The effects of accounting information system in financial performance

EFFECT OF ACCOUNTING INFORMATION SYSTEM ON FINANCIAL PERFORMANCE IN BUNGOMA COUNTY GOVERNMENT-KENYA

Wilson Ayabei, Kibabii University, Kenya

ABSTRACT

Financial performance is a critical turning point for prosperity of any financial institution. Many AIS have been adopted and used to ensure effectiveness AIS on financial performance. Currently, 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, information system is developed using information technology to aid an individual, government institutions and parastatals in performing their job. The general objective was to evaluate the effects of accounting information system on financial performance in Bungoma County Government. The specific objectives of the study were to investigates the effects of timeliness, level of aggregation and integration on financial performance as its specific objectives. The study is of key importance to Bungoma County as well as other financial firms in the same sector in terms of determining the benefits accruing due to the integration of accounting information systems in their operations. This enables Bungoma county government in gauging the model in terms of enhancing financial performance. The study is useful to other researchers interested in the problem under investigation as the study has laid a platform on which further studies related to the subject can be undertaken. The descriptive research design was used because of minimal manipulation of research variables. The target populations for the study were the employees of Bungoma County Government. A sample of 50 Accountants and Finance Officers in Bungoma County Government were involved in the study. Simple random sampling and purposive sampling was used to select the participants. The researcher gathered primary data. Primary data were obtained through questionnaires since it guaranteed confidentiality to the respondents thus, they acted without any fear or embarrassment. Questionnaires were circulated and filled by the respondents. The validity and reliability of the research instrument was highly regarded useful and relevant for data collection. The data was analyzed for descriptive statistics. The descriptive statistics involved the use of frequencies, percentage, mean and standard deviation. The quantitative data was presented in tables and pie chart, while explanations to the same was presented in prose. The study findings showed that there is strong relationship between AIS and financial performance, which means access to accounting information, will lead to financial performance. Therefore, the researcher concluded that AIS have an impact on financial performance. This is in tandem with the reviewed literature. The limitations encountered were the difficulty in measuring the level of financial performance effectiveness. The researcher relied on questionnaires. The researcher recommends a similar study to be done in more counties in order to compare the findings with the findings of this study. Finally, a similar study could be carried out focusing on the effectiveness of AIS on financial performance.

CHAPTER ONE

1.0 Background of the Study

The emerging global economic scenario characterized by advancement in information technology, rapid changes in production processes, increased sophistry of the consumer, fierce market competition and unethical skimming activities of producers in the drive to survive the unpredictable and complex business dynamics (Curtis, 1995). Further that IT has brought to the fore the crucial role of accounting information in economic and business discourse especially in relation to effectiveness AIS in financial performance.

As we all know, accounting speaks the language of business as it records all transactions of an individual firm or other bodies that can be expressed in monetary terms. Predicated on the going concept, accounting is the scheme and art of collecting, classifying, summarizing and communicating data of financial nature required to make economic decisions (Curtis, 1995). Accounting Information System (AIS) is vital to all organizations (Borthick & Clark, 1990; Curtis, 1995; Wilkinson et al., 2000) and perhaps, each organization either profit or non-profit-oriented need to maintain the AISs (Wilkinson, 2000). On the other hand, an AIS is the whole of the related components that are put together to collect information, raw data or ordinary data and transform them into financial data for the purpose of reporting them to decision makers (Yang et.al. 2011, Mahdi Salehi, et.al., 2010).

For better understanding the AIS, three words of AIS are elaborated separately. Firstly, “accounting” which is a language of business, which records all the financial or monetary transactions (Salehi, M. et.al, 2010). Second is “information”, which is the processed form of all financial transactions data which is used by decision makers. Lastly, according to Thomas & Kleiner (1995) and Bhatt G.D. (2010), “system” is an integrated entity which focuses on the set of objectives.

Bungoma County Government is one of the 47 counties in Kenya which came into operation when the new constitution was promulgated in August 2010. This paved way for the creation of the 47 counties and decentralized power to them in bringing closer delivery of services to the citizens. One of its core functions of the county government is to fully ensure effective management of funds allocated by the national government (New constitution, 2010).

Accounting information systems (AIS) as a part of county’s information systems (IS) are seen as facilitating effective financial performance and can be tailored to suit county government’s environment, requirements of task, and structure. An accounting information system is a structure that it is used to collect, store, manage, process, retrieve and report its financial data so that it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors and regulatory and tax (Hadi Saeidi et.al., 2015)

1.1 Effectiveness of Accounting Information System.

Accounting Information Systems (AIS) are a tool which, when incorporated into the field of Information and Technology systems (IT), were designed to help in the management and control of topics related to firms’ economic-financial area. But the stunning advance in technology has opened up the possibility of generating and using accounting information from a strategic viewpoint. (El Louadi, 1998, Nzomo, 2013). AIS are systems used to record the financial transactions of a business or organization. This system combines the methodologies, controls and accounting techniques with the technology of the IT industry to track transactions provide internal reporting data, external reporting data, financial statements, and trend analysis capabilities to affect organizational performance (Elena et.al., 1991).

The past decades, accounting information system (AIS) focus on recording, summary and validations of data business financial transaction. Systems of accounting that were previously performed manually can now be performed with help from computer. Information technologies have been paramount in recent decades and have been leading developments in the globalization and societies. Information technology plays a vital role in the accounting profession. It can be strategy weapons to support the objective and strategy organization of the firm. Most institutions get competitive advantage by new information system. In the view of the fact, the key to financial institution's survival is the continuous improvement of its financial performance. The need to integrate these often-diverse systems led to the accountant's appreciation of shared databases that provide a picture of the institution's financial data, eliminating duplications and reducing data conflicts (Moscove et al., 1999).

Moreover, the research tradition in the accounting field, concentrating on, for example, transaction processing, data structure modeling, computer fraud and security as well as system development methodologies, seems not to have produced a useful understanding of the interplay between modern IT and accounting/management control (Granlund and Mouritsen, 2003). The effectiveness of accounting information systems can be received providing management information to assist concerned decisions (Flynn, 1992).

