Accounting Info and Financial Performance
Accounting Info and Financial Performance
Accounting Info and Financial Performance
INTRODUCTION
always needs accounting information for economic decision making (Kieso, 2012).
annual plans, strategic plans, and decision alternatives (Susanto, 2008). The users
are interested in using the accounting information, becouse those information has
that fits for used by the information user (Wang & Strong, 1996), or one that
cause user take to desirable actions (Hall, 2011), or one that may help the users in
make the accounting information valuable for the users (O Brien, 1996). The
information systems quality (Sacer, 2006. Baltzan, 2012). Among of author use
and also the term of quality itself. Gelinas(1990) suggests that the effectiveness of
measurement of output the actual system that produces the ouput (Delon&
quality of work and user satisfaction (Sacer, 2006). The governement institutions
of the Nigerian are until currently still faced with a problem of the quality of
financial statements of: central governments, the ministries and public institutions
and the regionals. In the time period of 2004-2010, results of audit on the financial
Gamawan (2012) said, a target of 50% of the regional governments to attain the
information system presents is reliable and made available timely (Guan, 2006).
internal control, are built into the system (Millchamp& Taylor, 2008).
advancement has called for research related to the antecedent factors to the
utilization of the IS and its upcoming effect on the organisational performance. The
critical success factors that impact the utilization have become a modern research
issue. It is consequently proposed that Nigerian banking industry is now taking the
This research is also motivated to consist of these critical factors, as earlier stated
organizations that are implementing the said technology. In this case in point,
service quality, system quality, information quality, and data quality are pointed
out. The vast majority of the Nigerian banks depend on accounting systems. They
the banks industry on its departmental basis because of connection that will create
it reliable, time saving and also customers’ satisfactory (Wedyan, Gharaibeh, Abu-
dawleh, &Hamatta, 2012). From this effort, it is documented that commercial
banks that have implemented AIS in Nigeria have been obtaining competitive
benefit among the others. The utilization of AIS has been indicated as the recipe
financial position to the customers, and a real time update of clients’ banking
activities like transfer, withdrawal and deposit (Hamdan, 2013; Wedyan, 2012).
This basically points to the need of an in-depth research of the influence of the
performance.
process and decision making has been questioned by many analysts. The number
of errors in stored data and the organizational impact of these errors is likely to
Also, inaccurate and incomplete data may adversely affect the competitive success
significant social and business impacts. For example, NBC News reported that
and management.
In particular, there are consequences of poor data quality in AIS. For example,
generate overstock or under-stock conditions (Bowen 1993). One minor data entry
AIS without appropriate data quality checks, and cause losses to an organization
More so, most of the information system research into data quality focuses on the
attempted to understand what causes the difference in AIS data quality outcomes,
information of inferior quality. However, not many of them have turned this belief
into effective action. Poor quality information can have significant social and
business impacts.
Therefore, there is lack of knowledge of the CSF for data quality in AIS that can
profitability.
These has necessitated the researcher to conduct this research on the application
and use of accounting information debt ratio and current ratio by firms and thus its
effect on the profit before tax and earning per share of some selected firms in Port
Harcourt.
The core aim of the study is to analyse empirically the relationship between
Harcourt.
assets.
equity.
return on equity.
1.4 Research Question
assets?
on assets?
Ho1 Decision support system does not relate significantly to return on assets.
return on equity.
assets.
information system and financial performance and also teaches them how to use
Investors: This study will teach investors how to manage and be cautious on
investments so as to know if they are maximizing profit or loss and also how to
Creditors: This study will serve as a source of data to them and also increase their
knowledge.
Shareholders: this study enables them to work in line with the standard set for the
organization.
Scope: The study scope was discussed under three perspectives – content scope,
performance of quoted firms in Nigeria. The study shall also examine the
likely benefits and challenges accounting information system may pose on
across the industry in Nigeria. However, the analysis was carried out in Port
1.8Definition of Terms
Financial performance: it is a measure of how well a firm can use assets from its
total assets.
