CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter discusses what various scholar have written about; the role of computerised accounting on organizational performance.
2.1 level of computerised accounting
The computerized accounting system process is now increasing in importance as multinational organizations are trying to reduce costs and maximize profitability in order to ensure that they are able to out compete. Organizations are increasingly relying on critical services and computerized accounting systems as their key to maintaining competitive advantage, the organization’s competence and process capability in maximizing performance is now more important than ever. Some organizations are using process capability maturity models to assess, measure, and improve critical core processes, such as software development and project management. Although, the application of computers in most organizations has just been adopted the process is achieving much importance (Rendon, 2006).
Still (2005), argues that the use of computers are the life blood of the modern business. Without this vital legal glue, entering into arm’s length commercial deals would be fraught with peril yet for medium to large sized organizations managing an organization’s accounting system brings challenges of its own. This means that in order to rely on computers managers must ensure that all their staff have good knowledge on the use of computers.
Organizational performance presents opportunities that allow the manufacturing organizations to achieve improved optimization through changes to production, process or organizational strategy. In addition firms, investing in project organization often do so in order to become flexible adaptable and customer oriented towards achieving efficiency in service delivery (Lind, 2008).The National Audit office (2008) indicates that focus is frequently placed on the procurement process itself than the implementation of the contract yet it is only after the contract is awarded that the benefits of the procurement process can be realized. Contract management if well-handled has the ability to decrease costs and improve service delivery, (South Africa: Contract Management Guide, 2010).
According to Magdalene M, (2010) through the use of computerised accounting paper work is saved during the process of using a computerised accounting, she further asserts that Paper works are involved in manual accounting; all the accounting activities are carried out on paper manually and obviously, it takes much time and resources for the average business organization and most especially, a financial institution that still uses the manual system. Computerized accounting saves a lot of time where the employee has to record the transactions and all the other calculations would be carried out by the software either automatically or by a request.
Namulesa, (2010) further indicates that through the use of computerised accounting systems organizations are able to save large amount of resources during transactions. Because of the use of computerised accounting systems large organizations were able to save billions of dollars which could have been incurred as a result of the use of computerised accounting systems, fromm2010-2018 most of the large multinationals have made significant gains as a result of the use of computerised accounting systems.
There is total elimination of errors as a result of the use of computerised accounting system in the organizations as stated by Magdalene M, (2010) who states that computerized accounting is not only speedy but also accurate. With a computer being used to collect data and change it into meaningful information that is used by management to make timely and effective decisions, the computer carries out the entire data processing through classifying, sorting, calculating, 7 summarizing the data and production of reports, as stated by Birungi (2000). This entire process helps to minimize the risk of miscalculations and other human errors that could have emerged as a result of manual data processing. The possibility of error is eliminated in a computerised accounting system because the primary accounting data is entered once for all the subsequent usage and processes in preparing the accounting reports. Normally, accounting errors in a manual accounting system occur because of repeated posting of same set of original data by several times while preparing different types of accounting reports.
In a study by Laundon & Laundon, (2006) the results indicate that through the use of computers the organizations are able to achieve reliability in the results they receive, the computer system is well-adapted to performing repetitive operations. They are immune to tiredness, boredom or fatigue. As a result, computers are highly reliable compared to human beings. Since computerised accounting system relies heavily on computers, they are relatively more reliable than manual accounting systems, the scholars further state that computers produce better quality results than humans this therefore leads to have results that are achievable.
According to Marasco (2002), technology has not only brought the world closer together, but it will allow the world’s economy to become a single interdependent system therefore through the use of computerised accounting system the organization is able to network between one another. This means that we will not only share information quickly and efficiently, but we will also bring down barriers to sharing of accounting data across boundaries. The world will develop into a global village due to the help of technological advanced systems, allowing countries like Chile and Japan who are not only separated by distance but also by language to share ideas and information with each other.
Sharing of accounting information is easy since communication between one department and another is easy through the use of computers, Chaffey (2007) asserts that with the help of technology, communication become cheaper, quicker, and more efficient. We can now communicate with anyone around the globe by simply text messaging them, or sending them an email, for an almost instantaneous response. The internet has also opened up face-to-face direct communication from different parts of the world, thanks to the help of video-conferencing.
