Effect Of Accounting Information System And Financial Performance Of Listed Manufacturing Organization

CHAPTER ONE

1.0                                                          INTRODUCTION

1.1       Background Information to the Study

Every organization needs reliable data for its success, survival and relevance in this complex and ever dynamic business world (Benston, 2017). Information is an ingredient that guides managers in acting for an organization and this information is provided by Accounting Information System (AIS) via, the knowledgeable workers. Indeed, Accounting Information System (AIS) is seen as the life wire and blood line of any organization as it synergizes the performance of an organization in a view to maximize the wealth of the stakeholders (Ironkwe & Nwaiwu, 2018). Romney and Steinbart, (2020) assert that AIS is in fact a system that is designed to make the accomplishment of accounting function viable via procedures of records and transactions using appropriate gear to provide users with the statistics they want to devise, control, and operate their organizations. It complements the satisfactory of accounting records and promotes transferring performance among businesses’ departments and among organizations’ branches and their unique customers or stakeholder organizations. Battacharga, Desai and Venkataraman (2019) opined that AIS is an information system that is designed to make the accomplishment of accounting function possible through processes of data and transactions using appropriate tools to provide users with the statistics they need to plan, control, and perform their organizations.

According to Masanja (2019), accounting information system (AIS) is a tool that helps organisational management to improve its control on the firm’s operations and to develop its financial performance. AIS involves identifying, collecting, processing and delivering the accounting information to stakeholders for decision making throughout all organizational levels. AIS is also seen as a system that is used to record the financial transactions of a business or organization. This system combines the methodologies, controls and accounting techniques to track financial transactions and to provide internal and external reporting data as well as helping the preparation of financial statements with capabilities to improve organizational performance (Pérez, Urquía & Muñoz 2014). Traditional, AISs were mainly paper-based systems and seems inappropriate for today’s rapidly changing business environment. But, Information Technology (IT) revolution has transformed the nature of business operation, including accounting, to be led by IT and Information Systems (IS) applications. The diffusion of such applications enhances the financial performance and maintains transparency within the business organizations while providing continuous access to the financial reports throughout the financial year (Melitski & Manoharan, 2014). Moreover, effective use of such applications can improve customer satisfaction which ultimately leads to organizational success. Lots of other benefits for AIS have been cited in the literature including: Improved quality, cost reduction, increasing the speed of services, informed decisions and more effective information flow (Rehab 2018). AIS could provide management with their needs of valuable information that are timely, relevant, verifiable, and accurate to enable them to make better decisions (Al-Adaileh, 2018).

Accounting Information Systems characteristics are defined in terms of the availability of those characteristics and user satisfaction is a surrogate measure that is applied for measuring the performance of accounting information system. Accounting is a system that provides information concerning the entity to a variety of interested users. The purpose of accounting information is to enable the users to make informed judgments.  Since every decision involves several alternatives, accounting information must assist the user to decide his course of action. Accounting is a process which with the help of accounting records produces financial statements. The management is multiple foundation of knowledge whether in area of theory or practice which means that the theories, methodology and related models are based on principles of combination of scientific subjects such as economics, statistics, psychology, management accounting etc. (Hadi 2014). In management literature, the important duties of managers consist of planning, organizing, leading, supervising, controlling and decision making. Some of the management philosophers consider the decision making as foundation and basis of duties of a manager and some consider decision making as one of the main duties of managers. The importance of decision making in management has become mooted in such way that some people consider management equal to decision making (Hadi 2014). Hence, Accounting Information System is considered to be one of the most important systems of any organization. Its objective is to provide necessary information to the managers at different levels. This information helps them in discharging their responsibilities in an effective and efficient manner in the areas of planning, resource control, performance evaluation and decision making.

Financial performance denotes the financial standing, capability and readiness of an organization to fulfil its long-term financial duties and obligations in providing services in the near future. Generally, financial performance entails the extent to which financial objectives have been achieved (Al-Waeli, Hanoon, Ageeb, & Idan, 2020). AIS provides the highly needed financial and accounting data that enables financial managers to carry out evaluations concerning a company’s past business performance as well as to map future plans. AIS mainly generates financial reports that are needed at various management levels and by stakeholders alike. Indeed, AIS generates outcomes that are significant for decision-making at the operational, tactical and strategic levels of the organization. In particular, users will need the financial data and other relevant information according to the level of detail and analysis that they require (Ganyam & Ivungu, 2019). Therefore, accounting information system is very vital to all organisations. It is designed to help in the management and collection of information, raw data or ordinary data and transform them into financial data for the purposes of reporting them to decision makers (Dandago & Rufai, 2014; Harash, Al-Timimi & Alsaadi, 2014). AIS is a system that assists in the collection and recording of data and information regarding events that have an economic impact on organisations. It also helps in the maintenance, processing and communication of such information to both internal and external stakeholders (Olusola, Olugbenga, Zacchaeus & Oluwagbemiga, 2018). AIS greatly helps to provide internal and external reporting data, financial statements and trend analysis capabilities to affect organisational performance.

It is common knowledge that the main objective of a business is to maximize profit either in terms of increases in business productivity or by achieving rapid expansion in market shares domination. To achieve this goal, businesses need to be responsive to the changes in the environments, in particular to the information technology revolution. Nowadays, information technology is a must in many businesses. It is difficult to gain competitive advantage and survive without some adoption or implementation of this advancement in technological products. Hence, most organizations continue to increase spending on information system and their budgets continue to rise. Moreover, economic conditions and competition create pressures about costs of information. Generally, accounting information system is developed using information technology to aid an individual, government institutions and parastatals in performing their job. However, reviewing related literature, it was discovered that there was limited research on AIS and profitability with emphases on manufacturing organizations, as the few ones are basically on banks and financial institutions. Hence, the need for this study to examine the effect of Accounting Information System (AIS) on financial performance of listed manufacturing firms in Nigeria. Using the dimensions of Timeliness, Transparency and Accuracy as proxies of AIS while Return on Equity is used as proxy for financial performance.

1.2       Statement of the Problem

There has been a lot of financial scandals recently; consequent to asymmetric information produced by the management to satisfy its utilities are attributed to manipulation of accounting information, fraudulent acts perpetrated by managers, even, in-efficient disclosure, despite, the presence of regulatory authorities and enabling rules and standards set to eliminate such obnoxious practices (Womenazu & Kaine, 2022). In Nigeria and the world at large manufacturing companies play important roles in the economy of the country by making available consumables for the satisfaction and increase in the gross domestic product (GDP) of the industry. Despite, the gigantic benefits accrued to these sectors; there is still manipulation of the accounting information system from where management decisions are made.

More so, there has been an increasing trend of financial crimes in recent years in the form of inter-departmental financial anomalies, conspiracies amongst right-hand and senior staff, control breaches, and many others. Researchers have indicated that the follow-up units established by many organization managements have mostly failed to crack down on such fraudulent practices as the controls that have been put in place were not effective enough to mitigate the crimes committed by the employees in the company (Al-Tameemi & Alshawi, 2014).

Therefore, the critical nature of the stated problems underscores the imperative of this study which is focused to determine how accounting information system can affect financial performance of manufacturing organizations in Nigeria.