“THE IMPACT OF USING COMPUTERIZED ACCOUNTING SYSTEMS (CAS) IN FINANCIAL REPORTING AMONG SMALL AND MEDIUM ENTERPRISES IN LIPA CITY”
A Research Proposal Submitted to the Faculty of University of Batangas Lipa Campus
In Partial Fulfilment of the Reuirements for the !egree Bachelor of Science S cience in Accountancy
By !indi "enil Ryan #alencia
September $%&'
CHAPTER 1 Research Pr!"e#
(his chapter presents introduction of the study and its bac)ground* statement of the problem* the significance of the study* scope and delimitation and definition of terms+
1$1 %ac&'r* + ,he S,*-
Accounting Accounting ta)es an important important role in operating an organi,ati organi,ation+ on+ -very business business must )eep trac) of financial information that relates to its business activities+ It also has numerous processes. some simple* others comple/ and burdensome+ But as the business gro0s* gro0s* acuire acuiress ne0 custom customers ers** enters enters ne0 mar)ets mar)ets and )eeps )eeps pace pace 0ith 0ith constan constantt changes in information technology* companies need to maintain highly accurate and up1 to1date accounting* inventory and statutory records+ 2ith a substantial increase in the volume of accounting transactions and increase in e/posure of information to errors due to comple/ity of these accounting systems* there 0as a need for a system 0hich could store and process accounting data 0ith increased speed* storage* and processing capacity+ (his led to the development and introduction of accounting soft0are pac)ages+
Accounting Soft0are is a class of computer programs that perform accounting operations+ Accounting Soft0are is an application soft0are that records and processes accounting transactions 0ithin functional modules such as accounts payable* accounts receivable* payroll* and trial balance+ (hus* these soft0are pac)ages allo0 the 0hole
accounting system to be run on a computer hence the name Computerised Accounting System+
A computeri,ed accounting system records accounting transactions using a computer and accounting soft0are+ It is one of the database1oriented applications 0herein the transaction data is stored in 0ell1 organi,ed database+ (he user operates on such database using the reuired interface and also ta)es the reuired reports by suitable transformations of stored data into information+ (herefore* the fundamentals of computerised accounting include all the basic reuirements of any database1oriented application in computers+ It helps simplify* integrate* and streamline all the business processes* cost1effectively and easily and helps presents the true picture of all the business underta)ings to users of financial reports+
!ue to the rapid change in technology* many small businesses prefer to trac) monetary transactions 0ith computeri,ed soft0are than )eep trac) of all financial activity manually through the use of a physical ledger+ (he advancements in information technology have eventually led to the introduction of Computerised Accounting Systems to help produce relevant and faithful representative financial reports for both management and e/ternal users for decision ma)ing+
Computeri,ed accounting tends to involve dedicated accounting soft0are and digital spreadsheets to )eep trac) of a business or client3s financial transactions+ It is a beneficial use of current technological advances+ 4ot only has it revolutioni,ed the
traditional paper methods of accounting* but it has also created ne0 types of accounting applications for business+ Companies no0 create entire accounting information systems that integrate all business operations* including e/ternal suppliers and vendors+ Computeri,ed accounting systems have replaced manual1based accounting in virtually all businesses and organi,ations* providing accountants* managers* employees and stoc)holder5s access to vital accounting information at the touch of a button+
Computeri,ed accounting systems automate the accounting process11improving efficiency and cutting do0n costs+ And it tends to be more accurate* faster to use* and less sub6ect to error than its manual counterpart+
In
today3s
computeri,ed*
