COMPUTERIZED ACCOUNTING SYSTEMS

COMPUTERIZED ACCOUNTING SYSTEMS ANS AN AID TO EFFICIENT MANAGEMENT OF AN ORGANIZATION (A CASE OF A,B,C TRANSPORT BRANCH)

 

• INTRODUCTION

Accounting has long been an organizational function especially with the advent of non owner managers who need to update what is happening in the organization. Maintaining, preparation and presentation of accounts is crucial for business success as well as organization for effective decision making whether it is a nonprofit making organization or profit making because they have to report to the stakeholders of the organization through good organizational management. However there was inefficient as an aid for efficient management of an organization due to loss of records, delay in preparation of records and its associated problems. This study focused on establishing the influence of computerized accounting systems as an aid for efficient management of an organization.

 

• Background

In Uganda, before the introduction of computerized system of accounting, the manual systems were inaccurate and inconsistent for many organization needs especially reporting of financial information. This is because the system was associated with errors since data was collected, analysed, journalized and a trial balance and balance sheet prepared (Meigs, 1986).

Though most organization have not being doing well in as an aid for efficient management of an organization and accounting records, reports from a comparative survey conducted by Indira (2008) Uganda inclusive indicate that firms have greatly improved on the ways of reporting their financial statements. Computerized accounting system is defined as the application of the computer based software used to input, process, store, and output accounting information. This application is in support of the ever advancing technology that enables firms to use computer programs to perform tasks that were previously done manually.

A computerized accounting system therefore involves the computerization of accounting information systems which is established inorder to facilitate decision making. These are associated with a numbers of benefits like speed of carrying out routine transactions, timeliness, quick analysis, accuracy and reporting.

However many organizations are not enjoying the benefit of computerization of accounting system as they have continued to be inaccurate due to increased number of interruptions due to system failure or breakdown and untimeliness with its reliability left in question(as per European Union Audit Report by National Audit Organization 6 may 2003)

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 as an aid for efficient management of an organization 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.

 

• Statement of the Problem

According to the Accountant of a, b, c Transports, despite the existence of a well established computerized accounting system instances of delay, inaccurate reporting, misposting and wrong balances have continued to occur. Given that computerized accounting systems are put in place, such instances are not expected to occur and hence the researcher is therefore prompted to carry out an investigation on the effectiveness of the system used by National Water.

 

• Purpose of the Study

To find out the influences of computerized accounting system as an aid for efficient management of an organization.

• Objectives of the Study
  1. To establish the accounting systems being used.
  2. To establish the benefits of computerized accounting system being used.

• To establish the appropriate strategies for improving computerized accounting system

Research Questions

1. What accounting system 1s being used?
2. What are the benefits of computerized accounting system being used?

• What appropriate strategies can the firm use to improve on timely as an aid for efficient management of an organization?

• Scope of the Study
• Geographical Scope

The research was carried out in a, b, c Transports. This was due to availability and convinces of obtaining data about the topic of the study.

• Content /Variable Scope

The research was based on two variables these are computerized accounting systems which comprise of definitions, components of computerized accounting software and benefits and limitation of computerized system as an aid for efficient management of an organization which also comprises of definitions of good organizational management, benefits and effectiveness of accounting system used at a, b, c Transports.

16.3 Time Scope

The study was based on good organizational management and accounting system for the period covering 2009-2010 due to the limited time required to complete the research.

• Significance of the Study
  1. The study will enable management to understand the significance of preparing quality and reliable good organizational management.
  2. The study will point out weakness in the accounting system which management needs to address.

 

• Other researchers will use the report as literature review in order to improve on their research topic in another period.

 

• LITERATURE REVIEW
• Introduction

This section of literature review focused on the concept of computerized accounting system in relation to as an aid for efficient management of an organization. The literature was presented in the order of the stipulated objectives of the study.

• Computerized Accounting Systems

Meigs et al (1998) defined a computerized accounting system as a system that uses computers to input, process, store and output accounting information inform of good organizational management. He adds that accounting system records all transactions that routinely deal with events that affect the financial position and performance of an entity.