According to Crake ,(2003) the use computerised accounting has led to cost effectiveness of the organizational process, thus streamlining businesses to make them extremely cost effective money-making machines. This, in turn, increases productivity, which ultimately gives rise to profits; that means better pay and less strenuous working conditions in accounting. Some arguments may stress that manual accounting can be handled with cheap work force and resources and that it is reliable as it is done manually with minutes of observations Magdalene M, (2010). However, the level of competition in the business world of today is tight and even growing tighter day by day and if a business with an aim of being successful does not consider the aspect of time especially as far as decision making is concerned, then that business stands to lose. Computerized accounting in this case may be more costly than manual accounting in terms of cheap work force but its output actually overweighs its cost.
More time, computerised accounting makes it possible for businesses to be open 24 x7 all over the globe. This means that a business will be open anytime, anywhere, making purchases from different countries easier and more convenient. It also means that you will have your goods delivered right to your doorstep without having to move a single muscle in such a situation accountants are able to work at any time, (Jessup & Valacich, 2008).
Security: With the manual accounting system, every record is on paper and in case of any uncertainties such as heavy floods, landslides and fire outbreaks, the useful data may all be lost, and yet with the computerized accounting system and the introduction of internet and networks in the information technology world, an easy backup and restoration system as well as the use of passwords to avoid unauthorized parties from accessing the data, keeps the information secure (Ntayi, et al., 2009).
Level of output: Magdalene M, (2010) also argues that computerized accounting can actually handle thousands of calculations simultaneously and accurately as compared to manual accounting where by transactions are handled one at a time and even needs much time to do that as well as being characterized by human errors and mistakes in calculations which may eventually affect the final output of information and hinder effective decision making.
Automated Document Production: Most of the computerised accounting systems have standardised, user defined format of accounting reports that are generated automatically. The accounting reports such as Cash book, Trial balance, Statement of accounts are obtained just by click of a mouse in a computerised accounting environment, ( Laudon & Laudon, 2007 ).
Scalability: In a computerised accounting system, the requirement of additional manpower is confined to data entry operators for storing additional vouchers. The additional cost of processing additional transactions is almost negligible. As a result the computerised accounting systems are highly scalable.
Organizations can produce quality report due to the use of computers in their accounting system. The inbuilt checks and untouchable features of data handling facilitate hygienic and true accounting reports that are highly objective and can be relied upon. Computerised accounting system facilitates the real time production of management information reports, which will help management to monitor and control the business effectively. Debtors’ analysis would indicate the possibilities of defaults (or bad debts) and also concentration of debt and its impact on the balance sheet. For example, if the company has a policy of restricting the credit sales by a fixed amount to a given party, the information is available on the computer system immediately when every voucher is entered through the data entry form. However, it takes time when it comes to a manual accounting system. Besides, the results may not be accurate (Dras, 2009).
Storage and Retrieval of organizational information is achievable through the use computerised accounting system allows the users to store data in a manner that does not require a large amount of physical space. This is because the accounting data is stored in hard-disks, CD-ROMs, floppies that occupy a fraction of physical space compared to books of accounts in the form of ledger, journal and other accounting registers. Besides, the system permits fast and accurate retrieval of data and information (Bociji, Chaffey, Greasely, Hicker, 2006).
Large mainframe computers have been replaced by small and fast personal computers at lower costs as a result, accounting information systems that were previously performed manually are now performed by computers in most companies. Companies can now capture, process, store, and transmit data with the help of computers. Whereas data collections and processing were performed manually in historical systems, on-line collection and processing of data are performed by computerized systems (Grabski and Marsh, 1994: 63).
Computerised accounting systems helps organizations to be able to calculate taxes and meet their obligations to the government, because tax laws are frequently changing, it is becoming exceedingly difficult to deal with them. Therefore, manual tax preparation is becoming more and more difficult and time consuming. Fortunately, tax preparation software is currently available for companies. Therefore, instead of processing tax manually, companies can use computer software to perform the same functions. As a result, even complex calculations can be performed via computers in a short period of time (Sewanyama & Busier, 2007).
Easier Auditing of an organization, If auditors perform auditing functions manually, it takes time. However, audit software packages are currently available for auditors. For example, trial balance software enables auditors to input the working trial balance, handle all types of adjusting entries, and automatically compute the adjusted trial balance. In addition, software package can access customer’s files, select a statistical sample of the accounts, and print a working paper sheet. Auditors have used personal computers to reduce their costs significantly (Kwok Hung Lau & Haibo Huang 2012).
