AN INVESTIGATION INTO THE EXTENT TO WHICH ENTERPRISES IN MALAWI HAVE ADOPTED ACCOUNTING INFORMATION SYSTEMS: A CASE OF SMALL AND MEDIUM ENTERPRISES IN LILONGWE

AN INVESTIGATION INTO THE EXTENT TO WHICH ENTERPRISES IN MALAWI

HAVE ADOPTED ACCOUNTING INFORMATION SYSTEMS: A CASE OF SMALL

AND MEDIUM ENTERPRISES IN LILONGWE

EDDIE MOMBERA

A REASERCH PROJECT SUBMITTED TO EXPLOITS UNIVERSITY IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A BACHELORS

DEGREE IN ACCOUNTANCY

AUGUST, 2014

DECLARATION

I hereby declare that this work I am submitting is my original work and has not been submitted

and shall not be submitted in the future in any form to serve a similar purpose to any other

university and that use of work by others is duly acknowledged.

Candidate_____________________________________________________________________

Eddison A. Mombera

Date__________________________________________________________________________

CERTIFICATE OF APPROVAL

SUPERVISOR: ______________________________ DATE: _______________________

HEAD OF DEPARTMENT: ________________________ DATE: ___________________

DEAN OF FACULTY: ___________________________ DATE: _____________________

DEDICATION

This research paper is lovingly dedicated to my late father and my mother who has been my

constant source of inspiration.

ACKNOWLEDGEMENT

Apart from my own efforts, the success of this project depends largely on the encouragement and

guidelines of many others. I take this opportunity to express my gratitude to the people who have

been instrumental in the successful completion of the research. I would like to show my

appreciation to the library staff for their support and help. I thank Mr. M. Phiri who was abundantly

helpful and offered invaluable assistance, support and guidance.

Also, I would like to thank the faculty of commerce for providing a good environment to complete

this research, and all my classmates and my wife Dalitso Mombera for their encouragement

throughout the research.

Finally, an honorable mention goes to my late child Samantha who always stayed up late at night

to let me in the house when I came late from school and my son Paul for escorting me to school

when I went for discussions. Thank you my family for giving me encouragement, for endurance

and love throughout the long hours I spent at the university.

ABSTRACT

The advent of IT has offered significant improvement to the way financial transactions in business

are processed by professional accountants. Hence, in most parts of developed countries, it is almost

impossible to function as an accountant without requisite IT skills. However, the pattern seem not

attain similar forte in SMEs especially in developing economies. Consequently, this study would

provide an answer to the degree of computer-based accounting systems adoption by SMEs in

Malawi. The researcher have conducted an empirical investigation through a survey focused on

finance and accounts executives of the enterprises that holds primarily responsibility for business

transactions processing. This information was sought in order to expound on the extent of AIS

adoption by Malawian SMEs. Respondents were obtained from all sectors, IT services, medical

services, wholesale and retail trade, and general services industries. The findings showed that the

use of AIS by Malawian SMEs is gaining significance as most companies operating in all

industries surveyed uses or intend to use one type of accounting software or another. This outcome

suggests that professional accountants must endeavor to continually horn their skills for continued

relevance in the profession.

Contents

DECLARATION...................................................................................................................... I

CERTIFICATE OF APPROVAL ......................................................................................... II

DEDICATION....................................................................................................................... III

ACKNOWLEDGEMENT .....................................................................................................IV

ABSTRACT ............................................................................................................................. V

CHAPTER 1: INTRODUCTION ........................................................................................... 4

Research Overview ................................................................................................................ 5

Background to the Study ........................................................................................................ 5

Problem Statement ................................................................................................................. 8

Research Questions ................................................................................................................ 8

Research Objectives ............................................................................................................... 9

Significance of the Study ....................................................................................................... 9

Structure of the Paper ........................................................................................................... 10

Chapter Summary ................................................................................................................. 10

CHAPTER 2: LITERATURE REVIEW ............................................................................ 12

Introduction .......................................................................................................................... 13

Historical background .......................................................................................................... 13

Defining and Conceptualizing AIS Adoption and Usage .................................................... 15

Benefits of adopting AIS ...................................................................................................... 16

Disadvantages of adopting AIS ............................................................................................ 17

Mitigation of the disadvantages of the adoption of AIS ...................................................... 18

Conceptual Framework ........................................................................................................ 19

Importance of AIS ................................................................................................................ 19

Cost....................................................................................................................................... 20

Training of personnel ........................................................................................................... 20

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Managerial Support .............................................................................................................. 20

Technical support ................................................................................................................. 20

Chapter Summary ................................................................................................................. 21

CHAPTER 3: RESERCH METHODOLOGY ................................................................... 22

Introduction .......................................................................................................................... 23

Research Approach and design ............................................................................................ 23

Population of the Study ........................................................................................................ 23

Sampling Procedure ............................................................................................................. 23

