African Journal of Commercial Studies (ISSN: 2958-2326)

Volume 1, Number 1, 2022 | pp 28 – 35

Effects of Computerized Accounting Systems

Florence Atieno Kanyanga

Abstract:
Many organizations have wholeheartedly embraced computerized accounting systems in order
to expand their corporate operations. In recent years, service businesses, particularly the banking
industry, have experienced considerable development as a result of the use of computerized
accounting systems. This study assesses the linkage between the financial performance of
Kenyan businesses and the setting for computerized accounting. A few of the themes that have
been taken into account are data controls, detective controls, preventive controls, and corrective
controls. In contrast to clerks using manual procedures, the study found that a computerized
accounting system (CAS) will not issue invoices incorrectly, hence eliminating errors. Business
organizations are becoming more and more competitive in the market as a result of the
implementation of CAS.

Keywords: Computerized Accounting System, Financial Performance, Digital literacy, System

DOI/ARK: ark:/69431/AJoCS.v1i1.4

1. Introduction
Many organizations have used computerized accounting systems widely to compose the
operations of their businesses. Service industries have experienced a tremendous growth as a
result of using computerized accounting systems in the recent past; an example is the banking
industry (Imeokparia, 2013). The usage and availability of the internet has been an added
advantage to the users of computerized accounting systems since a virtual environment is
created where accounting operations can be conducted remotely or even globally (Osmond,
2017).
Manual accounting has been the most common accounting method in the recent past.
And for this purpose, organizations had to employ either full-time or part-time accountants. It
basically involved manual recording of transactions, generating ledgers and books of accounts,
preparation of financial statements, all on a paper (Bashorun, Omopupa, & Dahiru, 2020). The
modern technology we use today has brought in the use of computers in conducting various

28 http://ijcsacademia.com/index.php/journal/
 tasks. Technology involves applying science in collecting, recording and processing of
information in business, and then communicates to the intended users by use of electronic
media. For this purpose, the tool mostly used is the computer for processing transactions and
managing of business data. The computer plays a major role in advancement of various
organizations

2. Computerized accounting systems environment

Data Management
In today's accounting field, one of the major factors pushing the necessity of adopting CAS
is the large amount of data and transactions in most organizations and institutions. The data
need to be stored and managed in an organized manner for efficiency of operations and also for
reference purposes. Data management is a critical function in any institution. It involves the
collection of information, analyzing it, storing and organizing it in a way it can be accessed easily
when needed by the right individuals, (Huber, 2009). Managing your data effectively can also
positively contribute towards operational decision making and strategic planning by executive
officers and other senior managers. Data management being a crucial function, there's high
levels of accuracy required, which brings in the need of using computer systems to aid in storing
the large amount of data accurately and also make them accessible when needed.
The modern technology today has enabled the computers to have a continuous
improvement in their processing speed and large storage capacities, (Korpela, Montealegre, &
Poulymenakou, 2003). This aspect aids in the improvement of data management function which
in the long run can influence the performance of an institution or any other firm. Most
Computerized Accounting Systems (CAS) are multi-user systems. These systems use
databases that which keeps consolidated sets of data from the institution's systems. After setting
up databases, performance monitoring must always be done and also security provided, so as
to make it not available to anyone, but intended users. Retrieval of information from databases
is always done by user friendly programmers, as well as addition of new information. This forms
an integral part which enhances efficiency in management of accounting data in the institutions.

Data control
IT security experts set up and use antispyware, firewalls, intrusion detection systems,
encryptions, access control lists, network scanners, and penetration testing tools as part of an
IT security defensive strategy; these are particular duties based on user expectations and
usability knowledge (Bruce, 2019). Data control in the field of accounting mainly involves the
procedures and methodology put in place by a firm or organization to enhance the validity and
accuracy of financial information they prepare and provide. These control methods do not have
to necessarily comply with laws and regulations, but are developed to suit in aiding the
organization to operate smoothly.

29 http://ijcsacademia.com/index.php/journal/
 Every organization or institutions always have different operations and challenges, thus
different accounting controls implemented. In the scope of accounting controls, three areas are
mainly covered namely; detective controls, preventive controls and corrective controls.

