Evaluation Of Effective Financial Management In A Computerized Accounting System (A Case Study Of Stanbic Bank, Calabar Branch)

Project and Seminar Material for Accountancy / Accounting

Abstract

This study was based on computerized accounting effectiveness and financial reporting at Stanbic Bank, Mbarara Branch. The objectives of the study were; to determine the uses of a computerized accounting information system, to find out the pros and cons of computerized accounting to financial institutions, and to establish the qualities of financial reports generated by computerized accounting system. The researcher used qualitative and quantitative research designs with a sample of size 15 respondents. Both primary and secondary data were used and the data collection methods were questionnaires, observation interviews and investigative procedures. The study revealed the existence of a computerized accounting system at Stanbic Bank Limited and this system has enhanced operational efficiency. It has not only improved the quality of financial reports but also provides timely reports on daily activities and has to a certain extent helped to minimize the risk of fraudulent transactions. The study established that computerized accounting had a great impact on quality of financial reports and that many financial statements were generated through the computerized accounting system. The findings shows a strong significant positive relationship between the variables (r=0.861**, p>0.01) which implies that computerized accounting and financial reporting at Stanbic Bank Uganda are strongly related. The computerized accounting system is of a great importance to the running of the company but is also associated with its own weaknesses that hinder efficiency in the company’s business environment. A continuous culture of utilizing a computerized accounting system is recommended.

Chapter One

Introduction

1.1 Background to the Study

Globally, in United States of America, computerization of banking departments plays an increasing important role in economy and society at large, of which computer applications knowledge is a pre-requisite in every profession, opportunities are enhanced, whatever be the nature of the profession chosen. The presence of this small box in day-to- day function is overpowering and it has become the backbone of all banking accounting systems. Business depends on computers to handle all kinds of accounting and bookkeeping jobs. Banks use computers to record money deposited and withdrawn. You can also book and plan your entire travel agenda, including your ticket booking through e-mail facility, Boyett et al., (2005). It is globally belief that the computers are able to provide useful information if properly fed with a reasonable input or it will result in “Garbage in Garbage out”. The use of computer to carry out a very wide range of activities for work, study and leisure has become part of our everyday life. It is no longer something that you may want to use if you are interested; rather like motor car it is an essential part of our lives, Loudon et al., (2001).

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 method of accounting is based on the system created by an 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)

Organizations seem to have realized that it is in their interest to run business processes while they are monitored by computerized accounting systems as opposed to manual given the great merits the former posses over the later. Accounting is a financial method used by businesses to collect, organize, process and summarize data for reports and statements. Accounting is used to keep track of business trends and to report on the relevant facts within the business. Computer and business Software allows more efficient processing and organization of data. Computerized accounting system refers to the integration of different component systems to produce computerized books of accounts and computer-generated accounting records and documents. ttp://www.bir.gov.ph/reginfo/regcas.htm

Computerized Accounting means that the “books” of a business are managed on a computer. Quick Books, for instance, would be an example of computerized accounting (there are many different software’s) Using Microsoft Excel to organize a business’ financial information is also a manner of computerized accounting.

http://wiki.answers.com. Accountants measure a business entity’s income, expenses and changes in resources. Back in the day, prior to the widespread use of spread sheet and computer applications, Accountants used journals and ledgers in which they recorded business transactions, hence, the term keeping the books. As computer applications became main stream, this keeping of the books accounts has gradually migrated into computerized spreadsheets. Gradually, Accounting systems dedicated to this function were developed and the term Computerized Accounting was born http://wiki.answers.com

Computer in commercial and industrial settings have been around for several decades. The banking industry computer has been used in various areas carrying out their day-to day activities through automated Teller Machine, electronic funds transfer, electronic data exchange, smart cards, MICR cheques, local area network, wide area work, point of sales system, electronic home and office banking, telephone banking, make cheque available program, computerized credit rating, daily calculation of accounts program, local accounting systems, CD accounting system, saving accounting system and safe deposit box accounting system. Computer has immensely aided in banking industry or baking sector in the areas of managerial position, sales department and other various department in the bank. The use of programmed decision making offers several important advantages to the firm, since the computer is potentially capable of making better programmed decision than the human user. One of the most existing things about the information and retrieving is that they are used oriented, Laura (2003).