The effectiveness of accounting information system (AIS) can be evaluated as added value of benefits (Corner, 1989). The effectiveness of accounting information system (AIS) is a measure of success to meet the established goals (Gelinas, 1990). The success of accounting information system (AIS) implementation is defined as profitably applied to area of major concern to the institution, is widely used by one or more satisfied users, and improves the quality of their financial performance.

An information system refers to the means of collecting, entering, and processing data and storing, managing, controlling, and reporting information so that the institution can achieve its objectives or goals (Romney et al., 1997, Bruggeman and slagmulder, 1995). The definition of information system indicates that an information system has following components. The information system is designed to accomplish one or more objectives or goals. For example, an information system may be designed to collect and process data about financial to help accountant prepare financial statements. Process of accounting information system consists of input, output, data storage, processor, user, and control measure. Data must be entered into the information system to be processed. Data are the facts that are collected and processed by the information system. Data are meaningless and useless, hence, should be processed and transformed to meaningful, organized, and useful form that is called information. Output is the meaningful and useful information produced by the information system (Wilkinson, 2000, Chenhall, 2003).

In this research effectiveness of accounting information system (AIS) refers to collecting, entering, processing data, storing, managing, controlling, and report information of accounting so that an institution can achieve financial statements quality (Bruggeman and slagmulder, 1995).

Accounting information system produces data by the following instructions and procedures. In computerized accounting information systems, software includes quick books, ERP, procedures and instructions that direct computers to process the data (Nzomo, 2013). Users are people who use the accounting information produced by the system and who interacts with the system. For example, accounting managers who use financial statements that are produced by an accounting information system are the users of the information system. In order to make the accounting information system produce correct, and error free accounting information, necessary measures should be taken to protect and control the accounting information system. An advantage of accounting information system (AIS) is good cooperation, to meet the need of multi user, and control in advance and in concurrent. In accounting literature indicated that accounting information system has importance and widely use in accounting profession (Marriot and Marriot, 2000; Riemenschneider and Mykytyn, 2000; and Ismail, 2007).

1.2 Statement of the Problem

Currently, 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, information system is developed using information technology to aid an individual, government institutions and parastatals in performing their job. Therefore, most institutions focus on developing information system in order to support decision system, communication, knowledge management, as well as many others.

The key part of information system needed for decision making in institutions is accounting information system. Moreso, the world and the human life has been transformed tremendously from information age to a knowledge age. In this perspective, knowledge has been recognized as the most valuable asset. In fact, knowledge is not impersonal like money and does not reside in a book, a data bank or a software program.

Choe (2002) believed that knowledge is always embodied in a person, taught and learned by a person, used or misused by a person. Accounting information system is an unbiased tool for an effective administration and management. Poor accounting information system jeopardizes administrative effectiveness, which makes managers malnourished administratively especially in financial sector.

Management is engaged with different types of activities which require good quality and reliable information. Quality information is one of the competitive advantages for an organization. In an accounting information system, the quality of the information provided is imperative to the success of the systems. Quality of information generated from AIS is very important for management. Business organizations often use accounting information systems to provide support for management decisions. Support usually includes financial analysis from company accountants. Analysis is often taken for the company’s accounting information system. Using business technology, this system can process copious amounts of documents electronically for owners and managers. This has led the researcher to investigate on the effects of effectiveness of AIS on financial performance in Bungoma county government.

1.3 Objectives of the Study

1.3.1 General Objective

The main objective of this study is to examine the effect of accounting information system on financial performance in Bungoma County Government.

1.3.2 Specific Objectives of the Study

1. To establish the effect of timelines on financial performance in Bungoma County Government.
2. To evaluate the effects of level of aggregation on financial performance in Bungoma County Government.
3. To examine the effects of integration on financial performance in Bungoma County Government.

1.4 Research Questions

1. What are the effects of timeliness on financial performance in Bungoma County Government?
2. What are the effects of aggregation on financial performance in Bungoma County Government?
3. What is the effect of integration on financial performance in Bungoma County Government?

1.5 Assumption of the Study

The study takes into account that the instruments used for data collection is valid and reliable in measuring financial performance .

1.5 Significance of the Study

An accounting Information system is an orderly, efficient scheme for providing accurate financial information and controls. Regulatory requirements and internal administration policies are key considerations in the design of an effective accounting system. Thus, accounting systems show the books, records, voucher, and files and related supporting data resulting from the application of the accounting process. It involves the design of documents and transactions flow through the institution.

The study is of key importance to the financial companies as well as other financial institutions in terms of determining the benefits accruing due to the integration of accounting information systems in their operations. This enabled financial institutions in gauging the model in terms of enhancing financial effectiveness. The study is useful to other researchers interested in the problem under investigation as the study has laid a platform on which further studies related to the subject can be undertaken.

1.7 Limitation of the Study

The limitations the researcher encountered under this research project included: resource inadequacy, time, tight scheduled for officers, administrative variations, respondent biasness and weather conditions.

1.8 Conceptual Framework

The Conceptual Framework sets out the concept that underlies the preparation and Presentation of financial statements. The independent variables are: timeliness, level of aggregation and integration. On the other hand, the dependent variable is the profitability.

In Figure 1 below, the conceptual model proposes how effectiveness of accounting information system (AIS) impacts on financial performance.

Independent variables Dependent variable AIS

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2.1 Financial performance

Existing literature offers scant evidence of the relationship between these AIS and financial performance (Oguntimehin, 2001); though it is important to highlight the study made by Elena Urquia Grande, Raquel Perez Estebanez and Clara Munoz Colomina (2010) which discovered a positive association between AIS design and organizational strategy and performance.

Pandey, M. (2004). defines financial performance as a subjective measure of how well a firm uses assets from its primary mode of business to generate revenues. He further says that the term can also be used as a general measure of a firm's overall financial health position over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.

