Chapter Two

Literature review
2.0 Introduction

This chapter presents different literatures related to the impact of implantation E-Accounting
On SMEs in Mogadishu. The literature will specifically focus concept of the E-Accounting
,SMEs , Accounting and Financial Information , OAS , The effect of OAS on SMEs These
literatures will be retrieved from various books, journals, articles and studies related to the same
problem under investigation.

2.1 Definition and concept of the E-Accounting

E-Accounting refers to Electronic Accounting, is an accounting system that relies on computer

New technologies, like Computers, Internet and mobile technologies have provided new business
opportunities. There has been a constant growth in the use of information and communication
technology in business to support the exchange of data and information within and between
organizations. The introduction of the internet has revolutionized the process of business
automation.

E-Accounting and financial information system is used to refer an accounting system that
depends on Information and Communication Technology (ICT) for performing its information
system functions. E-Accounting is new development in field of accounting. In an electronic
accounting system, source documents and accounting records exist in digital form instead of on
paper. Eaccounting involves performing regular accounting functions.

2.2 Features of e-accounting:

E-accounting is in-built of following features:-

1. Multi-user access.

2. Multi-site access.

3. A single / multiple, shared databases.

5. Very economical to provide service to large number of clients.

6. Enhancements and fixes continuously developed and installed by service provider .

2.3 Benefits of e-accounting:

Accurate financial and accounting information is very important for organizations to maintain a
position over the competitors in the market. In a fast paced world, the clients need to have
control over financial data to know their financial positions.

Electronic accounting system provides various benefits to small and medium scale businesses.
Rush in Ayiri and Kudzanayi (2017) suggested various benefits accruing to an organization if it
uses electronic accounting systems.

This is possible through e-accounting. E-accounting helps businesses keep their financial data
and accounting software in a safe, secure environment, allowing real time access to authorized
users, irrespective of their location or computing platform. This is possible due to an Application
Software that allows access to users of financial information with different levels of permission
and password. In this regard, main benefits of e-accounting are :

1. No need of in-house bookkeepers' training and expertise.

2. No problems with employee turnover, vacations, sick leave and absenteeism .

3-Cost saving on office space (rent for additional offices)

4. Save time and money, the cost is low (in some cases: free ).

5- Gain greater control of finances by moving from paper records to computerized accounting
software.

6- They are portable. The company can access its documents from almost any computer with a
broadband connection.

7. If the company's computer crashes, its documents are still safe on the server .
2.4 Problems in e-accounting

1-Data security — all the data of the company resides on a remote server or computers whose
back up can be taken regularly. The data can be erased or lost due to problem with the
computers. Also the data can be stolen by other companies.

2. A network connection (usually Internet access) is required to send and receive changes. That
is, internet dependence makes it more difficult to work offline.

3. Special training is required.

3.0 Definition of a system

A system is a set of interrelated components that interact to achieve a goal (Romney and
Steinbart, 2006). In support of this O’ Brien and Marakas, (2009) define a system as a set of
interrelated components with a clearly defined boundary, working together to achieve a common
set of objectives by accepting inputs and producing outputs in an organised transformation
process. An Information System (IS) is a system with its resources identified as people,
hardware, software and data. The people involved are end users as well as (IS) specialists.
According to Romney and Steinbart, (2006) an Accounting Information System is a system that
collects, records, stores, and processes data to produce information for decision making.

3.1 Small and Medium Enterprises

Small and Medium Enterprises have been classified in a variety of ways based on the amount of
money invested, the size of the company, the number of people employed, and the ownership
and management structure.

SMEs are entities which do not have onerous requirements of filing their financial statements
with any regulatory body for the purpose of issuing financial instruments.

In Zimbabwe, the Ministry if SMEs (2000) defines a small enterprise as a business that employ
not more than 50 people while operating as a registered entity and a medium enterprise as one
employing up to 75 and 100 people.
On the other hand the International Accounting Standards Committee Foundation (2007) defines
an SME as an entity that does not have public accountability and thus publishes general purpose
financial statements for external users.

Small and medium-sized businesses play a significant part in industrial prosperity; they
contribute to eliminate poverty by creating jobs, which serve as a source of national outputs and
profits. Small and medium-sized businesses (SMEs) serve as incubators for emerging
entrepreneurs and huge organizations, and they are valued partners of large firms since they
provide and deliver support services. They may lack the experience to execute comprehensive
accounting processes, however accounting systems are extremely valuable to these
organizations.

3.2 Theoretical framework

3.2.1 Accounting and Financial Information

The financial management of Small Enterprise conducted by Ismail, (2009) emphasizes the
common belief that better financial information means better control and higher chances of
success. It also includes any financial ratios extracted from these financial statements.
Accounting systems are responsible for analysing and monitoring the financial conditions of the
firm, preparation of documents necessary for tax purposes, providing information to support the
many other organisational functions such as production, marketing, human resources
management and strategic planning . .Without such a system it will be difficult for SMEs to
determine performance, identity customer and supplier accounts balances and forecast future
performance of the organization .
3.2.2 OAS – A New Form of Computerized Accounting Information System

Online Accounting system (OAS ) is the latest development in management accounting and
Information Systems . They are cloud-based application systems that use the internet to access
and maintain business accounting records. They conduct tasks such as bookkeeping, accounts
production, and payroll administration and they ensure compliance with associated statutory
regulatory responsibilities. This makes it much easier for SMEs and associated parties to remain
in compliance (ICAEW, 2010).

