Computerized Accounting Systems (CAS) have been established to provide relevance as well as
enhance faithful representative informational reports that would be used by management as well
as other external users in order to make accurate decisions (Greuning, 2006). The positive feedback
that the computerized accounting systems have been able to get from users of information has led
to the notion that Computerized Accounting Systems is the “engine of growth” in firms as well as
different organizations. The growth of information technology, have degenerated the use of
manual accounting systems as firms that are concerned and keen on quality of their decisions have
no longer room for inaccurate financial reports. Similarly, regulatory bodies have established
requirements in most industries that computerized accounting systems have to be adopted before
a firm is licensed to operate (Muhammad, 2019).
In arguing out the ideal situation on the goal for proper financial reporting, Choi and Pae (2011)
undertook that it all boiled down to the provision of useful and reliable information that would
provide an ample ground for decision making. Computerized accounting systems have been useful
tools in performance appraisal of business organizations (banks) with a view of increasing
confidence and enabling all the stakeholders build their trust in the organization. In any
circumstance that an organization needs to appraise its performance, there is every need to obtain
supporting information which should be accurate, relevant, precise and in a timely manner. The
information therefore obtained should be presented in a manner that it should make it easy for
comparison purposes with the previous period as well as with other similar organizations. The
financial statements presented therefore should be objective and therefore other users of these
information should be in position to reduce the information gap between them and the managers
who prepare such financial information.
However, the reality is that firms are preparing financial reports that only appeal to the shareholders and
stakeholders but in actual sense, do not represent the actual position of the firms. Despite the fact that firms use
the approved and required accounting standards in the preparation of these financial reports, the reports may be
presented in different levels of quality. The accounting and reporting standards, may sometimes provide an
opportunity for managers to undertake earnings management practices, that may wrongly misrepresent facts in the
eyes of other users to financial statements.
Introduction
This chapter presents review of literature related to the study, this chapter entails the theoretical review , review of
computerized accounting , review of financial qualities reports and review of computerized accounting and financial
report qualities and past empirical reviews
1 Computerized Accounting Systems (CAS) An accounting information system is designed to collect, record, store,
and process financial data as well as produce information for decision-makers (Romney & Steinbart, 2006). Hurt
(2013, p. 4) defines an accounting information system as “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.” The definition by Hurt (2013) incorporates technological tools as an aspect of the
accounting information system, which points to the move from manual to computerized systems. Computerized
accounting systems, therefore, involves the application of computers and related technologies in the collection,
recording, storing and processing of financial data, and interpreting and reporting financial information to
stakeholders (Marivic, 2009; Amidu et al., 2011). Al-joubory (2007), while exploring the impact of information
technology on accounting information systems, identified significant components of an accounting information
system to include accounting processing system and accounting reporting systems, which are characterized by
functional automation and progress integration. Thanks to drastic changes in accounting systems infrastructure and
functionalities, and the transformation in the financial information reporting model. Computerized accounting
systems have significantly impacted positively on the accounting function of organizations in terms of enhanced
information flow, employee performance, and financial reporting (Ismail and King, 2007; Sajady, Dastgir, and
Hashem, 2008).
A computerized accounting system can be defined as an accounting information system that processes the financial transactions
and events to produce accurate accounting results as per the user requirements or guidelines. Computerized accounting is defined
by Alan & Frankwood (2005) as a total suit of components that together comprises all inputs, storage, transactions, processing,
collecting and reporting of financial transaction data. Every proper accounting system, be it manual or computerized must follow
the generally accepted accounting principles and also the framework for maintenance of records and generation of reports must be
well defined and easily to be understood.
In a computerized accounting system, the process of storage and handling of data, which is normally referred to as operating
environment consists of computer hardware and software under which the accounting system operates. Computer hardware and
software are interdependent and so one cannot do without the other (Bernard Adomako Adjei, 2013) The link here is that, the type
of accounting system employed determines the operating environment. More so, the nature of software used determines its
hardware so selecting a computer hardware depends upon several factors like the number of users, secrecy level and the sectional
or departmental activities in the organization, etc.
the impact of computerized accounting system in financial reporting. Accounting is not only the oldest but also the most stable
of the management disciplines. In spite of its stability and continuity, accounting has seen major changes during the past century.
