In prior time, business organisations were just progressing in profits making but in recent time its objective have moved beyond profit making into gaining competitive advantages, sustainability, customer satisfaction, surviving turbulence environment and effective decision making in order to grow and stay in the market. With the stunning advances in technology, firms are implementing the use of Information System (IS) in their day-to-day business activities.
Information system is a set of components that work together to provide information that helps in the operation and management of an organization. IS helps to collect, store and process raw data and delivering information. IS are implemented in an organization to help improve the efficiency and effectiveness of an organization. There are many types of Information System and one of them in the Accounting Information System. AIS is formed from two words: “accounting” first and “information system” second. One can tend to say that AIS is the combination of the accounting and information system. That is technology; computers and other software are used in the preparation of financial statements as well as in making financial decisions. AIS helps to shape the information and present it in a way that the user can easily understand. In other definition of AIS, it is stated that AIS is an organized components that collect, classify, process, analyze financial information and provide these information to stakeholders of a company to make decisions.
According to Khan, (2017) an AIS is a combination of people, equipment, policies and procedures that work together to collect data and transform it into useful information. It is an official mechanism to collect, organize and communicate accounting information about the activities of a company. It is a system that provides data or information about the operation of an organization to people to support the activities of employees, owners, customers and other important people in an organization effectively to authorized people and with timely information. It is a system, with the combination of several facilities and personnel to provide information to support the administrative process of decision-making.
Moreover, AIS is defined as a computer-based system that processes financial information and supports decision tasks in the context of coordination and control of organizational activities (Nicolaou, A., 2000).
Furthermore, Grande, Estebanez and Colomina (2010) refers AIS as a system that combines the methodologies, controls and accounting techniques with ICT to track transactions, provides internal reporting data, external reporting data, financial statements and trend analysis capabilities to improve organization’s performance.
Therefore, it is now fundamental to use such a system in order not to stay behind in the business world. Competency and business competition are forcing business to embrace the utilization of AIS in order to remain competent, survive and increase the performance of companies and as well as to increase efficiency and effectiveness.
It is true that without human touch in AIS, it would be useless as it is a system where people need to input data. However, the information provided by AIS is accurate and consistent. Compared with the manual system, it is easier to use the AIS and when information is recorded in one place. AIS enable that piece of information to be updated automatically throughout the organisation and accessible to huge amount of users at a time.
According to Hossein Alikhani et al (2013) there are three main responsibilities of AIS, first is to receive and keep about activities and transaction in order to be assessed by the organisation and second is to convert data into information in order to help management in decision making processes. And, third is to establish proper controls for the preservation of the company’s assets and financial data in order to make sure that data is available when needed and they are reliable and accurate.
It is to be said that AIS is often associated with performance measurement that is in other word, the performance of a firm. Performance as defined by Neel, A.D., Adams,C, and Kennerley, M. (2002) defined performance as the process of quantifying the efficiency and effectiveness of past actions. On the other side Moullin, M (2002), defined performance measurement as “the process of evaluating how well organisations are managed and the value they deliver for customers and other stakeholders.”
Since the AIS is a very important factor in a business large or small one, it important to know how it impact on the performance of firms that is on performance measurement. That is to know how far AIS is having good or bad effect in the performance of a firm. Performance comprise in the ability to generate good output in terms of productivity, quality of work and time management. Most companies has implemented the use of AIS in the aim of achieving objectives and set goals or target of the organisation. Thus, the evaluation of the performance of accounting information system is important as to be able to know if it is being beneficial to the firm and employees while implementing it and if whether it is doing its requirement.
1.2. PROBLEM STATEMENT
Today, many firms are implementing the utilization of AIS in their business has to be able to boast their performances and gain competitive advantages in the business market. As AIS is gaining a large importance for the success of business, many researcher and authors has said that the implementation of AIS in an organisation will be beneficial in terms of effectiveness and efficiency, accruable information in decision-making, good quality of work, rapid process, security of information and internal control. However, how far would these be true and how far the benefits of AIS would enhance firm’s performance? How far AIS is being effective in firms? On the other hand, whether it is decreasing firm’s performances instead of enhancing it. Thus, such questions has tend me to carry out this study on firm’s performance after implementing AIS.