Accounting information system being an asset of methods, people, procedures and devices regularly used to process business transactions, Hermanson et al, (1987), information is therefore much more useful when it is conveyed through a proper reporting system which gives it good qualities such as accuracy and reliability among others and this can be achieved by use of computerized accounting system.

In Uganda, computers are rapidly changing the nature of work of most accountants and auditors with the aid of special software packages, accountants summarize transactions in standard format employed in financial analysis. These accounting packages greatly reduce the amount of tedious manual work associated with data management and record keeping. A growing number of accountants and auditors with extensive computer skills are specializing in correcting problems with software or developing software to unique data management and analytical needs, Horald et al., (2005).

Computerization has provided self-service facilities (automated customer service machines) from where prospective customers can complete their account opening documents direct online. It assists customers to validate their account numbers and receive instruction on when and how to receive their chequebooks, credit and debit cards. Computerization deals with the physical devices and software that link various computer hardware components and transfer data from one physical location to another, Laudon and Laudon (2001). ICT products in use in the banking industry include Automated Teller Machine, Smart Cards, Telephone Banking, MICR, Electronic Funds Transfer, Electronic Data Interchange, Electronic Home and Office Banking.

The banking industry in Uganda has continued to witness tremendous changes linked with the developments in computerization over the years. Stanbic Bank to re-examine their service and delivery systems in order to properly position them within the framework of the dictates of the dynamism of computerization, Woherem (2000). The quest for survival, global relevance, maintenance of existing market share and sustainable development has made exploitation of the many advantages of computerization through the use of automated devices imperative in the industry. This situation will be seriously investigated and we looked for significance of computerization of accounting systems on financial reporting with particular reference to stanbic Bank, Mbarara Branch.

1.2 Statement of the Problem

The advancements in information technology have eventually led to the introduction of Computerised Accounting Systems in corporate reporting to help produce relevant and faithful representative financial reports for both management and external users for decision making (Greuning, 2006). The many advantages from the use of these systems have led many to conclude that Computerised Accounting Systems in Corporate Reporting is the ‘engine of growth’ in business organisations (Frenzel, 2006). There has been an increase in accounting problems associated with financial reporting hence killing most business that fall victims of this circumstance. Here, we pursue the aspects associated with manual accounting in comparison with computerised accounting in order to find out which system will be in a better position to improve on the quality of financial reporting and accounting operations of a business.

Modern technology has brought about the use of computer system in all areas of our human endeavour’s, in Uganda and other African countries workers sees this as an attempt to replace them and to result them into mass retrenchment or loss their jobs, Iyabi (2007). They always believe that where computers are installed will require less human effort to perform the desired operation. In the advert of computers, the work of accountants and auditors has changed rapidly with the aid of special software packages; accountants summarize transactions in standard formats by financial records and organize data in special formants employed in financial analysis. Despite most high profile companies having 100% computerized accounting systems; there are still difficulties in tracking down errors and at the same time, time consuming, Adetayo et al., (2009). Given that business enterprise performance in the Stanbic Bank, Mbarara Branch in various departments has been persistently poor, the study intended to establish the factors behind this persistent negative situation. On the basis of this background the researcher was convinced that there was need to evaluate the financial reporting with accounting packages.

1.3 Purpose of the Study

The research study was to establish the relationship between computerized accounting systems and financial reporting especially on quality financial reporting with particular reference to Stanbic Bank, Mbarara Branch. The study further presents appropriate recommendations on how to avert/improve the negative situation in the rural area of Uganda.

1.4 Objectives of the Study

The objectives of the study were:-

To evaluate the strength of the computerized accounting system used by Stanbic Bank , Mbarara Branch.
To find the pros and cons of computerized accounting to financial institutions.
To establish the qualities of financial reports generated by computerized accounting systems.
To establish the relationship of computerized accounting and financial reporting in financial institutions in Uganda

1.5 Research Questions

The study was guided by the following research questions:-

How efficient is the computerized accounting system that Stanbic Bank is using?
What are the pros and cons of computerized accounting over manual accounting in financial institutions?
What are the qualities of financial reports produced by a computerized accounting system?
What are the relationship of computerized accounting and financial reporting in financial institutions in Uganda?