It would be surprising if a century from now, accounting is the same as today. Although we cannot look so far ahead, we can
analyze the current conditions for clues about what to expect in the next decade or two (Sunder 1999). According to Osmond,
(2011), accounting is the way business owners manage their company’s financial information in orders to make better decision
regarding their companies. Accounting provides financial information about a business or a not-for-profit organization. Owners,
managers, investors and other interested parties need financial information for decision making. Financial accounting is the art of
systematically identifying, measuring, recording, classifying and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of financial nature, and communicating, analyzing and interpreting the results
there of (Woode &Sangster, 2008). Rauplience and Staerngis (2003) reached to a developed model to assess the effectiveness of
accounting information systems that characterized with openness and clarity of the determinants and can be used in all stages of
the system’s life cycle (choice application- exploitation) and evaluate mixed indicators (quantity-quality) of the accounting
systems’ effectiveness.
Every company applies accounting because it is generally accepted that companies have to reveal certain financial and management
information to economic users and of course because accounting is an indispensable tool in business decision-making process.
Accounting is an important part of every company thus; businesses are required to keep proper books of accounts. Weber (2010)
stated that accounting can be divided into two basic categories: those which apply manual accounting and those which prefer
computerized accounting systems. Meigs et al, (1998) Computerized accounting system is a system that uses computers to input,
process, store and output accounting information inform of financial reports. He adds that accounting system records all transactions
that routinely deal with events that affect the financial position and performance of an entity. Marivic (2009) described a
computerized accounting system as a method or scheme by which financial information on business transactions are recorded,
organised, summarized, analyzed, interpreted and communicated to stakeholders through the use of computers and computer based
systems such as accounting packages. He emphasized that it’s a mechanized process of facilitating financial information inflows
as well as the automation of accounting tasks such as database recording and report generation. Marivic adds that keeping accurate
accounting records is a vital part of any organization. Apart from helping it to keep its float financially and legal, it is a requirement
of funding bodies or donors.
1.1.1 Computerized Accounting System and Quality Financial Reporting
Romney (2010) spell out that the idea behind the accuracy is supported by the fact that there is a
more sophisticated manner in the inputting as well as in the manner of processing data that
guarantees the quality of outputs. When spelt out in simple terms is that a computerized accounting
system allows for minimum errors in the preparation as well as the generation of financial reports
than when using manual accounting systems. Through a computerized accounting system,
financial reports may be quickly accessible through an online system without delay, allowing for
rapid decision-making. As a matter of delivery, a computerized accounting system has been
pronounced to lead other forms of accounting systems. The users of accounting information tend
to believe and rely more on financial reports generated through a computerized accounting system
than other systems. A computerized accounting system is known in its ability to record all
expenditures as well as income received by the company, liabilities among others. It enhances the
accurate transfer of such transactional details to the general ledger which would enable the
processing of the financial data and provide reliable reports for decision making.
The size of an organization is not a key issue in the determination of an accounting system (Welch
& Short, 1987). However, the accounting system should be designed in such a manner that it is
able to precisely and accurately collect, process as well as provide periodic reports in regard to the
financial performance of the entity. Keating and Frumkin (2003) are clear that in most of the
NGOs, there exists poor accounting systems that lead to the mismanagement of donors’ funds. In
order to captivate the consistent achievement of accurate and reliable financial
reporting in an organization, standards as well as a working system for accounting practices should be
based on computerized accounting. Carol (2002) also supports the use of computerizedaccounting
systems as she spells out it is easy as well as appropriate in undertaking accounting functions. According
to McBride (2000) it is a lot more difficult for managers to convince statutory officials as well as
potential managers through provision of profit and loss statements, statement of financial position, as
well as customized reporting without the use of a computerized accounting system.