Data Collection Methods ...................................................................................................... 24

Data Analysis and Interpretation .......................................................................................... 24

Research Ethics .................................................................................................................... 24

Limitations of the Study ....................................................................................................... 24

Chapter summary ................................................................................................................. 25

CHAPTER 4: SURVEY FINDINGS AND DISCUSION ................................................... 26

Introduction .......................................................................................................................... 27

Findings from primary data .................................................................................................. 27

Industry Classification ...................................................................................................... 27

Adoption of Accounting Information Systems by SMEs ................................................. 28

Accounting Software Adopted ......................................................................................... 29

Determinants of AIS Adoption ......................................................................................... 29

Challenges associated with AIS ....................................................................................... 33

Findings from secondary data .............................................................................................. 34

Response Rate ...................................................................................................................... 35

Chapter summary ................................................................................................................. 36

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ...................................... 37

Conclusions .......................................................................................................................... 38

Recommendations ................................................................................................................ 38

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Practical contributions .......................................................................................................... 39

Future research needs ........................................................................................................... 39

Chapter summary ................................................................................................................. 40

REFERENCES ....................................................................................................................... 41

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CHAPTER 1: INTRODUCTION

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1.0 Research Overview

The study drew specific interest in the area of Information technology and was specifically

aimed at investigating the extent to which small and medium size enterprises (SMEs) have

adopted Accounting Information System (AIS).

Accounting Information Systems (AIS) is defined as a computer-based system that processes

financial information and supports decision tasks in the context of coordination and control of

organizational activities (Nicolaou, 2000).

Information technology have led to the introduction of Accounting Information Systems in

financial reporting to facilitate production of relevant financial reports which are a true and fair

representation of the state of affairs of the SMEs for both management and external users on

which to base their decision making. The many advantages from the use of these systems have

led many to conclude that Computerised Accounting Systems in Corporate Reporting is the

‘engine of growth’ in business organisations (Frenzel, 2006). It is for this reason that SMEs

must operate successful AIS.

This study sought to provide an answer as to the degree of Accounting Information System

(AIS) adoption by SMEs in Malawi. The researcher conducted an empirical investigation

focused on finance and accounts executives of the SMEs that holds primarily responsibility for

business transactions processing. This information was sought in order to expound on the extent

of AIS adoption by Malawian SMEs. Respondents were obtained from manufacturing,

agriculture, construction, hotel, medical services, trade, and general services industries.

1.1 Background to the Study

Micro, Small and Medium enterprises are defined as entities that employ up to 100 people

subject to maximum total annual turnover and number of employees (Malawi SMEs Policy

2007).According to Ministry of Industry, Trade and Private Sector Development Micro

Enterprises employ one to four people and have a turnover not exceeding USD 7,143. Small

Enterprises employ five to twenty people and have a turnover exceeding USD 7,143 but not

exceeding USD71,428. Medium Enterprises employ twenty to one hundred people and have a

turnover exceeding USD71,428but not exceeding 357,142.

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Small and medium enterprises (SMEs) play an important role in providing employment,

improving people’s livelihood and in contributing to the overall economy. In the newly

developing or newly industrialized countries (NICs), SMEs generally employ the largest

percentage of the workforce and are responsible for income generation opportunities (Prajogo,

2007; Fening et al, 2008). These enterprises can also be described as one of the main drivers

for poverty alleviation (Singh et al, 2010). For most poor economies too, the bulk of

employment and livelihoods are provided by a vast majority of small enterprises (Jutla et al.,

2002)). In most cases these enterprises gain support through access to financial and business

development services championed by government, donor agencies or private interventions

such as banks.

Furthermore, according to Luetkenhorst (2004), at an enterprise level, SMEs are found to

employ more labour-intensive technologies than larger enterprises. They generate the lion’s

share of productive employment (around 50-70% in developing countries; 72% in Japan; 66%

in most EU countries). With respect to productivity, SMEs also perform very well in terms of

total factor productivity which tends to be highest especially in the medium-sized segment with

50-100 workers (Snodgrass and Biggs, 1996). Also with regards to innovation, research by

UNIDO (2008) indicates that SMEs (especially medium-sized companies) have a strong

record. In developed and more advanced developing countries, they were found to contribute

most innovation in immature, relatively un-concentrated industries (e.g. ICT). This would

appear to imply that they play an important role in applying new technologies to meet customer

needs and in introducing new products. There is also evidence that small firms produce

innovations with significantly higher productivity, than large firms Acs and Audretsch (1990).

Data collected by Ayyagari et al. (2007) for 76 developed and developing countries indicate

that, on average, SMEs account for close to 60% of manufacturing employment.

In recognition of the role that SMEs play in the economy, the government of Malawi has made

the development of SMEs a priority (MSME policy 2007).

