ACCOUNTING INFORMATION SYSTEM AND THE GROWTH OF SMALL AND MEDIUM SCALE ENTERPRISES

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ACCOUNTING INFORMATION SYSTEM AND THE GROWTH OF SMALL AND MEDIUM SCALE ENTERPRISES

ABSTRACT

The study examined the accounting information system and the growth of small and medium scale enterprises (a study of SME’s in Lagos metropolis). Two theories were used in the study to have a wide scope in the research, namely; the Contingency Theory and the Design of Accounting Information System and the Technology Acceptance model (TAM). The sample of the study comprised ten SME’s in Lagos State, five from the island and five from the mainland. Primary data was used in the study. A structured questionnaire was used to collect necessary data from the selected staff of the SME’s. The purposive sampling technique was used to select two hundred (200) staffs from ten (10) SME’s. In furtherance, twenty (20) staffs were selected per each enterprise selected. The data collected are subjected to the quantitative analysis of descriptive statistics and chi-square technique. Findings of the study indicated that accounting information system has significant effect on the sales growth of SMEs in Lagos Metropolis (value of chi-square is 6.48, and the critical value of chi-square is 5.74 at 5% level of significance and 4 degree of freedom); accounting information system has significant effect on the asset growth of SMEs in Lagos Metropolis (value of chi-square is 9.79, and the critical value of chi-square is 7.59 at 5% level of significance and 5 degree of freedom). The study concludes that accounting information system has significant impact on the sales and asset growth of SMEs in Lagos Metropolis. The study suggests amongst others that, SMEs should improve their accounting system in order to generate quality, reliable and timely accounting information, Owners of SMEs should integrate accounting information system in their decision processes, SMEs should endeavor to consult accountants regularly in order to be able to maintain high and generally acceptable accounting practices, Accounting training programmes for SMEs should be organized by the Lagos State Ministry of Trade, Commerce and Industry for those who do not know the importance of maintaining accounting records to come to grips with it, Government should stipulate the minimum number of books to be kept by all SMEs that meet certain criteria which certifies them to operate in Nigeria, SMEs should ensure that the cost of acquiring AIS does not outweigh the benefits the company would gain from using them.

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Accounting plays a vital role in the success or failure of contemporary business institutions. Systems are responsible for recording, analyzing, monitoring and evaluating the financial condition of business institutions, preparing documents necessary for tax purposes, providing information support to many other organizational functions, (Amidu, John & Joshua. 2011). In the context of small and medium scale enterprises (SMEs), accounting information is important as it can help the firms to manage their short-term problems in critical areas like costing, expenditure and cash flow, by providing information which will be used to support monitoring and control (Mitchell, Reid & Smith, 2000; Son, Marriot, & Marriot, 2006).

Small and Medium Scale Enterprises are the reasons behind any growing economy. Some of the roles of small and medium scale enterprises include generating employment opportunities, rural development, youth empowerment, immense contribution to national income and growth, spread and development of adaptable technology and regional balanced growth channel (Source *****). These enterprises are faced with diversity of challenges in Nigeria due to numerous domestic and global economic problems and policy inconsistencies. The result is a high mortality rate of the firms (Dasanayaka, Kankanamge & Sardana, 2011). Some of the challenges are internal to the enterprise and they include inadequate working capital, high competition from larger companies, difficulties in sourcing raw materials, low capacity utilization, poor of management strategies, and poor educational background of operators, huge financial problems and reluctance in embracing technology (Tafamel & Idolor, 2008; Osamwonyi and Tafamel, 2010).

Small companies are often established from family business. Mostly, in family business, are manage by family members. However, the workforce can be from non-family members. Therefore, the business environment is different according to the style of management as well as the culture that the family inherited from generations to generations (Peter and Buhalis 2004). SMEs have an important role to play in the development of Nigerian economy. The extent of contribution these business units can make towards the growth and development of Nigeria depend on how successful they are in their operations. The fact that is underlying the success of a business enterprise is the establishment and application of controls by the owners or management in addition to the systematic record keeping of business transactions, which, at the end of the period, keeps the owner well-informed about the performance of the business. (Mbroh, John & Attom, 2011).

The study conducted by Ismail (2009) are the financial management of enterprises. Accounting information is information provided by the accountants and accounting systems. This information is usually presented in financial statements such as the income statement and the statement of financial position. It also includes any financial ratios extracted from these financial statements. Accounting systems are responsible for analyzing and monitoring the financial situation of firms, preparation of documents that are necessary for tax purposes, providing information to support many other organizational functions such as production, marketing, human resource management, and strategic planning. Without such a system it will be very difficult for SMEs to determine performance, identify customer and supplier account balances and forecast future performance of the organization. The primary purpose of an accounting information system (AIS) is the collection and recording of data and information regarding events that have an economic impact upon organizations and the maintenance, processing and communication of such information to internal and external stakeholders for proper decision making (Stefanou, 2006).