interconnected*
global
business
environment*
Computerised Accounting Systems became the 7engine of gro0th5 in business organisations+ It therefore involves the computeri,ation of accounting information systems 0hich is established in order to facilitate decision ma)ing+ (hese are associated 0ith a numbers of benefits li)e speed of carrying out routine transactions* timeliness* uic) analysis* accuracy and reporting+
1$. S,a,e#e, + ,he Pr!"e#
(he primary ob6ective of the study is to e/plore ho0 Computeri,ed Accounting Systems have changed many aspects of business and accounting practices+ &+ 2hat are the ma6or benefits of using the computeri,ed accounting systems in financial reporting among the Small and 8edium -nterprises in Lipa City9 $+ 2hat are the problems associated 0ith the use of Computeri,ed Accounting System9 '+ 2hat factors should be considered before choosing accounting soft0are9
1$/ S0'0+0cace + ,he S,*-
(he significance of this study is to provide necessary information about the impact of using Computeri,ed Accounting Systems :CAS; in financial reporting among the Small and 8edium -nterprises in Lipa City+ (his study 0ill e/plain the great influence and effects that CAS can do in financial reporting+ !ue to our fast changing 0orld* moderni,ation became a part of the broader technology+ (ruly* it brings much benefit to the business 0orld no0adays+
1$ Sc2e a* De"0#0,a,0 + ,he s,*-
(he study focuses on assessing the impact of the use of Computerised Accounting Systems in financial reporting+ (his 0ill determine the possible impact of computeri,e
accounting system in financial reporting and ho0 it can affect in the decision ma)ing of the company+ (he respondents of the study are limited only to the Small and 8edium -nterprises in Lipa City+ It is conducted during the first semester of school year $%&'1 $%&<+ Also* the study is limited only in financial reporting of a business and 0ill not include other aspects of reporting+
1$3 De+00,0 + Ter#s (he follo0ing terms are defined operationally=conceptually for the better
understanding of the study+
C#2,er04e* Acc,0' S-s,e#$ It refers to a system used by businesses for
recording their financial information+
Acc,0'$
(he
systematic and
comprehensive
recording
of financial
transactions pertaining to a business+ Accounting also refers to the process of summari,ing* analy,ing and reporting these transactions+ F0ac0a" Re2r,$ It is a formal record of the financial activities of a business* person* or other entity+ It is presented in a structured manner and in a form easy to understand+ Acc,0' S+,5are$ It refers to application soft0are that records > processes accounting transactions 0ithin functional modules such as accounts payable* accounts receivable* payroll* and trial balance+ Maa" Acc,0' S-s,e#$ A manual that contains pertinent accounting rules and other information for a business or organi,ation+ Accounting manuals can contain guidelines for various policies and procedures+ (hey also often specify organi,ational rules and standards for corporate accounts+ %&&ee20'$ It is the conte/t of a business is simply the recording of financial transactions+ (ransactions Tech"'-$ It refers to the ma)ing* modification* usage* and )no0ledge of tools*
machines* techniues* crafts* systems* and methods of organi,ation* in order to solve a problem* improve a pre e/isting solution to a problem* achieve a goal* handle an applied input=output relation or perform a specific function S#a""6 a* #e*0# e,er2r0ses (SMEs)$ It is defined as any business
activity=enterprise
engaged
in
industry*
agri1business=services*
proprietorship* cooperative* partnership* or corporation+
0hether
single
Cce2,a" Fra#e5r&
Research Para*0'#
(his research proposal used the Input Process ?utput model+ As an input* the researchers 0ill use the Computeri,ed Accounting System+ (o carry out the study* the researchers 0ill conduct a survey among the proprietor of small and medium enterprises in Lipa City* Batangas+ As a result* the researchers 0ill enable firms 0hich have not yet incorporated Computerised Accounting Systems in their Financial Reporting to do so+
CHAPTER .
