IMPACT OF COMPUTERISED ACCOUNTING SYSTEM ON PERFORMANCE OF PAYROLL ACCOUNTING (A CASE OF URBAN WATER SUPPLY AND SEWERAGE AUTHORITIES)
ABSTRACT
The study examined the impact of computerized accounting system on performance of payroll accounting in Urban Water and Sewerage Authorities. The study aims to assess the performance of payroll accounting after adoption of Computerized Accounting system and to identify the positive and negative impact of adoption of Computerized Accounting system in performance of payroll accounting in UWASAs.The study made use the primary data collection which includes questionnaires and personal interview
,also the secondary data collected from official document of UWASAs, various research work on computerizes accounting system, accounting journal, text books and Open University of Tanzania Library. The main findings indicate that adoption of CAS in accounting practice has both positive and negative impact. Based on this findings its recommended that the UWASAs should continue to adopt the use of CAS, providing training to the staff of Finance and Human Resources on how to use computerized accounting software package, and to put security mechanism to prevent losses of financial data or risk of fraud.
TABLE OF CONTENTS
CERTIFICATION ii
COPYRIGHT iii
DECLARATION iv
DEDICATION v
ABSTRACT vi
ACKNOWLEDGEMENT vii
TABLE OF CONTENTS viii
LIST OF TABLE xii
LIST OF FIGURES xiii
APPENDICES xiv
LIST OF ABBREVIATIONS xv
CHAPTER ONE 1
INTRODUCTION1
Background of the Research1
Computerized Accounting1
Functions of Computerized Accounting Software2
Manual Accounting Versus Computerized Accounting3
Background to Computerized Accounting Systems in Tanzania3
Statement of the Problem4
Objectives of the Study4
Main Objectives4
1.3.2 Specific Objectives 5
Research Questions5
Significance of the Study5
Limitations of the Study6
1.7 Definition of Terms 6
CHAPTER TWO 8
LITERATURE REVIEW8
Overview8
Theoretical Literature Review8
Technology Acceptance Model8
Diffusion of Innovation Theory9
Unified Technology Acceptance user Theory11
The Concept of Accounting11
Basics of Accounting11
Characteristics of a quality accounting practice12
2.3.4 Disadvantages of Computerized Accounting System 14
Empirical Literature Review14
Adoption of Computerized Accounting System14
Factors that Determine Adoption of Computerized Accounting System16
Impact of Computerized Accounting Systems19
Challenges encountered with the Use of Computerized Accounting Systems25
Research Gap25
CHAPTER THREE 26
RESEARCH METHODOLOGY26
Overview26
Research Approach26
Conceptual Framework26
Research Population/Area of the Study27
Sampling Design and Procedure28
Variables and Measurement Procedures29
Methods of Data Collection29
Questionnaire29
Interview29
Documentation30
Data Processing and Analysis30
CHAPTER FOUR 31
DATA ANALYSIS, PRESENTATION AND DISCUSSIONS31
Age profile of respondents31
Gender profile of respondents31
Level of education of respondents32
Level of awareness of respondents on application of Computerized Accounting Systems in payroll32
Level of work experience of respondents33
Extent of adoption of Computerized Accounting Systems in payroll processing33
Type of Computerized Accounting Systems used33
Adoption of Computerized Accounting Systems in payroll processing34
Frequency of using Computerized Accounting Systems S in payroll processing35
Effectiveness of payroll processing after adoption of Computerized Accounting Systems35
Impact of Computerized Accounting Systems on performance of payroll
accounting 36
Positive impacts of Computerized Accounting Systems on payroll accountings37
Simplification of payroll processing37
Timely preparation of payroll38
Accuracy of payroll38
Accessibility of payroll information39
Traceability of payroll deductions40
Negative impacts of Computerized Accounting Systems on payroll accounting40
Risk of fraud40
Requires additional costs41
Requires additional training42
Risk of data loss42
Risk of entry of wrong data43
CHAPTER FIVE 45
CONCLUSION AND RECOMMENDATION45
Discussion of major findings from the Study45
5.1:1 The use of a computerized accounting system on performance of payroll
accounting 45
5.1:2 The pros and cons of computerized accounting system on performance of
payroll accounting 45
:3To establish the qualities of payroll reports generated by a computerized
accounting system. 46
Overall Findings46
Recommendations47
Areas of Further Studies48
REFERENCES 49
LIST OF TABLE
Table 3.1 : Sampling Distribution 28
Table 4.1 : Age profile of respondents 31
Table 4 2 : Gender profile of respondents 31
Table 4.3 : Level of education of respondents 32
Table 4.4 : Level of awareness of respondents on application of Computerized Accounting Systems in payroll 32
Table 4.5 : Level of work experience of respondents 33
Table 4.6 : Type of Computerized Accounting Systems used 34
Table 4.7 : Adoption of Computerized Accounting Systems in payroll processing 34
Table 4.8 : Frequency of using Computerized Accounting Systems in payroll processing 35
Table 4.9 : Effectiveness of payroll processing after adoption of Computerized Accounting Systems 36
Table 4.10 : Adoption of Computerized Accounting Systems has improved performance of payroll accounting 36
Table 4.11 : Simplification of payroll processing 37
Table 4.12 : Timely preparation of payroll 38
Table 4.13 : Accuracy of payroll 38
Table 4.14 : Accessibility of payroll information 39
Table 4.15 : Traceability of payroll deductions 40
Table 4.16 : Risk of fraud 41
Table 4.17 : 1 Requires additional costs 41
Table 4.18 : Requires additional training 42
