CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
In the world today, Information technology is being adapted to all facets of life. The influence of information technology can be seen in the areas of business, health, education and social activities. The accounting activities or processes of businesses have also been influenced by Information technology. Accounting activities entail collecting, classifying, collating, summarizing, recording and broadcasting non-financial and financial information needed by shareholders and stakeholders in making decisions. Information Systems are a subset of information technology. According to Akgün and Kılıç (2013), as cited in Esmeray (2016), Information Systems are systems which gather and process data into information and disseminate it to its users when needed.
Information technology (IT) is employed into businesses to support accounting practices with the use of Accounting Information System (AIS) (Diatmika, Irianto, & Baridwan, 2016). Lim (2013) described the use of information technology in accounting as an innovation. Prior to this, recording of transactions, preparing of financial statements and maintenance of accounting records were done manually which made the whole process slow and more prone to human error. However, the global nature of most companies and the growing need for accurate and up-to-date information necessitated the need to integrate accounting with information technology (Wickramsainghe, Pemarathna, Cooray, & Dissanayake, 2017).
A prerequisite to understanding what Accounting Information Systems are is to understand Information Systems. Akgün and Kılıç (2013) defined information systems as systems which gather and process data into information and disseminate it to its users when needed. They are designed to assist management in making decisions (Esmeray, 2016). Accounting Information Systems (AIS) are accounting tools combined with information technology used to assist management in accounting activities and in the control of firms’ economic related activities (Grande, Estébanez, and Colomina 2011). Examples of Accounting Information Systems are SAGE, PEACHTREE, QUICKBOOKS, and SAP amongst others.
Ponemon and Nagida (1990) cited in Samuel (2013) state that accounting information is majorly used to enhance or facilitate decision making. Nevertheless, in order for financial reporting to be efficient and effective a major requirement is that it is complete, relevant and reliable. According to Ahmad (2006) for accounting information to be effective it should have the following characteristics;
- Appropriateness: Accounting information should be suitable or fitting for its purpose or else it is useless.
- Credibility: Accounting information should have a level of trustworthiness and reliability. It should be verifiable and free from bias.
- Accuracy: Lack of accuracy leads to an error when such inaccurate information is used in decision making.
- Timing: Accounting information must be provided as at when needed. Lack of timing makes the information useless to its users.
- Understanding and Absorption: Accounting information should be in the most simplified form possible to be understood by users.
- Importance: Accounting information should be able to perform what it is expected to.
The use of AIS affects firms’ performances. Firm performance refers to how a particular organization executes and accomplishes its activities and goals. Measures of performance are very important in assessing the success or failure of a company (Esmeray, 2016). Past researches show that the adoption of information systems by firms actually increases their performance and leads to efficient operations particularly in large companies (Genil & Valencia, 2013; Onaolapo & Odetayo, 2012; Soudani, 2012). Accounting information system (AIS) is used in the provision and distribution of information needed by different employees in the organization in order to aid decision making. Effective decision making is very essential in achieving increased firm performance. This essentially shows how the use of accounting information system affects firm performance (Ali, Omar, & Bakar, 2016).
Studies have shown that accounting information system improves corporate relationships, facilitates speed and enhances quality delivery of jobs (Abdallah, 2013; Soudani, 2012). It has improved productivity and increased value creation of organizations (Taiwo, 2016). According to Samuel (2013), Accounting Information Systems support the control of business activities and are very essential tools in achieving operational efficiency within organizations. AIS has improved the activities of accounting departments by providing timely accounting information which gives management a clearer and bigger picture of business operations and enables them to make well-informed decisions. It leads to efficient and effective record keeping with the use of computerized systems (Taiwo 2016). According to Pepper (2011), with the help of Accounting Information Systems, accountants have moved from desk work which took long periods involved lots of paperwork to more advanced ways of performing their tasks. It has also been beneficial to organizations adopting its use for their operations. Furthermore, Wood (2015) asserts that firms adopting this technology are more efficient, with greater margins and better service levels.
Accounting information is a major component of most financial managerial decisions which affect the business as a whole and the society at large. In many cases, most of these decisions are not well informed due to lack of quality in information. Hence, if the quality of information can be improved, decision making will be enhanced and ultimately the society will benefit (Onaolapo and Odetayo, 2012). Accounting Information Systems assist in the provision of quality accounting information. They are useful in the collection, processing, and storage of accounting information needed by management to make decisions (Trigoa, Belfo, & Estébanezc, 2016). More often than not, in order for businesses to provide excellent services, enhance business operations, maintain competitive advantage and ultimately survive, they need to adopt and embrace new information systems technology.
However, employing Accounting Information Systems comes with challenges in its use and implementation. Literature shows that companies have identified these challenges to include servicing of the system, lack of finances, the risk of obsolescence, lack of qualified personnel to use the system and continuous updating of the system (Mahdi & Abdoreza, 2011; Ismail & King, 2007; Ahmad, 2012; Samuel, 2013). Also, AIS can be rejected by the users within the business. Therefore the benefits associated with the use of AIS can only be exploited if it is well received by the users (Diatmika, et al., 2016).
