EFFICIENCY OF ACCOUNTING SOFTWARES IN THE PREPARATION OF FINANCIAL STATEMENTS

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EFFICIENCY OF ACCOUNTING SOFTWARES IN THE PREPARATION OF FINANCIAL STATEMENTS

CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

The increasing globalization of the world economy precipitated organizations the world over to compete in the global marketplace leading to emergence of a new set of accounting challenges such as multiple currencies and follow a horde of accounting and tax rules. Thus, a more refined accounting software packages competent of managing international accounting intricate issues is increasingly in need (Adhikari, Lebow & Zhang, 2004). However, the great technology advancement has rendered the options of using the accounting information from a strategic point of view. The adoption of Accounting Software becomes major aspect in determining the survival, growth and success of an organization as firms require more information, be it monetary or non-monetary, to deal with a higher scale of uncertainties in the competitive market and require data processing capacity and system to ameliorate to suit their information needs (Van de Ven & Drazin, 1984) in this global economy era.

In the world of digitalization today, the digitalization of accounting is the need of hours. With the preface of computerized accounting systems with latest accounting software, many benefits and advantageous factors such as speed and accuracy of operation, simplicity and reliability of operation etc. have change the fate of the accounting world globally. Accounting software is a class of computer programs which enable you to manage your business’s financial transactions. Using accounting software assists organizations to utilize the available resources in their accounting departments efficiently and effectively and also aid to reduce costly bookkeeping or accounting mistakes. In the field of accounting and finance, the use of manual reporting of financial statements has been replaced by the use of computer software to facilitate quick reporting and easy processing and storage of financial information, hence due to facilitation of accounting software, preparation and access of financial statements and use of accounting procedures has been made easy (Kharuddin et al., 2010). In the present business world, the failure to apply and use computer software indicates that financial information may not be accurate, delays in financial reporting, and that financial information may not be stored for a long time

Accounting is the systematic art of recording, classifying and summarizing in a significant manner and in terms of monetary, transactions and events which are, in part at least, of financial character, and interpreting the results thereof. Accounting can also be referred to as an information system that measures, processes and communicates financial information about an economic entity. Advancements in information technology have significantly improved accounting systems and transformed economic life, (Adefila, 2008). Computers and other digital technologies have increased office productivity and general performance facilitating the rapid exchange of documents, research, collaboration with far-flung partners and the collection and analysis of data. Information technology gave all sorts of individual economic actors the new valuable tools for identifying and pursuing economic and business opportunities. Financial Statements deals with the application of computers to process financial transaction, such as retrieve, transmit and manipulate data. This could also be described as anything that renders data, information, or perceived knowledge in any visual format through any multimedia distribution mechanism, (Shanker, S. 2013).

Accounting takes a vital role in operating an organization. All businesses must keep track of their financial information that relates to its business activities. It also has numerous processes; some easy, others complicated and burdensome. However as the business increases, acquires new clients or customers, enters new markets and keeps pace with constant changes in information technology, organizations need to maintain highly accurate and updated accounting, inventory and statutory records (Igbaria et al, 1997). With a substantial increase in the volume of accounting transactions and increase in exposure of information to errors due to complexity of these accounting systems, there was a need for a system which could store and process accounting data with increased speed, storage, and processing capacity. This led to the rise in the development and introduction of accounting software packages (Igbaria et al, 1997).

Accounting software describes a type of application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance. It functions as an accounting information system. It may be developed in-house by the organization using it, may be purchased from a third party, or may be a combination of a third-party application software package with local modifications (Wikipedia, 2016). Accounting software may be on-line based, accessed anywhere at any time with any device which is Internet enabled, or may be desktop based. It varies greatly in its complexity and cost. The market has been undergoing considerable consolidation since the mid-1990s, with many suppliers ceasing to trade or being bought by larger groups.

In many cases, implementation of accounting software (i.e. the installation and configuration of the system at the client) can be a bigger consideration than the actual software chosen when it comes down to the total cost of ownership for the business. Most midmarket and larger applications are sold exclusively through resellers, developers and consultants. Those companies generally pass on a license fee to the software vendor and then apply charges to the client for installation, customization and support services. Clients can normally count on paying roughly 50-200% of the price of the software in implementation and consulting fees. With the advent of faster computers and internet connections, accounting software companies have been able to create accounting software paid for on a monthly recurring charge instead of a larger upfront license fee. The rate of adoption of this new business model has increased steadily to the point where legacy players have been forced to come out with their own online versions. Cloud accounting software seems to more rapidly adopt by areas where prices are generally higher due to higher shipping costs and price discrimination practices (Chau, 2001).