Marivic (2009) described a computerized accounting system as a method or scheme by which financial information on business transactions are recorded, organised, summarized, analysed, interpreted and communicated to stakeholders through the use of computers and computer based systems such as accounting packages.

He emphasised that it’s a mechanized process of facilitating financial information inflows as well as the automation of accounting tasks such as database recording and report generation.

Marivic adds that keeping accurate accounting records is a vital part of any organization. Apart from helping it to keep its float financially and legal, it is a requirement of funding bodies or donors.

However computerized accounting system involves the use of computers to handle large volume of data with speed, efficiency and accuracy aimed at overcoming fundamental challenges which do not change the principle. The principle of accounting remains the limitations of many accounting and hence producing quality and reliable work.

McRae (1998) adds that computerized accounting systems are advantageous in consolidating information channels meaning that files that were previously been duplicated by several departments will now be consolidated into single file.

2.2.1 Components of Computerized Accounting Software

Accounting software’s are used to implement computerized accounting system. The computerized accounting is based on the concept of database; it is basic software which allows access to the data contained in the database.

The following are the components of computerized accounting software.

1. Preparation of accounting documents

Computers help in preparing accounting documents like cash memo, bills, invoices and accounting vouchers. Here computerized accounting systems have user defined templates which will provide faster, accurate entry of transaction and therefore all documentation and reports can be generated automatically.

2. Recording of transactions

Everyday business transactions are recorded with the help of computer software. Every account and transactions is assigned a unique code where the grouping of account is done at the first stage. This process simplifies the work of recording the transaction.

Marivic (2009) argued that computerized packages will minimize human errors in transactions recording as in the system there is the existence of reference of every transaction.

3. Preparation of trial balance and financial statements.

After recording of transactions, the data is transferred into ledger accounts automatically by the computer. Trial balance is prepared by the computer to check accuracy of records, with the help of trial balance; the computer can be programmed to prepare the statement of comprehensive income and the statement of financial position.

2.2.2 Benefits of Computerized accounting systems

According to McBride (2000), computerized packages can quickly generate all types of reports needed by management for instance budget analysis and variance analysis. Data processing and analysis are faster and more accurate which meets the managers need for accurate and timely information for decision making.

Frank wood (1999) consented to the speed with which accounting is done and further added that a computerized accounting system can retrieve balance sheets, income statement or other accounting reports at any moment. He consented that computerized accounting system allow managers to easily identify and solve problems instantly.

Indira (2008) pronounced the improvement in business performance as a result computerization of the accounting systems as it is a highly integrated application that transforms the business processes with the performance enhancing features which encompass accounting, inventory control, reporting and statutory processes. He then says, this helps the company access information faster and takes quicker decisions as it also enhances communication.

McBride (2000) stated that managers cannot easily satisfy statutory and donor reporting requirements such as profit and loss account, balance sheet and customized reporting without using computerized accounting systems. With the system in place, this can be done quickly and with less effort. Computerized accounting systems ease auditing and have better access to required information such as cheque numbers, payments, and other transactions which help to reduce the time needed to provide this type of information and documentation during auditing.

According to Carol (2002), it is easy to do accounting functions using computerized accounting systems. Posting transactions to the ledger, the principle of double entry can largely be automated when done through the use of computerized accounting system.

Although computerized accounting is highly beneficial to an entity, it is worth noting that it is dogged with a couple of pitfalls some of which are shown as below;

Meigs (1986) stresses that there is a risk of improper human intervention with the computer programs and computer files. Employees in the organization may temper with the computer programs and computer based records for the purpose of deliberately falsifying accounting information. This may result into distortion of information that would essential be for decision making.

According to Wahab (2003), another threat and limitation of computerized system is the computer virus. Where a computer virus is a computer code (program) specially designed to damage or cause irregular behavior in other programs on the computer. The adverse effect is that it may lead to breakdown of the hardware thus leading to loss of valuable information (for instance in financial institutions information such as customers accounts, previous financial report, information pertaining loans advanced among others) already saved on the computer.