Detective controls
Serious fraud problems have been brought to public attention at some Kenyan
businesses. The companies who were in the spotlight because of corporate scandals might
have done so because they neglected to employ the supposedly efficient procedures for
managing fraud risk. The fact that fraud is quite seldom in Kenyan businesses suggests that
they are using the best fraud preventive, detective, and corrective procedures available (Mwangi
& Ndegwa, 2020). The auditor can categorize, sort, summarize, merge, and match data using
CAATTs, as well as filter, define, and produce equations, as well as detect gaps, carry out
statistical studies, seek peer records, and find peer records (Kamau, 2022). "Detective control"
is a type of internal control which is meant to find problems within an institution after their
occurrence. They seek out any practices that are currently ongoing that do not tally with the
policies and procedures of the organization. An example of this type of control is by trying to
detect any mistakes or errors made by employees in the system or a mistake in the accounting
practices. It can also include internal audits, which can be conducted by other members of staff
within the organization.

Preventive controls
This, in simple terms, means the controls that are put in place to prevent a loss or an
error from taking place. They are implemented by organizations to prevent any incorrect
practices that would occur. In the case where a severe loss has been experienced, this type of
control is usually employed to reduce the chances of any loss ever occurring. They can also
include the imposition of policies and procedures that all employees must follow (Ongore &
Kusa, 2013). A practical example where this idea can be used is segregation of duties, where
different personnel or employees have different tasks that do not overlap in reporting or auditing
areas.

Corrective controls
Corrective controls assist in minimizing the impact of threats, identifying the root of
issues, and fixing errors that result from issues. Detective controls identify issues, while
corrective controls change the processing system to reduce future occurrences of the issues
(Mumba & Wekes, 2020). Corrective controls are majorly meant to correct errors or any
irregularities that has been identified. They are implemented to fix any issue which could have
been found through detective controls. This could include recommending on any issue which
has been detected in an organization's books of accounts after conducting an audit.

3. Digital literacy
In the recent past, the role of accountants in business has evolved. This is due to the
increasing transformation from the use of manual accounting systems to the use of
computerized accounting systems. The extensive use of computers in business operations has
resulted to the change in the skills required to conduct accounting duties.
IT competencies are considered crucial for digital accountants to conduct their tasks. It
is essential to identify the roles of a modern accountant today. It includes definition of the roles

30 http://ijcsacademia.com/index.php/journal/
 in depth, depending on the need and operations of the firm or institution. Defining the role of a
digital accountant in any organization is crucial in that it sets the framework within which a digital
accountant in an organization has to operate, that is the scope of the work and this will in the
end affect IT tools and intended to be used.
A fundamental understanding of how computers are operated is crucial for modern
accountant personnel, as far as digital literacy is concerned. This assists in the gathering of
relevant information, production of written documents and also resolving of issues arising on
day-to-day basis while using various forms of technology, (Amidu, Effah, & Abor, 2011). There
are a number of programs which a modern accountant should be well conversant with. The first
example is the use of the spreadsheet software like Microsoft Excel. It’s of significance in that
it is capable of using complex formulae and making compilation spreadsheet much easier.
Another one is the accounting software such as QuickBooks and ERP. Accounting personnel
can print cheques, produce customer’s invoice or enter invoices received from suppliers into
the system through these software. They can also contain in them modules for monitoring and
preparing payroll, managing of fixed assets and inventories. They also allow easy production
an accessibility of financial statements. Digital accounting personnel need to possess the
working knowledge and experience to use these software applications. Use of digital credit
which involves use of mobile telephone devices and other online platforms to secure has been
on a steady rising trend in Kenya since the year 2012 (Kamau, 2021). This is an indication of
improving digital literacy.
Basic knowledge of Generally Accepted Accounting Principles (GAAP) is also a
fundamental requirement for any accounting personnel. This is because the law in accounting
field requires that institutions and organizations to provide financial statements and reports that
comply with the GAAP standards. Another factor to consider as far as digital literacy is
concerned in CAS is the flexibility, adaptability or willingness of the accounting staff to the
changes in technology. This means keeping pace with evolving technologies in the accounting
field. This is because the accounting model applied today is likely to be different from the
business models that will be used in the next decade or five years to come. It is therefore
necessary to take time to invest and monitor relevant technological advancements in the journey
of a digital accountant.

4. Financial performance
To create a firms value, one need to design and implement financial management.
Financial management’s main objective is to balance between liquidity, solvency and
profitability, (Bouba, 2011). Financial performance is an important aspect to any organization,
firm or institution. It affects directly the life and survival of any profit making organization. When
there's better performance, that's an indication of how effective the management works and
makes good use of the organization's resources, (Omondi & Muturi, 2013).
In this research, financial performance of an organization is defined as the measurement
of how effectively an organization can use its assets to generate revenue from its primary mode
of business, (Finke, Guo, & Huston, 2021). Financial performance of an organization can be
measured by monitoring its profit accumulated, the value of shares and its growth index. Other
financial analysts monitor return on investment, net income as a percentage of sales, and costs
of poor quality production as a percentage of sales, as measures of financial performance. For
the case of this research, we are going to examine financial performance of an institution

31 http://ijcsacademia.com/index.php/journal/
 through parameters like gross profit margin, return on investment and earnings before interest
and tax (EBIT).