According to the business information register (2008-2009) prepared by the National Statistical

Office of Malawi and the Malawi confederation chamber of commerce, there are 3027

establishments operating in the non-agricultural sector of the economy. About 19.9% of these

establishments operate in the manufacturing sector and 80.1% operate in the services sector.

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The register indicates that 44.9%, 33.2%, 21.8% of the firms operating in the manufacturing

sector are small, medium and large respectively. On the other hand for firms operating in the

services sector the register indicates that 78.4% are small firms, 16.2% are medium firms and

5.4% are large firms. It is clear that a larger percentage of firms operating in both the

manufacturing and services sector are small.

In this new era of technological advancement, the role of computerised accounting information

systems (AIS) such as Sage, Tally, Pastel, SAP, and QuickBooks is of paramount importance

in managing an organisation and implementing internal control systems. AIS allows a company

to manage its business with potential benefits of improved process flow, reduced inventories,

better data analysis, better customer service, and improved profit margins (Fan and Fang,

2006). Considering the benefits mentioned above, it is easy to see why AIS are accepted to be

one of the most significant developments in the world and also the most accepted standard

business software.

The revolution in information technology has significantly changed the nature of business

(Elliot, 1992) and created competitive advantages for those who appreciate its effects (Porter

& Millar, 1985). The advent of IT has affected the form and substance of information,

accounting not excepted. The emergence of e-commerce has made possible voluminous and

cross-border transactions being carried out. This development therefore motivates a firm to

change its accounting systems in order to ensure that outputs from the accounting systems

could be prepared in a timely manner. Therefore, the need for on-line and real-time processing

systems will naturally arise. With proper systems, new and updated financial information could

be readily available for purposes of, among others, making decisions. Moreover, the accounting

systems need also be able to capture the non-financial information to support the financial

information for better decision-making (Brecht & Martin, 1996). Thus, the accounting systems

should be able to produce relevant, accurate, reliable, and timely information to users in the

information age.

For the small and medium sized enterprises (SMEs), an adoption of accounting information

systems (AIS), therefore, becomes vital and may well be the determining factor for the survival

and success of an organization. The reason is that SMEs need to enhance the quality and price

competitiveness of their products and services in order to compete with large firms. To this

end, SMEs are expected require more information, as they are exposed to uncertainty in their

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environment compared to larger firms (El Louadi, 1998). Information, be it financial or non-

financial, is one of the key factors for success in this global-economy era (Brecht & Martin,

1996). Further, the SMEs have seen high failure rate (Ballantine et al., 1998) due to their

inability to influence market price by altering the output levels (Storey &Cressy, 1995). They

also have small market shares, are unable to mount barriers to entry to their industry and are

heavily dependent on a small number of customers (Storey &Cressy, 1995). Thus, in order to

be able to compete successfully, a firm of SME category needs to have an information system

that would enable it to prepare current reports for more timely and informed decisions.

However despite all the benefits associated with the use of AIS, it seems SMEs in Malawi have

taken a slow approach to adopt this technology.

The study was therefore aimed at investigating the extent to which SMEs have adopted the use

of information technology in their accounting systems.

1.2 Problem Statement

Theoretically, AISs are known to improve a firm’s effectiveness and efficiency. The current

literature reveals little research evidence about accounting information systems in SMEs in

developing countries. In support of this, Mitchell and Reid (2000) suggested that researching

AISs in the micro enterprises has been almost non-existent with only a relatively few research

studies. Furthermore Randall and Horsman (2001) indicated that AISs has been neglected in

the small enterprise literature, despite its importance to business success. Yet, while large

businesses have been using computers for some time, SMEs have been slow in adopting this

technology innovation.

The aim of the study was to investigate the extent to which SMEs in Malawi have adopted

AISs, specifically those in Lilongwe urban. Upon the findings, appropriate recommendations

were made to improve the situation.

1.3 Research Questions

The questions were of interest to the researcher and the SMEs in a sense that, their existence

to a large extent hangs on the ability to entice and maintain customers through the offer of

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innovative and technologically improved services and products. In order to do this research,

the following questions were addressed:

What is the level understanding and knowledge of computers by SMEs in Lilongwe urban?

Which are the major Accounting Information Systems that are used by SMEs in Lilongwe

urban?

How willing are SMEs in Lilongwe urban to adopt the use Accounting Information Systems

such as Sage, Quick Books, Tally, Pastel and SAP?

1.4 Research Objectives

The purpose of this study was to provide empirical evidence on the existence of AIS in

Malawian SMEs. To achieve this aim, the study sought:

To find out the level at which SMEs in Lilongwe urban have adopted Accounting

Information Systems;

To find out the accounting systems adopted by SMEs in Lilongwe urban;

To analyse the factors that influences the willingness of SMEs in Lilongwe urban to adopt

AIS.