Return on Equity: a measure of financial performance calculated by dividing net
all transaction data.
Chapter one anchors on introduction. This section discusses the background of the
purpose, the research questions, the research hypotheses, significance of the study
Chapter three deals with the methodology used in data collection and analysis
instrument.
Results and discussion will be presented in chapter four which is made up of
Finally, chapter five will discuss the summary, conclusion, recommendations and
contribution to knowledge.
CHAPTER TWO
LITERATURE REVIEW
Schoderbek, (1980) have defined the system by using the following words:
“It is a set of parts that connected with each other and with circumferential
environment, which those parts working as one group, to achieve the system goals,
whole” All the authors have suggested the classification of the systems according
influence and be influenced by it, which takes its inputs from the circumference
environment, and the outputs influence in the environment, the opened system
market etc. The opened system is always the effective parts by the other
are no outputs from or inputs to the external environment. Existence of the closed
system is not seen in real life. The closed system does not influence by the
closed system is considered as a theoretical case more than practical case, the
example of closed system is: systems of transportation by air and overland effects
to control, and considered the results of environment interaction with the system as
the system’s inputs. The results affected on the circumference environment as the
system’s outputs. For example; the airlines companies use the radars and other
techniques to work in frame of the bad weather to avoid the incidents which can be
4. Feedback control systems: the system is considered to be one of the set of the
form inputs to the system. Always, design the multi accounting systems to provide
Pincus, (2000) further makes it clear which defined data as raw facts and figures;
raw facts and figures are the starting point (the input) for creating information. The
information processing, may involve many different activities. These activities are
Various studies and searches explain information system; the researcher will
procedures that work together to capture data and transform it into useful
information.
Husain (1997) explained his definition as that system which contains a group of
grouping, processing, managing, and controlling the data for producing and
carrying the useful information for decision makers through network of the
as follow:
There is also a several characteristics determine the qualities that make information
valuable:
(or granularity) will affect its understandability, hence, its usefulness for
information may be called for; whereas for other purposes, very detailed
information may be required. Thus, appropriately tailored levels of
3. Reliability: the information must be reliable, you must be able to count on its
faithfulness), and on its being reasonably free from error and bias (this is known,
from the data, they would all come to the same conclusion (this know, more
by real world changes over time (as well as by information processing delays) with
to the dimension of time and the change that time engenders, it is useful to identify
intangible objects implies that the information is valid in ways other than
approved by parties with the delegated authority to do so. Thus, transactions are
valid if they were initiated and executed by personnel or systems that have been
granted the authority to do so and if approvals are authentic and within the scope of
the authority granted to the approver(s). For example, if the credit limit assigned to
a customer reconciles to the company’s rules and procedures used to set credit
limits, the credit limit would be “valid.” Thus, the concept of validity includes
elements of both accuracy and authorization. A validation process may therefore
standard.
The value of information is directly linked to how it helps decision makers achieve
their organization’s goals. Valuable information can help people and their
organizations perform their tasks more efficiently and effectively (Stair and
several dimensions.
Hall (2011) suggests that the dimensions of information quality consist of:
Gelinas (2012) and McLeod (2007) put forward that dimensions of the quality of
Hicks (1993) stated that relevance, timeliness, accuracy and verifiability as the
(2010) summarizes the important of information and groups them into three
performance) and form (clarity, detail, order, presentation, media) In this study, the
(1) Relevancy. The Extent to which data is applicable and helpul for the task at
hand (Wang & Strong, 1996), the contents of a report or document must serve a
(2) Accuracy. The Information must be free from material errors (Hall, 2011).
