A Comparative Analysis of the Effectiveness of Internal Control System in a Computerized Accounting System
Chapter One
Objectives of the study
General objective
The general objective of this study was to assess the effects of computerised accounting information system on internal control in local government authorities.
Specific objectives
The following were the specific objectives of this study;
- To examine the contributions of CAS to the effectiveness and efficiency of the internal control.
- To examine the factors affecting effectiveness and efficiency of internal control in CAS.
- To identify significant problems which organisation faces in computerised accounting
- To identify the problems encountered with auditing in CAS.
CHAPTER TWO
LITERATURE REVIEW
Introduction
In this chapter, the views of other researchers and the discussions on the effects of CAS on internal control are reviewed. The literature review is divided into two sections. Section one consist of theoretical part which provides an overview of the common understanding of CAS and internal control. The second section is the empirical part which provides the views of other researchers with respect to the problem being studied.
Theoretical Literature
Computerised accounting information system
It should be noted that Computerised Accounting Information Systems (CAIS) and Information Technology (IT) – based Accounting Systems mean one and the same thing. Both of these will be used interchangeably in this research paper.
An Accounting Information System (AIS) is the system of records a business keeps maintaining its accounting system. This includes the purchase, sales, and other financial processes of the business. The purpose of AIS is to accumulate data and provide decision makers (investors, creditors, and managers) with information to make decisions. While this was previously a paper-based process, most modern businesses now use accounting software such as Sage, Peachtree, and Pegasus etc.
According to Lanier (1992), an IT- based accounting system is:
„„a set of organised procedures used to collect and record accounting data with the use of a computer‟‟.
Types of IT – Based Accounting Systems
There are two types of IT-based accounting systems. These consist of:
Integrated Accounting Systems and
Stand Alone Accounting Systems (Dodd, 1992; Lanier, 1992; Fardon, 2002).
According to Lanier (1992), integrated accounting systems are systems in which two or more accounting modules are used together and share information between each other. A module is a program that is written to perform only a specific accounting function such as accounting receivable processing and may be able to communicate with other modules. In other words, in such a system each module handles a separate function but also communicate with the other modules.
A stand-alone accounting system can be defined as a system in which only one module is used(Lanier, 1992).
The usage of the integrated accounting system or the stand-alone accounting system in a business depends on a load of factors such as the frequency of transactions, staff knowledge and skill, and the size of the business (Dodd, 1992; Lanier, 1992; Fardon, 2002).
The differences between CAS and MAS
It is important to consider the differences between computerised accounting information systems and manual accounting systems (MAS). There are essential differences between manual and IT-based accounting systems which auditors should take into account, especially when they perform their tasks in an IT-based accounting environment (Rezaee and Reinstein, 1998; Grays and Manson, 2000; Taylor and Glezen, 1994). The following consists of some of the important differences that have been recognized:
The human being who operates a manual accounting system can react intelligently to various events that affect the organisation while IT-based accounting systems can only act in an apparently intelligent way if they are only programmed to do so (Gray and Manson, 2000).
This inadvertently means that manual systems are more flexible than IT-based accounting systems.
Random errors associated with manual processing are much more numerous than those which are associated with IT-based accounting systems since IT-based accounting systems always process items in the same way (Gray and Manson, 2000).
Lack of documentation is a significant problem in many computer installations. Without adequate documentation, the audit trail may disappear and the auditor may find it difficult, if not impossible, to follow the processing in a particular application area (Watne and Turney, 1990).
Transactions in manual systems are usually authorized before they are executed and recorded (Coserat, 2000). However, this is not always the case in IT-based accounting systems where some transactions are automatically executed and recorded without management explicit authorization. (Rezaee and Reinstein, 1998; Taylor and Glezen, 1994).
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
Kothari (2004), define research methodology as a way to systematically solve the research problem. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them.
The research methodology was consisting of research design, data collection methods, sample and sample size, sampling procedure, area of study, and data analysis and presentation.
Research Design
Nachmias (2003), defined research design as a program that guides the investigator in the process of collecting, analysing and interpreting observations. Or is the blue print that enables the investigator to come up with solution to the problem and guides him or her in various stages of the research.
The researcher used a case study design to assess the effects of computerised accounting system on internal control. A case study design is defined as a research strategy, an empirical inquiry that investigates a phenomenon within its real life context (Yin, 2009). The design was chosen because it enables the researcher to obtain information needed for the study, also it helps the researcher to focus on a single unit study and also it will help the researcher in getting a deeper knowledge of a wide problem with limited resources.
Population of study
The researcher had a sample of 30 people who were purposely selected. The sample was involved Yenagoa local council staff and external auditors. This included respondents from finance department, internal audit unit and National Audit Office. Only people considered as capable of producing relevant information was consulted. The researcher was aiming at knowing the effects of computerised accounting system on the effectiveness and efficiency of internal control, merits and problems that this system poses, if any when compared with manual system.
