Efficiency of Accounting Software in the Preparation of Financial Statements
Chapter One
Objectives of the Study
The following are the objectives of this study:
- To investigate the impact of accounting software on the bank payroll financial preparation and reporting in the banks.
- To examine the associated benefits of accounting software on financial reporting in the banks.
- To identify the disadvantages of accounting software on the accounting information system in the banks.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
The use of Accounting Information Systems (AIS) is a widely researched topic. While there is much research on the impact of Accounting Information Systems (AIS) in general; there is little research specifically on accounting softwares and its impact on financial reporting. accounting softwares , however, is widely used in many corporate bodies including SMEs. For example, in Australia, the Yellow Pages (1997) reported that 76% of the small businesses surveyed had at least one computer and 75% of these used accounting software. Burgess (1997) in a review of IT adoption by Australian small businesses concluded that the main software application package used was accounting (Burgess 1997 and Wenzler 1996). To investigate the impact of accounting softwares on financial reporting, it would be reasonable to first review the more comprehensive literature on accounting software and financial reporting. This literature review, therefore, begins with a discussion of the brief history of accounting, manual accounting systems and then review studies specifically focused on accounting softwares and financial reporting. It will also take into account the history and financial reporting requirement of commercial banks.
ACCOUNTING
Accounting is not only the oldest but also the most stable of the management disciplines. In spite of its stability and continuity, accounting has seen major changes during the past century. It would be surprising if a century from now, accounting is the same as today. Although we cannot look so far ahead, we can analyze the current conditions for clues about what to expect in the next decade or two (Sunder 1999). Accounting provides financial information about a business or a not-for-profit organisation. Owners, managers, investors and other interested parties need financial information for decision making.
Financial accounting is the art of systematically identifying, measuring, recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial nature, and communicating, analysing and interpreting the results there of (Woode &Sangster, 2008).
ROLE/FUNCTIONS OF ACCOUNTING
According to Sunder (1997) a business organization can be seen as a set of contracts among various participants: employees, shareholders, customers, vendors, managers, creditors, auditors, government, among others. Each party in the contract agrees to contribute resources. For example, employees and managers contribute skills, shareholders and creditors contribute capital, vendors provide machinery and materials, and customers provide cash. Each participant demands an inducement at least as large as the opportunity value of his contribution to the organization. For an organization to succeed, its production technology and set of contracts must satisfy each one of its participants. If he can get more elsewhere, he will quit the organization. If enough people quit, the organization collapses.
They therefore argued that, accounting is necessary to assemble, implement, enforce, modify, and maintain the contract set of organization. Accounting therefore plays five main functions in an organization.
The first requirement of control is to devise a system of measuring the contributions made by each agent. It should also determine the amount of incentive due them, and monitor the distribution of inducements so that each agent receives his due, no more and no less.
In addition, accounting helps compare the contributions made and the incentives received by each participant and distributing this information. Furthermore, accounting distributes information to various factor markets to keep them liquid and find replacements for participants who leave. Finally, accounting makes some information available in the form of common knowledge or public disclosure to help reduce conflict among participants at the time they renegotiate their contracts (Sunder 1997).
In its second function, the accounting system measures, records, and controls the outflow of resources from the organization. Payroll and benefit accounts for employees, shipping to customers, accounts payable to suppliers, and tax accounts measure the outflow of resources to the government (Sunder 1997).
In its third function, the accounting system compares the data on resource inflows and outflows to determine who has fulfilled his contract and to what degree. The accounting system prepares comparative reports on resource inflows and outflows related to various individuals in the organization. These statements are used to evaluate and adjust the contracts of these individuals (Sunder 1997).
CHAPTER 3
METHODOLOGY
INTRODUCTION
This chapter seeks to discuss the population and sample size, the techniques used for sampling and data collection, the various data collection instruments as well as the procedures used in measuring and analyzing the data. This chapter therefore seeks to describe how the whole research was conducted.
THE RESEARCH DESIGN
The research strategy adopted by the researchers is the multiple case study approach. The reason for this choice is to increase the reliability of the report as findings of the companies will be compared to find out the extent to which they follow a regular pattern.
POPULATION
This study focused on 25 registered Commercial banks in Benin City, Edo State.
SAMPLE AND SAMPLING TECHNIQUE
A stratified sampling technique was used to select this sample. The Banks were stratified as follows: computerized and networked bank, computerized but not networked and partially computerized.
