The Impact of Accounting

Information Systems in

Small-Medium Enterprises

(SME’s)

CAGURANGAN, MARCO T.

DELA CRUZ, CHRISTIAN

PICAR, MARK CLARENCE

SABINIANO, RAZEL

TAYAN, PRINCESS APRILYN

May 24, 2019

1Technology and the accounting information systems are implemented in an organization with the

aim of improving their efficiency. Companies spend large amounts of money on these tools every year in

order to improve their organizational performance. Accounting is the engine that moves an enterprise

forward, and helps it face its competitors’ efforts, trade agreements, fiscal issues, etc. The accounting’s aim

is to mirror an enterprise’s state, financial statements, and outcomes. Decision makers in a company benefit

from this information when they receive it. They can decide what direction they can give to the company

or what policies they can develop. Similarly, information related to accounting is also beneficial for

enterprise’s partners as a good performance of the company can determine the benefits they will obtain

from it. The American Institute of Certified Public Accountants in the United States of America has made

a call for the need to incorporate the concepts of information technology (IT) into the accounting

professionals’ knowledge, skills, and abilities (Dillon and Kruck, 2004). They claim that such competencies

should be applied to the organizational performance improvement efforts. To do so, it is fundamental for

organizations to be aware of the importance of the accounting function, otherwise, all the financial

information may become an underused resource. However, entrepreneurs often raise questions regarding

the IT return on investment, specifically, in Accounting Information Systems (AIS), even though there is

evidence of their positive impact on various aspects such as productivity and organizational performance,

as they help increase sales levels and have access to more customers and improve the relationship with

them, raise efficiency levels in the business processes, and decrease cost, among others. Scholars have been

trying to explain the strategic value of IT capabilities for a long time (Fink, 2011). There is ample evidence

of the ways in which IT has been applied in the achievement of enterprises’ productivity and in helping

them become more competitive globally. This enables them to put their human and economic efforts into

the development of new products.

The spread of technology is central to an organization’s development and change. According to

Gordon and Tarafdar (2007), IT entails information, project management, collaboration, communication,

and their involvement helps enterprises improve their ability to innovate, as the technological developments

are the result of innovative processes. However, Hevner et al. (2004) sustain that there are insufficient

constructs, models, methods and tools to represent accurately the link between business and technology.
In this context, many small and medium sized enterprises (SMEs) have aligned technological applications

with their business operations, but few have been able to successfully integrate IT into their business units

(Chen and Wu, 2011). A concrete example of this is the case of AIS, which has not been exploited for the

benefit of an organization’s harmonious development.

SMEs play an important role in most countries’ economies. However, when compared to large

enterprises, SMEs have a more simple structure, fewer specialized tasks, and fewer resources than those of

human, financial and material (Feller et al., 2011). Regarding IT, they do not normally have an IT

department; they lack project leaders; and formal IT staff training programs do not exist. In other words,

they have scarce resources, and according to the resources and capabilities theory, they need different

competencies to be able to face the challenges that the scarcity of resources represents. In addition to the

aforementioned, the knowledge age has had an effect on SMEs. For example, IT has an impact on the

accounting based performance, which is determined mainly by their knowledge management capacity, as

knowledge is considered a strategic resource within the resource based theory. In other words, SMEs should

try to make the most of technology which has become more and more accessible thanks to the constant

reduction in costs, which in turn facilitates the justification of the acquisition of IT and AIS.

In the business world there is an increasing dependency on Information technology (IT). This is

because of the need to improve business efficiency. AIS is interdisciplinary in nature and seems to integrate

the fields of accounting and Information Systems (IS). AISs have been perceived as a means of providing

financial information to organization (Mia, 1993). There has been considerable evidence that within SMEs

financial accounting has remained the principle source of information for managers (Saira et al., 2010).

These studies have also found out that SMEs are still having ineffective information management, poor

system control, and most decision making is on ad hoc basis despite having used AIS. Previous literature

above reason that this situation could be attributed to the initial objectives of Information Technology (IT)

adoption (Salehi et al., 2010). The accounting system original role of replacing manual accounting process

has hindered further usage and exploration on the system benefits.

companies, preparation of documents necessary for tax purposes, providing information to support the

many other organizational functions such as production, marketing, human resource management, and

strategic planning. Without such a system it will be very difficult for SMEs to determine performance,

identify customer and supplier account balances and forecast future performance of the organization. Using

standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or

financial statement such as an income statement or a balance sheet. Here, using AISs is viewed as a system

that helps management in planning and controlling processes by providing relevant and reliable information

for decision making. AISʼs functions are not solely for the purpose of producing financial reports. Its role

goes beyond this traditional perspective. Generally literature on accounting in the AIS shows that several

scholars have investigated the adoption of the system among large companies only. Very little knowledge

is known about the evolution of computing in SMEs. Recent research development focuses on the

relationship between SMEsʼ performance of with the sue of AIS. These studies suggested that there are

positive relationship between AIS and SMEsʼ performance. A studies conducted by Ismail (2007), Ismail

and King (2005), and Saira et al. (2010) discovered that the use of AIS will be more efficient if the systems

implementation is new information systems with the SMEsʼ performance. This argument is supported by

Grande et al. (2011) asserting that the use of AIS proves to have positive impact on SMEsʼ performance.