Table 4.19 : Risk of data loss 43
Table 4.20 : Risk of entry of wrong data 43
TABLE OF FIGURES
Figure 2.1 : Technology Acceptance Model (Adapted from Davis, 1989). 10
APPENDICES
Appendix 1 : Questionnaire 55
Appendix 2 : Interview Quetions 60
LIST OF ABBREVIATIONS
CAG Controller and Auditor General
CAS Computerized Accounting System
DoI Diffusion of Innovation
GAAP Generally Accepted Accounting Principles
ICT Information and Communication Technology
IDT Innovation Diffusion Theory
IT Information Technology
MBA Masters in Business Administration
MYOB Mind Your Own Business
OUT Open University of Tanzania
SMEs Small and Medium Enterprises
SPSS Software Package for Social Scientists
TAM Technology Acceptance Model
UTAUT Unified Technology Acceptance and User Theory
UWASA Urban Water and Sewerage Authority
CHAPTER ONE
INTRODUCTION
Background of the Research
This study aims to assess the impact of Computerized Accounting Systems (CAS) on performance of payroll accounting in selected Urban Water and Sewerage Authorities (UWASAs). Specifically, the study aims to assess the extent of adoption of CAS in payroll accounting, performance of payroll accounting, identify impact of adoption of CAS in payroll accounting and challenges facing adopting CAS in payroll accounting.
Computerized Accounting
Accounting is a manual process using paper books and documents for financial information. Advances in ICT have created significant changes in the area of financial management and accounting software. It has been proved that a computerized accounting system has several advantages such as speed, accuracy and reliability of financial information compared to a manual accounting system (Osmond, 2011).
Before the advent of ICT in accounting practice, these accounting protocols were being performed manually. However, today many accountants and non-accountants prefer to use computer software to record, report and analyze their company’s financial information. This information is collected from transactions and is compiled into financial reports (Weber, 2011).
The impact of CAS on accounting practice in public institutions can be measured by the extent to which the institutions have adopted the use of computerized accounting systems. Alan and Frank Wood (2005) define a computerized accounting system as a
total suit of components that together comprises all inputs, storage, transactions, processing, collecting and reporting of financial transaction data.
A Computerized accounting system involves the use of computers in processing accounting data into information to facilitate quick decision making through timely preparation of financial reports and financial reporting in this case refers to the way in which financial information is recorded, processed and conveyed to the end users of this information in particular (Weber, 2011).
A number of Software packages have been developed to assist in the accounting field and some of such packages are QuickBooks, Mind Your Own Business (MYOB), EPICOR (formerly Platinum), Tally ERP, PASTEL and SUN. Even though some of these software mentioned here are developed for small businesses, they are also designed specifically for accounting purposes in the banks.
Functions of Computerized Accounting Software
Accounting software’s are used to implement computerized accounting system. The computerized accounting is based on the concept of database; it is basic software which allows access to the data contained in the database. The following are the functions of computerized accounting software.
a) Preparation of accounting documents;
Computers help in preparing accounting documents like cash memo, bills, invoices and accounting vouchers. Here computerized accounting systems have user defined templates which will provide faster, accurate entry of transaction and therefore all documentation and reports can be generated automatically.
b) Recording of transactions
Everyday business transactions are recorded with the help of computer software. Every account and transactions is assigned a unique code where the grouping of account is
done at the first stage. This process simplifies the work of recording the transaction. Marivic (2009) argued that computerized packages will minimize human errors in transactions recording.
c) Preparation of trial balance and financial statements
After recording of transactions, the data is transferred into ledger accounts automatically by the computer. Trial balance is prepared by the computer to check accuracy of records, with the help of trial balance; the computer can be programmed to prepare the statement of comprehensive income and the statement of financial position.
Manual Accounting Versus Computerized Accounting
Manual accounting implies that the whole accounting cycle is performed manually on a periodic basis where by trial balances are calculated, journal transactions are entered and financial reports are prepared. Computerized accounting implies that the only thing that accountants do is recording transactions into the computer which processes the other steps of accounting cycle automatically or by a request (Weber, 2011).
Background to Computerized Accounting Systems in Tanzania
The introduction of Computerized Accounting Systems (CAS) in Tanzanian public institutions dates back to 1992 when the government took measures to computerize various aspects of its financial management functions and moving from a manual accounting system toward a computerized system. Ever since, performance in the financial sector has improved significantly (World Bank, 2002).