In order to use the OAS, a business pays a monthly subscription fee to the online accounting
service provider. Authorized users, including the business owner (and employees), can visit the
web site of the OAS provider, log into the system, and process accounting transactions. OAS has
several advantages.

Firstly, multiple authorized users can access these systems from anywhere, and at any time to
consolidate accounting and financial management data across departments, offices or territories
instantaneously. In this way they can generate updated reports in real-time.

Secondly, the user’s data are stored in a central database operated and maintained by the service
provider. The service provider is responsible for data back-ups and security.

Thirdly, the client need not be concerned about upgrading the software, since the service
provider automatically updates the software regularly (ICAEW, 2010; Greenberg et 70 al.,
2012). This raises concerns about security and the safety of business, and the safety of financial
data belonging to the small businesses who implemented the OAS.

OAS can be a boon for SMEs as they no longer need to rely consistently on their accountants, or
the filing of statutory returns. They need no longer be concerned about the consequences of
incorrectly performing the task. In addition to this, OAS can have a beneficial effect on time
management, productivity and the flexible working practices of small businesses.
The ability of OAS users casually retrieving their financial data stored on the vendor’s server and
accounts can be processed by the software user anytime and anywhere, using any device with
internet access – even on a mobile phone.

This means that information can be distributed seamlessly and instantly, reducing the possibility
of errors and confusion (ICAEW, 2010). This also means that the firm’s external accounts
consultant can conveniently access the information required to process management reports and
accounts. They can and also make any necessary corrections without difficulty (ICAEW, 2010).
This can help SMEs identify cash flow gaps and can help them to collect unpaid invoices,
thereby alleviating the problem of late payments.

4.1 Empirical literature review

Abdulla (2009) investigated accounting information systems based on usefulness and ease of use
only. He furthermore termed the behavioural and performance change of technology acceptance
that are expected to occur through performance application to business functions of public sector
organizations in Tropoli, Lybia.

The change was measured through the level of acceptance of technology. The research
confirmed that the relationship between perceived usefulness and ease of use contributes positive
to accounting information system adoption among public sector organizations.

Research by Ismail (2006) examined Accounting Information Systems effectiveness and its
influencing factors in the context of SMEs in Malaysia. The proposed model examined the
impact of AIS sophistication, manager participation in AIS implementation, manager AIS
knowledge. The results showed that manager accounting knowledge, and the effectiveness of
vendors and accounting firms significantly contributed to AIS effectiveness. This study suggests
that managers need to acquire sufficient accounting knowledge to better understand the business
information requirements .

A research conducted by Duxbury et al (2002) found that the main perceived barriers to
implementation computer technologies among Canadians were lack of financial resources and
the skilled personnel. Both strong and managerial and strategic competencies were a deficiency
in SMEs hence it results in failure to adopt accounting information systems.
5.1 The Impact of OAS On SMEs

Research into the performance of accounting technologies is more extensive in large-sized firms.
Therefore, an investigation of its effect on smaller-sized firms is necessary, as the
implementation of this technology by small businesses may bring about competitive advantages
and the opportunity to effectively function and attain excellent results due to their flexibility and
capability to better respond to economic shocks (Tanabe and Watanbe, 2005; Perez et al., 2010).

The OAS is a new technology designed to build advanced capabilities for management
accounting. It offers a means to control and to facilitate the accounting and controlling function
with the aim of helping SMEs to achieve a balance between liquidity and profitability (Liu,
2012).

The call for further studies into the area of management accounting and control, and IS other
than ERPs and AIS’s by some authors (Rom and Rohde, 2007; Granlund, 2010) has shifted focus
to the relevance of using OAS by small businesses to help better manage cash flow. Financial
indicators are absolutely valuable and are the most generally-used measures of firm performance.
They can also render some useful information about business process performance. Such
information is limited, particularly when only publicly accessible data from financial statements
are used (Dhenning and Richardson, 2002; Matolcsy et al., 2005).

However, obtaining the annual reports of small businesses is difficult, as they are not publicly
available, and small businesses owners are seldom willing to release their financial data. Since
the late 1980s, researchers, consulting firms and practitioners have stressed the need to place an
increased emphasis on non-financial indicators in the performance measurement process (Lebans
and Euske, 2006; Gavrea, 2011).

Human behaviour based on perceived ease of use and perceived usefulness play a paramount role
in influencing the adoption of accounting information systems by SMEs. Users that perceive
AISs to be useful and easy to use are more likely to adopt the technology than those that do not.
In support of this, Legrisa, (2003) suggested that perceived ease of use and perceived usefulness
are the two most important factors in explaining accounting information technology adoption.
Thus the behavioural intention of chief executive officer of SMEs to adopt accounting
information technologies is influenced by their perception of the characteristics of electronic
means. Therefore, chief finance officers who perceive accounting information technologies to be
superior, compatible and easy to understand, are more willing to adopt electronic means .

7.1 Conclusion

technological progress, both the preparation of a document and arrangement of accounting

By means of this development, information is generated by the accounting system that has come
to a level that generates extremely various information in a short time completely to the
information users. In other words E-accounting practices have provided saving of time,
synchronous and comparable presentation of financial statement has become easier .Based on the
findings of the study, it was concluded that usage of electronic accounting by small and medium
scale enterprises has the potential to improve their performance in financial reporting of
activities in the organization.

8.1 Conceptual Framework

IV DV

EV

Using E-Accounting
SMEs
Employee

Government

Customers

Figure 1.1: Conceptual Framework