1.5 Significance of the Study

The role of SMEs in economic development has been an area of intense research both in

practise and academia. This empirical investigation of AIS in SMEs will therefore be a

significant contribution to existing literature. Furthermore, the study will provide evidence on

the extent to which Malawian SMEs are ICT accounting compliant in readiness for gaining

strategic competitive advantages in their businesses.

This study served as an important step towards considering the role of AIS adoption and usage

in enhancing SMEs performance and growth. Chowdhury (2006) observed that empirical

evidence on the effects of investments in ICT in SMEs is limited in developing countries. One

of the reasons attributed to this is the lack of official data concerning AIS adoption and usage

among SMEs.

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1.6 Structure of the Paper

This study is organized into distinct chapters:

Chapter one

This chapter introduces the study by looking at the research overview, background to the study,

the problem statement, research questions and research objectives through to the significance

of the study.

Chapter two

This chapter deals with a critical analysis of prior related literature. It first examined the

historical background of the study then it defined and conceptualized AIS adoption. It also

looked at the benefits and disadvantages of adopting AIS. This chapter also looks at mitigations

to the disadvantages, the conceptual framework, importance of AIS, cost, training and

managerial support.

Chapter three

This chapter looks at the methodology of the research under study. It will take us through the

research approach and design, the population under study and the sampling procedure that was

used. It will also look at data collection methods used, analysis and interpretation, research

ethics and finally limitation of the study.

Chapter four

Chapter four deals with the presentation of the findings and the analysis of the data collected

by first looking at classification of the respondents by industry, AIS adoption, extent of

adoption, AIS adopted, determinants of AIS adoption, challenges associated with AIS and

finally a comparison of similar studies.

Chapter five

Finally, chapter five deals with the conclusion and recommendations for further studies.

1.7 Chapter Summary

This introductory chapter has given a background to Accounting Information Systems and

Small and Medium Size Enterprises. It has also presented the objectives that the study seeks to

11

achieve, the research questions to be investigated, the significance of the study and the problem

statement. The next chapter will present a critical review of literature

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CHAPTER 2: LITERATURE REVIEW

13

2.0 Introduction

This section will examine the literature of other scholars to establish what is already known

about adoption of information systems by SMEs and related areas presented and discussed. It

will also further introduce the concept of SMEs and the concept of AIS and its importance as a

determinant of business success.

2.1 Historical background

The application of computerized systems in business information processing has been very

significant to the accounting profession decades ago especially as it relates to financial

transactions. However, its applicability to SMEs began to gain relevance in the twenty-first

century especially in developing economies. SMEs like any other profit-seeking establishment

must strive for survival through business performance enhancement. They must engage in

business strategies aimed at providing competitive advantages in highly competitive societies

in which they exist. To achieve these, they must continually engage relevant tools and

techniques taking cognizance of cost comparativeness and properly utilized opportunities (El

Louadi, 1998). Technologies provide the relevant prospects required to convert resource

utilization into productive, quality and performance-oriented business (Ismail et al., 2003).

Although various stakeholders continue to engage in activities aimed at ensuring survival of

SMEs, research has shown that the effective adoption of computerized systems by these firms

is relatively low in most developing countries as compared to developed environments, for

example, in high-income economies, computer penetration in the business sector has typically

already reached levels as high as 95 per cent. However, in developing countries the share of

firms that use at least one computer for business purposes remains relatively low, especially

among smaller companies and in rural areas. Without computers, firms are unable to make full

use of ICT in their administrative, productive or marketing processes (UNCTAD 2009). This,

in turn, will limit their ability to engage in e-commerce activities. Increased use of computers

by developing country firms may have a more important effect than in developed country firms.

On the other hand, the adoption of technologies with particular reference to AIS by Malaysian

SME’s seem relatively high as nearly 80 percent of SME’s surveyed in Melaka has adopted

AISs or are at various implementation stages (Sam et al., 2012). Studying the use of

computerized accounting systems, 80 percent of responding SMEs chief executives possesses

14

basic knowledge of accounting while 90 percent has at least rudimentary ICT skills and

knowledge. In terms of familiarity with accounting applications, over 75 percent of adopters

were unfamiliar with computerized accounting systems. This outcome was founded on the

possibility that majority of CEOs only access the AIS for financial report purposes and

therefore do not have direct connection in accounts preparation using AIS. To describe

competitiveness of the SMEs surveyed, the conclusion was that 70 percent of respondents in

the manufacturing sector believed that their firms existed in high information intensity industry

hence the need for reliable, up-to-date and accurate information to remain competitive.

Enquiries about kinds of application systems deployed, majority adopt generalized applications

mostly due to their flexibility, low cost and module specificity. Only 19 percent make use of

in-house packages.

Engaging SMEs in the manufacturing, agriculture, mining and construction, hotel and

hospitality, information technology, medical services, wholesale and retail trade, and general

services, Relhan (2013) explored the use of electronic accounting in India. The result indicated

that 97 percent of the firms use computers in their accounting functions. As regards software

categories, 62 percent make use of off the shelf systems in particular generalized accounting

packages ranging from Pastel, Sun, Tally, Sage and QuickBooks while 25 percent simply

deploy office automation systems. On the use of networks, only 28 percent uses stand-alone

systems as other 72 percent deploy multi-user systems using local area networks (LAN).