5. Literature Review
There are a number of literature studies which support CAS comprising of both local and
international reviews. However, these studies have addressed different aspects in different
contexts. Krishna (2015) conducted a study about the effects of IT on banking Industry in India.
She studied the various technological developments within the banking sector in India, which
have been as a result of ICT. These forms included telephone banking, ATMs and mobile
banking. She concluded that ICT results into a lower cost. She further reported that the effect
on profitability cannot be constantly conclusive since there is a possibility of impacts that arises
due to demand for the skilled labor and competition faced in the sector.
Kenneth, Rebecca, and Eunice, (2012) also conducted a study on the factors affecting
the budgeting process among SMEs. In their study which involved a sample of 120 firms, they
derived that CAS is one of the factors that affect budgeting process. They recommended that
IT should be considered in the budgeting process due to its significance. According to Ismail
(2009) some managers are a position to use IT strategically. He suggested that use of IT has
expanded greatly towards management accounting field. He indicated that information systems
have an effect on financial performance of a firm, and there exists a positive relationship
concerning the same. Another research was done by Nzomo (2013) on the impact of AIS on
organization effectiveness found out that AIS is an important mechanism for an organization’s
effective management, decision-making and controlling activities.
In the study to identify the effects of CAS on audit risk management in public enterprises
by Otieno and Oima (2013), the findings reflected that 36% of the enterprises reported that they
have already employed CAS, while the other 24% were still in the process of adopting the
systems. More than 40 % of the targeted enterprises did not have computerized audit
implementation plan. The findings of this research indicated that there is a positive relationship
CAS which was employed and audit risk management policy in the enterprises. This study
however did not consider the impact that CAS might have on financial performance of the
enterprises. The linkages between computerized accounting syatem and financial performance
is illustrated using figure 1 below.

32 http://ijcsacademia.com/index.php/journal/
 Digital Literacy

Computerized Accounting
Financial Performance
System
- Data Management
- Data control

Figure 1: The linkages

5. Conclusion
It is blatantly apparent that CAS helped to ease some internal control concerns that
emerged as a result of the use of manual accounting methods. Compared to clerks using
manual procedures, a CAS will not issue invoices improperly, minimizing errors. As a result of
CAS adoption, business organizations are becoming more and more competitive in the market.
As far as financial performance is concerned, there is a need to use an advanced accounting
system due to the expansion of activities and diversification in the commercial sector. The
adoption of CAS is accelerated by digital literacy. CAS increases operational efficiency, which
boosts financial performance.

References
Albertazzi, U., & Gambacorta, L. (2010). Bank profitability and taxation. Journal of
Banking & Finance, 34(11), 2801-2810.
doi:https://doi.org/10.1016/j.jbankfin.2010.06.003
Alper, E., Clements, B. J., Hobdari, N. A., & Porcel, R. M. (2019). Do Interest Rate
Controls Work? Evidence from Kenya. IMF. Retrieved from
https://www.imf.org/en/Publications/WP/Issues/2019/05/31/Do-Interest-Rate-
Controls-Work-Evidence-from-Kenya-46877
Baldacci, E., Gupta, S., & Mulas-Granados, C. (2009). How effective is fiscal policy
response in systemic banking crises? SSRN. Retrieved from
https://ssrn.com/abstract=1442263
Blinder, A. S. (2008). Keynesian economics. The concise encyclopedia of economics.
Retrieved from https://studynotesunisa.co.za/wp-
content/uploads/2018/12/Scanned-notes-6.pdf
Chauvet, L., & Ferry, M. (2021). Taxation, infrastructure, and firm performance in
developing countries. Public Choice, 187(3), 455-480.
doi:https://doi.org/10.1007/s11127-020-00788-4