The use of computerised accounting systems in the organization helps in ensuring that the organization is able to have an up-to-Date Information this is because computers have an internet systems which has the capability of providing the organization with the latest news trending in the globe. Accounting records, in a computerised accounting system are updated automatically as and when accounting data is entered and stored. Therefore, latest information pertaining to accounts get reflected when accounting reports are produced and printed (Mosleh & Shannak, 2009).
2.2 Level of organizational performance
Better organizational performance is important in ensuring service delivery processes and involves; contract planning, monitoring, stakeholder involvement, performance assessment and records management (Australian National Audit Office, 2009;IAPWG, 2006). It encompasses various activities that need to be completed on a day-to-day basis, including: developing and maintaining contact details of key people involved in the contract, scheduling meetings and other actions required by the contract, delivery and acceptance of goods or services, making payments, maintaining complete records for the contract itself, and establishing and maintaining contract documentation.
Oosterom(2010) argues that the overall goals of organizational performance is must be clearly understood; quality of service (the accessibility, timeliness and quality of service levels); cost of service (value for money obtained); and customer segmentation (the need for different service channels and service offerings based on comprehensive customer insight).When parastatal bodies contract a vendor, they remain responsible for ensuring the work is performed satisfactorily and government funds are used appropriately. Accordingly, the parastatal body is responsible for the consequences of poor performance whether the agency or a vendor provided the service/project or goods as agreed (Hinton, 2003). The parastatal bodies thus must see to it that service delivery is monitored closely through effective contract management to foster achievement of contract deliverables as agreed.
The level of organizational performance is measured by the quality of service delivery in an organization; it primarily depends on the nature or complexity of the organizational Human resource (Republic of South Africa; Contract Management Guide, 2010). More importantly, review of the organizational process must be done to evaluate the benefits obtained or lost due to insufficient contract management otherwise; there will be little opportunity to benefit from lessons learned.
Organizational performance requires flexibility on both sides and a willingness to adapt the terms of the contract to reflect changing circumstances. It is important to recognize that problems are bound to arise which could not be foreseen when the contract was awarded that might impair the service delivery (Elsey, 2007).
The involvement of the intended beneficiaries of government services into monitoring service delivery is a critical component in measuring the performance of government delivery of appropriate and quality services. Currently the emphasis of government’s monitoring is on internal government processes and the voice of the intended beneficiaries/stakeholders is largely absent. This presents a risk, as the picture is not complete. It is therefore necessary to support the systematic ways to bring the experiences of stakeholders into the monitoring of services. This will provide a measure of the gap between the perceived and the actual experiences of service delivery, for both user and provider (The Performance monitoring and evaluation epartment of South Africa, 2013).
Employers and owners need to create organizations where excellent performance leads to competitive compensation for people throughout the organization. Without rewards, a company is planting seeds for high turnover, low productivity and long-term failure. However, to reward employees that are not performing saddles an organization with higher payroll costs and encourages poor performers to stay while discouraging the employees that go above and beyond expectations (steers et al 2012). The impact of compensation and benefits on employee performance and organizational effectiveness depends on the existing compensation and performance management programs at an individual company. Typically, most employees respond to increases in pay and benefits with a positive and more productive attitude. However, the opposite is true as well. Sometimes, employees only notice rewards of a salary increase the day the increase is communicated to them, and the day they receive the first paycheck that includes the salary increase.
Dems (2010), said that the value of human resource productivity is a managerial concern. Employee motivation is the classic response on this matter. This has been utilized for ages by many different entities, small- and large-scale businesses alike. It fosters mutual growth in an employer-employee relationship. Indeed, motivation increases productivity. In the study (Wood, 2000), he examined the role of active exploration in an adult training program. Their results indicated that participants who were trained to actively explore the environment during training had higher intrinsic motivation levels, as well as higher performance on transfer tasks.
Compensation is one of the primary reasons for employees to seek employment. They are rewarded for their services and efforts that they exert for their organizations. They can be compensated in many ways for example salaries, holidays, bonuses etc. There are two basic compensation models; performance based pay and components based pay. In the former paradigm, employee’s compensation is either tied to the way he performs; if he performs better he would be rewarded accordingly (performance based pay) and on the other hand, non performance based pay; where, employee’s performance is not tied to getting rewards, rather the employee is paid or rewarded even if its performance is not up to the mark for example fixed pay and salaries (Taylor, 2005).