Enquiries about the factors responsible for the deployment of IT systems in their accounting

operations revealed that 79 percent indicated cost reduction, efficiency of clerical accounting

functions, storage space for data and information processing while others were of the opinion

that AISs assist in providing timely information for decision making. Few of the challenges

identified in the use AIS include inaccuracy of reports, frequent systems breakdown, inability

of software to support large volume of data, loose electricity supply (common to most

developing economies), inability to carry out data filtering (export/import data), and inability

to fully comprehend and interpret results.

Breen et al. (2003), in their study of computerized accounting systems in Australia presented a

report for the small enterprise association of Australia and New Zealand (SEAAN) 16th annual

conference in Ballarat. Using the result of data collected from 122 firms that uses AIS and 99

non-users, evidence discovered that about 96 percent of the SMEs install and use generalized

packages ranging from “mind-your-own-business”, QuickBooks, Cash-flow manager and

15

attaché while the rest 4 percent make use of tailor-made systems. In a related development,

Pulakanam and Suraweera (2010) opined that although external consultants play significant

roles, major issues identified by SMEs in using the software amongst user confusion about

software complexity, inadequate user-support from software provider, insufficient accounting

knowledge and skills, work pressure and lack of IT and financial resources, owner/manager

accounting knowledge.

One study which contradicted majority of positions on the use of AIS by SMEs was that

conducted by Grande et al (2011) in Spain. On the impact of AIS on performance measures,

the authors revealed that there is no significant relationship between SMEs productivity and

the use of computer-based accounting systems. The findings appeared characterized by

inherent bias in recognizing the concept of productivity. Although the researchers ascertain the

qualifications in productivity of AIS to mean efficiency, technological change and change of

scale, only staff-cost was connected with reviewing productivity in the course of the work.

2.2 Defining and Conceptualizing AIS Adoption and Usage

Martin and Matlay (2001) provided a framework for ICT adoption with five different levels of

ICT. The ICT adoption framework suggested by Martin and Matlay (2001) is the leading

example of measurement in our study. In Figure1 the researcher adapted this framework to

reflect an adaption of an AIS and it will start with combination of manual and computerized

systems, fully computerised systems, and wholly computerized-linked to web-based

applications. Each adoption level within the ladder has a different degree of business benefits

associated with that level.

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Business Benefits (High)

Low High

Extent of adoption

Figure 2.1 AIS adoption ladder

Furthermore, each adoption level requires different organisational changes and technological

sophistications. Some of the recent studies indicate that most SMEs remain in the early stages

of ICT

2.3 Benefits of adopting AIS

Information technology that a few years ago was within reach of only large companies can now

be employed by SMEs, thereby increasing their competitive advantage (Malone, 2001 and

Porter ,2003). Competitive advantage is gained through efficient processing of customer orders

thereby improving customer satisfaction. More so AISs provide an opportunity for business to

improve their efficiency and effectiveness in decision making thereby allowing firms to gain

competitive advantage.

One important advantage of using the computer is the speed with which we can get accounting

done. In addition, we find that it is very easy to do accounting functions. Posting to the ledger,

a tedious task of double entry, when done directly from the general ledger module, can be

largely automated when done through special purpose modules like accounts payable or

accounts receivable. With an accounts receivable module, you just need to enter the actual cash

wholly computerized-linked to web-based applications

Fully computerised systems.

Computerized systems

combination of manual and Computerises accounting system

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totals of items purchased and the software distributes these amounts to the general ledger so

they become credits to corresponding revenue accounts. At the same time, an offsetting entry

is made automatically to the accounts receivable account.

With a computer, one can receive a balance sheet, income statement or other accounting reports

at a moment’s notice. We also find that some day to day data entry can be turned over to

relatively unskilled workers.

AISs provide general benefits in terms of increased transaction processing efficiency, more

accessible information of a higher quality and greater support for adhoc reporting. Evidence

from a survey on companies who have adopted AISs and their impact on management

accounting practice confirms a number of such benefits (Spathis and Constantinides, 2002).

The most highly-rated perceived benefits involve increased flexibility in information

generation, improved quality of reports, increased integration of accounts applications and

improved decisions based on timely and reliable accounting information. More specifically,

AISs are expected to: reduce costs by improving efficiency through computerisation; and

enhance decision-making by providing accurate and updated organisation-wide information;

both of which should then lead to improved company performance (Poston and Grabski, 2001).