that creates needed information for its users (Bagranof et al, 2011). Accounting
information systems (AISs) is a collection of resources, such as people and
equipment, designed to transform financial and other data into information. This
is usually flexible, efficient, accessible, and timely. Seddon (1997) state that an
Delon& McLean (1992) state that the quality of system is concerned with the
(TAM) developed by Fred Davis (1989) are widely used as references by many
D&M IS Success Model, the quality of AIS is accounted for by using six
dimensions, namely: (1) system quality, (2) information quality, (3) use, (4) user
Acceptance Model (TAM) (1989) the factors that can lead the best attitudes to a
system and then receive and apply the system are used as the measure of
perceived ease of use, and (3) actual use (usage). Then, a related model is also
perceived usefulness, user satisfaction, and information systems (IS) use. Within
the context of the current study, perceived usefulness, perceived ease of use and
refers to the degree to which a person believes that using a particular system would
enhance his or her job performance (Davis, 1989). Whereas perceived ease of use
refers to the degree to which a person believes that using a particular system would
be free effort (Davis, 1989). As for an Information system (IS) use (usage) refers
(Petter, 2008),
system, etc.
DSS uses the summary information, exceptions, patterns, and trends using the
not necessarily give a decision itself. The decision makers compile useful
where −
and judgment.
Therefore, there will be no exact report, content, or format for these systems.
Attributes of a DSS
Ease of use
Ease of development
Extendibility
Support for individuals and groups. Less structured problems often requires
organization level.
Benefits of DSS
Components of a DSS
internal data are generated by a system such as TPS and MIS. External data
use to make decisions. Such models are used for designing manufacturing
Support Tools − Support tools like online help; pulls down menus, user
There are several ways to classify DSS. Hoi Apple and Whinstone classifies DSS
as follows −
allows create, view, modify procedural knowledge and also instructs the
program type.
Rules Oriented DSS − Procedures are adopted in rules oriented DSS. Export
explained above.
Types of DSS
etc.
payables, etc. that keep track of the major aspects of the business.
Model Based System − Simulation models or optimization models used for
operation or management.
A transaction processing
system performs routine,
day-to-day operation
of a business that helps a
company add value to its
products and
services.
It requires a large
amount of input data and
produces a large amount of
output without requiring
sophisticated or complex
processing.
Examples are, order
entry, inventory control,
payroll, accounts payable,
accounts receivable, and
general ledger.
An automated TPS
consists of all the
components of a CBIS
such as
hardware, software,
databases,
telecommunication, people,
and
procedures.
A transaction processing
system serves the
foundation of other
systems,
such as MIS, DSS, and
AI/ES. These systems
handle less input and
output, but more
sophisticated and complex
processing.
A transaction processing
system performs routine,
day-to-day operation
of a business that helps a
company add value to its
products and
services.
It requires a large
amount of input data and
produces a large amount of
output without requiring
sophisticated or complex
processing.
Examples are, order
entry, inventory control,
payroll, accounts payable,
accounts receivable, and
general ledger.
An automated TPS
consists of all the
components of a CBIS
such as
hardware, software,
databases,
telecommunication, people,
and
procedures.
A transaction processing
system serves the
foundation of other
systems,
such as MIS, DSS, and
AI/ES. These systems
handle less input and
output, but more
sophisticated and complex
processing.
A Transaction Processing System or Transaction Processing Monitor is a set of
information which process the data transaction in database system that monitors
The essence of a transaction program is that it manages data that must be left in a
consistent state. E.g. if an electronic payment is made, the amount must be either
both withdrawn from one account and added to the other, or none at all. In case of
be 'rolled back' by the TPS. While this type of integrity must be provided also for
empty seat inquiry, the seat reservation data must be locked until the reservation is
made, otherwise another user may get the impression a seat is still free while it is
actually being booked at the time. Without proper transaction monitoring, double
transaction logging (in 'journals') for 'forward recovery' in case of massive failures.
Their primary purpose is to record, process, validate, and store transactions that
take place in the various functional areas/of a business for future retrieval and use.
Transactions are events that occur as part of doing business, such as sales,
activities are needed to capture and process data, or the operations of a business
3. Transactions can be recorded in batch mode or online. In batch mode, the files
4. There are six steps in processing a transaction. They are data entry, data
validation, data pro- cessing and revalidation, storage, - output generation, and
query support.