1.6 Scope of the Study

1.6.1 Content Scope

The study was limited to the computerization of accounting systems and financial reporting . The research will be centered upon computerized accounting while examining what accounting is The researcher investigated the to evaluate the strength of the computerized accounting system used by Stanbic Bank , Mbarara Branch, to find the pros and cons of computerized accounting to financial institutions, to establish the qualities of financial reports generated by computerized accounting systems and to establish the relationship of computerized accounting and financial reporting in financial institutions in Uganda . The other aspect to be examined is financial reporting while tackling the qualities and or the characteristics of financial reports. It look at financial reporting as the dependent variable and the computerization of accounting systems as the independent variable.

1.6.2 Geographical Scope

The research covered the financial reports of Stanbic Bank Uganda Limited, Mbarara branch, in Mbarara district located in Western Uganda . This particular case study was chosen because it was of convenience to the researcher in terms of its’ type of business, the researchers’ area of residence, language and availability of data for the research work.

1.6.3 Time Scope

The study covered financial reports generated within the period of 2011 to 2014. This period being the most recent and given the limited research time frame, the researcher was able to cover reports of more than two years.

1.7 Significance of the Study

The findings were of great importance in the following ways:-

This research was of prime benefit to the management and staff of Stanbic Bank Uganda Limited, not only for the Mbarara branch, Mbarara for other branches as well, since it enable them identify and understand the risks and problems associated with computerized accounting and financial reporting and how best to combat such problems.

This information was of great importance to other business companies and bodies that have adopted and those that are yet to adopt the system of computerized accounting in knowing the pressure points to be emphasized and well managed in order to pursue the system successfully.

The study was of great benefit to the students who enable to access this information that guide them in research and equip them with knowledge as far as manual and computerized accounting is concerned and the importance of computerized accounting as far as financial reporting is concerned.

The various stakeholders like Ministry of Ministry of Finance, Planning and Economic Development, International Bodies like USAID, World Bank and International Monetary Fund, and Bank of Uganda may establish the various computer packages used in accounting systems, effects of computerized accounting systems on business enterprise performance, challenges met by Stanbic Bank in using accounting system and subsequently come up with recommendations at various levels of leadership to avert/ improve the negative situation.

The study may enable management to understand the significance of preparing quality and reliable financial reports. The study point out weakness in the accounting system which management needs to address. Other researchers may use the report as literature review in order to improve on their research topic in another period.

Chapter Five

Discussion, Recommendations and Conclusion.

5.0 Introduction

This chapter presents a summary of major findings on computerized accounting and corporate fraud and the relationship between them, gives conclusion, recommendations based on the findings and areas for further research.

5.1 Discussion of major findings from the Study

5.2.1. To determine the use of a computerized accounting system.

The study showed that the company (case study) actually makes use of a computerized accounting system. This is evidenced by the results given by the respondents in agreement with the use of the system in the company. Where the uses of a computerized accounting system are; the system’s ability to perform data entry, data processing, data security and data reproduction or reporting such as the generation of financial statements/reports. All these functions of the system have enabled the bank run its operations smoothly in a much more effective and efficient manner.

Findings revealed that there is a computerized accounting system in Stanbic Bank. According to results, 41.5% of the 14 respondents that were interviewed strongly agreed that there is actually a computerized accounting system 58.5% agreed. Findings also revealed that the computerized accounting system has enhanced the quality of financial reports and helps to maintain error free records while providing easy timely information for decision making, easy transaction processing as well as easy storage, reference and access to information. The study also revealed that over the time, staff of Stanbic Bank has since gain sufficient experience in dealing with the computerized accounting system as daily activity reports can automatically generated on a daily basis. This according to the findings has improved operational efficiency and effectiveness amongst the staff. It was however, established from the respondents that management sometimes overrides the controls in place to generate reports that portray optimistic corporation financial positions. This finding was arrived at with 61% of the 15 respondents that were interviewed agreed with the fact that management is found of practicing such an illegal maneuver. This revelation shows a dangerous position on the state of affairs of Stanbic Bank as quality and accuracy of financial reports generated become highly doubtable.