2.4 Disadvantages of adopting AIS

Use of an AIS also comes with its disadvantages as well, for instance when you use a computer,

it is possible that data can be lost because of hardware or software damage. Since the computer

has no judgment of its own, it does not pick up on errors as a human being does. There can be

loss of data due to accidents like fire etc. There can be loss of data or change of data due to

fraud or embezzlement. There can be loss or unavailability of data due to loss of staff.

Inaccurate data may be due to clerical error or mistakes in programming.

Computers are prone to sabotage, vandalism, malicious damage, and arson tend to be even

more destructive than the Acts of God they emulate. Political and industrial action, riots and

civil commotions, may not be aimed specifically at the computer but they can be very effective

in preventing its operation.

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Wherever a computer is used to handle an organization’s accounts, it can be used as a means

of attacking the funds it controls. In most computerized bookkeeping systems, it is the

computer which effectively causes credit transfer; so by establishing false accounts, or

diverting some of the contents of the real ones, credit can reach a false beneficiary. The system

can also be used to conceal a change in the cost, or the illegitimate acquisition or the destruction

of tangible goods and services.

2.5 Mitigation of the disadvantages of the adoption of AIS

Dispersion, which is designed to minimize losses in the event of deliberate or accidental threat,

can be used. Duplication is designed to ensure that the system survives damage to any

individual part. Duplication is also the fundamental method of detecting errors in processing.

Defense in depth is designed to make the attacker overcome a series of barriers before he can

damage any vital part of the system. In addition, most companies have computer auditors who

ensure the integrity and accuracy of the organizations records, protect and conserve the

organization’s assets and prevent fraud, theft and error. These auditors also ensure that systems

will survive the hazards to which they are exposed.

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2.6 Conceptual Framework

The study will use the following conceptual framework:

Figure 2: Conceptual Framework

Adapted from Uma Sekeran (2010) Research Methods for Business

AISs adoption among SMEs is seems to be very low. This may be due to a variety of reasons

that are beyond the control of SMEs.

2.7 Importance of AIS

For some SMEs, AIS is so important that their operations would be difficult without it. For

example a chain store would not operate efficiently without the benefits of an AIS in managing

stocks, collecting data for managerial decision making and also data entry for accounting

purposes.

Importance of AIS

Qualification of employees

Cost of AIS

Size of enterprise

Age of enterprise

The level of AIS adoption

Training of personnel

Managerial expertise

Technical support

Moderating Variable

Independent Variables

Dependent Variable

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2.8 Cost

Some SMEs may simply not afford the initial cost and later the recurring costs associated with

operating the AIS. Cost benefits perceptions tend to influence non adoption of AISs. The basic

and common assumption in examining consumer behaviour is value maximisation. The

principles of cost–benefit analyses are exemplified in the concept of value, which is broadly

defined as the trade-off between total benefits received and total sacrifices. Perceived net

benefit is the belief that the technology will provide benefit of greater value than its costs. The

potential benefits of accounting information technologies include cost savings, improving

performance.

2.9 Training of personnel

A firm can invest in AIS training to its finance officers so that they perceive accounting

information technologies to be superior, compatible and easy to understand and become more

willing to adopt AISs.

2.10 Managerial Support

In most organisations, individual employees do not have the autonomy regarding AIS adoption

and use in their working places. Top management support, especially owner-managers in SMEs

can encourage or discourage adoption of such innovations due to the mandate and authority

vested in them.

It is argued that top management stands in better position to analyse and exploit ICT

opportunities in business, and that top management has the mandate to allocate resources

necessary for this.

2.11 Technical support

Most of the smaller SMEs do not have the right personnel to operate the AIS and maintain it if

problems arise. As such, they resort to use of manual systems which are easy to operate and

does not require any technical knowledge. Employing IT personnel to support the accounting

function would make it possible for the SME to adopt AIS.

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2.12 Chapter Summary

This chapter has defined small and medium enterprises and presented the role that SMEs play

in an economy. It has also defined Accounting Information Systems and the importance of its

adoption by SMEs. The chapter has also laid down constructive review of the literature. The

next chapter will look at the methodology that was employed in the study.

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CHAPTER 3: RESERCH METHODOLOGY

23

3.0 Introduction

This section seeks to discuss the proposed study approach and design, the sample size, and the

techniques which will be used for sampling and data collection, the various data collection

instruments as well as the procedures that will be used in measuring and analysing the data.

This chapter therefore seeks to describe how the whole research would be conducted.

3.1 Research Approach and design

A descriptive and deduction research approach was used to explore factors contributing to the

level of adoption of AISs by SMEs in Malawi, using Lilongwe as a case study. This approach

was be used because it was used successfully in a similar research.

A descriptive study is a research study that describes the variables in a situation of interest to a

researcher while a deduction is a process of arriving at a conclusion based on the interpretation

of the meaning of the results of the data.

