bamenda