Chapter One: General Introduction

1.1 Background of the Study

The modern objectives of business organizations extend beyond simple profit-making. In today’s world, they encompass broader aims, with technology being a key factor, especially in the realm of Accounting Information Systems (AIS). AIS are composed of several devices crucial for standard business operations like accounting, human resource management, and inventory management. The fundamental nature of a comprehensive AIS is to digitize business processes and, crucially, to produce data in real-time.

Saira and others have highlighted that AIS are critical for analyzing and monitoring the financial state of companies, preparing documents necessary for tax purposes, and providing information to support various organizational functions such as production, marketing, and strategic planning. AIS is an automated system that relies on computer technology and accounting software to process the accounting data within organizations. These systems range from basic accounting software like Peachtree and QuickBooks to extensive systems integrated with enterprise-wide software such as ERP systems, including SAP, particularly used by larger organizations. AIS, when integrated into IT systems, are designed to aid in the management and control of financial-related aspects of organizations. Despite the rapid advance in technology, the strategic importance of accounting information continues to evolve.

To fully understand AIS, it’s necessary to break down the term into its three components. Literature indicates that accounting is an Information System, a Language of Businesses, and a Source of Financial Information (Wilkinson, 2004). Information is processed data that is essential for decision-making and fulfilling legal obligations. Meanwhile, a system is an integrated set of components focused on achieving certain objectives.

Strategic success in business is often attributed to the design of AIS, as per accounting literature. Various studies have investigated the impact of AIS on strategic management, focusing on how different attributes of AIS align with various strategic priorities (Ittnerand Larcker, 1997; Bouwens and Abernethy, 2000). These studies assess how the interaction between certain types of strategies and AIS designs impacts performance. A well-designed AIS supports strategies in ways that enhance organizational performance (Chenhall, 2003). Innovation acts as a catalyst, leading to improved company performance and overcoming organizational and financial challenges.

In managing an organization and implementing an internal control system, the importance of AIS cannot be overstated. The advantages of AIS are seen in the improvement of the decision-making process, the quality of accounting information, performance evaluation, internal controls, and in facilitating company transactions (Bolon, 1998).

The performance of an enterprise has been defined in various ways. Draft (1983) defines it as the extent to which an organization achieves its goals. Conversely, Mondy (1990) sees it as the extent to which an organization produces intended outputs. Oguntinehn (2001) posits that organizational performance is essentially about producing desired results. Performance can be assessed through different metrics such as productivity, turnover, stability, and decision quality. Different perspectives focus on various aspects of performance, including output quality, employee satisfaction, and adaptability to environmental interactions.

AIS is a crucial component for most managerial and financial decisions. In developed economies, decisions influenced by AIS account for billions of dollars annually. Sometimes, these decisions lack quality. Studies emphasizing the importance of quality information in organizations can lead to better decision-making, particularly in developing countries. Such research can inform managers about the benefits of utilizing AIS for improved decision-making, thus benefiting stakeholders.

Earlier research by authors like Hussein et al. (2005), Lerwongsatien and Wongpinunwatana (2003), and Thong and Yap (2009) analyzed the impact of top management support and the knowledge of accounting managers on AIS in developed countries. Nevertheless, there is a lack of research studying this impact in developing countries, where SMEs have only recently begun adopting technology. Therefore, examining the influence of management support and accounting managers’ knowledge on AIS in these environments is crucial.

Borthick and Clark (2000) acknowledge that the necessity for information is the reason for accounting’s existence. To remain pertinent in business, accounting data should rapidly respond to the needs of its users, especially investors. Investors typically do not evaluate the performance of a target firm where they invest directly. Instead, they rely on financial reports, which are usually prepared by company management. The primary aim of these reports is to provide insights about the financial status of the company, its cash flows, changes in firm control, and operational results. Chang (2001) asserts that AIS plays a significant role in enhancing organizational effectiveness in the global competitive market. Despite continuous advancements and widespread use, accounting practices have lagged behind major technological and economic developments, impacting the significance of AIS. Onaolapo and Odetayo (2012) argue that despite the reported massive accounting frauds in developed countries and rapidly changing economic conditions, accounting information still holds value relevance.