2.3 Quality of Financial Reports

Van (2005) defines as an aid for efficient management of an organization as the process of presenting financial information or data about a company’s financial position, operating performance and its flow of funds for an accounting period.

According to Frank Wood (1999), as an aid for efficient management of an organization is all about presenting useful information to users so that proper decisions can be made. His implication about as an aid for efficient management of an organization is that financial information should aid in the evaluation of amounts, timing and uncertainties of cash flows. Also as an aid for efficient management of an organization should furnish information about the entity’s economic resources, claims against those resources, owners’ equity and changes in the resources and claims.

Indira (2008), emphasized that good organizational management should provide information about financial performance during a period management discharge it’s stewardship responsibility to owners. It should likewise be useful to managers and directors themselves in making decisions on behalf of the owners.

He argues that accounting information is very necessary if decisions are to be made accurately and rationally by the various interested parties or users of financial

information. These are broadly classified into external and internal users. Where internal users include management and employees while the external users include donors, shareholders, creditors, government, competitors and general public.

According to Carl’s et al (1999) the quality of good organizational management depends on the intended users of the information and should be evaluated with respect to the needs of the users.

Federation of Accounting Standards Board (FASB) defined quality as a hierarchy of accounting qualities with relevance and reliability considered as the primary characteristics while representing faithfulness, verifiability, neutrality, comparability, consistency and understandability considered as secondary characteristics.

Reliability, information is said to be reliable if it is free from material errors and bias and represents faithfully that is purports to represent emphasized Frank wood (1999).

According to Turner (2000), neutrality is the demand that accounting information should not be selected to benefit one class and neglect to other. Reliable information is verifiable, neutral and has representative faithfulness.

Relevance is also a very important characteristic of quality. Frankwood indicates that financial information is relevant if it is capable of making a difference in decisions made by helping users to form predictions about the outcomes of the past, present and future events either to confirm or correct prior expectations.

Comparability is another characteristic of quality information. Frankwood (1999) also stresses that users must be able to compare the financial statements of the enterprise over time in order to identify trends in its financial position and performance.

According to Indira (2008), timeliness is also another important characteristic of quality financial information. This arises as a result of perishability of accounting information. To benefit users, financial information must be presented at the right time otherwise it loses relevance.

According to Pallai (2007) Understandability as a quality of as an aid for efficient management of an organization that enables users to perceive the significance of financial information. He argues that users

are assumed to have reasonable knowledge of business and willingness to study and understand the information.

International Accounting Standards Board adds that information should not be excluded on grounds that it may be difficult for certain users to understand.

2.4 The Influence of Computerized Accounting System on organizational management.

The influence of computerized accounting systems as an aid for efficient management of an organization has been linked to the benefits of applying computer systems while generating good organizational management.

The presentation of scheduled reports can be triggered and simplified and prepared at regular interval with ease (McRae, 1998). With the application of computerization, generation of good organizational management will be easy since information can be easily generated and updated on a timely basis.

With the substantial increase in the number of transactions and increase in the need for real time information, maintenance of accounting data on a real time basis has become essential. This is achievable using computerized systems hence promoting the quality of as an aid for efficient management of an organization. Carol (2002) says that computerizing business general ledger, payroll and other accounting tasks increases office efficiency.

Computerized accounting systems have also been credited for their quick processing speed and large storage capacity. Using computerized accounting systems ensure up to date account balances are available at any time to aid management in decision making (Lancouch 2003). Computerization saves time on transaction hence leading to quality of as an aid for efficient management of an organization for instance timely, accurate and reliable information can be generated (Lewis 1999).

The influence of computerized accounting systems depends on the end users satisfaction. Mihir (2002) stressed that higher end users satisfaction leads to a positive attitude towards using the satisfaction and in turn increases the voluntary usage of the system.

Nash (2003) noted that the quality of accounting information and performance of the accounting systems is a great concern to management. A computerized accounting system is a delivery system of accounting information for purposes such as providing reliable accounting information to users, protecting the organization from possible risks arising as a result of abuse of accounting data and system among others.