3.2 Population of the Study

The population of the study was as follows:

Table 3.1: Population Table

LOCATION IN LILONGWE CITY NUMBER OF ELEMENTS

Area 4 10

Kanengo 10

Area 1 10

TOTAL 30

3.3 Sampling Procedure

The researcher used the whole population. This is called census approach. This approach

helped to reduce sampling errors during data collection.

24

3.4 Data Collection Methods

Primary data was collected through the use of structured questionnaires and in-depth

interviews. Secondary data was also sourced through publications and the use of the internet.

3.5 Data Analysis and Interpretation

The data was analysed using Microsoft Excel spread sheets to come up with charts, graphs and

tables that provided a pictorial view of the trend and the interpretation was general.

3.6 Research Ethics

The researcher observed all ethical requirements including the informed consent,

confidentiality and stating the consequences of the study. The aims of the study was well

documented, and the confidentiality of the respondent’s information was assured in an

introduction letter.

The research did not cause any harm (including embarrassment, stress, discomfort, pain) by

any action or omission of the research study, respect participants’ right to refuse to take part

(at any stage), respecting participants’ wish or need for anonymity and confidentiality,

maintaining objectivity during data collection, analysis and report stages, justifying and offer

an audit trail for data collection and analysis, where any possible question arises from above,

seeking advice of the university or college ethical committee.

Furthermore, it is important to note that the researcher has ethical responsibility to follow

scientific procedures to come up with study conclusions and implications. The researcher has

clearly defined the research problem. The problem is supported by the theoretical literature

review and is supervised by a lecturer. Finally, during report writing the research did not:

compromise the research design, deliberately misusing statistics, falsifying figures, altering

research results to fit hidden agendas, nor misinterpreting the research results.

3.7 Limitations of the Study

As with all empirical studies in developing countries, this study was expected to have a few

limitations. Due to sensitivity of accounting information, the researcher expected some

difficulties in getting information from the respondents as most SMEs are hesitant to disclose

accounting information.

25

The researcher also applied personal judgment in the analysis where it was deemed necessary.

This could be a source of biasness in our study. Therefore, the generalisation of the results of

this study is expected to be done with care. Additionally, the study was carried out in a

developing country; hence, the generalizability of the study findings to developed countries

may be limited due to contextual and technological differences. However, the same findings

could probably be generalised to the other countries within the same region for example,

Zambia, Tanzania and Mozambique.

Additionally, the researcher interviewed only one informant per SME. It may be important to

add more respondents per firm in the future. The self-reported AIS adoption level may be cross-

examined against the SMEs official websites. This study also examined a few SMEs only.

3.8 Chapter summary

This chapter has presented the research methodology of the study and has also discussed the

way the research was designed, population of the study, sampling methods, data collection,

limitations of the study and research ethics. The next chapter will discuss the survey findings.

26

CHAPTER 4: SURVEY FINDINGS AND DISCUSION

27

4.0 Introduction

This chapter seeks to lay out the results of the survey followed by a discussion of the findings.

First it will show a classification of the respondent enterprises by industry then it will also show

AIS adopted by those SME and the probable determinants for the adoption of the AIS. The

challenges that have been encountered using AIS will follow and lastly a comparison of similar

studies will be undertaken.

4.1 Findings from primary data

Here the researcher presented findings from primary data as below:

4.1.1 Industry Classification

The researcher wanted to assess the classification of respondents by industry and findings are

in figure 4.1 bellow.

Figure 4.1 Classification of respondents by Industry.

Responding firms were classified industry-wise and presented in Figure 4.1 and the analysis

indicates that 65 percent were from general service industry, 25 percent response obtained from

retailing, 5 percent agriculture, and 5 percent manufacturing industries.

0%

10%

20%

30%

40%

50%

60%

70%

Manufucturing Agriculture Retailing GeneralServicce

5% 5%

25%

65%

y

Percentage of

respondents

Industry x

Industry Classification

Series1

28

4.1.2 Adoption of Accounting Information Systems by SMEs

The researcher wanted to assess whether the SMEs have adopted AIS and findings are in figure

4.2 below:

Figure 4.2 Adoption of Accounting Information Systems

The adoption of AIS across industry is substantiated in the result of figure 4.2. An analysis

presented in figure 4.2 indicates that 75% of respondent SMEs have adopted accounting

information systems.

The researcher wanted to find out the extent at which SMEs in Lilongwe urban have adopted

accounting information systems and the results are in figure 4.3

Figure 4.3 Extent of adoption of the Accounting Information System

75%

25%

Adoption of accountinginformation system

Yes

No

13%

34%53%

Extent of adopting Accounting Information System

Low

Medium

High

29

53% of the respondents said that they were highly computerised but still maintained some

manual aspects. 34% responded that their level of computerisation was medium while 13%

said that it was low.

4.1.4 Accounting Software Adopted

The researcher also assessed the particular AIS that were adopted by the SMEs and findings

are in figure 4.4 bellow.