1.3. OBJECTIVE OF THE STUDY
Therefore, the main objective of this study is to examine whether the implementation of AIS in an organisation has really an impact on firm’s performance.
1.4. CHAPTER OUTLINE
AIS has become the main key for business to operate in an effective and efficient manner to be competitive and for survival in the business market. The previous chapter of this study has given a general overview of the accounting information system and the problem associated with for this study to be carried out. Therefore, this will chapter would be based on the literature review of accounting information system, its benefits and its impact on performances measurement.
2.1. ACCOUNTING INFORMATION SYSTEM
Romney and Steinbart (2000) give the following decision of AIS: “a system that processes data and transaction to provide users with information they need to plan, control and operate their business”. According to the author, an accounting information system is used to plan and control transactions in order to help management make decisions by providing relevant and reliable accounting information.
Grande, E.U, Estébanez, R.P, Colomina, C.M, (2011) defines AIS as a computer-based system that collects, records, process and reports accounting and financial information that would collaborate in decision making tasks for decision makers of an organization. AIS is as a system that processes data and transactions to provide users with information. Their business have to be plan, control and work (Saira et al., 2010). AIS is seen as a system that helps management in planning and controlling processes by giving significant and reliable data for decision-making. AIS is defined as the collection, storage and processing of financial and accounting data that assist managers in planning, controlling and evaluating business activities (Emeka-Nwokeji, 2012). According to Alsharayri, M. (2012) AIS is a system of records usually computer based, which combines accounting principles and concept with the benefits of an information system and which is used to analyse and record business transaction for the purpose of preparing financial statement and providing accounting data to its users.
AIS refers to the perceiving of user’s information satisfaction to decision making and monitoring when company has coordination and control with information that is generated from AIS (Islam, Khan, Obaidullah, ; Alam, 2011). AIS operate functions of information gathering, processing, sorting, and reporting financial reports in the intend to provide significant information for the purpose of storing information, inventories records and decision-making process, and moreover provides financial report on a daily or weekly basis (Sealehi M. 2011).
The main functions of AIS are:
1. Gathering and storage of data about different events, agents and resources.
2. Transform collected data into information as to help management in decision making.
3. Provide sufficient control to make sure that the business resources are accurately, reliable and available when needed.
According to the research pf Hossein Alikhani, Noushin Ahmadi, Mahdi Mehravar (2013), a properly designed AIS improves the effectiveness and efficiency of activities through the following ways:
1. Improving the quality and reducing the cost of production or services. For example, AIS can be used to control machinery in such a way that as soon as the operation was out of the range of acceptable quality, the operator will be noticed.
2. Improving efficiency, AIS can help to improve the efficiency of operations through proving more timely information. For example just in time (JIT) approach requires ongoing, accurate and new information about the inventory of raw materials and their whereabouts.
3. Improving decision making; AIS can improve the decision making by appropriately providing accurate information for the personnel.
4. Sharing of knowledge, properly designed AIS could lead to knowledge sharing. With knowledge sharing, the operations are improved and a competitive advantage is created. For example, an audit firm will be able to transfer the experiences to the employees working in different departments by developing and using a network of system (Romney 2000).
2.2. Benefits of AIS
The major benefits of implementing AIS in a firm is to make the business processing of information to be more efficient and easy. Businesses have gained competitive advantage through efficient processing of customer orders that enhance to customer satisfaction and give a chance to business to improve their effectiveness and efficiency in decision-making for the organisation, thus allowing them to increase their competitive advantage. Pollock and Cornford (2004) indicate that AIS aims to provide as much cost savings as possible for its operations and processes to update the procedures.
