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

ABSTRACT

Recent advancements in information technology have led to the introduction of smaller, faster, easier-to-use and less expensive computers, thereby making it easier for Microfinance Institutions (MFIs) to computerize their accounting systems. Most MFIs have computerized accounting systems but some still find it difficult to track down errors and fraud. This could be due to the fact that the accountant or those in charge of the computerized accounting system are not computer literate, and thus face difficulties in using such systems. The main objective of this study is to assess the effects of computerized accounting systems on the quality of financial reporting in MFIs. The researcher adopted qualitative research design with a sample of six MFIs and a total of 40 staff from these. Primary data was used and the data collection method was questionnaires. The data was analyzed using descriptive and inferential statistics. A multiple regression of fixed and random effects was employed to verify the hypotheses of the study. Finding revealed that the independent variables: computer literacy, accounting software, and system security contributed 78.1% of the variation in the quality of financial reporting. Thus, computerized accounting systems have a significant effect on the quality of financial reporting in MFIs. Based on the findings, it is recommended that MFIs in Bamenda should make sure their staff especially those operating the computerized accounting systems are computer literate and in case they lack these skills, workshops should be organized in order to train these staff.

1.2 Statement of the Problem

Prior to the introduction of computerized accounting systems, manual accounting was the popular method of accounting where the business had to hire a private or public accountant who would manually record transactions books and ledgers and then prepare financial statement on paper. This brought about many problems as accounting practices were time consuming, boring, had no backup records in computerized accounting systeme of loss and human error. With the awareness of information technology, manual accounting is gradually becoming outdated. Although most MFI have computerized accounting systems, some still find it difficult to track down errors and fraud, Adetayo et al (2009). This could be due to the fact that the accountant or those in charge of the computerized accounting system are not computer literates and so face difficulties in using the computerized system.  This research work will be carried out to evaluate the effects of computerized accounting on the quality of financial reporting in MFI and also suggest ways in which it can be improved.

Though computerized accounting systems are advantageous, some of these advantages includes the point that it can generate all types of reports needed by the management (McBride, 2000) and it is easy to carryout accounting functions such as posting transactions to the ledger (Carol, 2002). Their importance has not been fully appreciated by some microfinance institutions. Even the microfinance institutions that have put in place good computerized accounting systems are still not aware of how these systems affect their financial reporting. In this research, specific elements of computerized accounting systems are assessed with respect to their effects on financial reporting.

1.3 Research Questions
1.3.1 Main Research Question

The main research question in this research is: what is the effect of computerized accounting systems on the quality of financial reporting in MFIs?

1.3.2 Specific Research Questions

To answer the main research question above, answers will be sought to the following specific research questions:

What is the effect of computer literacy on the quality of financial reporting in MFIs?
What is the effect of accounting software on the quality of financial reporting in MFIs?
What is the effect of system security on the quality of financial reports in MFIs?
1.4 Research objectives
1.4.1 Main Objective

The main objective of this research is to assess the effect of computerized accounting systems on the quality of financial reporting in MFIs.

1.4.2 Specific Objectives

This research will further be guided by the following specific research objectives:

To assess the effect of computer literacy on the quality of financial reporting in MFIs.
To assess the effect of accounting software on the quality of financial reporting in MFIs.
To assess the effect of system security on the quality of financial reports in MFIs.
1.5 Hypotheses
HO1: Computer literacy has no effect on the quality of financial reporting in MFIs.
HO2: Accounting software has no effect on the quality of financial reporting in MFIs.
HO3: System security has no effect on the quality of financial reports in MFIs.