33 http://ijcsacademia.com/index.php/journal/
 Constâncio, V. (2020). The return of fiscal policy and the euro area fiscal rule.
Comparative Economic Studies, 62(3), 358-372.
doi:https://doi.org/10.1057/s41294-020-00122-3
Dinç, I. S. (2005). Politicians and banks: Political influences on government-owned
banks in emerging markets. Journal of financial economics, 77(2), 453-479.
doi:https://doi.org/10.1016/j.jfineco.2004.06.011
Du, L. (2015). Positive correlation between government expenditure and real interest
rate: Testing Ramsey Model based on American and Chinese data. Procedia
Economics and Finance, 30, 202-212. doi:https://doi.org/10.1016/S2212-
5671(15)01287-3
Eboso, J. M. (2018). Government Expenditure and Public Sector Corruption in Kenya.
University of Nairobi. Retrieved from
http://41.204.161.209/handle/11295/157018
Guguyu, D. (2022, March 9). CBK lifts freeze on bank lending rates after IMF notice.
Business Daily. Retrieved from
https://www.businessdailyafrica.com/bd/economy/cbk-lifts-freeze-on-loan-prices-
after-imf-notice-3741594
Kamau, C. G., Mutiso, A. N., & Ngui, D. M. (2012). Tax avoidance and evasion as a
factor influencing ‘Creative Accounting practice’among Companies in Kenya.
Journal of Business Studies Quarterly, 4(2), 77–84. doi:
https://doi.org/10.5281/zenodo.6850559
Kenga, D. S., Kamau, C. G., & Amayo, S. A. (2022). Effect of Corona-virus Disease
2019 (COVID-19) and Inflation Rate on the Foreign Exchange Rate in Kenya.
Asian Journal of Economics, Business and Accounting, 22(14), 12-24.
doi:https://doi.org/10.9734/ajeba/2022/v22i1430620
Kipkemoi, S., Atambo, W., & Mogwambo, V. A. (2016). Effects of Fiscal Policy on the
Profitability of Commercial Banks in Kenya: A Case Study of Kenya Commercial
Bank. International Journal of Social Sciences and Information Technology,
II(IX), 1323-1336. Retrieved from https://www.ijssit.com/main/wp-
content/uploads/2016/10/EFFECTS-OF-FISCAL-POLICY-ON-THE-
PROFITABILITY-OF-COMMERCIAL-BANKS-IN-KENYA.pdf
Kithandi, C. K. (2022). Monetary Policy and Financial Performance of Commercial
Banks in Kenya. The International Journal of Business and Management, 10(6),
40-46. doi:DOI: https://doi.org/10.24940/theijbm/2022/v10/i6/BM2206-007
Kulundu et al. (2020). Fiscal Policies in Kenya: Effects on Poverty and Inequalities.
Larch, M., & Martins, J. N. (2009). Fiscal policy making in the European Union: an
assessment of current practice and challenges. Routledge.
Maigua, C., & Mouni, G. (2016). Influence of interest rates determinants on the
performance of commercial banks in Kenya. International journal of academic
research in accounting, finance and management sciences, 2, 121-133.
Retrieved from https://ideas.repec.org/a/hur/ijaraf/v6y2016i2p121-133.html
Mathias, S. M. (2021). Impact of Covid-19 Pandemic on Performance of Kenyan Banks.
University of Nairobi. Retrieved from
http://erepository.uonbi.ac.ke/handle/11295/160473
Muhindi, K. A., & Ngaba, D. (2018). Effect of firm size on financial performance on
banks: Case of commercial banks in Kenya. International Academic Journal of

34 http://ijcsacademia.com/index.php/journal/
 Economics and Finance, 3(1), 175-190. Retrieved from
http://www.iajournals.org/articles/iajef_v3_i1_175_190.pdf
O'Neill, A. (2022). Kenya: Budget balance between 2017 to 2027 in relation to GDP.
Retrieved from Statista: https://www.statista.com/statistics/451121/kenya-
budget-balance-in-relation-to-gdp/
Owino, E. (2021). Domestic financial flows in Kenya before and during Covid-19.
Development Initiatives. Retrieved from https://devinit.org/resources/domestic-
financial-flows-kenya-covid-19/
Pattanayak, S. (2016). Expenditure Control: Key Features, Stages, and Actors.
International Monetary Fund. Retrieved from
https://www.imf.org/external/pubs/ft/tnm/2016/tnm1602a.pdf
Thiongo, P. K. (2018). Effect of Loan Portfolio Growth on Financial Performance of
Commercial Banks in Kenya. Technical University of Mombasa. Retrieved from
http://41.89.128.50:8080/handle/123456789/13428
Wanyonyi, D. J., Kamau, C. G., & Sasaka, P. S. (2019). Effect of Loanable Funds and
Director’s Skills on Financial Performance of Non Deposit Taking SACCOS in
Mombasa County. International Journal of Sciences: Basic and Applied
Research, 48(4), 108-124. Retrieved from https://core.ac.uk/outputs/249336790
World Bank. (2010). Fiscal Policies and Institutions for Shared Growth in Kenya:
Lessons. Retrieved from
https://openknowledge.worldbank.org/handle/10986/12980

35 http://ijcsacademia.com/index.php/journal/