RE7IE8 OF RELATED LITERATURE AND STUDIES
(his chapter covers the revie0 of related literature and studies 0hich are closely related to the present study* both foreign and local* and provided the researchers some bac)ground and information in determining the type of approach used for this study$
.$1 Re"a,e* L0,era,re
(he literature belo0 serves as supporting details about the impact of Computeri,ed 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 ma6or changes during the past century+ It 0ould be surprising if a century from no0* accounting is the same as today+ Although 0e cannot loo) so far ahead* 0e can analy,e the current conditions for clues about 0hat to e/pect in the ne/t decade or t0o :Sunder &@@@;+ Accounting provides financial information about a business or a not1for1profit organisation+ ?0ners* managers* investors and other interested parties need financial information for decision ma)ing+ Financial accounting is the art of systematically identifying* measuring* recording* classifying and summari,ing in a significant manner and in terms of money* transactions and events 0hich are* in part at least* of financial nature* and communicating* analysing and interpreting the results there of :2oode >Sangster* $%%;+ -very company applies accounting because it is generally accepted that companies have to reveal certain financial and management information to economic users and of course because accounting is an indispensable tool in business decision1
ma)ing process+ Accounting is an important part of every company thus. businesses are reuired to )eep proper boo)s of accounts :Section &$' of the Companies Code :&@';* Act &@;+ 2eber :$%&%; stated that accounting can be divided into t0o basic categoriesD those 0hich apply manual accounting and those 0hich prefer computeri,ed accounting systems+ 8eigs et al* :&@@; Computeri,ed accounting system is a system that uses computers to input* process* store and output accounting information inform of financial reports+ Ee adds that accounting system records all transactions that routinely deal 0ith events that affect the financial position and performance of an entity+ 8arivic :$%%@; described a computeri,ed accounting system as a method or scheme by 0hich financial information on business transactions are recorded* organised* summari,ed* analysed* interpreted and communicated to sta)eholders through the use of computers and computer based systems such as accounting pac)ages+ Ee emphasised that it5s a mechani,ed process of facilitating financial information inflo0s as 0ell as the automation of accounting tas)s such as database recording and report generation+ 8arivic adds that )eeping accurate accounting records is a vital part of any organi,ation+ Apart from helping it to )eep its float financially and legal* it is a reuirement of funding bodies or donors+ Eo0ever computeri,ed accounting system involves the use of computers to handle large volume of data 0ith speed* efficiency and accuracy aimed at overcoming fundamental challenges 0hich do not change the principle+ (he principle of accounting
remains the limitations of many accounting and hence producing uality and reliable 0or)+ 8cBride :$%%%; e/plained that computeri,ed pac)ages can uic)ly generate all types of reports needed by management for instance budget analysis and variance analysis+ !ata processing and analysis are faster and more accurate 0hich meets the managers need for accurate and timely information for decision ma)ing+ Fran) 0ood :&@@@; consented to the speed 0ith 0hich accounting is done and further added that a computeri,ed accounting system can retrieve balance sheets* income statement or other accounting reports at any moment+ Ee consented that computeri,ed accounting system allo0 managers to easily identify and solve problems instantly+ Indira :$%%; pronounced the improvement in business performance as a result computeri,ation of the accounting systems as it is a highly integrated application that transforms the business processes 0ith the performance enhancing features 0hich encompass accounting* inventory control* reporting and statutory processes+ Ee then says* this helps the company access information faster and ta)es uic)er decisions as it also enhances communication+ 8cBride :$%%%; stated that managers cannot easily satisfy statutory and donor reporting reuirements such as profit and loss account* balance sheet and customi,ed reporting 0ithout using computeri,ed accounting systems+ 2ith the system in place* this can be done uic)ly and 0ith less effort $ Computeri,ed accounting systems ease auditing and have better access to reuired information such as cheue numbers* payments* and
other transactions 0hich help to reduce the time needed to provide this type of information and documentation during auditing+ According to Carol :$%%$;* it is easy to do accounting functions using computeri,ed accounting systems+ Posting transactions to the ledger* the principle of double entry can largely be automated 0hen done through the use of computeri,ed accounting system+ 8eigs :&@; stresses that there is a ris) of improper human intervention 0ith the computer programs and computer files+ -mployees in the organi,ation may temper 0ith the computer programs and computer based records for the purpose of deliberately falsifying accounting information+ (his may result into distortion of information that 0ould essential be for decision ma)ing+ According to 2ahab :$%%';* another threat and limitation of computeri,ed system is the computer virus+ 2here a computer virus is a computer code :program; specially designed to damage or cause irregular behaviour in other programs on the computer+ (he adverse effect is that it may lead to brea)do0n of the hard0are thus leading to loss of valuable information :for instance in financial institutions information such as customers accounts* previous financial report* information pertaining loans advanced among others; already saved on the computer+ #an :$%%; stated that financial reporting is the process of presenting financial information or data about a company5s financial position* operating performance and its flo0 of funds for an accounting period+
