The Effect of Computerized Accounting Systems on Accounting Practices in Cameroon

CHAPTER ONE

GENERAL INTRODUCTION

This study was carried out to assess the influence of computerized accounting on the quality of accounting practices in microfinance institutions in Cameroon. This chapter presents the background of the study, the research problem, the objectives of the study, the research hypothesis, the research questions, the significance of the study and the scope and the limitation of the study.

1.1 Background to the study

Accounting is an essential part of any business, large or small owners, profit making or not for profit organizations. From experience it can be seen that many small enterprises do their accounting manually and they are satisfied. Others may be considering using a computerized system, since accounting software is much affordable. Manual and computerized accounting systems perform basically the same processes, the accounting principles and concepts are the same with differences lying in the technicalities of the process. Although computerized accounting system is expensive, its advantages lie on speed and being able to store larger quantities of information in smaller spaces than with the manual system.

According to Kogan (1986), accountability refers to a condition under which a role holder renders account to another so that judgment may be made about the adequacy of performance. Lerner and Tetlock (1999), equate accountability not only to reporting but also to the justification of performance, they continue to describe accountability as the implicit and explicit expectations that anyone may be called.

According to Pandey (1998), Financial reporting to the company’s stakeholders for instance the government, public, donors is a statutory obligation for every organization.

Saleemi (1981) defined financial reporting as the process of supplying financial information which is reliable, accurate and complete to the various stakeholders for making economic decisions. This is always inform of financial statements such as statement of comprehensive income, statement of financial position and cash flow statement and other financial annually reports which provide an overview of the company’s current financial strength.

Microfinance is an activity carried out by registered entities which do not have the status of banks or on regular basis. Loans operations and or savings, collection and offer specific financial services to populations who mainly operate outside to traditional banking channel/ these are institutions that are established to render or offer financial services to the poor in rural/urban areas. (ACC 413, handout 2, 2016).

Microfinance is defined as a development tool that grants or provides financial services and products such as very small loans, micro savings, micro insurance, and money transfer to assist the very or exceptionally poor in expanding or establishing their businesses. (Robinson, 1999).

Computerized accounting system is the application of the computer based software used to input, process, store, and output accounting information (Millichamp 1995). The application is to support, advancing 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 increase in the number of transactions, as a result of the policy of continuous expansion of the business. It is noted that, business accounting records cannot be accurately maintained when the firm expands and when the system is not computerized. It is the computer based system that the firm can use to post numerous transactions to the right ledgers and prepare proper financial statements. It is from this need that MFIs considers it very important to computerize its systems and different functions as it considers two mandatory rules that govern its operations. These rules are: 

1. Technology must benefit your business and,

2. If technology does not benefit your business then you don’t need it.

For this reason, the accounting section which the institution considers very important is highly computerized for the purpose of improving on record keeping, proper maintenance of different loss of cash or loss of accounting records. Computerized accounting system in commercial organization, which will help to integrate, simplify and streamline all the business processes and transaction cost effectively and easily (Indira 2008).

Business organization should adopt a suitable accounting package in order to derive benefits from it (Mike et al 2006) for instance for a small business, personal finance organizer like quicken, Microsoft money and quick books are usually good enough to handle accounts of small businesses. It’s however noted that the way accounting data is entered, processed and stored has considerably changed.

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 many MFIs 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 etc.

Therefore the researcher focuses on investigating the influence of computerized accounting on the quality of financial reporting in MFIs in Cameroon.

1.2 Research Problem

As information technologies grow more progressively, the manual accounting systems have become gradually inadequate for decision needs (Brecht and Martin, 1996). Consequently, public and private sector firms in both developing and developed economies view CAIS (Computerized accounting systems) as a vehicle to ensure effective and efficient information flow in the recording, processing, and analysis of financial data. Effective and efficient, information flow enhances managerial decision-making, thereby increasing the firm’s ability to achieve corporate and business strategy objectives (Manson, McCartney, and Sherer, 2001).

The experience of advanced countries is that managing complex FMIS (financial management information systems) projects requires considerable management skill. However, this is typically in short supply in DCs (Distributed Control System). Top managers may not be computer literate. The consequence is often the binding constraint, when introducing FMISs is not the technical capacity to create them but the capacity to manage them. (Keating &Frumkin (2003). in most MFIs funds from customers are poorly managed and their accounting systems are in poor order. Many MFIs do not have qualified accountants and have problems preparing accurate and timely financial reports, which is one of the major customer and stakeholders requirements.

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 a 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 computerized accounting system. Studies to evaluate the impact of using this technology to generate financial reports are limited.

A few studies have been done on the effects of computerized accounting systems on the quality of financial reports which included; Mwaura (2013), the study assessed Financial Accountability on The Performance of Non-Governmental Organizations In Kenya, (Otieno and Oima 2013) studied the implementation of the computerized system in Kisumu County, Kenya. Another study by Byenkya Denis Mark (2011),the study was conducted to assess the impact of computerized accounting on financial reporting in Uganda Breweries Limited.Thus this study intended to address the following research question: Does the use of Computerized Accounting System influence the quality of financial reports?

With the fall of CONFINEST a major microfinance institution in Cameroon, many MFIs in Cameroon have changed their systems of operations from the manual to computer based systems. With the advent of ICT packages and computerized accounting software, MFIs in Cameroon have adopted and are applying ICT 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 of debit and credit cards, inter-regional money transfer, using computerized accounting systems in the recording, preparation and presentation of their financial reports. For this reason the researcher is prompted to assess the influence of computerized accounting system on the quality of financial reporting in Microfinance institutions.

1.3 Research Questions     

This study is propone to try and answer the following questions:

1. How has computerized accounting influence the quality of financial reports of MFIs in Cameroon (Bamenda municipality)?

2. What are the qualities of financial reports prepared by MFIs in Cameroon (Bamenda municipality)?

• What is the relationship between computerized accounting and financial reporting in MFIs in Cameroon (Bamenda municipality)?

1. What is computerized accounting? V. What is Accounting practices?

2. How has the activities of MFIs impacted the economy of Cameroon?

3. To what extend does the quality of financial reports of MFIs influence the decisions of potential investors and their customers?