CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The accounting system continues to evolve, largely due to the introduction of the computerized accounting systems, which have significantly transformed accounting practices worldwide. While it is widely acknowledged that Computerized Accounting System plays an important role in the field of accounting. Accounting is often referred to as the ‘language of business’. It processes business activities into reports and communicate the results to top management and other stakeholders. The primary objective of an accounting function in an organisation is to process financial information about the activities of the organisation and prepare financial statements at the end of the accounting period. The modern accounting method is based on the system developed by Italian monk Fra Luca Pacioli. He developed this system over 500 years ago. This great and scientific system was so well designed that even modern accounting principles are based on it (deSantis, 2010).

In recent years, the shift from manual accounting systems to computerized accounting has drastically transformed the financial reporting landscape. Computerized accounting systems, including software like QuickBooks, Sage, and SAP, have become integral tools for businesses worldwide. These systems improve the accuracy, efficiency, and transparency of financial reporting, enabling organizations to meet regulatory standards and enhance decision-making. This paper explores the influence of computerized accounting on financial reporting, with a focus on global trends, African experiences, and the specific case of Cameroon.

Globally, the transition to computerized accounting has reshaped financial reporting. One of the most notable changes is the enhancement of data accuracy and speed. Automation reduces human errors associated with manual data entry and calculations, thereby ensuring reliable and timely financial statements. Automation reduces human errors associated with manual data entry and calculations, ensuring reliable and timely financial statements. In developed economies, studies have shown that computerized accounting has reduced the number of errors in financial reporting by over 40% (Brehm, 2020). With cloud-based accounting systems, businesses can access their financial data in real time, which aids faster decision-making. For instance, small businesses in the U.S. using software such as QuickBooks have reported up to a 30% improvement in reporting speed (QuickBooks, 2023). Computerized accounting systems are equipped with built-in tools to comply with international financial reporting standards (IFRS) and Generally Accepted Accounting Principles (GAAP), facilitating smoother cross-border trade and investment.

The adoption of computerized accounting in Africa has been relatively slower compared to developed economies, yet it has been increasing rapidly due to factors such as economic growth, technological advancement, and international integration. Countries like South Africa and Nigeria have made significant strides in adopting computerized accounting systems, making it easier for companies to report their financials in a globally accepted format. According to a study by the African Development Bank (2022), the use of such systems has increased by 25% in the past five years, especially among medium-sized enterprises. Despite the progress, many African countries still face challenges in implementing these systems due to high costs, lack of infrastructure, and limited technical skills (Mungai & Owuor, 2021). In rural areas, small businesses continue to rely on traditional bookkeeping methods, hindering efficient financial reporting. South Africa leads the adoption of computerized accounting systems within Africa. The country’s large businesses have fully embraced systems like SAP, enhancing transparency and regulatory compliance. For instance, in 2022, approximately 60% of South African companies reported using fully integrated computerized accounting systems (Deloitte, 2022).

In Cameroon, the influence of computerized accounting on financial reporting is still evolving. While large companies and multinational corporations have adopted modern accounting software, many small and medium enterprises (SMEs) continue to rely on manual accounting methods. According to the Cameroon Chamber of Commerce (2023), only 35% of businesses in Cameroon use computerized accounting systems. This number is significantly lower than in other African countries like Nigeria or South Africa, which can be attributed to the cost of software and limited technical expertise. The Cameroonian government has made efforts to modernize financial reporting, including the implementation of the OHADA (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) accounting framework, which aligns with international standards. OHADA aims to create uniformity across West and Central Africa, fostering the adoption of computerized systems in financial reporting. Small businesses in Cameroon often face challenges related to financial literacy, leading to inaccuracies in reporting and non-compliance with tax regulations. A 2023 survey revealed that 72% of SMEs in Cameroon reported difficulties in maintaining accurate financial records due to a lack of training and technical infrastructure (Nkongho, 2023).

According to Pandey (2018), Financial reporting to the company’s stakeholders for instance the government, public, donors is a statutory obligation for every organization. Saleemi (2021) defined financial reporting as the process of supplying financial information that is reliable, accurate, and complete to the various stakeholders for making economic decisions. This is always to inform of financial statements such as a statement of comprehensive income, statement of financial position and cash flow statement, and other financial annual reports which provide an overview of the company’s current financial strength. Microfinance refers to the provision of financial services by registered entities that do not have the status of banks. Loans operations and or savings, collection and offer specific financial services to populations who mainly operate outside to traditional banking channel. These institutions provide financial services to the poor in rural and urban areas (Mungai & Owuor, 2021). In Bamenda many MFIs have adopted the use of computers in many sections of their activities such as recording of daily collections, recording of customer’s savings (account details), preparation and presentation of their yearend financial reports etc.