The use of AIS in an organization is better adaptation to a changing environment, better management of arm’s length transactions and a high degree of competitiveness. There is also a boost to the dynamic nature of firms with a greater flow of information between different staff levels and the possibility of new business on the network and improved external relationships for the firm, mainly with foreign customers accessed through the firm’s web (Grande et al., 2010).
The AIS generates information in real time, so that management allows improving the control of companies and the strategic decision-making process (Spathis and Constantinides, 2003). When real-time information is needed, the AIS provides easy access to all data when necessary, because the data is stored in a single computer database of the company the user is looking for. AIS sets up a number of commercial applications that are used to fulfill regular business functions, such as accounting, inventory management, and human resources management. The structure of good AIS is to computerize organizational forms and, above all, provide real-time data to companies for data decisions (Nah et al., 2001, Themistocleous et al., 2001).
Copeland et al. (1996) consider AIS is one of the most effective decision-making management tools. Because it has the ability to offer an accurate collection, arrangement and sorting method for information purposes in all different commercial transactions with a goal in helping management in the operation of the business. AIS is a success factor that effectively achieves financial and accounting goals, thus, develops the strategic endeavors of SMEs, and improves the integrity and change of data. AIS offers the opportunity to update procedures and align them with perceived examples of best practices (Fagbemi and Olaoye, 2016, Harash, 2014, Harash, 2015).
Granlund and Malmi (2002) also argued that an organization’s information structure and integrated information system can provide several advantages for global companies. It turns out that AIS provides general benefits such as greater efficiency in transactions, more accessible high-quality information, and greater support for company-specific reports. These advantages have been confirmed by a survey of AIS and companies that have had an impact on management accounting practice (Spathis and Constantinides, 2002).
AIS means more flexibility in generating information, better quality of reports, better integration of account applications, and better decisions based on timely and reliable accounting information. AISs reduce costs by increasing productivity through computerization; to improve decision-making by providing accurate and up-to-date information; both should make the company perform better (Poston and Grabski, 2001). AIS is used to provide financial information about the management or decision-making organization, to analyze, plan, evaluate and diagnose the impact on operational activities and thus to define the financial position. Accounting information can help manage short-term problems such as cost, spending and cash flow by providing information to help control and monitor. Without such a system, firm will find it very difficult to determine their performance and to differentiate between customers and their suppliers and difficulty account balances without anticipating the organization’s future performance (Saira et al., 2010).
Beke j (2010) argues that using AIS is an improvement in the quality of accounting and decision-making. Easy access to records of correctly stored information contributes to the quality decision of the organization. The use of AIS played a crucial role in contributing to the added value of the company by providing company-generated contributions, such as financial statements that helped the company design better strategic plans (Sori, 2009).
Benefits of AIS are only possible if the cost of embracing does not exceed the relevant benefits. When costs are higher than benefits, it is not beneficial for SMEs to use that system. Accordingly, Sajady et al. (2008) argued that the use of the system in question is advantageous when produced information can be effective in the decision-making process and exceeds the costs of benefits. Corner (2000) argued that the benefits of AIS were assessed by improving the decision-making process, assessing the quality of accounting information, assessing performance, internal controls, and the company’s operations and transactions.
Murphy and Simon (2002) claim that the benefits obtained from the AIS are qualitatively quantitative and all. Shang and Seddon (2000, 2002), argues that organizations can classify the types of benefits they can achieve through the use of AIS in five dimensions: operational, managerial, strategic, information technology infrastructure and organization.
Therefore, it clearly show from the literature above that the use of AIS is beneficial to a firm. Adopting the use of AIS will eventually bring value to firm and enhance firm’s performance.
2.3. EFFECTIVENESS OF ACCOUNTING INFORMATION SYSTEM
Accounting information system are said to be effective when it serves the system user with require information. An effective system should be able to provide information to end user or system user, which has potential or positive effect on decision-making process. Thus, it is considered an important mechanism that is beneficial for an effective decision-making and control in an organization.