AIS process the non-financial and financial transactions which have direct impact on the financial transaction processing. (Boulianne, E., 2007) state that AIS not only process the financial information and accounting data but also transform the non-financial data into accounting information.

Choe.J. M (2002) proposed that non-financial performance information is required. Non-financial performance measurement systems are more appropriate than financial measurement systems. Miller J.A (1992) and Bledsoe N.L, Ingram RW (1992) suggested that non-financial performance provides various strategic benefits such as quality improvement and shorter delivery times. Non­financial performance can be measured by quality, cycle time, productivity, and customer satisfaction. It is describing the strategy and is developing a unique set of performance measures that clearly communicate the strategy.

Hunton (2002) study, which investigated the relationship between automated accounting information system and financial effectiveness; showed that there was strong relationship between accounting information system and financial effectiveness, which means access to accounting information will lead to financial effectiveness. This study motivated the researcher to conduct the current study on effect of accounting information system on financial performance in Bungoma County Government.

2.2 Timeliness

Timeliness of financial reporting is an essential part in determining the relevance of accounting information. With reference to timeliness, the International Accounting Standards Board (IASB) considers timeliness as a crucial part in financial reporting. The timeliness of financial statements is an essential qualitative characteristic of financial reports as identified by Imam et al., (2001). According to Ismail and Chandler (2004), information that is disclosed on time provides more valuable information to users of financial reporting. The need for timely information to the users of financial reporting will enable them to make prompt review as to further contribute their financial performance.

Transparency is one of the virtuous elements in corporate governance (OECD, 1998) which includes timeliness of financial reporting (Kulzick and Raymond, 2004). According to Dezoort and Salterio (2001), timely institutional financial reporting is an important qualitative element and an essential component of financial performance. This is because it determines relevancy of the information and influences the decisions made by the users of the financial report.

The level of financial voluntary disclosure may be able to affect institution’s financial performance (Hassan et al., 2008). In addition, it facilitates ease of auditing by both internal auditors and external auditors leading completion of audited financial report in advance.

2.3 Level of aggregation

Aggregation refers to the way data is aggregated in time periods, functions or in accordance with decision models. According to Sajady et.al, (2008) studied on evaluation of the effectiveness of AIS, explains that aggregation of information is considered as means of collecting and summarizing information within a given time period. Hence the AIS depends on the perception of the accountants and finance officers on the usefulness of information generated by the system to satisfy informational needs for operation, processes, managerial reports, budgeting and control within the County Government of Bungoma.

2.4 Financial Integration

According to Prasad et al. (2003:7), de jure financial integration represents policies associated with capital account liberalization. Held et al. (1999:189) contend that financial integration represents strictly the “extent to which the prices of, and returns to, assets are equalized between different national financial markets”. This view is also held by Adam et al. (2002:4), who state that “financial markets are integrated when the law of one price holds”. According to them, assets generating identical cash flows should command the same returns, regardless of the domicile of the issuer and of the asset holder, if the markets are integrated.

AIS are the integration of physical and non-physical components which are interconnected. These components collaborate with each other to process the financial transaction data to solve financial problems, Susanto A (2007), Kharuddin, S., M.Z. Ashhari, & Nassir, M.A. (2010). According to Laudon KC, Laudon JP (2005) various type of IS are required to support the decision making and work activity at different functional levels in an institution. Most of the IS are required to integrate the different functional levels information and business processes for producing a useful information for decision making. Hence, the integration of systems is necessary. AIS are consisted of different sub systems; one sub system of AIS covers the managerial reporting, transaction reporting system, and financial reporting system, human resource benefits, administration, pension administration, and payroll System. AIS are consisted of various components including technology, network communication, database, procedures, brain-ware, software and hardware, Laudon (2005) noted that a system is an integrated entity where the framework is focused on a set of objectives (Watts, 1999).

2.5 Effects of AIS effectiveness on financial performance.

2.5.1 Effects of timeliness on Financial Performance

According to Gibbins et al., (1990), timeliness of financial reporting influences corporate governance, especially the Board of Directors who manages information disclosure in the annual reports. Timeliness is one of the major determinants of quality financial reports hence effective financial performance. The greater the number of days that the firm takes to publish its annual report, the information in the financial reporting would be less useful (Al-Ajmi, 2008). Therefore, timeliness of reporting the annual reports is considered as a crucial aspect in utilizing relevant information for external users, in influencing their decision-making process (Alkhatib and Marji, 2012). Timely information may be defined as information that is available “soon enough after the reported events to affect decisions or assessments of accountability. In the context of audited annual financial reports, the issue of timeliness centers on the amount of time that elapses between the end of the fiscal year being reported on and the date the financial report becomes available to the public.

Timeliness of accounting information is also emphasized in IAS 10 Events after the Reporting Period which requires entities to report all significant post balance sheet events that occur up to the date when the financial statements are authorized for issue. This ensures that users are made aware of any material transactions and events that occur after the reporting period when the financial statements are being issued rather than having to wait for the next set of financial statements for such information (IAS 10).

2.5.2 Effects of aggregation on effectiveness of financial performance

Accounting Information System (AIS) as one of the most critical systems in the organization has also changed its way of capturing, processing, storing and distributing information. Nowadays, more and more digital and on-line information is utilized in the accounting information systems (Huang, Lee and Wang 1999, Clikeman 1999).

Quality information is one of the competitive advantages for an institution. In an accounting information system, the quality of the information provided is imperative to the success of the systems (Hongjiang Xu, 2010). Quality of information generated from AIS is very important for management (Essex and Magal, 1998). Therefore, financial managers need aggregate all AIS systems and the financial and accounting data provided by AIS to evaluate the firm’s past performance and to map future plans

2.5.3 Effects of integration on effectiveness on financial performance

Huber (1990) argues that integration of AIS leads to coordination in the institution which in turn increases the quality of the financial performance. Some researches in accounting show that the effectiveness of AIS depend upon the quality of the output of IS that can satisfy the user’s needs (Cameron, 1986; Delone and Mclean, 1992; Kim, 1989; Lewin, 1986; Quinn, 1986) Integration of AIS automates all the significant and critical accounting processes of the government. It transmits and consolidates the accounts from grassroots level up to the Treasury level at the top level. Finally, Effectiveness of AIS to increase system integration is to improve internal communications throughout the organization (Huber, 1990).