Some aspects of accounting practices which have been computerized include; accounts payable, accounts receivable, general ledger, cash management, purchase order and payroll. The main computerized accounting system used by public institutions in
Tanzania is EPICOR (formerly PLATINUM). After the implementation of the system, all accounting staff received training on how to use the system (World Bank, 2002).
Statement of the Problem
In the past decade, the government has taken various measures to improve efficiency in accounting practices. Among the measures taken by the government to improve efficiency in accounting practice in public institutions was the introduction of computerized accounting systems such as; Tally, Pastel and Epicor. The introduction of computerized accounting systems aimed to improve speed, accuracy and reliability.
However, despite of the many benefits of using computerized accounting systems, in many public institutions, incidences of accounting malpractice, delays in preparation of financial reports, financial misreporting and fraud have been reported (CAG, 2012). This casts a shadow of doubt on whether the introduction of computerized accounting systems have helped to improve efficiency in accounting practices.
Although many studies have been conducted on the impact of CAS in accounting practices in public institutions, little studies have been conducted on the impact of computerized accounting systems on payroll accounting in urban water and sewerage authorities. As a result, there is a knowledge gap that needs to be addressed. It is the objective of this study to fill that gap.
Objectives of the Study
Main Objectives
The study aimed to assess the impact of computerized accounting systems (CAS) on performance of payroll accounting by focusing on selected urban water and sewerage authorities as a case study.
Specific Objectives
a) To assess extent of adoption of CAS in payroll accounting in UWASAs
b) To assess performance of payroll accounting after adoption of CAS
c) To identify the effect of adoption of CAS in payroll accounting
d) To identify challenges facing adoption of CAS in payroll accounting
Research Questions
The study was guided by the following research questions
a) To what extent have UWASAs adopted CAS on payroll accounting?
b) What is the level of performance of payroll accounting after adoption of CAS?
c) What are the positive impacts of adoption of CAS on performance of payroll accounting?
d) What are the challenges facing adoption of CAS on performance of payroll accounting?
Significance of the Study
The findings of this study will contribute to the existing body of knowledge on the impact of CAS on performance of payroll accounting in UWASAs in Tanzania and help stakeholders in the accounting professional to become aware of the extent of adoption of CAS on performance of payroll accounting as well as the positive and negative impacts of adoption of CAS on performance of payroll accounting in Urban Water Supply and Sewerage Authorities
Also, findings of this study serve as a stimulant and stepping stone for future researchers and academicians by suggesting areas where further studies need to be conducted on the same or similar topics. Also, successful completion of the study will enable the researcher to partially fulfill the requirements for the award of a Masters
degree in Business Administration (MBA Finance) offered by the Open University of Tanzania.
Limitations of the Study
Due to shortage of time to conduct a fully and intensive study, the researcher had to limit the scope of the study so as to finish the study within time specified by academic calendar of the university, also the issue of limited funding emerged as one of limitation during the study.
1.7 Definition of Terms Accounting
As many professional accountants and auditors state - accounting is a language of business which is accepted in all developed and developing countries, but what exactly is accounting? Well, accounting has been defined by many authors in various ways. According to Weber (2011), accounting is the way business owners manage their company’s financial information.
Sacco (2008) defines accounting as a process through which financial information is recorded, organized, summarized, analyzed, interpreted, and communicated. This implies that accounting is concerned with the design of an organization’s record keeping system, the preparation of financial documents, analysis and interpretation of financial documents.
Computerized Accounting
Computerized accounting is defined by Wilson (2010) as a total suit of components that together comprises all inputs, storage, transactions, processing, collecting and reporting of financial transaction data. Before the introduction of information
technology into accounting, accounting protocols were performed manually. Today accountants use computer software to perform these duties.
Computerized accounting system refers to the method or scheme by which financial information on business transactions are recorded, organized, summarized, analyzed, interpreted and communicated to stake holders through the use of the computer and computer-based systems such as the internet and accounting software. This facilitates the automation of accounting tasks (Bretcht and Martin, 2006).
Meigs and Kay (1998) defined a Computerized Accounting System (CAS) as a system that uses computers to input, process, store and output accounting information the inform of financial reports. The author also adds that accounting system records all transactions that routinely deal with events that affect the financial position and performance of an entity.
Marivic (2009) described a computerized accounting system as a method or scheme by which financial information on business transactions are recorded, organized, summarized, analysed, interpreted and communicated to stakeholders through the use of computers and computer based systems such as accounting packages. He emphasized that it’s a mechanized process of facilitating financial information inflows.
Payroll Accounting
Payroll Accounting refers to that aspect of accounting needed to determine the accurate records of salaries and wages paid to workers. Naturally, business organizations are required by law to keep accurate payroll records. Apart from being needed to compute the accurate amount of employee's salaries and wages, payroll accounting is needed to establish the various expenses related to salaries and wages (Okoye, 2010)
.