2.3 Relationships between computerised accounting and organization performance
Standardized accounting process, including faster tracking of errors, improved quality control, efficiency in record keeping, greater efficiency through the use of information and communication components like internets, satellites among others that enables tracking and tracing of the goods in transit, during shipment as well as giving up to date information to the accountants about the quantity of goods in storage so that the accountants are able to reconcile the books of accounts with the physical stock in the store, (Kotler 2000).
The introduction of technology has not only simplified the accounting process but has also improved on the business process including control over suppliers, improved process cycle time, close cooperation relationships, improved supply chain efficiency, accuracy of shared information, (Kenneth Lysons 2000).
With the use of technologically components such as Bar coding, Satellite, internets and Image processing among others in the process of managing accounting efficiency, there has been reduction on paper work thereby leading to a substantial reduction of errors, as well as increased capability to obtaining and exchanging real time information. This is possible through the use of information technology systems such as Bar code and scanners which represents a series of alphanumerical characters, bar code readers to interpret bar code symbology, and bar code printers to reliably and accurately print bar codes on labels, cartons, and/or picking /shipping documents.
Improved accounting process; Accounting process involves management of an organizations record with a view of minimizing organizational information in a cost effective way. Accounting information enables suppliers and buyers to get related information from the point of origin to the point of consumption Lysons and Farrington (2006). The introduction of technology has brought in tremendous improvements in the keeping of organizations records from the point of origin to the point of consumption including reduced arrangement costs and handling times, shortened response time for purchasing, improved order process speed and reduced labour costs.
Improved warehousing facilities. Warehousing is the primary link between the producers and the consumers; it is used for storing products (raw materials, in process inventory and finished goods) before they are finally worked upon or delivered to the ultimate consumers. Through the implementation of technology, ware house efficiency and effectiveness has improved greatly through using opportunities such as e- warehousing, e- receipts and e- issuing. These have brought about accurate operations in the warehouse hence complementing accounting management efficiency (R.J Carter et al, 2007)
Reduce product delivery time. Through the implementation of technological system in organizations like Equity Bank the organizations’ processes of making payments to their suppliers have improved greatly including faster payment systems like using ATMS, credit cards among others. This reduces among others interest rate, credit risk among others (Aberdeen group 2005).
Improved distribution process ; According to Dobler and Burt (2001) With improved tracking and tracing as a result of using internet, satellites among others, the company that is to say the distributing company is assured of efficiency and effectiveness in the distribution process as their trucks are properly tracked and traced so that in case the deliveries are made to a different location, the mistake can easily be rectified. This has therefore, improved Logistics efficiency in organizations and this has all been because of the introduction of information and communication technology. Other benefits include; delivering on time, reduced delivery enquiring time and improved distribution management.
Proper monitoring; The introduction of information and communication technology in logistics management has brought about efficient and effective monitoring of the materials during transit to their various destinations. This is done through use of technologies that allows communication across a very wide geographical area. Satellite communication provides a fast and high volume channel for information movements. Satellite technology facilitates real time interaction which provides up to date information about location and delivery information about the products in transit. The satellite devices can also be used in tracking and tracing the materials in transit. Tracking is specifically achieved through the use of internet and others, this therefore enables both the delivering organization or the supplier and the buyer to know where specifically the goods in transit is and also in case of any problem encountered say by the truck being used for the transportation purposes, it can easily be recognised by the parties concerned (Lysons, 2003)
Better communication and connection links. According to Nair N.K (2006), the introduction of information communication technology, communication between the buyers and the suppliers has been eased. Logistics is an old age industry that has been one of the greatest holdouts against the waves of computerization that has swept the world. Until recently, most organizations were still using traditional systems like fax and letter writing among others as a means of communication. However with the introduction of information and communication technologies such as telephones, internets and satellites among others, communication has not only been eased but also made efficient and effective.
Faster information transfer; Information and communication technology equipment like internet, satellite and telephones enables a speedy transfer of information between the supplier and the buyer. Therefore, all the necessary information that the supplier needs to give to the buyer regarding how the goods in transit should be handled, stored and packed are given to the buyer prior to delivery so that special attention is taken by the buyer where necessary, According to Dave chffey (2010), information transfers in the basis of survival for an organization.
Reduce inventory levels. According to (Thomson and Singh 2001) technology helps the buying organisation to order the needed items at the right time and once the need arises then an order will be placed. This helps the organisation to do away with bulk stock levels hence solving the problem of inventory costs like obsolescence and dampness leading to losses this leads to efficiency and effectiveness in the logistics operations.