2.5 The Appropriate Strategies of Improving organizational management.

Frank wood (1999), pointed that firms should ensure that they promote the use of up to date and complete IFRS in the preparation and presentation of its financial statements and ensure compliance to the set standards and governing regulations.

Indira (2008) remarked that, firms should also ensure public availability of full sets of financial statements including notes for public interest entities rather than producing a summary of the good organizational management to the stakeholders.

Michael (2005) added that, firms should ensure that they recruit skilled professionals to handle its accounting and offer routine training to the employees in the field of accounting basing on the changing environment.

 

• METHODOLOGY
• Introduction

This chapter describes how data was collected and analysed. It rotates around the research design that was used, study population/area, sample size, data collection methods and instruments, data processing and analysis tools and problems encountered in the execution of the study by the researcher.

• Study Design

A case study was employed because the researcher was more interested in a deeper understanding of the problem other than generalizing the findings across the population. The in-depth investigation in this case was aimed at identifying or questioning an existing theory.

For the purpose of obtaining the objectives of the study, various designs were used as follows;

The researcher used qualitative and descriptive research design to conduct the study because the findings of the study were non-numerical (respondent’s opinion and view about the variables). These methods enabled the researcher to process and analyse the findings in cross-section of the study.

A cross-sectional research design was used because of the limited time required to carry out the research.

Associational research design was also used to establish the relationship between computerized accounting systems and as an aid for efficient management of an organization.

3.4 Study Population

The study population constituted management and employees from the departments of Accounts and information technology and procurement and logistics.

• Sample Size and Selection Method
• Sample Size

Respondents were chosen from the various departments by simple random sampling method. In each department, the researcher particularly selected the general manager, ten (10) staff from the department of accounts and finance and information technology (5) and procurement and logistics (5). This makes a sample size of 21 respondents from the various departments.

• Sampling Method.

The researcher used purposive method of sampling. This was dictated by the nature of the

study which was aimed at getting information from specific respondents.

Convenience sampling was also used by the researcher for convenience purposes just

incase the selected staff are not available at the time of the interview.

Stratified random sampling was used to divide the staff and managers and then the

researcher will conveniently chose the rest of the staff available in each department.

• Data Collection Tools/Methods

Since a case study is the most strategy that was used, most of the data was collected using a structured questionnaire and interviews. These comprises of questions on the areas of computerized accounting systems and as an aid for efficient management of an organization.

• Questionnaires

The researcher used structured questionnaires as the main data collection method. This instrument was administered to respondents to solicit for information from within the organization.

• Interviews

Direct interviews were also used to elicit responses from some members of staff. This helped the researcher to get first hand information which could be used to draw conclusions on the topic under study.

3.6.3 Records Inspection

Under this method the researcher looked at the records produced at a, b, c Transports using the current system in order to establish the effectiveness of computerized accounting system as an aid for efficient management of an organization.

• Data Management
• Data Processing

Data collected was processed both manually and by machine through word processor. This involves editing, summarizing and coding of the data. The researcher further edited and tabulated the collected data.

Each questionnaire was ranked for consistency, accuracy, and completeness. Editing was carried out to direct any inconsistence in the collected data.

The researcher reduced the data into frequencies, tables and percentages for ease of analysis.

• Data Analysis

Data was also analyzed using a computer programme that is Excel package.

• Limitations of the Study
• Financial constraints in issuing the questionnaires and making follow up, this was due to high cost of typing and printing of the analysed data.
• Some respondents were uncooperative and always want to dodge the questionnaire.
• Difficulties in accessing the relevant information especially the documented materials. This could be so because of the sensitivity of the kind of information sought for.
• Delimitations of the Study
• The researcher devoted a lot of time to counter the limitation of time factor by allowing the respondents to fill the questionnaire at their convenient time.
• The researcher ensured proper organization of necessary funds to support the search up to the end.

 

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COMPUTERIZED ACCOUNTING SYSTEMS ANS AN AID TO EFFICIENT MANAGEMENT OF AN ORGANIZATION (A CASE OF A,B,C TRANSPORT BRANCH)