2.6 Theories

2.6.1 Contingency Theory

Contingency theory suggests that an AIS should be designed in a flexible manner so as to consider the environment and organizational structure confronting an organization. AIS also need to be adapting to the specific decisions being considered. In other words, accounting information systems need to be designed within an adaptive framework. The first paper to specifically focus on the contingency view of AIS in the accounting literature was "A Contingency Framework for the Design of AIS,"(Gordon & Miller, 1976). This paper laid out the basic framework for considering AIS from a contingency perspective. Gordon & Narayanan (1984) concluded that environmental uncertainty is a fundamental driver for designing management accounting systems among successful organizations. A key finding in this study was that, as decision makers perceive greater environmental uncertainty, they tend to seek more external, non-financial and ex ante information in addition to internal, financial and ex post information. The basic contingency framework consists of environment factors and institution-specific factors that affect to competitive strategy. The competitive strategy is effectiveness of AIS affected by scope, timeliness, level of aggregation and integration. Finally, effectiveness of AIS affects effectiveness of financial performance

2.6.2 Innovation Diffusion Theory

Diffusion innovation theory predicts the process by which is perceived to be new by a unit of adoption is communicated through certain channels amongst members of a system over time. According to Shy (1997), diffusion theory posits five characteristics of innovations that affect their diffusion: trialability (the opportunity to try an innovation before committing to use it), relative advantage (the extent to which a technology offers improvements over currently available tools), compatibility (its consistency with social practices and norms among its users), complexity (its ease of use or learning), and observability (the extent to which the technology’s outputs and its gains are clear to see).

2.6.3 Activity Theory

Activity theory is an approach to understanding human work and technology which emphasizes the long-term well-being of workers or users. Eschewing “one best way” task design for user- determined task procedures, action theorists seek to design work practices that are enriching and that lead to development of skills and knowledge. Activity theorists argue that acceptance of technology is contingent on the extent to which it meets these goals in the context of the user’s own work. Activity theory largely aligns itself with the broad humanistic aims and the methods of the socio-technical approach. It is at least partially distinguishable by its emphasis on the product of the organizational process which characterizes socio-technical systems thinking (Martin and Leben, 1989).

RESEARCH METHODOLOGY

3.1 Research Design

Burns and Grove (2003) define a research design as “a blueprint for conducting a study with maximum control over factors that may interfere with the validity of the findings”. Parahoo (1997) describes a research design as “a plan that describes how, when and where data are to be collected and analyzed”. Polit et al (2001) define a research design as “the researcher’s overall for answering the research question or testing the research hypothesis”. The design of the study was descriptive research method. According to Burns and Grove (2003), descriptive research “is designed to provide a picture of a situation as it naturally happens”. The descriptive design was found to be suitable because it addresses major objectives and research questions proposed in the study adequately. In addition, qualitative methods would be applied in data collection and data analysis.

3.2 Location of the study

Bungoma County is located in Western Kenya along the border with Uganda with an area of 2,206.9 km sq. km with an approximate population of 1.4 million. The county has six constituencies. These are Mt. Elgon, Kimilili, Webuye, Sirisia, Kanduyi and Bumula. The Kenya­Uganda railway which passes through the region has contributed significantly the economic growth of the county. The study was conducted in Bungoma County Government.

3.3 Target Population

Parahoo (1997) defines population as “the total number of units from which data can be collected”, such as individuals, artifacts, events or organizations. Burns and Grove (2003) describe population as all the elements that meet the criteria for inclusion in a study. The target population for this study was 50 accountants and finance officers in Bungoma County government in Kenya. Burns and Grove (2003) define eligibility criteria as “a list of characteristics that are required for the membership in the target population”. The following criterion of eligibility was used.

- Registered accountant or finance officer working in Bungoma county government.
- Assistants of finance or accounts units employed by the Bungoma county government.
- Managers, who were also registered and working in Bungoma county government.

3.4 Sample and sample procedure

3.4.1 Sample

Polit et al (2001) define a sample as “a proportion of a population”. The sample size of 50 accountants and finance officers will be chosen from Bungoma county government in Kenya. A carefully selected sample can provide data representative of the population from which it is drawn. A sample size of 75% was used. This was ideal because it is addressing the objectives and research questions of the study. Simple random sampling was used as it gives equal chance to all subsets in the population and estimates are easy to calculate. Parahoo (1997) describes purposive sampling as “a method of sampling where the researcher deliberately chooses who to include in the study based on their ability to provide necessary data”. In this study only accountants and finance officers who were eligible were purposively chosen to participate in this study.

3.4.2 Sampling procedures

Sampling of the participants was done as follows:

- The researcher sought the assistance of the CEO, county treasury of Bungoma county and head of each department to identify potential participants.
- Possible participants were selected after the researcher pre-selected participants according to the criteria under section 3.3
- The researcher selects the prospective participants for a questionnaire.
- In the event of a problem with identifying participants who met the criteria for selection for the study, each eligible participant was asked to refer colleagues with similar experience with accounting information system knowledge.

3.5 Data Collection instruments and procedures

3.5.1 Data collection instruments

According to Parahoo (1997), a research instrument is “a tool used to collect data. An instrument is a tool designed to measure knowledge attitude and skills.” Data were collected during the questionnaire administration. Obtaining data from participants with different experience prevents information bias and thus increasing credibility regarding the information. The researcher will use the following data instruments.

3.5.1.1 Questionnaire

The researcher gathered primary data (Borthick & Clark, 1990). Primary data was obtained through questionnaires distributed to 50 chief accountants and responses were considered adequate which more than 20% (Aaker, Kumar & Day, 2001). The use of questionnaires was ideal since it guaranteed confidentiality to the respondents thus, they acted without any fear or embarrassment. Questionnaires were circulated and filled by the respondents.