In addition, Ali et al. (2012) highlighted the importance of having a good fit between the use of AIS and

efficient of the SMEsʼ performance. The mismatch between what is needed by the firms and service offered

by the AIS will yield poor performance. Nevertheless, Ismail and King (2005) also added that sophisticated

the use of AIS aligned with ineffective performance measure will yield lower performance outcome. This

raises the need for careful planning and strong justification process to be undertaken before firm reaches

the decision to implement an AIS. This issue is more profound within SMEs due to their limited resources

and experience in using AIS (Amidu et al., 2011; Ismail, 2007; Grande et al., 2011).
Literature Review

The extant literature on technology use in SME context shows several performance factors such

as strategy, owner commitment, and external technology expertise. Thong (1999) identified the

characteristics that play a role in SME performance using data from Singapore based SMEs and affirmed

that CEO characteristics (innovativeness and level of technology knowledge), innovation characteristics

(relative advantage, compatibility), and organizational characteristics (business size and employee

knowledge) are important in technology adoption and use. Hussin et al. (2002) in UK context supported

this research and indicated that technology adoption depends more on the internal technology

knowledge level of the firm and firms with a higher knowledge rely on their own team excluding outside

experts that they see as a danger.

Ismail and King (2006; 2007) emphasized the importance of accounting information systems

and the information processing capability. The conformity between the required information quantity

and the accounting information system that process this information to provide management with

necessary reports contribute to the performance of SMEs in developing economies. Therefore, the

strategic use of technology and IT add also to the firm value making them adopt new more information

based business strategies. The conformity between the type of accounting information system and the

general IT strategy of the firm that Boulianne (2007) formulates as defender, prospector and analyzer

strategies have an effect on the overall performance of the company. In the same line of research, the

relationship between technological capabilities and firm performance is also supported by Isobe et al.

(2008) in a study of 302 SMEs. Moreover, the alignment of strategy and information technology is

realized by shared vision, cooperation, empowerment, and innovation backed by technology making it

connected, flexible and most importantly easy to report.

Sharma and Bhagwat (2003) evaluated information systems performance according to

operational efficiency of the information system, downtime and the responsiveness of the system.

Accordingly, Levy et al. (2011) in their study showed that the alignment between information system and

strategy, the user-friendliness and the functionality of the system play an important role in the SME’s

performance. However, the investment in information is limited to supporting operations and

transactions.
 The performance increase supported by information systems is supported by Estebanez et al.

(2010) especially in the service sector using information systems intensively. The study also showed that

new accounting standard implementation and i n f o r m a t i o n s y s t e m s u s a g e are the key factors

for SMEs that align strategies with organizational culture towards continuous improvement and

competitiveness in the market

These studies show a significant positive relation with SMEs performance and the information

system but the information systems sophistication level and the company's requirements must be fit

(Ismail and King, 2006) and in order to measure this fit level several studies suggested factors such as the

systems and organizational characteristic (Thong, 1999), type of industry (Sousa et al., 2006) and type of

strategy (Bouliane, 2007) moreover the extant literature shows that business strategy (Tuanmat and

Smith, 2011), owner commitment (Amidu et al., 2011), IT expertise (Amidu et al., 2011) are also other

factors affecting AIS implementation success and the company's performance.

Factors in Technology Use, Information Systems and AIS Implementation

Literature shows that organizational characteristics have an impact on the implementation of any

information system or accounting information system (Thong, 1999). Thong in his work also added the

competition in the market and information intensity in the sector as an important factor especially for

SMEs. Accordingly, Ismail and King (2007) showed that there are significant differences between large

and small firms in the implementation of similar systems. Moreover, Tuanmat and Smith (2011)

suggested that SMEs should invest in implementing accounting information systems to be able to

compete in a changing environment as market becomes more competitive. Thereby, businesses in

different sectors have different information processing needs and different levels of sophistication in

their information systems needs (Thong, 1999).

The owner commitment has also an impact in the implementation process of accounting

information systems Delone (1988) argued that the owner of a company is a key factor in AIS

implementation and usage. If the owner of a company is familiar with, and involved in information

systems, the implementation will be more successful. Accordingly, Thong (1999) emphasized the i m p a
c t o f t h e owner’s knowledge of these systems in the success of implementation process. Especially,

SMEs owners need to keep updated accounting information systems for decision making accurately and

timely. The adoption of accounting information would ensure proper accounting practices as good

accounting practices have some implications for SME managers (Lohman, 2000; Amidu et al., 2011).

