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Impact of Accounting Information System on the Operation of Small-Scale Business

CHAPTER ONE                  

INTRODUCTION

1.1       Background to the Study

Adoption of sound accounting system in addition to good internal control systems in any business, irrespective of its scale, is sine qua. Because of their (SMEs) inability to afford the complexity of a detailed accounting system, there abounds existence of single entries in their books resulting in incomplete records (Onaolapo, Fasina, Opoola & Olatunji, 2011). A system has been defined by Al-Kurdi and Al-Abed (2012) as a group of associated components, together making an entity. According to Morsi (2005) a system is made up of four components: inputs, processors, outputs, feedbacks and system boundaries. To Romney and Steinbart (2012), Accounting Information System aims at collecting, recording, storing and processing data to generate information. But O’Brien and Maracas (2010) viewed it from high integration point of view when they linked it with daily business processes of an organization to generate information. Sustano (2014) had also earlier viewed it from the same perspective when he posited that accounting system is an integration of subsystems, interconnected with each other to process data related to financial problem into financial information. To Abdallah (2013), a system does not exist on its own it must be interconnected.

There seems to be no uniformity in the definitions of Small and Medium scale Enterprises (SMEs) as the terms are relative, they differ from business to business and from one nation to another (PricewaterhouseCoopers, 2009). ILO, (2007) also confirmed this assertion as they posited that no single definition can capture all the dimensions of “micro”, “small”, “medium” or “large”. Nor can it expect to reflect the differences between firms, sectors or countries at different levels of development. This assertion was also supported by Holt (2009).

According to IFRS, Small and Medium Enterprises are entities without public accountability, as they are neither compelled to publish general purpose financial statements nor follow generally accepted accounting principles (GAAP). The fact that financial statements prepared by these entities are normally laced with personal judgement of the owners, make the entities to be vulnerable to non-compliance with a set of guideline as opposed to those prepared based on formalized conceptual framework.

Accounting system has been recognized in most countries of the world as a means of meeting economic growth. For a business to survive, grow and achieve prestige, it should have a dynamic purposeful and efficient accounting system. For centuries, accounting had been generally confined to the financial record keeping functions of the accountant. Adeyemi (2015) stated that the economy has changed such that competition has become intense and there is a great change in consumers taste due to technological developments in the business world. The role of an accountant has gradually changed from that of the mere recorder of transactions to that of the member providing relevant information to

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