Methods of Data Collection
The researcher used various types of data such as primary data and secondary data. Primary data are those which are collected afresh and for the first time (Kothari, 2005). These data were obtained by the researcher for the first time through interview, questionnaires and observations. Secondary data are data that are already available and refer to data that have already been collected and analyzed by someone else (Kothari, 2005). Secondary data were obtained through documentary review, which included published and unpublished documents, and different reports.
Primary Data
The following were methods researcher used to collect primary data;
CHAPTER FOUR
PRESENTATION OF FINDINGS
Introduction
This chapter presents the findings of this study. It also covers descriptive statistics and cross tabulation analysis.
Respondents profile
A total of 30 questionnaires were administered in the study. Out of these, 25 questionnaires were returned giving a response rate of 83.33 percent (Table 4.1). Each questionnaire was inspected and corrected for the purpose of detecting errors as well as cleaning data before being processed in the computer. The inspection and correction was done in two ways; firstly, in the field by reviewing all questionnaires if are properly filled and secondly, before and during the processing of the data in the computer. In the field the data was inspected to detect the most obtrusive omissions and inaccuracies in the data. Before processing the data in the computer there were no questionnaire dropped because they were properly filled and contained complete answers.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMENDATION
Introduction
This chapter presents summary, conclusion and recommendation of the study. Also presents the recommendation for further study.
Summary
The study has assessed the effects of computerised accounting system on internal control the case study of MDC. The specific objectives of this study include; to examine the contributions of CAS to the effectiveness and efficiency of the internal control, to examine the factors affecting the effectiveness and efficiency of internal control in CAS and to identify significant problems which organisation faces in CAS. The assessment was made by measuring the effectiveness and efficiency of internal control through studying the installed computerised accounting system (EPICOR). The research was well conducted and the researcher succeeded to get relevant data through reviewing documents and questionnaires which were provided to 30 respondents. The collected data were analysed through descriptive statistics and cross tabulation analysis.
The results revealed that; the contribution of CAS to the effectiveness and efficiency of internal control is moderate. The knowledge of computerised accounting system and quality of audit planning are the factors which affect audit effectiveness in CAS in local government authority while the risk assessment competency is not the factor which affects audit effectiveness in CAS. Accountability concern, responsibility awareness, ethical pressure, stakeholder force, completeness of internal control system and appropriateness of sample selected are the factors which affect audit efficiency in CAS while audit competitive is not the factor which affect audit efficiency in CAS. Furthermore; costs, competent personnel needs, the employees sharing password, the introduction of viruses, the loss of audit trail, the lack of segregation of duties and the potential for observing errors or fraud in CAS is less are the problems organization faces in CAS. While the accidental and intentional entry of bad data, error in programming, and change of legal regulation and company policies are not the problems MDC faces in CAS. Finally the results showed that; the challenge of paperless audit trail, changing technology, control and security concerns, process oriented-not results oriented, complexity of the practice, professional integration, sources of errors and inconsistency and personal computer environment are the problems encountered with auditing in CAS.
Conclusion
Although CAS poses a small number of contributions toward the effectiveness and efficiency of internal control such as auditors save time in reviewing financial documents and they can print reports from the system immediately as they inquire for their work. The findings show that the contributions of CAS to the effectiveness and efficiency of internal control is moderate.
Therefore this study concludes that the internal control in computerised accounting system is not effective and efficient particularly at Yenagoa local council.
Recommendation
From the point of view of the researcher the following were recommended. All staff members who are responsible for maintaining operations in CAS should not exchange their password for security purposes and to reduce hacking problems.
However, all posted data, files and any important information must be protected against damages by creating backups, in case of software and hardware disaster. Removable discs and cartridge can also be used to store other documents. Also antivirus programs must be updated more often and all computers should be scanned daily so that the management can be sure of safety of all files and other important information.
Since the organisation does not performing well in CAS, the management needs to put some more effort on training of the staffs so as to make them user friend of the system and to cope with the technology‟s development. This will help to increase efficiency and also improve the entire system.
Management should emphasize on segregation of duties so as to make the internal control system more strong. The lack of segregation of duties discourages team spirit of other staffs. Segregation of duty makes every member of the staff to become a good team player and improve performance; also this will save cost in terms of man power acquisitions and will improve competence.
The problem of power failure was encountered at MDC, the organisation should be aware of the whole system because the breakdown will result to the loss of records already entered into machines. These systems need to have reliable power source to operate continuously. The management should maintain standby generator in order to avoid unwelcome power failures.
Since technology changes every day, hence volatile there is a need for auditors to have a continuous learning. Further more, auditors and all IT specialists have to keep in touch with ever changing IT environments so as to keep pace with the organisation system changes.
Therefore, management should find ways to over come these problems highlighted above.
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