The growth of computer technology in 1950’s had initiated increasing development in information storing and processing (Rashid, Hossain, & Patrick, 2001). Computer technologies increase the use of information due to its ability to analyze massive amount of data and also producing accurate and timely reports. These unique features of computer capabilities have led to the introduction of various information systems such as Accounting Information System (AIS), Manufacturing Resource Planning (MRP) system, Human Resource (HR) System. Information system technology has definitely changed the way businesses are being operated (Elliot, 1992). This system has contributed to increases in business productions and transactions as firms are in better positioned to achieve their objectives. Thus, this enhances business activities. More businesses and transactions implied that there will be more accounting data needed to be recorded and updated. Prior traditional accounting method of manually inputting and recording daily transactions has become inefficient and time wasting. Errors such as wrong data entry, inefficient tasks performance and massive utilization of paper product created many problems to business activities and organization’s performance. These inadequacies have led to the emergence of accounting information system. A system that is able to gather, analyze and produce reports more efficiently (Saira, Zariyawati & Annuar, 2010).

Aremu & Adeyemi (2011) argued that except for statutory demands, Small and medium scale enterprises hardly give serious thoughts to the process of sound accounting, while also noting that the inadequacy and ineffectiveness of accounting processes have been responsible for untimely collapse of most of them. The circumstances highlighted above have persisted due to poor generation and use of accounting information in Nigeria. The absence of accounting information system in most small and medium enterprises in Nigeria tends to compound their challenges.

1.2 Statement of the problem

Small and medium scale enterprises are known to be the wheel behind the moving train of the Nigerian economy, and as it is also known that every large business start small. Its worthy of note that in spite of the importance and the indispensable nature of SMEs in Nigeria, a lot of SMEs have not given much attention to accounting information and book keeping in relation to their business transactions, despite its importance in the success of SMEs. This could be as a result of lack of sound knowledge in book keeping practices by owners or respective managers. Difficulty exist in ascertaining the level of non-recognition of the necessity of accounting information to continued existence and growth of smes’. Low educational background of owners and employment of unskilled accounting staff had affected the production of unreliable accounting or financial statement which in turn affect managerial decision making.

It has also been found out that most SMEs fail to keep proper books of account and also fail to observe basic accounting procedures. As a result, they are not able to portray the exact financial position of the enterprise. This tends to impede the ability of the enterprise to obtain the most needed loans from financial institutions and other sources for expansion and diversification. The financial statements, such as the profit and loss accounts, statement of financial position and the cash flow statement of SMEs cannot easily be prepared. Under such circumstances, annual profits cannot readily be determined. SMEs in Nigeria are however, often encountered with accounting and financial management challenges. Poor record keeping, inefficient use of accounting information to support their managerial decision making and the low quality and reliability of financial data are part of the main problems of financial management concerns of SMEs in Nigeria.

1.3 Objective of the study

The broad objectives of the study is to examine the role of accounting information system and the growth of small and medium scale enterprises. The specific objectives are to:

1. To determine the effect of AIS on sales growth.

2. To determine the effect of AIS on asset growth.

1.4 Research Questions

1. What are the effect of AIS on sales growth?

2. What are the effect of AIS on asset growth?

1.5 Research Hypothesis

The following hypothesis were formulated:

H01: AIS has significant effect on sales growth.

H02: AIS has significant on asset growth.

1.6 Operationalization of Variables

The main objective is to examine the Accounting information system and the growth of small and medium scale enterprises in Lagos Metropolis. The dependent variable is the growth of small and medium scale enterprise, which is measured by two variables namely Sales growth, Assets growth. The independent variable is Accounting information system captured by Ethical values (EV), Effective accounting systems (EAS), Human resources (HR) and Investment in technology (IT).

Y*= f (Y1, Y2)

Y*= The Growth of Small and medium scale enterprises

Where:

Y1= Sales Growth

Y2= Asset Growth

X= Accounting information system

X= f (X1, X2, X3,X4)

Where:

X1=Ethical values

X2=Effective accounting systems

X3=Human resources

X4=Investment in technology

It can also be stated that the growth of small and medium scale enterprises is a function of Accounting information system.

Y*= f (X1, X2, X3, X4)

Converting this functional relationship into a regression model, it becomes:

Y*= α0 + α1X1 + α2X2 + α1X3+ α2X4 + µ

Where:

α0= Constant term of the regression model

α1-4 = Coefficients of parameter estimates of Accounting information system.