The use of accounting software will lessen the data processing time that usually takes a longer time if done manually or by hand and processing can be accelerated significantly and with a better level of accuracy. American institute of Certified Public Accountant (AICPA) has created a new certificate of Certified Information Technology Professional (CITP). The CITP is certification for the accountants who have a broad knowledge in the field of technology and understand how the information system technology can be used in a variety of organizations. This reflects the AICPA recognition of the importance of information technology systems in relation to accounting (Agarwal & Prasad, 1997).

An accounting student is required to be able to follow information technology developments because by understanding and knowing the technology progress and development, students can implement the accounting information system technology, which is expected to make the student more competent, especially in the field of information systems technology. Accounting students are required to become competent accountants, for example, in the field of information systems technology. This is supported by the number of companies that expect accounting graduates to have a good knowledge of accounting, which is supported with specific expertise (soft skills) in the information systems technology field, such as accounting software.

1.2 Statement of the Problem

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

1.3 Objectives of the Study

The following are the objectives of this study:

To investigate the impact of accounting software on the bank payroll financial preparation and reporting in the banks.

To examine the associated benefits of accounting software on financial reporting in the banks.

To identify the disadvantages of accounting software on the accounting information system in the banks.

1.4 Research Questions

Based on the following objectives of the study, the following research questions were postulated;

To what extent is the impact of accounting software on the banks payroll financial preparation and reporting in the banks?

What are the benefits associated on the use of accounting software on financial reporting in the banks?

What are the disadvantages of accounting software on the accounting information system in the banks?

1.5. Research Hypotheses

The following hypotheses were tested in their null form

Ho: There is no significant impact of accounting software on the banks payroll financial preparation and reporting in the banks.

Ho: There is no significant benefit on the use of accounting software on financial reporting in the banks

Ho: There is no significant effect of the disadvantages of accounting software on the accounting information reporting in the banks.

1.6. Operationalization of Variables

Efficiency of accounting software in the preparation of financial statements. The above topic have two variables, namely; Accounting Software (independent) and financial statements (dependent variables), to be represented as X and Y respectively.

X = Independent (Accounting Software)

Y = Dependent (Financial Statements)

The independent variable (accounting software) will be a constant variable

Elements of (X) Accounting software

X1 = Accounting Software

X2 = Benefits of Accounting Software

X3 = Disadvantages of Accounting Software

Element of (Y) Financial Statements

Y1 = Payroll

Y2 = Financial Reporting

Y3 = Accounting Information System

1.7. Significance of the Study

The following are the significance of this study:

The results from this study will educate on the impact of accounting software on the processing and management of financial statement.

In today’s business environment, most financial accounting systems have been computerized and automated with little or no paper documentation. Technologies have greatly changed the nature of audits which have so long relied on paper documents. Auditors or Accountant performing attest services for clients that process financial transactions electronically therefore need to go extra miles to be professionally and technically competent in order to perform an acceptable audit.

1.8. Scope of the study

This study is on the efficiency of accounting software in the preparation of financial statement in 5 selected banks in Benin City which are First bank, Guaranteed Trust Bank, Diamond Bank, Access bank and First City Monument Bank.

1.9. Definition of terms

Accounting Software: describes a type of application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance.

Accounting Information System: is a structure that a business uses to collect, store, manage, process, retrieve and report its financial data so that it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors and regulatory and tax agencies.

Trial Balance: is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements

Financial Statement: is a formal record of the financial activities and position of a business, person, or other entity.

1.10. Chapterization

The research understudy shall encompass 5 chapters, which are as follows; Chapter one shall comprise the introduction and body of the topic; Chapter two entails the literature review, empirical framework, conceptual framework and theoretical framework; Chapter three consists of the research methodology and design, research instrument, sample and sampling size; Chapter four entails data presentation and analysis, while Chapter five shall be the concluding part, which includes the summary of findings, conclusion and recommendation.

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