According to Fran) 2ood :&@@@;* financial reporting is all about presenting useful information to users so that proper decisions can be made+ Eis implication about financial reporting is that financial information should aid in the evaluation of amounts* timing and uncertainties of cash flo0s+ Also financial reporting should furnish information about the entity5s economic resources* claims against those resources* o0ners5 euity and changes in the resources and claims+ Indira :$%%; emphasi,ed that financial reports should provide information about financial performance during a period management discharge it5s ste0ardship responsibility to o0ners+ It should li)e0ise be useful to managers and directors themselves in ma)ing decisions on behalf of the o0ners+ According to Carl5s et al :&@@@; the uality of financial reports depends on the intended users of the information and should be evaluated 0ith respect to the needs of the users+ Federation of Accounting Standards Board :FASB; defined uality as a hierarchy of accounting ualities 0ith relevance and reliability considered as the primary characteristics 0hile representing faithfulness* verifiability* neutrality* comparability* consistency and understandability considered as secondary characteristics+ Fran) :&@@@; stated that information is said to be reliable if it is free from material errors and bias and represents faithfully that is purports to represent+ According to (urner :$%%%;* neutrality is the demand that accounting information should not be selected to benefit one class and neglect to other+ Reliable information is verifiable* neutral and has representative faithfulness+
Fran) :&@@@; also stresses that users must be able to compare the financial statements of the enterprise over time in order to identify trends in its financial position and performance+ According to Indira :$%%;* timeliness is also another important characteristic of uality financial information+ (his arises as a result of perishability of accounting information+ (o benefit users* financial information must be presented at the right time other0ise it loses relevance+ According to Pallai :$%%; understandability as a uality of financial reporting that enables users to perceive the significance of financial information+ Ee argues that users are assumed to have reasonable )no0ledge of business and 0illingness to study and understand the information+ International Accounting Standards Board adds that information should not be e/cluded on grounds that it may be difficult for certain users to understand+ (he influence of computeri,ed accounting systems on financial reporting has been lin)ed to the benefits of applying computer systems 0hile generating financial reports+ According to 8cRae :&@@;* the presentation of scheduled reports can be triggered and simplified and prepared at regular interval 0ith ease+ 2ith the application of computeri,ation* generation of financial reports 0ill be easy since information can be easily generated and updated on a timely basis+ 2ith the substantial increase in the number of transactions and increase in the need for real time information* maintenance of accounting data on a real time basis has become essential+ (his is achievable using computeri,ed systems hence promoting the
uality of financial reporting+ Carol :$%%$; says that computeri,ing business general ledger* payroll and other accounting tas)s increases office efficiency+ Lancouch :$%%'; says that computeri,ed accounting systems have also been credited for their uic) processing speed and large storage capacity+ Using computeri,ed accounting systems ensure up to date account balances are available at any time to aid management in decision ma)ing+ Le0is :&@@@; also stated that computeri,ation saves time on transaction hence leading to uality of financial reporting for instance timely* accurate and reliable information can be generated+ (he influence of computeri,ed accounting systems depends on the end users satisfaction+ 8ihir :$%%$; stressed that higher end users satisfaction leads to a positive attitude to0ards using the satisfaction and in turn increases the voluntary usage of the system+ 4ash :$%%'; noted that the uality of accounting information and performance of the accounting systems is a great concern to management+ A computeri,ed accounting system is a delivery system of accounting information for purposes such as providing reliable accounting information to users* protecting the organi,ation from possible ris)s arising as a result of abuse of accounting data and system among others+
.$. Re"a,e* S,*0es (Fre0')