Respondents were selected randomly in each stratum; hence the researcher employed probability sampling technique to obtain the desired number of respondents (Mugenda, 2003).

3.6 Validity

The research instruments used in this study was regarded valid and relevant for data collection. Polit et al (2001) affirm that validity and reliability are justifiable in research as findings reflect the intended objectives of the study.

3.7 Reliability

Primary data enhances reliability (Borthick and Clark, 1990) since it is conducted by the investigator conducting the research. The instrument used to collect data was highly reliable and provide accurate, consistent and relevant information required.

3.8 Data analysis.

It is the process of inspecting, cleaning, transforming and modeling data with the goal of discovering useful information suggesting conclusion and supporting decision making (Kothari, 2008). Pie charts and SPSS version 17 Descriptive statistics involve the use of frequencies, percentage, mean and standard deviation. Quantitative data will be presented in tables and pie chart, while explanations to the same were presented in prose (Mugenda & Mugenda, 1999) to analyze data in finding out the effects of accounting information systems on financial performance in Bungoma county government.

3.9 Ethical considerations

This relates to moral standards that the researcher should consider in the research process in all stages of the research project. After approval from the Kibabii University is obtained to conduct the study, permission from Bungoma county government will also be obtained for facilitation of the study. Ethical issues, in particular, confidentiality of the information from respondent will be highly treated with utmost care.

3.10 Variables Measurement

3.10.1 Independent Variables.

Timeliness refers to the frequency, speed of reporting and the orientation of the information (e.g. short or long run) (Chenhall and Morris, 1986) and will be measured by 4 items.

Aggregation refers to the way data is aggregated in time periods, functions or in accordance with decision models (Chenhall and Morris, 1986) and 3 items will be used to measure it.

Integration refers to the need of providing information to reflect the interaction and coordination effects of several functions in the institution (Chenhall and Morris, 1986) and 3 items will be used to measure it.

3.10.2. Dependent Variable.

Performance is measured by 3 items as profitably applied to area of major concern to the institution, is widely used by one or more satisfied users, and improves the quality of their financial performance.

3.11 Analytical Model

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The statistical significance of the relationships between the dependent and the independent variables was measured at a confidence interval of 95%. Analysis of variance between the independent variables and dependent variables was measured at a significant level of 0.05. If the P value of the model is less than the level of significance (0.05) then the independent variables would be taken as having an impact of the dependent variable. If the efficiency of accounting information systems increases, then organizational efficiency would increase. The study would conclude that accounting information systems have a significant impact on organizational effectiveness. If the p - value is greater than 0.05 then the model is insignificant and therefore the study cannot conclude that the independent variables have got a significant impact on the dependent variable.

DATA ANALYSIS AND PRESENTATION OF FINDINGS

4.1 SUMMARY OF DESCIPTIVE STATISTICS

Descriptive statistics are concerned with explaining the sample of data that the researcher is concerned with. They are used to describe the main features of a collection of data quantitatively. Below are the findings:

4.1.1 Response Rate

The study sought to collect data from 50 respondents and a total of 48 respondents returned the filled questionnaires. This translates to a response rate of 96%. The high response rate was attributed to the fact that most of the questions were semi-structured making it easy for the respondents to fill in the questionnaires. Furthermore, the questionnaires were delivered and collected by hand and hence there was a close contact and follow-up with the respondents. The high response rate is an indication that the results of this study are reliable. The study was carried out to establish the effect of accounting information system on financial performance of Bungoma county government in Kenya.

Table 4. 1 Response Rate

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4.1.2 Questionnaires per Department

Table 4. 2 Questionnaires as per each department

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Table 4.2 shows the distribution frequency of questionnaire used for analysis with respect to County Government of Bungoma. The biggest numbers of respondents 52% are from accounting department with the sampled number of 26 staff followed by Finance department with 44% and sampled staff of 22. This frequency shows that the results could be generalized on the two departments as the numbers of contributory respondents are adequate in terms of percentage contribution for the analysis of the research study.

4.1.3 The gender of the respondents

Table 4.3 shows the contribution of respondents from different genders. The gender of the respondent was very significant in establishing the inclusivity of both male and female respondents for study to exclude gender biasness.

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Table 4. 3 Information on the

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From the table 4.3, high response rate with a value of 62.5% comes from male respondents which are working at managerial positions while 37.5% were female staff. This implies that there was no gender biasness in data collection. The information on the gender of respondents help the researcher to technically balanced the resourceful contribution of both parties, male and female.

4.1.4 Age of the Respondents

Table 4.4 Age of the Respondents

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Table 4.4 shows the contribution of respondents from different age groups. It was seen that majority of the respondents are from senior age group contributing to the overall survey with 54.17% were all respondents above 30 years of age. High response rate from senior age employees from the county government of Bungoma shows that the institution has experienced persons working at managerial positions to ensure effectiveness of accounting information system in improvement of financial performance in the County Treasury of Bungoma County Government.

4.1.5 The Level of Education Attained by the Respondents

The respondents were asked about their level of education in order to determine whether they understood the accounting information systems and its effect on financial performance of the county.

Table 4. 5 level of Education of the respondent

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Table 4.5 shows the contribution of respondents with different educational backgrounds. Highest rate of respondents have bachelor’s qualification with 30% contribution in the present study. Then, there are 10 respondents having Masters level qualification and only 3 persons are having PhD qualification. Considering the respondents’ level of education and their age, it was concluded that respondents have the understanding of the AIS towards financial performance.

4.1.6 The respondent’s department

Table 4. 6 respondent’s department

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Table 4.6 shows that 52% of the respondents were from Accounting department and 44% from Finance respectively. This shows that data was collected from the two departments and therefore the information is reliable in determining the effectiveness of accounting information system on financial performance.