2.2.4Financial Performance
A firm’s financial performance is critical to its health and survival. A firm’s high
2004). While there exists a large and growing body of theoretical and empirical
Skandalis, 2008). Past studies have proxied the financial performance of firms by
EPS, PBT, PAT, ROA, ROE, ROI and Tobin’s Q (Tobin, 1956). These studies
performance.
Past studies have identified both firm specific (internal) factors (including
corporate governance, leverage, and liquidity and firm size) and industry specific
factors include the tradeoff theory (Chirinko&Singha, 2000), pecking order theory
(Myers, 1984), free cash flow theory (Jensen, 1986; Dorff, 2007)), agency theory
(Berle& Means, 1932; Elliot et el., 2002) and the Modigliani and Miller capital
Brigham &Ehrhardt, 2004) and emphasize the role of leverage on the firm’s
performance.
The working capital management theories of Baumol (1952), Tobin (1956) Miller-
Orr (1966) Dash and Ravipati (2009), Stone (1972) Srinivasan and Kim (1986) and
Opleret el. (1999) emphasize the role of liquidity the firm’s performance. The
firm size, history (age), and organizational climate factors (e.g. top management
team characteristics, motivation, group dynamics, decisionmaking practices,
leadership, communication flow, goal emphasis and planning, job conditions, etc.)
level (internal) and industry level (external) determinants of the firms’ financial
performance during any state of the economy. While some studies (Hawawini,
Subramanian, &Verdin, 2003) argue that industry or external firm factors outplay
1994) argue that internal (firm specific) factors outplay external factors in driving
Nairobi Securities exchange. A census of all firms listed at the Nairobi Security
Exchange from year 2002-2011 was the sample. The study found a significant
relevant in determining the performance of a firm. The study further found that
that firms listed at NSE used more short-term debts than long term.
Abdul (2012) conducted a similar study to determine the relationship between
capital structure decisions and the performance of firms in Nigeria. The study
concluded that financial leverage has a significant negative relationship with firm
(ROE) was negative but not statistically significant. In another study, Javed and
Akhtar (2012) explored the relationship between capital structure and financial
related with business survival. Liargovas and Skandalis (2008) did a study on the
financial performance and size of manufacturing firms in Greece. They found that
financial performance of majority of the firms was affected by firm size. They
argued that firm size is a basis of competitive advantage in the sense that larger
companies tend to be more efficient than their smaller counterparts and have better
Nosa and Ose (2010) did a study on the effect of capital structure on corporate
was used to select 20 firms from which 200 respondents were sampled. The
findings indicated that leverage has a significant and negative relationship with
firm’s performance.
Finally, the majority of the studies have focused on the insurance and
manufacturing sectors in the developed economies. The studies have not given a
clear picture on how the various factors may affect performance of firms.
unlisted firms (Ogeto, 2003; Koros, 2001). The current study filled a research gap
by investigating the factors that affect performance of firms listed in the NSE.
To establish the effect of board size, board independence, debt to equity ratio,
The government of Nigeria, together with companies and individuals in the private
some have even been delisted from the NSE over the last decade. Significant
efforts to turn around such companies or even liquidating them have focused
mainly on financial restructuring. However, managers and practioners still lack
adequate guidance for attaining optimal financing decisions (Kibet, Kibet, Tenei &
Muthol, 2011), yet many problems experienced by the companies put under
Wasike, 2011).
This situation has led to a loss of shareholders’ wealth and the overall investors’
other sectors especially banking, and the insurance sectors. However, the overall
number of studies (Almajali, 2012; Liargovas & Skandalis, 2008) have been
mixed results. This study therefore sought to establish the factors that affect the
institutions such as banks and insurance companies and instead focusing on 44 out
such as the firm size and corporate governance, covering a period between 2003-
2013.
2.2.5 Return on Assets (ROA)
its total assets. ROA gives a manager, investor, or analyst an idea as to how
2016).Some investors add interest expense back into net income when performing
this calculation because they'd like to use operating returns before cost of
borrowing.
