Influence of Computerized Accounting Systems on Financial Reporting Quality in Small and Medium Enterprises

Akamanwam Effiong Itang

doi:10.7176/rjfa/12-22-09

Abstract

The prevalence of diverse accounting software or computerized accounting systems and the increased usage of such systems amongst small and medium enterprises (SMEs) globally, as well as the need to present decision-useful financial reports by SMEs motivated the researcher to undertake this project. The study, therefore, sought to ascertain the relationship between computerized accounting systems and financial reporting quality in small and medium enterprises in Nigeria. The researcher modelled computerized accounting systems (CAS) as the predictor variable with five formative constructs, namely internal controls, automated data-processing, relational database, automated reporting, and enhancing technologies. The dependent (criterion) variable, financial reporting quality (FRQ), was modelled with five dimensions, namely relevance, faithful representation, comparability, verifiability, and understandability. Five hypotheses relating to the extent to which computerized accounting systems influence financial reporting quality in terms of relevance, faithful representation, comparability, verifiability, and understandability, were tested. The study data were collected using a web-based self-completed questionnaire from a sample of 370 firms randomly selected from SMEs in the South-South region of Nigeria, of which 223 completed questionnaires (60.3%) were found useful for the study. The collected data were analysed using descriptive statistics and structural equation modelling procedure with the aid of SPSS-Statistics and SPSS-Amos software. The study’s findings indicated that CAS usage has a significant positive influence on financial reporting quality in terms of relevance, faithful representation, comparability, verifiability, and understandability. CAS is also indicated to be a good predictor of financial reporting quality. Therefore, all five null hypotheses were rejected. The findings of the study also showed that the most impacted dimension of financial reporting quality by CAS is understandability, while the least impacted is verifiability. Consequently, the researcher concluded that computerized accounting systems significantly enhance the quality of financial reporting information. Hence, there is a need to encourage SMEs to adopt computerized accounting systems to improve their financial reporting quality. Management and those performing accounting functions in SMEs and finance and accounting scholars would find the results of this study extremely useful. The researcher has suggested areas for further studies that would help to validate and, or, extend the study’s findings. Keywords: Accounting information, Accounting information system, Accounting software, Accounting systems, Automated data processing, Automated reporting, Comparability, Computerized accounting system, Enhancing technologies, Faithful representation, Financial information, Financial reporting, Financial reporting information, Financial reporting quality, General systems theory, Internal controls, Relational database, Relevance, Small and medium enterprises, Structural characteristics model, Structural equation modelling, Understandability, Verifiability. DOI: 10.7176/RJFA/12-22-09 Publication date: November 30th 2021

Highlights

Small and medium enterprises (SMEs) play a vital role in the global economic development
The current result indicates a stronger influence of computerized accounting systems (CAS) on the relevance of financial information with a beta value of 0.793, which implies that an improvement in CAS would lead to a 79.3% increase in financial information relevance
The result of the first hypothesis contradicts the findings of Aryani and Krismiaji (2013) that indicated a negative relationship between enterprise resource planning (ERP) and the relevance of financial information

Summary

Introduction

Small and medium enterprises (SMEs) play a vital role in the global economic development. SMEs witness a relatively high failure rate, resulting from several factors including poor business experience, poor business management skills, lack of adoption of technological tools, lack of access to finance, and poor financial reporting quality (Alsaaty, 2012; Okoli, 2011). As defined by Hurt (2014, pp.4), an AIS is “a set of interrelated activities, documents, and technologies designed to collect data, process it, and report information to a diverse group of internal and external decision-makers in organizations.”. Considering this definition, an accounting system without technological enhancement would certainly be incomplete, inadequate, and inefficient in the light of today’s business environment. The prevalence of diverse computerized accounting systems or accounting software and the increased usage of such systems amongst small and medium enterprises (SMEs) globally, as well as the need to present decisionuseful financial reports by SMEs form the motivation for this study

Objectives

Methods

Conclusion