METHODS OF DATA COLLECTION
Primary data was collected through the use of questionnaires and in-depth interviews. Secondary data was also sourced through publications, company’s annual report and the use of the internet.
CHAPTER FOUR
RESEACH ANALYSIS AND DISCUSSIONS
INTRODUCTION
In the previous chapter, the research design, the sample of the study, the data collection techniques, the method of data analysis and the statistical procedure of the research were discussed.
The focus of the research was on areas that the researchers consider very critical in accounting software. These areas include: the need for accounting software, the costbenefit analysis made, factors considered before choosing accounting software and the non – financial benefits and problems associated with the use of accounting software.
CHAPTER 5
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
INTRODUCTION
This chapter presents the summary of major findings arising from the data analysis, makes appropriate recommendations for the effective adoption and management of Accounting software among commercial banks in Nigeria. The study is concluded at the last section of this chapter.
SUMMARY
The research was organised to assess the impact of the use of Accounting software in financial reporting of commercial banks in Nigeria. The study also had another objective of bringing out the problems encountered in the use of a Accounting software. Advancement in technology is now the order of the day. Businesses are constantly looking for cost-effective, economic and efficient ways of satisfying customers’ needs. Thus, there is the need for businesses to be abreast of the current issues in technology to enhance their business. This is to help gain a competitive advantage over their competitors especially in this era where there are more banks springing up.
One of the ways to reduce cost in business processes, is to ensure that resources allocated are well utilised to obtain maximum benefits at minimum cost. Thus with the use of a resource (input) like a Accounting software, it is expected that, the accounting system will be able to generate relevant and useful reports (output) for making economic decisions by users. Accounting software are therefore used by these organisations in order to generate timely and accurate reports through a fast and efficient processing of accounting data.
Firstly, it was observed that, commercial banks in general decide to adopt Accounting software due to various reasons. Such reasons included the need to be efficient and effective in the operations of the banks, the ever-growing operations of the banks, and the quest to produce more accurate and timely reports. It was evident that the single most important factor considered by the banks in their accounting software adoption was the pursuit of efficiency and effectiveness in operations. This finding confirms the assertion made by Waterfield et al (1998). It is however contradictory with Raymond and Bergeron (1992) who argued that businesses implement accounting software because of the advent of low cost microcomputers among other reasons.
It was further observed that, speed of a accounting software served as the major factor considered before choosing a particular accounting software. Other factors included: accuracy, storage, and timeliness. This confirms the assertion of Baren, 2010.
It was also observed that, there are numerous benefits both financial and non-financial which are derived from the use of a Accounting software. Amongst the non-financial benefits are: time saving, improved quality of accounting information, minimized mathematical error, improved report to stakeholders and provision of a better way of keeping accounting records. The financial benefits include reduction in tax liability by the way of enjoying capital allowance, reduction in labour cost, audit expenses, clerical expenses and stationery expenses.
However it must be emphasized that aside the capital allowance, measuring the exact reduction in labour cost, audit expenses, clerical expenses and stationery expenses from the face of the financial statement was a great challenge to this research, as the absolute values on the face of the financial statement for the three years spanning from 2007 to 2009 kept escalating. Ratios that were also computed to ascertain the percentage changes of these expenses also did not follow a regular pattern. This led to the conclusion that the only period that these cost reductions can be accurately measured is the year in which the organisation computerised its operations. For the subsequent years these cost reductions were measured by making estimates of the cost savings made by the organisation with the introduction of the accounting software.
The data analysis section provided the various problems and challenges that come handy with the use of a Accounting software. The most challenging problem was the high cost involved in the design and implementation of a accounting softwareand its maintenance thereof. This confirms what Head (2000) said about cost as a challenge to Accounting software. Secondly there is the possibility of a computer failure which is mostly caused by a software failure, hardware malfunction and lastly, virus attack. The challenges encountered included: inadequacy in information technology expertise, the high amount of time needed at the implementation stage; the non-suitability of technology to business operation, instability in power system. This confirms the assertions of, Burgess (1997), Proudlock et al. (1999), and ABS (2000).
It is also worth noting that, training courses are organised during orientation for users on how to use the Accounting software. On the issue of safety and security of the accounting software, it is only the authorised users of the accounting system who are allowed to have access to the system; additional control measures which include: logins passwords that are changed frequently, login profiles that are not shared, and audit trials which are enabled to trace usage of the system are used by the banks. These measures have all been put in place to check and control the use of the accounting system.