According to Oguntimehin (2001) organizational effectiveness is the ability to produce desired result. Wilkinson (2000) noted that an effective accounting information system performs several key functions such as data collection , data maintenance, data information accounting systems and knowledge management, data control (including security) and information generation. (Avolio, Gilder, and Shleifer 2001) described the efficiency of the organisation as the optimal use of available resources to achieve value added in the value chain.
Thus, efficiency means reaching the targets with the lowest possible cost (Abdullah and Qattani 2007). Other researchers such as Hassani and Kharabsheh (2000) have defined effectiveness as the relationship between achieved goals and planned goals.
Hafnawi (2001) stated that the accounting information system must have the following characteristics to be effective and efficient:
? Provide administration by necessary information to achieve control and evaluation of the economic activities.
? Provide administration by necessary information that helps them in planning.
? Provide administration by feedback.
? Flexible to suit the environmental changes.
According to Flynn (1992), the effectiveness of the AIS can provide management and information to help with decisions about the successful management of operations. Corner (1989) suggested that the effectiveness of AIS could be considered as added value of benefits. Gelinas (1990) assesses the effectiveness of the AIS as a measure of success in achieving the specified objectives. The success of the AIS application is defined as the organization’s profitability and the performance of its greatest concern. Based on the research done, the authors reached the conclusion that the effectiveness of the AIS could be regarded as a successful use of the system that meets the needs of the user.
Supattra Boonmak in this study “Strategically Involved, Accounting Information System Change The Way Business Compete” concluded that “the positive result in this study suggest that both business strategies and AIS can influence organisation in various ways; for example, to increase operating efficiency and effectiveness, to increase revenue and customer satisfaction, to reduce costs, and to achieve goal and business strategy, and finally to increase firm performance.
2.4. How do we define performance?
Performance can be defined as the act of accomplishing a particular task against set objectives or targets. Performance management may consist of activities that are needed to make sure that objectivities or set targets are being met in an effective and efficient manner. Aamstrong and Baron defined it as “a strategic and integrated approach to increase the effectiveness of companies by improving performances of the people working there and developing capabilities of teams and individuals”.
2.5. What are performance measure?
According to the Performance Guide of the Office Financial Management in Washington, performance measure is a numeric report of a firm’s task and the result of that particular transaction. Performance measure is based on data and its helps us know whether the firm is achieving its set objectives and goals, and if there is any progress in the achievement of these goals. They are tools which helps us in understanding, running and improving what a firm does.
Performance measure show us the following:
Whether the firm is doing well or not
If the set goals of the firm is being met
If processes are being carried out well
If there needs to be improvement or not
In other words, performance measure is only a mean of showing stakeholder of a firm whether they have been able to achieve their target or not. Performance measure is a must in certain countries. For example in Washington it is the law which says that agencies should measure performance and report it to the Office of Financial Management. Moreover measuring the performance of firms is important to government in order to know whether the company is performing well or not , because if the company is not performing well then there may be causes of being bankrupted or failure. Hence, not even government, but banks should also know the performance of companies.
2.6. AIS and performance measure
Ismail and king (2005) concluded that there is a positive association between accounting information system alignment, SME strategy and performance measure.
Coming to the Spanish case,Naranjo-Gil(2004) studies have found that there is an indirect relation between accounting information system and performance measure due to the different and varying tactics that organisation adopt. Naranjo-Gil also found that the investments in AIS created an incentive for more action, thus saving time in making decisions with banks, administration and so on. He also said that this could help reduce cost and good and efficient use of innovation could help increase productivity.
According to the study of Damanpour and Gopalakrishnan (2001), companies achieve higher performance when implementing technological development.
Wah (2000) states that “firm performance drops just after the implementation of AIS, taking several years to recoup the investment in Information Technology.
Rajiv,D. and Banker, Hsibui, Chang (2002) states that there is a significant productivity gains from the implementation of IT. The author made studies and researches about whether Information Technology implementation will really increase productivity. Results obtained from the regression model and Data Envelopment Analysis indicates increased productivity.