4.1.7 Current job designation

The study sought and obtained details about the positions held by the respondents in the Institution for purposes of understanding their role in the variables of study. The details of the respondents and their positions are shown in table 4.7 below

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The analysis results in table 4.7 show that majority of respondents in this study are accountant Officers (25), followed by Finance officers (19), then Heads of departments (5) and Management committee (1). These represent 50%, 38%, 10% and 2% respectively.

From the above description, it was revealed that the majority of the respondents in this study are those directly responsible for or directly involved the implementation of the accounting information System. Therefore, their responses are deemed to reflect what actually takes place in the institution.

4.1.8 Duration of doing accounting/finance with computer

The respondents were requested to indicate the period in which they had been in service in order to establish whether the effect of accounting information system on financial performance had any relationship with the duration that the Bungoma County had been in service.

Table 4. 8 Duration of the respondent in the institution

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Table 4.8 below shows that majority of the respondents (77.08%) have worked for their county government of Bungoma for not more than five years. Only 22.92% of the respondents have worked for their company for a period not exceeding 10 years. This is an indication that most of the respondents have a thorough understanding of accounting information system in ensuring effective financial performance. Therefore, the information obtained from them was highly reliable and sufficient for data analysis for the study.

4.1.9 Shortcomings of using AIS

Some of the respondents cited lack of proper training and lack of proper system documentation as some of the challenges they face. Other respondents also noted that high staff turnover is one of the challenges of using the AIS. They indicated that when the staff turnover is high, some of super trained staff leaves the county and they happen to be having more information about the AIS than the normal users of the AIS. Other shortcomings included lack of finances and risk of obsolescence, among others.

4.1.10 The County has been reporting increased revenue

Table 4. 9 Information on whether the county has been reporting increased revenue

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The majority of the respondents agreed that the County has been reporting increased revenue. Reporting increased revenue is an indication of excellent financial performance. The information on whether the county has been reporting increased revenue is summarized in Table 4.9.

4.1.11 Rating AIS towards financial performance effectiveness

Table 4. 10 How would you rate AIS towards financial performance

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The information on the importance of the existing AIS towards financial performance in Table 4.10 indicated that 41.7% of the respondents rated their AIS as important towards financial performance effectiveness while 6.3% were neutral. However, 14.6% of the respondents rated AIS as unimportant towards financial performance. The majority percentage is an indication that most of the AIS in Bungoma County help the management towards achieving financial performance.

4.2 ANALYSIS OF INDEPENDENT VARIABLES OF THE STUDY

4.2.1 Timeliness

The researcher examined the effects of timeliness on accounting information on financial performance of Bungoma county government in Kenya. The timeliness of financial statements is an essential qualitative characteristic of financial reports as identified by Imam et al., (2001).

4.2.1.1 Timely financial reports

Timely financial reports through the use of AIS, IFMIS has led to better financial performance on timely basis as majority of respondents agreed by 47.92% followed by 31.25% who strongly agree. According to Dezoort and Salterio (2001), timely institutional financial reporting is an important qualitative element and an essential component of financial performance. Below are the results of the findings.

Table 4. 11 Information on whether Timely financial reports through the use of AIS, IFMIS has .ed to better financial performance on timely basis.

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4.2.1.2 Adoption of AIS, IFMIS for financial performance.

The study sought to establish the effect of accounting information system on financial performance. The researcher found that AIS system leads to better financial performance. All the respondents confirmed that Bungoma county financial administration have improved since using AIS. This is an indication that AIS is not only used to produce the financial reports but also help the management in organizing and administering their firms. It also implies that AIS is a very useful tool for every organization in the automobile industry. The information on whether the County and Finance administration have improved since using AIS is summarized in Table 4.12

Table 4. 12 Information on whether County government of Bungoma has improved since adoption AIS systems like IFMIS for financial reporting.

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Table 4.12 shows that 52.08% of the respondents agreed and 31.25% strongly agreed that County government of Bungoma has improved since adoption AIS systems like IFMIS for financial performance and reporting. While 16.67% of the respondents were neutral. The financial reports are usually published in the same format and this would enable the county government monitor their performance in using AIS. Poor performance would be noted well in advance and this would allow the institution to note the weak areas and make a turn around.

4.2.1.3 Automation of Data

The study sought to establish the effect of automation of data in accounting information system of financial performance of Bungoma County in Kenya. The results of this analysis are as provided below in table 4.13

Table 4. 13 Information on whether automated data speed up the process to generate financial statements and overcome human weakness in data processing

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Table 4.13 shows that 56.25% of the respondents agreed and 29.17% strongly agreed that the automated data speed up the process to generate financial statements and overcome human weakness in data processing while 14.58% of the respondents were neutral.

4.2.1.4 Data processing

The study examined the effect of data processing in making predictions about the past, present and future events to evaluate financial performance of Bungoma County in Kenya. Below are the results of this study in table 4.14

Table 4. 14 information on whether Data processing enabled CFOs and accounting department make predictions about the outcomes of past, present and future events to evaluate financial performance in county progress.

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Table 4.14 shows that 60.42% of the respondents agreed and 27.08% strongly agreed that the automated data speed up the process to generate financial statements and overcome human weakness in data processing while 12.5% of the respondents were neutral.

4.2.1.5 Descriptive statistics on Timeliness and financial performance

In the Table 4.15 the researcher set out to examine the effects of timeliness (another component of the accounting information system) as a way of examining the effect of the accounting information system. The test statements were equally ranked in terms of their mean and standard deviation as a way of interpreting the results. The details of the research in these regards are discussed as follows;

Table 4. 15 Mean and Standard deviation of Timeliness and financial performance

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From the results in table 4.15, it is clearly evident that respondents were almost in total agreement as to the timely financial reports through the use of AIS, IFMIS lead to better financial performance on timely basis in the Institution as reflected by a mean value of 4.0418 which is tending towards maximum value of 5 (i.e. strongly agreeing). The findings are in agreement with Dezoort & Salterio (2001), timely institutional financial reporting is an important qualitative element and an essential component of financial performance. This is because it determines relevancy of the information and influences the decisions made by the users of the financial report. However, the standard deviation of 0.7133 suggests variations in responses by the various respondents.