µ= Stochastic variable.

1.7 Significance of the study

A good accounting information system operated in a company is an indispensable aid to effective management. It assures management of the reliability of decision taken by them and that these decisions are in accordance with goals to be attained. The research work will create great awareness to the management of the firms or various businesses or other managers, the importance of appropriate, complete and reliable set of records using accounting information system for such purpose as quick, correct decision making and effective planning and control of activities of their business. To the employees and consumers, it will help them to assess the ability of the business to produce goods and render services on continuous basis and pay salaries. The research will be of benefit to the government in terms of tax collection and the regulation of business activities. Lastly, the study will contribute to the body of the existing literatures on the topic, hence it will be of used to the prospective researchers.

1.8 Scope of the study

This study focuses on the “accounting information system and the growth of small and medium scale enterprises”. The population of the study comprises of SMEs in Lagos metropolis, Lagos State registered with “Small and Medium Scale Enterprises Development Agency of Nigeria” (SMEDAN).

1.9 Definitions of terms

Accounting: It’s the systematic process of recording, communicating, summarizing, analyzing and reporting of financial information.

Accounting information: This refers to the system of storing, processing of financial and accounting data that are used by decision makers.

Accounting information system: it’s defined as a computer based system that increases the control and enhance the cooperation in the companies.

Small scale businesses: This refers to a generally privately own business that employs a small number of workers and does not have a high volume of sales.

Medium scale enterprises: This refers to the typically result from the slow and steady growth that results from a successful small business

Sales Growth: This is the amount by which the average sales volume of a company’s products or services has grown, typically from year to year.

Assets Growth: This is a corporate events associated with asset expansion.

Ethical Values: The set of established principles governing virtuous behavior.

Effective Accounting Systems: An effective accounting system is a type of system that is accurate, useful and timely. Its purpose is to provide information for external entities, such as tax agencies and investors, and for internal purposes, such as evaluating efficiency and profitability.

Human Resources: It is used to describe both the people who work for a company or organization and the department responsible for managing resources related to employees.

Investment: It is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future.

Financial statement is the formal record of the financial activities of a business, persons or other entity. It also provide information about the regarding the position and performance of the business such as its assets, liabilities, equity, income, expenses and cash flow.

RERENCES

Amidu, M. & John, E. & Joshua, A. (2011). E-Accounting Practices among Small and Medium Enterprises in Ghana. Journal of Management Policy and Practice. 12(4).

Aremu, M. A., & Adeyemi, S. L. (2011). Small and medium scale enterprises as a survival strategy for employment generation in Nigeria. Journal of sustainable development. 4(1), 200 – 206.

Dasanayaka, S., Kankanamge, R., & Sardana, G. (2011). Identification of barriers for development of the Sri Lankan small and medium scale furniture and wooden products manufacturing enterprises. Euro Asia Journal of Management, 21(40), 69 – 101.

Hessels, J., & Parker, S. (2013). Constraints, internationalization and growth: A cross country analysis of European SMEs. Journal of World Business, 48(1), 137–148.

Ismail, N. A. (2009). Factors influencing AIS effectiveness among manufacturing SMES: Evidence from Malaysia. The Electronic Journal on Information Systems in Developing Countries. 38(10), 1-19.

Mbroh, k. John. B, & Attom, E.(2011). Accounting and Control Systems Practiced By Small and Micro Enterprise Owners within the Cape Coast Metropolitan Area of Ghana. Asian Journal of Business and Management Sciences. 1(9). 28-47.

Mitchell, F., Reid, G., and Smith, J. (2000). Information system development in the small firm: The use of management accounting. CIMA Publishing.

Peters, M., & Buhalis, D. (2004). Family hotel businesses: strategic planning and the need for education and training. Journal of Education and Training, 46 (8/9), 406-415.

Rashid, M., Hossain, L., & Patrick, J. (2001). The evolution of ERP system: A historical perspective. United State of America: Idea group.

Saira, K., Zariyawah, M., & Annuar, M. (2010). Information system and firms performance. The case of Malaysian small and medium enterprise. International Business Research, 3(4), 28 – 35.

Son, D., Marriot, N. and Marriot, P. (2006).Users’ perceptions and uses of financial reports of small and medium companies in transitional economies: Qualitative evidence from Vietnam, Qualitative Research in Accounting & Management, 3(30). 218 – 235.

Stefanou, C., (2006). The Complexity and the Research Area of AIS. Journal of Enterprise Information Management. 19(1). 9-12.

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