ROA tells what earnings were generated from invested capital (assets). ROA for
public companies can vary substantially and will be highly dependent on the
company's ROA. Remember that a company's total assets are the sum of its total
liabilities and shareholder's equity. Both of these types of financing are used to
fund the operations of the company. Since a company's assets are either funded by
debt or equity, some analysts and investors disregard the cost of acquiring the asset
by adding back interest expense in the formula for ROA. In other words, the
impact of taking more debt is negated by adding back the cost of borrowing to the
net income, and using the average assets in a given period as the denominator.
Interest expense is added because the net income amount on the income statement
excludes interest expense. An analyst that chooses to ignore the cost of debt will
The ROA figure gives investors an idea of how effective the company is in
converting the money it invests into net income. The higher the ROA number, the
better, because the company is earning more money on less investment. Let's
evaluate the ROA for three companies in the retail industry (Macy, Penney &
Sears, 2017).
ROA is most useful for comparing companies in the same industry, as different
industries use assets differently. For example, the ROA for service-oriented firms,
such as banks, will be significantly higher than the ROA for capital intensive
effective your company is at using those assets to generate profit.” This ratio is
more useful in some industries than in others, partly because how much money
Return on equity (ROE), is a financial ratio that measures the return generated on
amounts received by the company from stock/share issues plus the profits/earnings
retained by the company, i.e., not yet distributed in dividends (accounting value of
shareholders’ equity is also equal to a company’s net assets, i.e., assets minus
liabilities).
ROE = profit margin X asset turnover X gearing. ROE = (profit for the year ÷
First, APB Opinion 15 requires firms with complex capital structure to report the
primary EPS, which incorporates “expected” dilution. The criteria to determine the
possible future dilution had received substantial criticism. Before 1990s, many
papers discussed the computation of primary EPS. Frank and Weygandt (1970),
Arnold and Humann (1973), and Givoly and Palmon (1981) empirically
investigated the criteria for common stock equivalent. Frankfurter and Horwitz
relationship between stock prices and the primary EPS. Curry (1971)
modified treasury stocks method theoretically. In general, they all concluded that
the criteria of common stock equivalent could not provide good prediction of
future conversion.
2.3 Empirical Review
Jennings, (1997) empirically compared the extent to which basic, primary, and
fully diluted EPS explain variation in stock prices using a sample of firms from
1989 to 1995. They found that fully diluted EPS explains more variation in stock
On the other hand, some studies focus on the relationship between stock price and
dilution.
Huson, (2001) used a sample of firms from 1970 to 1995 and documented that the
stock return response to changes in accounting income is smaller for firms with
more shares reserved for conversion. They also showed that the return earnings
response is smaller for firms with higher recent returns, where recent returns proxy
for the extent to which options and convertible securities are in the money.
Core (2002) showed that the treasury stock method systematically overstates the
earnings per share when compared to the options-diluted EPS. Using firm-wide
data on 731 employee stock option plans over the period 1994-1997, their
proposed measure suggests that economic dilution from options is, on average, 100
percent greater than dilution in reported diluted EPS using the FASB treasury-
stock method. For intensive users of stock options, such as high-growth firms, the
difference between their estimate of economic dilution and the FASB treasury-
outstanding.
Garvey and Milbourn (2002) examined whether the stock prices incorporate the
potential dilution of employee stock options. They found that the stock market
Li and Wong (2005) showed that stock price estimate under a warrant-pricing
approach is lower than that under the traditional valuation method and is also
Casson and McKenzie (2007) proposed a benchmark model to calculate the basic
EPS and the diluted EPS in the theory of contingent claims. In their model, the
basic EPS is defined as the changes in a firm’s net asset over a reporting period,
and the diluted EPS as the change in the value of the claims of each common share
on the firm’s net asset. Simulations are used to compare the benchmark with the
diluted EPS under the treasury stock method, imputed earnings method, option-
diluted method, and holding loss/gain method. They concluded that the treasury
stock method performs worst among the four approaches, while the imputed
Ogah (2012) reveals that high level of profitability is not dependent on the use of
accounting information. The low explained variability implies that other variables
apart from AIS positively impact on the bank's profitability. This is true as the
employment of AIS if not supported with necessary and enabling facilities to make
it functional becomes monumental, which may affect the bank's operation process.