From the findings, it is clearly evident that the respondents also agree strongly that financial performance in Bungoma County government has improved since adoption AIS systems like IFMIS for financial reporting shown by a mean of 4.0833.

The respondents also were in total agreement as to automated data speed up the process to generate financial statements and overcome human weakness in data processing. This is reflected by a mean of 4.0208 which is closely to a maximum of 5.

From the information collected from respondents according to table 4.15, it is clear that in Bungoma County government in Kenya Data processing enabled CFOs and accounting department make predictions about the outcomes of past, present and future events to evaluate financial performance in county progress. This is revealed by a mean value of 4.0625.

4.3.2 Level of aggregation

4.3.2.1 Data processing

Majority of the respondents agreed that the Data processing enabled CFOs and accounting department make predictions about the outcomes of past, present and future events to evaluate financial performance in county progress as reflected by those who agreed were 60.42% and strongly agreed were 27.08% while those who were indecisive represented 12.5%

Table 4. 16 Information on whether there is appropriate use of the system by CFOs and accounting department to enhance financial performance

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(Source, Primary Data)

4.3.2.2 Data aggregation has enabled BCG attained effective financial performance.

Majority of the respondents agreed that the users are satisfied with the IT team support as reflected by those who agreed were 60.5% and strongly agreed were 18.75%. This is a clear indication that accounting information systems has significance on financial performance. The results are summarized in the table 4.17

Table 4. 17 Information on whether Data aggregation has enabled BCG attained effective financial performance

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(Source, primary data)

4.3.2.3 Data processing caused the improvement of the quality financial performance.

Majority of the respondents agreed that the Data processing caused the improvement of the quality financial performance and facilitated county’s transaction as reflected by those who agreed by 75% and strongly agreed were 14.58%. this shows that the data processing in accounting information system contributes significantly on the effectiveness of financial performance. Table 4. 18 Information on whether the Data processing caused the improvement of the quality financial performance.

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(Source, primary data)

4.3.2.4 Descriptive statistics on aggregation and financial performance

Table 4. 19 Mean and Standard deviation of aggregation and financial performance

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From the above findings, it was revealed that level of aggregation of accounting information systems greatly boost financial performance. The findings showed that most data processing enabled CFOs and accounting department staff make predictions about the outcomes of past, present and future events to evaluate financial performance in county progress. (M=4.1667, S.D=0.6945), data aggregation has enabled county government of Bungoma attained effective financial performance (M=4.125, S.D=0.7330).The results also found that the staff were trained 20 to implement data processing which caused the improvement of the quality financial performance and facilitated county's transaction (M=4.1667, S.D=0.7532). In an accounting information system, the quality of the information provided is imperative to the success of the systems (Hongjiang Xu, 2010). Quality of information generated from AIS is very important for management (Essex and Magal, 1998). It was concluded that in County Government of Bungoma, level of aggregation of accounting information system significantly contribute to a better financial performance.

4.4.3 Integration of AIS and financial performance

4.4.3.1 Information system team

Majority of the respondents agreed that the users are satisfied with the IT team support as reflected by those who agreed were 72.92% and strongly agreed were 27.08%. This is an indication that the Information system team is responsive, reliable and provides timely support to enhance better financial performance. The information on whether the users are satisfied with the IT team support is summarized in Table 4.20

Table 4. 20 Information on whether Information system team provides support for the system to enhance better financial performance

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4.4.3.2 Data integration

Majority of the respondents agreed that the Data integration has enabled County Government of Bungoma attained effective financial performance as reflected by those who agreed by 72.92% and strongly agreed were 25%. Those who disagreed or were not sure whether the Data integration has enabled County Government of Bungoma attained effective financial performance were 2.08%. This is a good indication that the variable being asked had a great significance in attaining financial performance.

Table 4. 21 Information on whether Data integration has enabled BCG attained effective financial performance.

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(Source, Primary Data)

4.4.3.3 Data integration facilitates achievement of quality financial performance

Majority of the respondents agreed that the Data integration has enabled County Government of Bungoma attained effective financial performance as reflected by those who agreed by 75% and strongly agreed were 20.83%.

Table 4. 22 Information on whether the Data integration facilitates achievement of quality financial performance

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(Source, Primary Data)

4.4.3.4 Descriptive statistics of integration and financial performance.

Table 4. 23 Mean and Standard deviation of integration and financial performance.

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4.4.3.5 Discussion of the Findings

From the above findings, it was observed that integration of accounting information system in accounting services leads to sound financial performance. This is in line with the reviewed literature. Huber (1990) argues that integration of AIS leads to coordination in the institution which in turn increases the quality of the financial performance. From the results, BCG, Information system team provides support for the system to enhance better financial performance, this had (M=4.2292, S.D 0.7217), Data integration has enabled County Government of Bungoma attained effective financial performance (M=4.2708, S.D=0.7068), Data integration facilitates achievement of quality financial performance had (M=4.2917, S.D=0.71334),

4.5.4 Profitability

4.5.4.1 AIS minimizes operating costs

Table 4. 24 Information on whether AIS minimizes operating costs

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(Source, Primary Data)

Majority of the respondents agreed that AIS reduces the operating costs as shown by 72.92% and further affirm respondents who strongly agreed by 27.08%. This is an indication that the AIS would enable the employees to be more efficient, hence, reducing the operating costs. The information on whether AIS reduces operating costs is summarized in Table 4.24

4.5.4.2 AIS improve financial performance.

Table 4. 25 Information on whether AIS improves financial performance

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(Source, Primary Data)

Majority of the respondents agreed that AIS improves financial performance as showed by 77.08% followed by those who strongly agreed by 20.83%. This implies that the AIS provide accurate and timely reports which aid in advancement and making informed decisions. The information on whether AIS improves financial performance is summarized in Table 4.49 above