Chu (2009) reported that in SMEs, the owners will be more responsible for the development of

information and technology to improve organizational performance.

Moreover the owner’s knowledge can lead the company to use more sophisticated accounting

information systems that will help managers be aware of many events that can be unnoticed

The Performance

AIS can have a positive influence on organizations by adopting rapidly to the changing

environment, and easy management of transactions. The increased speed of flow of information between

different staff levels and the possibility of the new business on the network and improved external

relationships for the firm, mainly with the foreign customers increase firm’s performance (Delen et al.

2013). Several studies have also added that AIS acts as a mechanism that facilitates the implementation of

organizational strategy and increases the flexibility in the company (Bouwens and Aberneth, 2000;

Chenhall, 2003; Soudani, 2012). Important information comes from accounting information systems. As

a consequence, processing the accounting information is one of the most decisive elements of the pre-

decisive, i.e. pro decisive process of accountants, consultants, business analysts, managers, chief financial

officers (CFOs), auditors and regulatory and tax agencies (Fagbemi & Olaoye, 2016; Harash,2014;

Harash,2015). Therefore, accounting information system (AIS) is a system of collecting, storing and

processing financial and accounting data that are used by decision makers by management or externally

by other interested parties including investors, creditors and tax authorities (Kebede Manaye,2016). AIS

are critical to the production of quality accounting information provide accurate and timely reports and

the communication of that information to the decision makers (Harash,2014; Harash,2015). AIS is vital

to all organizations, designed to help in the management and collect information, raw data or ordinary

data and transform them into financial data for the purpose of reporting them to decision makers and
control of topics related to organization (Dandago & Rufai,2014; Harash,2014; Harash,2015). AIS is

system used to collection and recording of data and information regarding events that have an economic

impact upon organizations and the maintenance, processing and communication of such information to

both internal and external stakeholders (Olusola et al. 2013). AIS is also system used to provide internal

and external reporting data, financial statements and trend analysis capabilities to affect an organizational

performance (Fagbemi & Olaoye,2016). AIS is computer based system that increases control and enhances

cooperation in the organization (Nicolau, 2000). AIS is one of the core success factors that effectively

support the achievement of accounting and financial objectives, improve strategic effort of SMEs and

improve data sharing and integrity. AIS also provide an opportunity to update procedures and align them

with perceived examples of best practice (Fagbemi & Olaoye, 2016; Harash, 2014; Harash, 2015). AIS is

of great importance to both businesses and organization in which it helps in facilitating decision making

because adequate accounting information is essential for every effective decision making process.

The main objective s of many businesses to adopt this system are to improve their business

efficiency and increase competitiveness (Hla & Teru, 2015). Another critical problem faced by most SMEs

do not apply sound accounting information system principles due to lack of regulatory resources and new

technological resources. There is a need for a comprehensive understanding of the performance of the

SMEs. Using accounting information system and how using AIS impact accounting performance (Harash,

2014; Harash,2015). As a result, it is still necessary to address how using AIS correlate with accounting

performance of SMEs. Therefore, conducting such research is timely and pertinent since the existing

limited studies showed that using AIS was the weakest area in most SMEs (Harash, 2015).According to

Harash (2014) and Harash (2015) this kind of research on using AIS is still lack in its implementation.

According to studies Fagbemi & Olaoye (2016), Harash (2014) and Harash (2015) accounting

information system have become an important component for SMEs in the all sectors to cope with intense

competition and to meet customers’ needs. Analyzing the role that accounting information system can

play in providing SME managers with relevant and accurate information can strengthen SMEs’ impact on

the economic wellbeing of the areas in which they operate. Previous empirical study to Beke (2010) and

Fagbemi & Olaoye (2016) found that there is no one best accounting information system for all

companies; rather, an organization’s systems should be contingent on the circumstances it faces. Previous
empirical studies to Beke (2010), Fagbemi & Olaoye (2016), Harash (2014) and Harash (2015) suggested

that a contingency theory approach can be used to shed light on the application of accounting information

system and its impact on accounting performance in SMEs. To date, few studies have examined the role

that accounting information system play on the accounting performance in SMEs. According to

contingency theory, accounting performance in SMEs will improve if there is a suitable fit between the

accounting information system and this performance. Although some researchers lend some support to

the idea that greater use of accounting information system is positively linked to the accounting

performance of an enterprise, in many cases, their findings are inconclusive Although some researchers

lend some support to the idea that greater use of accounting information system is positively linked to the

accounting performance of an enterprise, in many cases, their findings are inconclusive (Fagbemi &