Against the foregoing background, this thesis aims to investigate the effects of accounting information systems on firm performance and the challenges faced in its use.
1.2 STATEMENT OF PROBLEM
Most organizations spend huge parts of their budget on developing information systems in order to aid effective communication, enhance decision making and provide a pool of information to support knowledge management. Accounting information is an important element in managerial decisions. Poor accounting information leads to poor or less informed decision making and increases the expenditure of companies. Accordingly, there is a need for certainty on how accounting information systems affect firm performance. Nevertheless, there exists a gap in literature on how accounting information systems affect the performance of various organizations in different industries. This research addresses this gap by assessing how accounting information systems affect the firm performance of organizations in various industries.
Past researchers have found that the use of AIS contributes significantly to increased or improved financial performance. The use of AIS has been seen as a formula for increased financial performance, more precisely by its ability to present accurate and current financial information to users and to speed up accounting processes (Ali, et al., 2016). This necessitated the need to study the effects of AIS on firm performance.
Furthermore, organizations implement these accounting information systems without a deep understanding of the challenges in its use and implementation. This leads to a breakdown of the system and the system not achieving its intended objectives. According to Ahmad (2012) from the accountants' point of view, the problems challenging the effective use of accounting information system stem from the failures of internal control which exposes the systems to a risk of viruses, loss of data, hacking, theft, cyber fraud, human error and power failures. Other issues are the relatively high cost of purchasing the system and the cost of its implementation. The systems need constant updating which is also expensive. Most times employees have to undergo some form of special training before they are able to use the systems effectively. This research addresses the challenges firms face in the implementation and use of accounting information systems.
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to determine the effects of Accounting Information Systems (AIS) on firm performance. The sub-objective of the study is to determine the challenges confronting the implementation and the effective use of Accounting Information Systems in an organization
1.4 RESEARCH QUESTIONS/ HYPOTHESIS
- What is the effect of Accounting Information System on firm performance?
- What are the challenges confronting the implementation and effective use of Accounting Information Systems in an organization?
HYPOTHESIS
H0: Accounting Information Systems does not have a significant effect on firm
performance
H1: Accounting Information Systems has a significant effect in firm performance
1.5 SIGNIFICANCE OF THE STUDY
Today, information systems have become a major driving force in business strategies, structures, ownership, and performance. Information systems cut across several industries and have brought about several changes which impact the effectiveness of organizations (Doms, et al., 2004). Accounting information is very essential for making decisions. Poor accounting information jeopardizes effective business administration by managers (Onaolapo & Odetayo, 2012). The use of Accounting Information Systems by organizations has significant impacts on all parts or elements of its business model such as its vendors, suppliers, customers, and employees. It would be very necessary for businesses to know the benefits and challenges associated with Accounting Information Systems.
The information value provided by any business is very important because they are used by a variety of users to make important decisions. If AIS is not properly implemented it can have a negative impact on the quality of information provided which would negatively affect the performance of the firm (Dandago & Rufai, 2014). The integration of information systems (IS) into business operations causes major changes in organizations relating to performance and cost. Investments in Information Systems increase the spending and budgets of organizations. According to Francis (2013) as cited in Taiwo (2016) the implications of technology can be seen in the accounting systems and performance of organizations and this has been of great concern and interest.
This study is of key importance to organizations in examining the effects of integrating accounting information systems into their business operations in terms of firm performance. It would serve as a guide for companies hoping to implement Accounting Information Systems in their business operations. This study will also provide information about the challenges confronting the implementation and effective use of accounting information system in organizations. This study is also useful in schools, to students and researchers who are interested in knowing about the effects of Accounting Information Systems on firm performance. It also lays a foundation for further study on the subject area.
1.8 STRUCTURE OF THE STUDY
This project is divided into five chapters;
Chapter 1; Introduction; this chapter contains the Background of Study, Statement of Problem, Objectives of the Study, Research Questions/Hypothesis, Significance of the Study, and the Structure of the study.
Chapter 2; Literature Review; this chapter contains a Conceptual Review of the following concepts; Information Systems, Accounting Information Systems, and Firm Performance. It contains a Theoretical Review of the Contingency theory and Theory of Reasoned Action and an Empirical review of several studies related to the subject area.
Chapter 3; Research Methodology; this chapter sets out the Research Design, Population and Sample design, Nature and Sources of Data and Data Analysis techniques.
Chapter 4; Data Presentation, Analyses, and Interpretation; this chapter shows the data collected in the course of the study, analyses of the data using SPSS software and discussion of results.
Chapter 5; Summary, Recommendation, and Conclusion; this chapter contains the summary of findings, recommendations for further research and general conclusion.