(he related studies belo0 serves as supporting details about the impact of Computeri,ed Accounting System in financial reporting+ In the case study of Bit0abado :$%&&;* he focused on computeri,ed accounting systems and cash management in financial institutions+ (he study addressed ob6ectives* benefits* problems associated 0ith computerisation* ho0 cash is managed* impact of computeri,ed accounting on cash management as 0ell as the relationship bet0een t0o variables and coming up 0ith the recommendations to the sta)e holders of the ban)+ !escriptive and analytical research 0as used to e/amine findings and come up 0ith conclusions+ Stratified random and purposive sampling 0as used to select elements from the different departments and levels of management 0ith a sample si,e of '& respondents+ Guestionnaires* intervie0s* sampling and use of related literature from te/t boo)s* 6ournals* maga,ines and internet 0ere also used+ (he findings of the study indicated that though computeri,ed accounting systems have impact on cash management* the relationship is 0ea) sending an overall negative signal to the sta)e holders and management that computeri,ed accounting alone cannot fully manage institutional cash but also strengthening other means because there are some activities 0hich cannot be detected by computers such as money laundering and other related activities 0hich reuires tight supervision from the management+ Also the research of !acosta :Huly $%&$; 0as organised to assess the impact of the use of Computerised Accounting Systems in financial reporting of rural ban)s in "hana+ (he study also had another ob6ective of bringing out the problems encountered in the use of a Computerised Accounting System+ Advancement in technology is no0 the order of the day+ Businesses are constantly loo)ing for cost1effective* economic and efficient 0ays
of satisfying customers5 needs+ (hus* there is the need for businesses to be abreast of the current issues in technology to enhance their business+ (his is to help gain a competitive advantage over their competitors especially in this era 0here there are more ban)s springing up+ ?ne of the 0ays to reduce cost in business processes* is to ensure that resources allocated are 0ell utilised to obtain ma/imum benefits at minimum cost+ (hus 0ith the use of a resource :input; li)e a Computerised Accounting System* it is e/pected that* the accounting system 0ill be able to generate relevant and useful reports :output; for ma)ing economic decisions by users+ Computerised Accounting Systems are therefore used by these organisations in order to generate timely and accurate reports through a fast and efficient processing of accounting data+ (he study of !acosta :$%&$; revealed that because of the numerous benefits that are associated 0ith Computerised Accounting System more importantly its ability to produce and present relevant and faithful representative financial reports to end users* the government of "hana is assisting all Rural Ban)s to migrate onto a common Computerised Accounting System )no0n as (erminus $< through the 8illennium !evelopment Account+ (his is going to serve as a platform in 0hich all the rural ban)s in the country are going to be net0or)ed to each other to facilitate faster and efficient ban)ing+ Undoubtedly* 0ith the adoption of Computerised Accounting Systems* problems and challenges such as. high purchase* installation and maintenance cost* computer failure* inadeuate information technology e/pertise and time involving are to be e/pected+ Eo0ever* the advantages from the use of a Computerised Accounting System far out0eigh the problems and challenges as it has impacted the financial reporting of the ban)s positively+ Eence* there is a need to adopt a Computerised Accounting System and
more importantly for all rural ban)s to ma)e the effort to migrate onto the (erminus $< as it comes 0ith added advantage of being net0or)ed 0ith other rural ban)s+
CHAPTER III RESEARCH DESIGN AND METHODOLOGY
(his chapter presents the design and methodology that the researchers employed in the study+ It presents the research locale* research methods used* population and sample* instruments for gathering data and validation and procedure for gathering data+
/$1 Research Lca"e
(he study is conducted to the Small and 8edium -nterprises located on Lipa City* Batangas+ (he respondents of the study included ten :&%; proprietors of the enterprises that are using computeri,ed accounting system in presenting their financial reporting+ /$. Research Me,h* Use*
(he study used uantitative research design in 0hich the data gathered are sub6ected to statistical treatment and corresponding description and e/planations are presented+ Guantitative data can be transposed into numbers* in a formal* ob6ective* systematic process to obtain information and describe variables and their relationships+ /$/ P2"a,0 a* Sa#2"e
(he research population for this study composed of ten :&%; enterprises that are using computeri,ed accounting system in their financial reporting+ (he population of the enterprises composed of random sampling 0as used to select the respondents on the basis of predetermined criteria+
/$ Research Is,r#e, a* 7a"0*a,0
(he data gathering instruments used in this study 0as a survey1uestionnaire+ (he uestionnaire contained the letter to the respondents* respondent5s profile and uestion proper+ (his uestionnaire 0as ans0ered reliably+ (he ans0er given by the respondents 0ill be )ept confidential+ /$3 Research Prce*re
I$
II$
Pre2ara,0 Phase
Da,a Ga,her0' Phase