Olaoye, 2016; Harash, 2014; Harash, 2015). Many have noted this effect but few studies to date have

investigated the effect of accounting information system on the accounting performance in SMEs (Harash,

2014; Harash, 2015). For example, Previous empirical studies (Fagbemi & Olaoye, 2016; Foong, 1999;

Harash, 2014; Harash, 2015) found that SMEs that operate in a highly complex environment make more

extensive use of accounting information system tools to improve accounting performance. Thus, it is

expected that a good fit between accounting information system and accounting performance should

improve SMEs performance. Study Fagbemi & Olaoye (2016) was concluded that accounting information

systems would significantly influence the accounting performance of SMEs. AIS also provide an

opportunity to update procedures and align them with perceived examples of best practice. Information

systems and SMEs performance was conducted by Harash (2014), who tested the influence of

characteristics enjoyed by the accounting information in determining SMEs' performance. It was found

that the characteristics enjoyed by the accounting information such as: reliability, relevance, timeliness,

and accessible have significant effects on the use of AIS and SMEs' performance. Ultimately, the goal is

to develop a testable model of the relationship between accounting performance in SMEs and the using

of accounting information system and, in turn, the system effect on accounting performance in SMEs.

Traditional difficulties that SMEs face in using of accounting information system have been complicated

by advances in manufacturing technology (Fagbemi & Olaoye,2016; Harash,2014; Harash, 2015)

Therefore, business administrators and accounting professionals have developed several new accounting
information system to deal with them. New accounting information systems can improve the relevance

and quality of information that management needs to keep the organization running smoothly (Beke,

2010, Fagbemi & Olaoye, 2016; Harash, 2014; Harash, 2015).

Most of the studies in the field, have measured the performance of SMEs in the two approaches,

financial and non-financial (Delen et al., 2013). Soudani (2012) used ROA, ROI, debt in capital structure,

left over, variable cost, and raw-material to measure firm performance. In Malaysia, Ismail and King

(2006) used long term profitability, availability of financial resources, and sales growth to measure the

financial performance of a company. Boulianne (2007) stated that business unit performance is

represented by three indicators: return on assets, net profit margin, and revenue growth. Burca et al.,

(2006) used ROI and earnings before tax to measure the financial performance of a firm. Perez et al.,

(2011) explored the impact of accounting information system (AIS) on these performance measures,

with an empirical evidence in Spanish small medium enterprises (SMEs). The research showed that the

use of AIS helped improved companies’ performance indicators and productivity.

However, Choe (2002) and many other researchers (e.g. Miller 1992; Bledsoe, 1997; Abernethy

and Lilis 1995) used non-financial performance indicators such as quality improvement and speed of

delivery of product or service. Tuanmat and Smith (2011) used product availability, product quality, and

sales service and support as indicators for improvement by AIS. Similarly, Sousa et al. (2006) used

productivity, customer satisfaction, and customer requirement. Moreover in a long term perspective, new

product and technological innovations realized by the company can also be non-financial indicators

(Isobe et al., 2008)

Conclusion

Accounting Information System plays an important role in the development and growth in

SMEs to survive. It’s not only necessary for giving reasonably high returns in the organization, its thus

flags up some vital issues for studying and revising budgetary practice that correlate to the higher goals of

SMEs. Efficient accounting information systems ensures that all levels of management get sufficient,

adequate, relevant and true information for planning and increases the control and enhances the
 accounting performance in SMEs also provide an opportunity to update

procedures and align them with perceived examples of best accounting

performance and improve data sharing and integrity.

Recommendation

SMEs that adopt computerized accounting information system should ensure that the level of

computerization improves in line with current level of advancement in technology. There is an

improvement in accounting performance and decision making associated with using AIS since AIS

records ensure easy access to information records that are properly kept.

24

REFERENCES

Emad Harash (2014). Journal of Business and Management Volume 3, Issue (2014), 48-57

The Influence of Accounting Information System (AIS) on Performance of Small

and Medium Enterprises (SMEs).

Emad Harash (2017). Global Journal of Management and Business Research (D) Volume XVII Issue III

Version 1

Accounting Performance of SMEs and effect of accounting Information System: A

conceptual Model

Elena Urquia Grande, Raquel Perez Estebanez, Clara Munoz Columina.

The Impact of Accounting Information Systems (AIS) on performance measures

Banu Dincer, Caner Dincer (2016)

Literature Review on the Use of Technology and Information System in SMEs

Republic of the Philippines

Tuguegarao City, Cagayan

Cagayan State University- Andrews Campus

COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

Accounting Information Systems in Small-Medium Enterprises (SME’s)”, prepared by Marco T.

Cagurangan, Christian Dela Cruz, Mark Clarence G. Picar, Razel A. Sabibiano, Princess Aprilyn P. Tayan.

And I have found it thorough and acceptable with respect to grammar and composition.

___________________
Proofreader

Date: _______________