1.2 Statement of Problem

As information technologies advanced, manual accounting systems became increasingly insufficient for decision-making needs. The following issues were identified before the introduction of AIS:

• Ineffective performance of SMEs in Limbe due to poor record-keeping, leading to loss or misplacement of files and information.
• Lack of security for transaction records, with the potential for unauthorized access by employees and the risk of information destruction.
• The challenge of maintaining multiple manual ledgers and journals, leading to security risks and potential data duplication.
• Frequent errors in manual accounting, including incorrect entries and transposed figures, necessitating extensive time for correction.
• Time-consuming manual record-keeping, reducing productivity in SMEs.
• Tedious and error-prone manual accounting, leading to data being available only in paper format, which poses risks of loss, theft, or damage.
• Lack of backup for manually kept records, resulting in lost or irretrievable data in case of damage or misplacement.
• Insufficient cash handling controls, leading to lack of accountability and potential misuse.

The introduction of AIS in Limbe’s enterprises addressed these issues as follows:

• AIS automated transaction recording, ensuring easy access and organization of information.
• Streamlined accounts payable processes, allowing for efficient bill payments.
• Automatic generation of financial reports by the AIS, reducing manual calculation efforts and enabling reporting for any recorded period.
• Simplified year-end closing processes, with AIS handling most of the work.
• Increased productivity in enterprises due to the accuracy and speed of the software used in AIS.
• AIS represented a shift from traditional accounting to a computerized approach, requiring adaptation and preparation.
• Organizations began designing more sophisticated AIS to meet strategic goals and enhance performance.

Despite these advancements, Onaolapo and Odebayo (2012) conclude in their research that accounting information still retains its value relevance. This study aims to address the following research questions:

1. What is the relationship between accounting knowledge and the performance of SMEs in Limbe?
2. What is the relationship between management support and the performance of SMEs in Limbe?
3. What is the relationship between record-keeping performance and the performance of SMEs in Limbe?

1.3 Objectives of the Study

The main objective is to establish the relationship between AIS and the performance of SMEs in Limbe. Specifically, the study aims to:

• Determine the relationship between accounting knowledge and SME performance in Limbe.
• Examine the relationship between management support and SME performance in Limbe.
• Evaluate the relationship between record-keeping performance and SME performance in Limbe.

1.4 Statement of Hypothesis

• H0: There is no significant relationship between AIS and SME performance in Limbe.
• H1: There is a significant relationship between AIS and SME performance in Limbe.

1.6 Significance of the Study

Most researchers over the past years acknowledge the importance of microfinance institutions, on the growth of small and medium size enterprises. Since small and medium size enterprises are viewed as the engine that boasts any emerging economy, the soundness and efficiency of these organizations (small and medium size enterprises) have to be taken into special consideration. This study is centered on the activity of microfinance institutions, how their main purpose is to alleviate poverty in the economy and grand loans to small businesses at affordable prices, thus preparing a sustainable economy. The findings of this research will be useful to the government in designing a policy that favors economic development through microfinance institutions and small and medium size enterprises.

In addition, an economic environment is characterized by a public who lost confidence in the microfinance institutions. For this reason, the study is intended to educate the public on the utmost importance of microfinance institutions in promoting micro business venture, thus improving on economic growth. Findings of the research will be useful to small and medium size enterprises entrepreneurs and other microfinance institutions as it will highlight possible reasons for their failures. Lastly, the research will serve as a reference to other researchers.

1.7 Scope of the Study

Conceptually, this study is focused primarily in the role microfinance play on the growth of small and medium size enterprises. These institutions are sometimes called ‘Banking for the Poor’ this is because accessing through its services, low income people around the world are able to pull themselves out of poverty.

Methodologically, the study will be carried out using the primary source of data collection such as field observation, questionnaires and interviews from the area of study. Also, secondary data will be used to collect information’s from books, internet and from archives of the said organization to enable me carry out the study. The research also will make good use of a Quantitative research approach which was objective. The research design to be employed will be the casual research design because it provides competent answers to “how “and “why” variation in the independent variables leads to a change in the dependent variables. The time frame within which the research will be analysis is that of 2008 to 2017.

As far as location is concern, this study is carried in Buea, Southwest Region of Cameroon at the Community Credit Company (CCC), as a unit of investigation with category of staff.