The findings of the study also revealed that, the commercial banks used Accounting software to generate reports. Such reports include: trial balance, profit and loss account, balance sheet, and statement of cash flow.
CONCLUSION
The study revealed that because of the numerous benefits that are associated with accounting softwaremore importantly its ability to produce and present relevant and faithful representative financial reports to end users, the government of Nigeria is assisting all Commercial banks to migrate onto a common accounting softwareknown as Terminus 24 through the Millennium Development Account. This is going to serve as a platform in which all the commercial banks in the country are going to be networked to each other to facilitate faster and efficient banking.
Undoubtedly, with the adoption of Accounting software, problems and challenges such as; high purchase, installation and maintenance cost, computer failure, inadequate information technology expertise and time involving are to be expected. However, the advantages from the use of a accounting softwarefar outweigh the problems and challenges as it has impacted the financial reporting of the banks positively. Hence, there is the need to adopt a accounting softwareand more importantly for all commercial banks to make the effort to migrate onto the Terminus 24 as it comes with added advantage of being networked with other commercial banks.
RECOMMENDATIONS
Based on the empirical findings of the study, the following recommendations are offered to commercial banks in particular, and the players in the banking industry.
- The government, through ARB Apex Bank should reinforce its computerisation policy for the commercial banks.
- Results of this study demonstrated that, no records have been kept that provide information on the financial benefits derived by the banks. It is therefore recommended that managements of the various banks should take appropriate measures to document the financial benefits (reduced labour cost, audit expenses, and stationery expenses) derived from the use of Accounting software.
- To other commercial banks who intend to adopt Accounting software, it is recommended that, they undertake a more detailed cost-benefits analysis so as to identify the various significant benefits that come along with Accounting software.
- Software failure is a problem whose ultimate solution would be to change the software in use. However the ultimate solution would be migrate onto the Terminus 24 as it is well developed by the experts in the field to best suit banking operations and there would be constant monitoring of the system to alleviate all issues with the failure of the software.
- Institutions that train accountant should do well to include the study of accounting softwareas part of their courses to ensure that accountants are equipped with both accounting and the required Information Technology skills. In this area, it is recommended that management could enrol their employees on Business Information Technology programme.
- The design and implementation of a accounting softwareinvolves lot of time especially with the test period (trial and errors). Thus the best way to reduce the time involved is to test the accounting system in stages instead of having to wait and finish the whole project before testing it.
- With the issue of cost, the best way to avoid incurring a high cost in the use of a accounting softwareis to pursue a low cost leadership strategy. Here, the manager tries to increase productivity but does so with a minimum cost. For example, instead of the bank going in for brand new computers which are quite expensive, the bank could opt for slightly used computers which are equally good. On the issue of cost involved in training personnel, the bank could decide to recruit people with expertise in both accounting and Information Technology.
It is hoped that the banks and other companies wishing to adopt a accounting softwarewould take a look at these recommendations in order to overcome these problems and challenges to be able to enjoy the full benefits of using a Accounting software.
REFERENCES
- ABS (Australian Bureau of Statistics), (2000), Catalogue 8129.0 Business Use of Information Technology, Australia. Commonwealth of Australia
- Baren, V., (2010), The Importance of a accounting software, available on http://www.ehow.com/facts_6786562_importance-computerized-accountingsystem.html#ixzz10yS7obSs; Accessed: 27/10/11
- Beaver, William H. (1978) “Current Trends in Corporate Disclosure”, Journal of Accountancy, V.147: http://www.capitalideasonline.com/articles/index.php?id=2224
- Burgess, S., 1998, Information Technology in Small Business in Australia: A summary of Recent Studies, Paper presented to the USASBE Conference, Florida; January 15-18. [Available online on http://www.sbaer.uca.edu/Research/1998/USASBE], Assessed on 20th October, 2011
- Business dictionary (2011) http://www.businessdictionary.com/definition/capital allowance.html, accessed on 15th February 2011
- deSaintis, J., A brief history of Accounting: From prehistoric to the Information Age. Available at http://ensign.ftlcomm.com/historyacc/researchpaperfin.htm (accessed 28 September, 2011)
- Elliot, B & Elliot, J (2006): Financial Accounting and Reporting, 11th : Pearson Education Limited, Harlow, England
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- Gelinas, U., Sutton S., and Hunton, J., (2005) Acquiring, Developing and Implementing Accounting Information System, 6th Ed.: Thomson South-Western Education College, Cincinnati