5.2.2 To finds out the pros and cons of computerized accounting system to financial institutions.

According to the findings of the study, a computerized accounting system is of a great importance to the running of the company but is also associated with its own weaknesses that sometimes hinder efficiency in the company’s business environment. The most prominent values of the system being: ability to carry out automatic financial auditing and transaction balancing, easy communication, user friendliness, speed and the time saving factor. With all these values at hand, it is clear that the system actually performs its operations very well as far as guaranteeing effectiveness and efficiency of business operations is concerned.

The irregularities of the system however, count in as well. These majorly include risks of system failure and eye strains among others. Most of these weaknesses of the system can actually be combated easily in order to reduce on the business risks that may come up as a result. For example, system failure can be solved through consistent upgrading of the system and the aspect of eye strains can be controlled by avoiding long working hour on computers and operation through working shifts. Otherwise, it is notable from the findings that the system is actually more of an asset than a liability to the company’s business operations and it would therefore be necessary for other financial institutions that have not yet implemented this system, to adopt the idea of establishing it so as to improve on operations in terms of effectiveness and efficiency.

5.2.3 To establish the qualities of financial reports generated by a computerized accounting system.

From the findings, financial reports generated through computerized accounting are mainly consistent, reliable and material among other qualities. These most prominent qualities of financial reports generated through computerized accounting make the system much more unique to the manual accounting system especially where accuracy in financial calculations and reliability in reporting count. It is one of the strongholds as to why 100% of the respondents prefer a computerized accounting system to the manual accounting system. With this in mind, it is worth to recommend a computerized accounting system for business operations especially in of the financial nature as compared to the outdated manual accounting system.

5.3 Summary of Major Findings.

5.3.1 To determine the use of a computerized accounting system.

The results from the study confirm that computerized accounting performs several unique tasks in a company which are satisfactory. This is indicated by the tasks noted down by respondents in the questionnaire on this variable.

Quick Financial Reports:

The researcher found out that through computerized accounting system, financial reports can be generated quickly. This side with McBride (2000) view that computerized accounting system can generate different types of reports needed by management for instance profit and loss reports, and VAT reports among others. It was observed that the quickness in generation of the reports is due to the fact that through computerized accounting, data processing and analysis are faster and more accurate hence managers can instantly access different information which leads to easy and quick decision making.

Improvement in Business Performance:

As pronounced by Indira (2008) that computerized system is a highly integrated application that transforms the business processes with its performance enhancing features. Thus accounting functions, inventory control and statutory reporting can be easily done resulting into faster access to business information.

Accuracy and Efficiency:

Due to expansions, business transactions increase and such transactions can only be recorded and maintained accurately. The study revealed that the firm can handle large volumes of accounting data with ease which was the same view pointed by McBride (2000). Computerized accounting can handle data many times greater than humans hence cost effective.

Simplified Posting of Transactions:

There is no need to have huge paper documentations as in manual systems. The accountant emphasized the advantage that accounting functions such as record keeping, double entry principle are simplified with computerized systems. Cook (2002) also echoed that accounting functions such as posting transactions are simplified. However there should be accuracy in entering data otherwise human errors in inputting data results into inaccurate financial reports.

Minimized errors:

The researcher observed that with computerized accounting systems, arithmetic errors are remarkably reduced this is because computerized accounting performs the computations automatically. However the researcher also established that computerized accounting does not have intelligence to eliminate or correct errors made by humans during data entry but can only detect errors.

Easy Auditing:

The researcher was informed that when external auditors come, there work is simplified because all sets of transactions are easily availed to them hence saving time and costs.

5.3.2 To find out the pros and cons of computerized accounting to financial institutions

The findings revealed that computerized accounting is not only advantageous but is also associated with some weaknesses. However, the study results indicate that advantages of a computerized accounting are much more paramount than its disadvantages. This reflects a positive response in the adoption of the use of computerized accounting.

5.3.3 To establish the qualities of financial reports generated through computerized accounting.

The study findings also identified a number of qualities or characteristics of reports generated through computerized accounting. It is evident that most of these qualities are unique to those of the reports generated through manual accounting, thus making the latter system much preferable.

