EFFECTIVE ACCOUNTING INFORMATION SYSTEM: AN IMPERATIVE FOR PROFIT PERFORMANCE

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Accounting Information Systems (AISs) are a tool which, when incorporated into the field of Information and Technology systems, are designed to help in the management and control of topics related to organization’ economic-financial area. But the stunning advance in technology has opened up the possibility of generating and using accounting information from a strategic viewpoint (El Louadi, 1998). Accounting Information System (AIS) is vital to all organizations (Borthick and Clark, 1990; Curtis, 1995; Rahman et al., 1988; Wilkinson, 1993; Wilkinson et al., 2000) and perhaps, each organization either profit or non profit-oriented need to maintain the AISs (Wilkinson, 2000: 3-4). On the other hand, an AIS is the whole of the related components that are put together to collect information, raw data or ordinary data and transform them into financial data for the purpose of reporting them to decision makers (LI, M., YE, L.R. 1999).To better understand the term ‘Accounting Information System’, the three words constitute AIS would be elaborated separately. Firstly, literature documented that accounting could be identified into three components, namely information system, “language of business” and source of financial information (Wilkinson, 1993: 6-7). Secondly, information is a valuable data processing that provides a basis for making decisions, taking action and fulfilling legal obligation. Finally, system is an integrated entity, where the framework is focused on a set of objectives (Watts, 1999).

Accounting literature argues that strategic success is considered an outcome of Accounting Information Systems (AIS) design (Langfield-Smith, 1997). Several, studies have analyzed the impact of AIS in strategic management, examining the attributes of AIS under different strategic priorities (Ittner and Larcker, 1997; Bouwens and Abernethy, 2000). It has also been analyzing the effect on performance of the interaction between certain types of strategies and different design of AIS (e.g. different techniques and information). The appropriate design of AIS supports business strategies in ways that increasing the organizational performance (Chenhall, 2003). Increasing AIS investment will be the leverage for achieving a stronger, more flexible corporate culture to face persistent changes in the environment. Innovation is the incentive with which a virtuous circle will be put in place, leading to better firm performance and a reduction in the financial and organizational obstacles, while making it possible to access capital markets. AIS are systems used to record the financial transactions of a business or organization. AIS combines the methodologies, controls and accounting techniques with the technology of the IT industry to track transactions, provide internal reporting data, external reporting data, financial statements, and trend analysis capabilities to affect on organizational performance (GUL, F.A. 1991).

In managing an organization and implementing an internal control system the impact of accounting information system (AIS) is crucial. An important question in the field of accounting and management decision-making concerns the fit of AIS with organizational requirements for information communication and control (Nicolaou, 2000). Benefits of accounting information system can be evaluated by its impacts on improvement of decision-making process, quality of accounting information, performance evaluation, internal controls and facilitating company’s transactions (Bolon, 1998).

1.2     STATEMENT OF THE PROBLEM

Currently, most organizations continue to increase spending on information system and their budgets continue to rise. Moreover, economic conditions and competition create pressures about costs of information. Generally, information system is developed using information technology to aid an individual in performing their job. Therefore, most organizations focus on developing information system in order to support decision system, communication, knowledge management, as well as many others. The key part of information system needed for decision making in organization is accounting information system.

Today, information technology and an increasingly transparent financial sector have become key driving forces in business operations, strategies, structures, ownership, and performance. These forces cut across many industries to force changes that, in turn, have had significant economic and social impacts on the organizational effectiveness (Doms, Jarmin and Klimek, 2004). Structurally, the emerging information technology industry is uncharacteristic of typical a traditional process which has gradually grown out of the need to increase efficiency and cut on operations costs in the industry. Therefore, this study seeks to examine the effectiveness of accounting information system in the performance of profit making organization.

• OBJECTIVES OF THE STUDY

The objectives of the study are to find out the following:

1. To examine the impact of accounting information systems on the effectiveness of performance in an organization.
2. To determine whether accounting information system enhance the effective decision making in Anchor Insurance Company Limited, Uyo.
3. To determine whether accounting information system increase profitability of an organization.
4. To find out the problems confronting Anchor Insurance Company Limited, Uyo in maintaining effective accounting system.

1. To make useful recommendations based on research findings.

1.4     RESEARCH QUESTIONS

The following research questions were formulated to guide this study:

1. Does accounting information system increase profitability in Anchor Insurance Company Limited?
2. What are the impacts of accounting information systems on the effectiveness of performance in an organization?
3. Does accounting information system enhance effective decision making in Anchor Insurance Company Limited, Uyo?
4. Are there any problems confronting Anchor Insurance Company Limited, Uyo in designing effective accounting system?

1.5     RESEARCH HYPOTHESES

The following research hypotheses were formulated to guide this research:

Hypothesis 1

H0:     There is no significant relationship between accounting information system and increase profitability in Anchor Insurance Company Plc.

H1:     There is a significant relationship between accounting information system and increase profitability in Anchor Insurance Company Plc.

Hypothesis 2

H0:     There is no significant relationship between the impacts of accounting information systems and the effectiveness of performance in an organization.

H1:     There is a significant relationship between the impacts of accounting information systems and the effectiveness of performance in an organization.

1.6     SIGNIFICANCE OF THE STUDY

The study is of key significance to Anchor Insurance Company Plc as well as other firms in the same sector in terms of determining the benefits accruing due to the integration of accounting information systems in their operations. This enabled insurance firms in gauging the model in terms of enhancing organizational effectiveness. The study is useful to other researchers interested in the problem under investigation as the study has laid a platform on which further studies related to the subject can be undertaken.

The study would provide a theoretical basis about accounting information system successful adoption dimension to firms. It would provide practical guidance for accounting information systems implementation in other areas and it would also provide empirical and practical contributions for organization in effectively applying accounting information system in their operations.

Accounting information systems provide information about the financial resources, obligations, and activities of an enterprise that is intended for use primarily by external decision makers – investors and creditors. This study provides useful information in making investment and credit decisions.

1.7     SCOPE OF THE STUDY

The study concerns about effective accounting information system an imperative for profit performance with a particular reference to Anchor Insurance Company Plc, Uyo.

1.8     LIMITATION OF THE STUDY

The limitation of this study was inability of management to divulge certain information which they consider sensitive and fear of publication which might be detrimental to their operation.

Also, the outright inability of some respondents to complete and return the questionnaire to the researcher is one of the limitations of the study.

Another limitation to the study was traffic congestion for the researcher to meet them in their offices and for possible return of the questionnaire.

Finally, the researcher observed the non-cooperative attitude of some workers of the company to make information available for her.

1.9     DEFINITION OF TERMS AND ACRONYMS

1. a) ACCOUNTING: This is defined as the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information (Frank Wood & A. Sangster, 2005).
2. b) ACCOUNTING INFORMATION SYSTEM: Accounting Information System is defined as is a computer based system that increases the control and enhances the cooperation in the organization (Nicoloau, 2000).
3. c) INSURANCE: It is social way of providing financial compensation for the effects of misfortune, the payments being made from the accumulated contribution of all parties participating in the scheme.
4. d) PROFIT: This is a sum in which the business made after the deduction of all the expenses and it can be withdrawn from a business while maintaining the capital that existed at the beginning of the business