The studies and researches of Sajdy,PhD,m Dastgir and PhD and H.Hashem Nejad, m.s (2008) talks about the effectiveness of accounting information system ; that is of whether accounting information system are really effective to the organisation after implementation. The result obtained from this study confirms that AIS have helped managers in decision making process, in the internal control, in producing quality financial reporting as well as facilitated the company’s transaction process. However, nothing was said about the improvement of performance evaluation.
Chenhall and Morris (1986) in their study of “The impact of Structure, Environment, and Interdependence on the Perceived Usefulness of Management Accounting System” perceived the usefulness of four information attribute, that is scope, timeliness, level of aggregation and integration. Scope refers to measures being used and extension of AIS in time and space. Hence, information can concentrated on future or past events, internal or external events, or can be quantified in monetary or non monetary. Timeless is the frequency and the speed with which information can be reported. Aggregation means the way data is collected in time period, functions in accordance with data models. Integration means the need to provide information to reflect interaction and coordination effects of several functions in a company. These four branches have been analysed to compare AIS with organisation strategies and performance.
Study by Elena Urquia Grande, Raquel perez Estebanez and Clara Munoz Columina (2010) shows a positive association between accounting information system, organisation strategy and performance. They say that this has helped to save shareholders time and money.
Another study by Noellente Conway (2009) states that accounting system affects behaviour and performance management and have effects across departments, organisation and even countries.
Past studies have shown that for an accounting information system to be effective there should be three factors. Firstly, it must with the objectives and the perception of the company or organisation, secondly it must fit with the culture and last, it must fit with the problem being solved that is technology.
2.7. AIS and Data Quality
The performance of the accounting information system (AIS) depends on the quality of the data, the output of garbage in the garbage is the result of poor data quality and, therefore, the quality of the data is important for AIS ( XU, 2003). All data production processes (data collection, data storage and data usage) should work correctly to achieve high data quality (Lee and Strong 2003). According to Xu (2009), inaccurate and incomplete data can damage the competitiveness of companies. They also discovered that input control and authorized employees are important for the quality of the accounting information system data. The poor quality of information can have a negative effect on decision making (Huang, Lee and Wang 1999). The quality of the accounting information can be assessed by four characteristics, accuracy, timeliness, completeness and consistency (Xu 2003). They examined critical success factors for the quality of accounting information, they identified four groups; information producers, information custodians, information consumers and information managers, and interviewed the four groups. They has found and suggested that organizational problem, system and the humanitarian issue are very important for the quality of the information.
According to the studies that were conducted by Hongjiang Xu, (2010), management is engaged with different types of activities, which require good quality and reliable information. Hongjiang Xu was of the opinion that quality information is one of the competitive advantages for an organization. Later Dalabeeh et. al (2012), conducted further studies in this regard for the further advanced utilization of the accounting information system mentions in his studies that the accounting system is strongly connected with various administrative processes; it helps rationalize decisions, makes the administrative process more effective in satisfying the needs of the organization’s management and raises the levels of performance in order to realize goals.
(Rahayu 2012) examined the influence of management commitment on data quality and AIS. He finds out that management commitment and quality of data together have adequate effect on the accounting information system, although he suggested that contribution of management commitment need to be improved and also to management adequacy training and funding of resource development need to be considered by organizations.
According to the studies that were conducted by Hongjiang Xu, (2010), management is engaged with different types of activities, which require good quality and reliable information. Hongjiang Xu was of the opinion that quality information is one of the competitive advantages for an organization. Later Dalabeeh et. al (2012) conducted further studies in this regard for the further advanced utilization of the accounting information system mentions in his studies that the accounting system is strongly connected with various administrative processes; it helps rationalize decisions, makes the administrative process more effective in satisfying the needs of the organization’s management and raises the levels of performance in order to realize goals.
2.8. Theoretical Framework
The first approach of information system to the field accounting was established by a study by the American Accounting Association, on “A statement of Basic Accounting Theory”. It was then that accounting was considered as an information system.