4.5.4.3 AIS improves customer service delivery in financial performance

Table 4. 26 Information on whether AIS improves customer service delivery in financial performance

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Majority of the respondents agreed that AIS improves customer service delivery in financial performance as indicated by 77% followed by those who strongly agreed by 25%. This implies that the AIS provide accurate, consistent and timely customer service delivery. The information on whether AIS improves customer service delivery in financial performance is summarized in Table 4.26 above

4.5.4.4 Descriptive statistics

Table 4. 27 Mean and Standard deviation of profitability

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4.6 Empirical model

Table 4. 28 Bungoma County has been reporting increased revenue * How would you rate your AIS towards financial performance effectiveness

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4.7 Chi-Square Tests

Table 4. 29 chi- square tests

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(Source, Primary Data)

The p-value of 0.000 is less than the significance value of 0.05. Therefore, the independent variables have an impact on the dependent variable. This implies that accounting information systems increases the financial performance effectiveness. The accounting information systems were measured based on dimensions such as timeliness, level of aggregation and integration. The study shows that accounting information systems have a significant impact on financial performance effectiveness.

The information on the association between the AIS and the financial performance effectiveness is summarized in Table 4.28. In the Table 4.28, the AIS was rated as: 1 if it was very unimportant towards financial performance effectiveness; 2 if it was unimportant towards financial performance effectiveness; 3 if the respondent was neutral; 4 if it was important towards financial performance effectiveness; and 5 if it was very important towards financial performance effectiveness.

4.8 Discussions of the findings

The discussions have been factored in details under the summary of the statistics. The response rate was satisfactory to draw conclusions for the research.

4.9 Summary and Interpretation of Findings

The chapter gathered information about the respondents, the units they work for, and the key elements of the study, financial performance effectiveness and the accounting information systems. The discussions about the research finding were analyzed for each variable as tabulated and indicated above.

According to the respondents’ demographics features, it was revealed that most of the employees in county government were degree holders. In regard to the duration in which the employees have been in the institution, the study found that most employees have been for a period of more than 10 years. The respondents were asked to comment on the length of service that they had served in the county to find out whether they were in a position to provide accurate and reliable information in relation to accounting information systems and financial performance in Bungoma County. The findings revealed that most of the employees had adequate experience in relation to the accounting information system and financial performance of Bungoma County.

The findings of the study concluded that Accounting information systems impact on financial performance effectiveness. The study was faced with limitations such as slow response rate and lack of Full Corporation from some respondents.

SUMMARY AND CONCLUSION

5.2 Summary of the Study

The aim of the study was to find out the impact of Accounting Information Systems on the financial performance effectiveness. The study measured the effectiveness of the Accounting Information Systems based on the various dimensions, including, timeliness, level of aggregation and integration of AIS profitability in financial performance.

The findings of the study indicated that the AIS used in the Bungoma County in Kenya are quality AIS systems which enhance financial performance. The researcher evaluated various characteristics of an information system. These characteristics included timeliness, system integration, system automation, as well as system features of intuitiveness, sophistication, processing, and response times. The findings further indicated that the quality of information was guaranteed. The results indicated that the outputs from AIS were clear, accurate, and timely.

The results of the study indicated that staff utilizes the capabilities of AIS. The results show that the information system team provides support. The findings further indicated that AIS contribute to the success of individuals, groups, departmental units, and nations. Some of the benefits included improved decision-making, improved financial performance, increased customer service delivery, cost reductions, improved profitability, creation of jobs, and economic development.

The study sought the challenges faced when using the AIS. The findings indicated that the major challenges were insufficient training and lack of proper system documentation as some of the critical challenges. Further, the results indicated that high staff turnover is a major challenge of using the AIS. When the staff turnover is high, some of super trained staff leaves the institution 25 and they happen to be having more information about the AIS than the normal users of the AIS. Other shortcomings included lack of finances and risk of obsolescence of the system.

The findings of this study indicate that AIS is an important mechanism of the county that is vital for effective financial performance. The results are consistent with empirical reviews which indicated that there exists a relationship between AIS and financial performance. AIS are an effective financial tool for controlling and coordinating the activities of the county. The findings also indicate that an effective AIS increase system integration and improve financial performance throughout the county. The top management team with various planning and management information system influences on strategic performance of the county.

5.3 Conclusion

Accounting information systems are critical to the production of quality accounting information on a timely basis and the communication of that information to the decision makers to improve financial performance. Existing literature offers evidence of the relationship between these AIS and financial performance effectiveness; though it is important to highlight that an in-depth study is required to examine other factors that may influence this relationship. The information value generated by AIS to accounting staff and finance staff in making investment decisions is invaluable. Financial managers need the financial and accounting data provided by AIS to evaluate the firm’s past performance and to map future plans.

This study showed that there is strong relationship between accounting information system and financial performance effectiveness, which means access to accounting information, will lead to financial performance effectiveness. Therefore, it can be concluded that accounting information systems have an impact on the effectiveness of financial performance in Bungoma county government in Kenya.

5.4 Limitation of the Study

This study was not without limitations. First, it was difficult to measure the level of the financial performance effectiveness of the Bungoma County in Kenya with limited subjectivity. I relied on questionnaire responses to measure the financial performance effectiveness of the county under study.

Moreover, time was also limited. Perhaps other data collection methods such as secondary data analysis and interviews or face-to-face communication would have been employed and the target population would have been expanded to include more counties in Kenya.

5.5 Recommendations for Further Study

Throughout working on this study, some suggestions concerning the expansion of the present study have arisen. The researcher suggested that a similar study to be done in more counties in order to compare the findings with the findings of this study. A survey research design would shed more light than just a case of selected site as Bungoma County but rather to other counties as well in Kenya.

Finally, a similar study could be carried out focusing on the effectiveness of accounting information systems in enhancing the financial performance effectiveness. Similarly, a similar study could also be carried out focusing on factors influencing implementation of accounting information systems or even challenges faced during implementation of accounting information systems in Counties in Kenya.

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