1.2 Statement of the Problem

 The advancements in information technology have eventually led to the introduction of computerized accounting system on accounting practice to help produce relevant and reliable accounts for users of financial statement for decision making. Before now, all accounting transactions were done manually which is hectic and time consuming giving reasons for the need to shift from manual to computerized system. Some years back accounting soft wares were used in private sectors only but recently the Government of Cameroon also decided to install Accounting soft wares in her public sectors. In the practice (turner, 2020). Consequently, public and private sector firms in both developing and developed economies view CAIS (Computerized accounting systems) as a vehicle to ensure effective and efficient information flow in the recording, processing, and analysis of financial data. Effective and efficient, information flow enhances managerial decision-making, thereby increasing the firm’s ability to achieve corporate and business strategy objectives (Mansonet al., 2001).

The experience of advanced countries is that managing complex FMIS (financial management information systems) projects requires considerable management skill. However, this is typically in short supply in DCs (Distributed Control System). Top managers may not be computer literate. The consequence is often the binding constraint, when introducing FMISs is not the technical capacity to create them but the capacity to manage them. (Keating & Frumkin, 2003). in most MFIs funds from customers are poorly managed and their accounting systems are in poor order. Many MFIs do not have qualified accountants and have problems preparing accurate and timely financial reports, which is one of the major customer and stakeholders requirements.

Since the 1950s, when technology started to be applied in business (Otieno and Oima,2013), most developing countries have moved away from the use of a pen and a paper and started to adapt to the use of accounting software’s to facilitate generation of quality, quick and accurate financial reports. However, due to other poverty related issues, there is lack of consistency coupled with irregularities registered in the field of technology which handicap the regular use of computerized accounting system. Studies to evaluate the impact of using this technology to generate financial reports are limited.

A few studies have been done on the effects of computerized accounting systems on the quality of financial reports which included; Mwaura (2013), the study assessed Financial Accountability on The Performance of Non-Governmental Organizations In Kenya, (Otieno and Oima 2013) studied the implementation of the computerized system in Kisumu County, Kenya. Another study by Byenkya Denis Mark (2011), the study was conducted to assess the impact of computerized accounting on financial reporting in Uganda Breweries Limited. Thus this study intended to address the following research question: Does the use of Computerized Accounting System influence the quality of financial reports?

With the fall of CONFINEST a major microfinance institution in Cameroon, many MFIs in Cameroon have changed their systems of operations from the manual to computer based systems. With the advent of ICT packages and computerized accounting software, MFIs in Cameroon have adopted and are applying ICT in almost all areas of their actions, due to its inter-sectional link. It appears to be reaping most of the benefits of revolution in technology, as can be seen by its application to almost all areas of its activities such as: using of debit and credit cards, inter-regional money transfer, using computerized accounting systems in the recording, preparation and presentation of their financial reports. For this reason the researcher is prompted to assess the influence of computerized accounting system on the quality of financial reporting in Microfinance institutions.

1.3 Research Questions

The research questions for this study will be organized into two key sections, each focusing on specific elements of the topic, as detailed below:

1.3.1 Main Research Question

The main research question guiding this study is: What is the influence of computerized accounting systems on the financial reporting practices of Microfinance Institutions in Bamenda II?

1.3.2 Specific Research Questions

To address the main research question, the study will explore the following specific research questions:

1. How does system quality affect the financial reporting of MFIs in Bamenda II?
2. In what ways does user satisfaction influence the financial reporting of MFIs in Bamenda II?
3. What is the impact of training and technical support on the financial reporting processes of MFIs in Bamenda II?

1.4 Research Objectives

The main research objective of the study will be divided into two sections, amongst which are;.

1.4.1 Main Objective

The main objective of this study is to examine the overall influence of computerized accounting systems on the financial reporting practices of Microfinance Institutions in Bamenda II.

1.4.2 Specific Objectives

To achieve the main objective, the study will pursue the following specific objectives:

1. To investigate how system quality affects the financial reporting practices of MFIs in Bamenda II.
2. To determine the influence of user satisfaction on the financial reporting accuracy and effectiveness in MFIs in Bamenda II.
3. To assess the impact of training and support on improving the financial reporting of MFIs in Bamenda II.