5.4 Conclusion

5.4.1 To determine the use of a computerized accounting system.

From the findings, response is high that the company (case study) runs its financial operations, right from the beginning point of data entry, data processing and security to the end point of data reporting of a financial nature in a computerized manner. It is therefore fair to conclude that Stanbic Bank Uganda Limited actually make use of a computerized accounting system.

5.4.2 To find out the pros and cons of computerized accounting to financial institutions

The results revealed that much as a computerized accounting system has got satisfactory advantages, it also comes with its disadvantages. However, the study findings show that the advantages of computerized accounting are more paramount as compared to its disadvantages even as far as financial reporting is concerned. This therefore zeroes to the computerised accounting as more of an asset than a liability to business operations and reporting.

5.4.3 To establish the qualities financial reports generated by a computerized accounting system.

The study also established a number of qualities of financial reports generated through computerised accounting. From these findings however, it is evident that reports produced through manual accounting have also got their own strengths characteristically but all the same, financial reports generated through computerised accounting have much more paramount and unique qualities that still leave computerised accounting as a better option to financial reporting.

5.5 Recommendation

To determine the uses of a computerized accounting system. I strongly recommend that financial institutions should continuously adopt a culture of utilizing computerized accounting systems that provide easy preparation of financial reports. As seen from the earlier chapter, computerized accounting systems perform enormous tasks which if performed correctly provide the company with accurate, efficient and timely reports.

To find out the pros and cons of computerized accounting to financial institutions: The computerized accounting system has got its own strengths and weaknesses while in operation. However, the study findings show that the system is actually more of an asset than a liability to the company’s business operations and it would therefore be necessary to recommend that other financial institutions that have not yet implemented this system, get to adopt the idea of establishing it so as to improve on operations in terms of effectiveness and efficiency.

To establish the qualities of financial reports generated by a computerized accounting system. In the business world of a financial nature, daily financial operations have reported several weaknesses such as errors and intentional figure manipulations being common to financial reports generated through the manual accounting system. However, the introduction of a computerized accounting system as far as the study was concerned, brought with it qualities of financial reports that are very unique to those reproduced manually. This gives a strong stand for a company that is in need of smooth operations and reliable reporting, the computerized accounting system is recommended.

From the findings and summary, the researcher recommends that first and fore most, the company needs to acquire a computerized accounting system that suits the organizational needs. Enough resources need to be saved for a tailor made software and system analyst need to be consulted in this important issue. There should also be routine system maintenance programs put in place so that the system can get rid of shortfall such as viruses, fraud among others that may affect the system operations. This should be done so that the system can operate to the expectation of management and other users.

On the management point of view, it is important that staff for handling transactions is trained so as to improve on the accuracy and speed in posting. With increased improvements and versions of accounting packages, staff needs constant and continuous training by the authorized dealers of the packages so that they remain well acquainted with the knowledge and experience of the package.

In addition to the training, it is important to constantly appraise the staff to check which staff is failing the system as regards reporting unbiased financial information. The company needs more internal audit reviews to appraise and check the strength of the instituted controls within the system. The computerized accounting system is prone to fraud in cases where physical cash is involved. Without internal audit reviews, there may arise cases of teaming and lading fraud that may pass unnoticed. It is therefore important external auditors come in once in a while to do audit.

There is need to increase the security levels in the internal control system. Management needs to ensure that requisitions are authorized; cheque payment, vouchers and other source documents are approved. On recording, it is important to have a clerk to enter the data which is then updated yet by another person preferably one with more experience and expertise. Management can also consider the option of using a networked system linking all the system in the finance and accounting department. This is because the current system uses standalone personal computers. In this way, errors and fraud possibilities are minimized thus improving on the quality of financial reports.

5.6 Areas of Further Study

There is need for more to be undertaken to establish the role of management in promoting the quality of financial reporting. There is need to explore whether computerized accounting can be run alongside the manual system. Therefore there is need to investigate if the two systems can be used concurrently.

More research on business process re-engineering and how essential can be used in computerized accounting to achieve better goals in firms.

There is need for more research on how accounting records can be maintained in providing in depth exposure to accounts and quality of financial reports

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