THE INFLUENCE OF COMPUTERIZED ACCOUNTING ON FINANCIAL REPORTING IN MICROFINANCE INSTITUTIONS IN BUEA MUNICIPALITY, CAMEROON

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CHAPTER ONE

INTRODUCTION

1.1 Background of 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 a computerized accounting system is expensive, its advantages lie in 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, the 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 informing of financial statements such as a statement of comprehensive income, statement of financial position and cash flow statement and other financial annual reports which provide an overview of the company’s current financial strength.

Microfinance is an activity carried out by registered entities that 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.

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). The 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 an increase in the number of transactions, as a result of the policy f 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 a 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 their systems and different functions as it considers two mandatory rules that govern its operations. These rules are:

  • Technology must benefit your business and,
  • 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 a commercial organization, which will help to integrate, simplify and streamline all the business processes and transactions cost-effectively and easily (Indira 2008).

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 year-end 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, 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 require 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 and 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 the generation of quality, quick and accurate financial reports. However, due to other poverty-related issues, there is a lack of consistency coupled with irregularities registered in the field of technology which handicap the regular use of computerized accounting systems. 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 Cameroon, (Otieno and Oima 2013) studied the implementation of the computerized system in Kisumu County, Cameroon. 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 a Computerized Accounting systems 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 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 systems on the quality of financial reporting in Microfinance institutions.

1.3 Objective of the Study 

To establish the effect of computerized accounting systems on the quality of financial reports of Microfinance banks in Cameroon.

1.4 Value of the Study

The study findings will enhance Microfinance banks capability to build mechanisms in order to increase the quality of financial reports through computerised accounting systems.

The donor agencies can use the findings of this study to identify what kind of technical support they should provide the Microfinance bank before giving them any funding in order to ensure the acceptable quality of financial reports.

The study findings will also assist Microfinance bank in improving their fulfilment to donor requirements and thus improve their capability to attract more funding and ensure their organizational sustainability and thus meet the societal needs.

The study findings will be a basis for further research on the advantages of using computerised accounting systems rather than manual systems in Microfinance banks.

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