Thus, the successful integration of AIS will depend on how well other factors are
Markus & Pfeffer (2013) asserted that the successful implementation of accounting
systems requires a fit between three factors such as perception of the organization
concerning the situation, the accounting system must fit when problems are
normally solved and the accounting system must fit with the culture, i.e. the norms
Grande, (2013) argued that IT is readily available and using them gives no
competitive advantage for achieving improved results. They argued that many
firms have invested in IT but they fail in attaining the established performance
goals. This, therefore, implies that AIS can only be used in organizational
operations when appropriate factors are put in place and operated harmoniously.
Akpan & Riman (2013) used Return on assets (ROA), Return on equity (ROE) and
While Poudel & Hovey (2013) apply a ratio of non-performing loan (NPL) to
and used Tobin's Q which is a sign of market performance for measures the firm
Bhagat and Bolton (2017) measured operating performance by using Tobin's Q and
Operational framework
Demoatic
Decision Support System
Return on Assets
Transaction Processing
System Return on Equity
The operational framework for establishing the relationship between accounting information
system and financial performance of firms (accountants-day.info, 2014
CHAPTER THREE
METHODOLOGY
A research design expresses both the structure of the research problem and the plan
This study will adopt quantitative research predicated on ex-post facto design. This
research design will be used based on the existence of quantitative data needed for
analysis and the relevant variables on accounting information system and financial
performance. Ex-post facto design will be used because of the nature and types of
data.
which are gotten from relevant documents, such as position descriptions, policy
reports, journals, magazines, text-books and internet. Thus, this research has to
adopt them and rely on such official publications for valid and reliable academic
exercise.
3.2 Population of study
The population of this study consisted of three selected firms in Port Harcourt
organizations through the use of simple random sampling. For this research, we are
going to consider three firms situated in Port Harcourt. The companies includes the
following; First Aluminium Plc company which consist of 14 junior staffs and 6
Technology Ltd consists of 19 junior staffs and 9 senior staffs, making it a total of
28 employees.
This sample work, basically considered the accounting information system and
Port Harcourt.
The secondary data for the various oil and gas accounting and financial
internet.
Since the study will make used of primary and secondary data which indicates that
the researcher cannot manipulate the data. This data will be collected from
internet.
The independent and the dependent variable in this study were operationally
measured with the ordinal scale. The independent variable are the dimension of
accounting information system (decision support system and transaction
performance (return on assets and return on equity). The ordinal scale was used to
rank the effect of the independent variable on the dependent variable. The likert
scale was used to rank the responses from the highest to the lowest. Through such
ranking, the researcher was able to determine the relationship between the
The method of analysis that will be used in this study is regression analysis. It is a
statistical technique used for fitting a regression line. As one of the commonly used
data for this study is mainly primary and secondary data collected from
internet.
Model specification
wasprofit before tax (PBT) and earning per share (EPS); while the independent
variables were debt ratio (DR) and current ratio(CR). In order to examine the effect
Where;
AIS = Accounting Information system
αo, xo, βo,wo = Constant or intercept
α1, x1, β1,w1 = Coefficient or slope
ROA = Return On Asset
ROE = Return On Equity
DSS = decision support system
TPS= transaction processing system
U1t= Stochastic error term.
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APPENDIX
Sampson Peace.
Section A: Demographic Data.
Please tick [√] where appropriate, and give candid information. Thank
you.
ICAN/MBA/PHD [ ]. d. OTHERS [ ].
2. When was business established: less than 2 years [ ]. 2-5 years [ ]. Above 5
years [ ].
4. Great technical skill to manage and document the financial transactions of the
firm: yes [ ]. No [ ].
Section B:
S ITEM STATEMENT S A U D S
N A
D DECISION SUPPORT SYSTEM AND RETURN ON
ASSETS