Full Project-THE IMPACT OF ACCOUNTING INFORMATION SYSTEM ON SMES

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Gilbert, (2011) indicated that businesses are run with shareholders’ capital, long term and short term borrowing whether it is a small or medium enterprise and its performance is mainly measured in terms of profitability. He further reports that business contains exchange of goods and services which generates information for better analysis of business performance which is pivotal to profitability. Due to the nature and peculiarity of the Small and Medium-scaled Enterprises (SMEs), a well-organized, coordinated and operating accounting system will be difficult to maintain or run not forgetting that the most valuable resource an organization has is information which is generated from day-to-day operation of the business (Adebayo, Idowu , Yusuf , & Bolarinwa, 2013). Gilbert, (2011) further proclaimed that it is worthy of note at this juncture that the information derived from the daily transaction needs to be carefully collected or gathered, recorded or stored, processed and analyzed in order to produce meaningful output of decision making. It has been recognized that appropriate accounting information is important for a successful management of any business entity whether large or small (European Commission, 2008).

Accounting information system (AIS) is vital to all organizations Curtis (1995), Wilkinson, Cerullo, Raval and Wong-On-Wong (2000). Curtis, (1995) further elaborated that accounting information system provides a mechanism for proper recording of transactions most especially financial transaction, storage and re-production of information relating to financial flows and positions at a given period of time. It is also a “tool which when incorporated into the field of Information and Technology systems (IT), were designed to help in the management and control of topics related to firms` economic financial area” (Grande, Estanbanez & Colomnia, 2011). The SMEs in a competing business environment may not be able to strive for long time without proper management of its expenditure, cash-flows and also providing information for monitoring and control (Mitchell, Reid & Smith, 2000). This will aid effective budgeting, proper analysis of cost and decision making. However, as mentioned earlier that by Gilbert, (2011), businesses are run with shareholders’ capital, long term and short term borrowing which should be adequately accounted for and with the accounting system mechanism created, organize a schedule of loan re-payment that will adversely affect the growth and expansion of the SMEs in the long-run as borrowing for expansion and continual existence is inevitable.

Grande, (2011) poses that accounting information system can be used to translate these different dimensions into a common financial dimension. He further claimed that accounting information uses formalized categories for collecting and reporting information that creates a common language with which members of the organization can communicate and also that formalization permits the transmission of information with fewer symbols and this facilitates the coordination between different functions that needs to provide input to the decision-making process. However, accounting information is also an imperfect representation of the underlying decision problem, since not all aspects involved can be quantified perfectly in financial numbers (Galbraith, 1937). In recent years accounting information system received a lot of attention, it facilitates managers to take appropriate actions related to issues in organization, if AIS output is not accurate, management will take wrong decisions, moreover, it considered competitive advantage for organization with well-designed accounting information system (Majed, Adel, & Alsharayri, 2011).

 1.2 STATEMENT OF THE PROBLEM

Entrepreneurs are known to be the wheel behind the moving train of the Nigerian economy and as we also know that every large business starts small. It’s worthy of note that in spite  the importance and the indispensable nature of  SMEs in Nigeria, a lot of small and medium scale enterprises have not given much attention to book-keeping in relation to their business transaction despite its importance in the success of businesses. This could be as a result of lack of sound knowledge in book-keeping practices by owners or respective managers (Martin, 2005)  Curtis (1995) indicated that there is a difficulty in ascertaining whether comprehensive accounting records that satisfied the laws under which it was incorporated has been kept. He mentioned further that it is also hard to determine, to what extent its adherence to laid down accounting procedure is strictly maintained. Oladipupo and Ajase, (2013) mentioned that difficulty exist in determining how far non-recognition of the necessity of accounting to continued existence and growth, low educational background of entrepreneurs and employment of un-skilled accounting staff, have affected the overall performance of SMEs in Nigeria. They stated further that nevertheless, it’s not clear whether the accounting information derived from daily transactions is actually an important consideration in the overall performance of SMEs.