The first uses of computer in firms were in accounting information system and thus in accounting transaction. In the past, although computers were used to solve small accounting problems in 1950, the dynamic use of computers as a business management devices was in 1960. Hence setting up of AIS and the uses of computers in its implementation were also in the same years. With the development of accounting standards, accounting evolved from simply recordings, preparing trial balance and balance sheets and cost accounting. AIS turned into a decision support system other than simply bookkeeping.
According to the research made in Turkey by Surmen Y and Dastan, A. (2014) , stated that this new era of accounting contributed a lot in the development of firms. They say that such development in production have had a direct impact on cost accounting system, a sub-set of AIS, which has helped in not only reducing cost but also in determining cost accurately. Also, the development of internet has had a positive impact on the way data is being communicated. With advances in technology, this has allowed data to be simultaneously transferred in the journal, ledger and current accounts, hence the faster preparation of financial statement as and when data is being filled in. In addition, the preparation is quick and effective preparation of reports, more detailed and specific report could be made. Limitation associated with time, data density and data diversity were now removed and thus allowed data to be arranged and presented to management. Moreover, data could be arranged in different forms and stored in single database. These developments in accounting now made it possible save a personnel and reduce transaction time due to fast and easy processing of data and hence saved time. As a conclusion the researches stated that “the incorporation of information technologies into the accounting information system contributed in a positive way to such aspect of accounting as eliminating the problem stemming from human errors and human inefficiency as well as to productivity, quality, cost and effectiveness.
Onaolapo and Odetayo (2012) believe that the accounting information system has a significant influence on the effectiveness of the organization through a research work conducted in a selected construction company in Ibadan, Nigeria. In the study, the impact of the accounting information system on organizational effectiveness, especially on financial reporting and decision quality, was examined. Descriptive and inferential statistical tools were used with the help of the SPSS social science statistical package to analyze the data. ANOVA was used to test the hypothesis that the results show that the accounting information system is effective on the organization’s effectiveness. Later on, it was suggested how to use the ISSA, known as “contract surplus” for both the managers of these institutions and the government. The financial accounting and project software package may improve performance in the finance department.
According to the survey done by Sajady, H., Dastgir, M and Hashem, N. (2011), tested if accounting information system improved performance measures. Approximately, 87 questionnaires were used for this analysis. The data processed showed that it was slightly less than the normal distribution selected. Hence, it was rejected and as a result, on average, they concluded that AIS does not help improve performance measure.
Evidences from the study of Siamak Nejadhosseini (2012) on “The usefulness of an Accounting information system for Effective Organisational Performance” showed that there is a positive relation between organisational performances and AIS. The author used SPSS software in order to analyse the data collection from 236 questionnaires. The study states that “The path coefficient (Beta= 0.456) shown between AIS and organisational performances. However, the study also revealed that there was no significant relation between AIS and performance measurement. It means that AIS does not provide information about effective management of the strategic and operational goals.
Samuel (2013) in the project entitled, “Impact of Accounting Information Systems On Organizational Effectiveness Of Automobile Companies in Kenya” find out the impact of Accounting Information Systems on the organizational effectiveness in selected Automobile Companies in Kenya. The findings of the study show that there exists a relationship between AIS and organizational performance. However, the author highlighted challenges faced by automobile organizations like lack of proper training, high staff turnover, and lack of proper system documentation.
Khan (2017) in the research titled, “Impact of Accounting Information System On The Organizational Performance: A Case Study Of Procter And Gamble” examined the impact of accounting information system on the organizational performance in Procter and Gamble. Data was collected through questionnaires designed on five point likert scale. The sample size of the study is 174 employees. Simple linear regression was used as the statistical tool for analysis. The findings highlighted that there is a significant impact of accounting information system on the organizational performance in the company under study.
Furthermore, the result of the study of Boonmak. S., show that there is a positive relationship between AIS and firm performances. The author say that AIS can be used as a tool to support efficient firm performance. According to her second hypothesis, it make use of a correlation analysis to see if whether there is a relationship between AIS and firm performance. As per the analysis, the AIS dos not give a positive relationship between the two (p