The primary purpose of this study is to examine critically whether accounting information is an important consideration in the overall performance of SMEs in Nigeria. The secondary purpose of this study is to examine whether the level of skillfulness of the accountant also affects the overall performance of SMEs.

1.3 RESEARCH QUESTIONS

It becomes imperative to put forward the following research questions so as to ensure a guided focus on the study:

i. What is the relationship between adoption of accounting information system and the benefit they derive?

ii. What is the relationship between the use of accounting information system and the profit after tax of SMEs?

iii. What is the relationship between accounting information system and the overall performance of SMEs?

1.4 JUSTIFICATION FOR THE STUDY

Quite a number of researches have been carried related to this study such as Sajady, Dastgir and Nejad (2008) who examined the evaluation of effectiveness of accounting information systems on medium scaled companies, Omar and Ali, (2012), who examined the impact of accounting information system in planning, controlling and decision-making processes in small businesses, Grande, (2011), who explored the impact accounting information system has on performance measures. There are however many more researches related to this study but most of them have not really examined the effect accounting information system has on the performance of SMEs in Kwara state. This study however distinct itself from other studies by examining critically the effect adoption of accounting system has on the performance measures of small businesses operating in the study area, Kwara state, Nigeria.

1.5 OBJECTIVE OF THE STUDY

The main objective of the study is to evaluate the impact of accounting information system on SMEs. While the specific objectives are to;

i.  Examine the benefits derived by SMEs from the adoption of accounting information system.

ii. Examine the relationship between the adoption of accounting information system and the profitability of SMEs.

iii. Examine the relationship between the adoption of accounting information system and the overall performance of SMEs.

1.6 HYPOTHESES OF THE STUDY

The hypotheses for this study are stated in null forms which are;

i) Ho: There is no significant relationship between adoption of Accounting information System and the benefit derived from it by SMEs.

ii) Ho: There is no significant relationship between the use of Accounting Information System and the PAT of SMEs.

iii) Ho: There is no significant relationship between Accounting Information System and the overall performance of SMEs.

1.7 SCOPE OF THE STUDY

The research work aims at determining the impact of AIS on SMEs operating in Kwara State. Due to insufficient time and other important resources, it was not able to comb through all SMEs operating in the whole of Kwara State but a representative sample was drawn out of the population in order to achieve the research objectives.

1.8 DEFINITION OF TERMS

Accounting Ratio: The ways of expressing the relationship between one accounting result and another, which is intended to provide a useful comparison.

Financial Statement: These are formal records that outline the financial activities of a business, an individual or any other entity.

Small and Medium Enterprise: The Central Bank of Nigeria (2012) defines SMEs in Nigeria according to asset base and number of staff employed. The criteria are an asset base between ₦5million and ₦500 million, and a staff strength between 20 and 300.

Accounting Information: This is a system of collecting, storing and processing financial and accounting data that is used by decision makers.

Entrepreneur: An individual who exercises initiative by organizing a venture to take benefit of an opportunity and, as a decision maker, decides what, and how much good and services would be produced.

Accounting System: Gilbert, (2011) defined accounting system as an organized set of manual and computerized accounting methods, procedures and control established to gather, record, classify, analyze, summarize, interpret and present accurate and timely financial data for management decisions.

Unskilled Accountant: This is one not having or requiring any special skill or training on accounting job/profession.

Book-Keeping: This is the systematic recording of financial aspects of business transactions in appropriate books of account.

Performance: It is the results of activities of an organization or investment over a given period of time.

1.9 Plan of the Study

To ensure orderliness of the study, the plan of the study was carried out and reported chronologically, under five chapters. Chapter one which is the introduction to the study provided the background to the study, statement of the problem, research questions, justification for the study, objectives of the study, hypothesis of the study, scope of the study, definition and terms and plan of the study. The second chapter contained the review of relevant literatures.  The research methodology is presented in the third chapter and it included headings such as research design, population of the study, sampling techniques, method of data collection and methods of data analysis. The fourth chapter contained the data presentation analysis and discussion of result obtained from the field survey. Chapter five covers the summary, conclusions and recommendation

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