Figure 4.4 Accounting Software adopted

Across all industries 100% are users of Off the shelf systems. 32% used Sage, 21% used

QuickBooks, 10% used Pastel, 5% used Tally and 32% used non accounting software. The

forms of commercial accounting packages shared across SMEs were essentially Off the shelf

Systems (i.e. general accounting systems).

4.1.5 Determinants of AIS Adoption

The researcher wanted to assess years in operation and its effects on adoption of an AIS and

the results are in figure 4.5

32%

5%10%

32%

21%

Accounting Softerware adopted

None

Tally

Pastel

Sage

Quickbooks

30

Figure 4.6 Enterprise age and adoption

Figure 4.6 shows that the age one to five was least in adopting AIS at 8% adoption rate.

Majority of SMEs were those that had been in operation from six to ten years at 46% and the

older SMEs from 15 to over 25 years were slightly above youngest SMEs in adopting AIS at

15%.

The researcher also assessed the size of an organization against adoption of AIS and the results

are in figure 4.7

Figure 4.7 Size and Adoption Level

8%

46%

15% 15% 15%

5 10 15 20 25

Pe

rce

nta

ge o

f re

spo

nd

en

ts

Years in operation

Age and AIS Adption

AIS Adption

13%

33%

53%

0%

10%

20%

30%

40%

50%

60%

Micro Small Medium

Ad

op

tio

n o

f A

IS

Size of SME

Age and AIS Adption

AISAdption

31

In figure 4.7 the results shows that when the size of the SME was plotted against

computerization of the accounting system, 53% of medium enterprises had adopted AIS, 33%

of small enterprises had adopted AIS and finally 13% of the micro enterprises had adopted AIS

being the least computerized. This may indicate that there is a relationship between

computerization and the size of an enterprise.

The researcher assessed whether the qualification of the accounting staff has any effects on the

adoption of AIS and the results are in figure 4.8

Figure 4.8 Accountants qualification and AIS adoption.

Figure 4.8 shows the levels of education for accounting staff of the respondent organization

plotted together with information on how many of them had computerized their accounting

system. 10% of the accountants were educated up to certificate level and 7% of the SMEs they

worked for had adopted AIS. 40% of the accountants were educated up to diploma level and

36% of the SMEs they worked for had adopted AIS. 50% of the accountants were educated up

to bachelor’s degree and 57% of the SMEs they worked for had adopted AIS.

10%

40%

50%

7%

36%

57%

0%

10%

20%

30%

40%

50%

60%

Certificate Diploma Bachelors

Re

spo

nd

en

ts

Accountant Qualification

Accountants qualification and AIS Adoption

Qualification

Computerised

32

The researcher wanted to asses if SMEs adopted AIS based on based on user friendliness,

facilitation of financial management, low cost of computers and the positive impact of AIS.

Figure 4.9 shows the results.

Figure 4.9 Factors motivating adoption of AIS

On facilitation of financial management, 89% agreed and 11% disagreed that this was their

motivating factor for adopting AIS. On positive impact derived, 75% agreed, 17% was not sure

and 8% disagreed. On the declining cost of adopting AIS, 20% agreed, 40% was not sure and

40% disagreed. On user friendliness, 45% agreed, 18% was not sure while 36% disagreed that

this was a motivating factor to adopting AIS.

The researcher wanted to find out the most important factor that was considered among cost

saving, ease of use, speed, storage and accuracy and the results are in figure 4.1.10

89%

75%

20%

45%

0%

17%

40%

18%11% 8%

40%36%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Facilitation of financialmanagement

Possitive Impact Low cost computers User friendliness of AIS

Factors motivating adoption of AIS

Agree Not Sure Disagree

33

Figure 4.10 Factors considered before choosing AIS

In figure 4.10 majority of the SMEs at 38% cited accuracy as that the most important factor

which they considered when choosing an accounting system. 31% cited ease of use while 25%

cited cost savings. 6% which was the minority of the respondents cited speed of processing.

4.1.6 Challenges associated with AIS

The researcher wanted to assess the most encountered challenges among, lack of IT expertise,

unsuitable technology to business, cost, time and power cuts and the results are in figure 4.11

Figure 4.11 Challenges posed by AIS

25%

31%

6%

38%

Factors considered before choosing an AIS

Cost saving

Ease of use

Speed

Storage

Accuracy

33% 27%36%

10%

60%

25%

9%9%

0%

10%

42%

64%55%

90%

30%

LACK OF IT EXPERTISE UNSUITABLE TECHNOLOGY TO

BUSINESS

COST OF PURCHASE AND IMPLEMENTATION

TIME INVOLVING POWER CUTS

Chart Title

Challenging Not sure Not challenging

34

The various variables analysed under this category were evaluated against the dependent factor

(Level of AIS adoption) identified earlier and findings showed that the most significant

encounters as revealed in Figure 4.11 experienced by users of AIS were as follows:

On lack was of information technology expertise, 42% did not find this as a challenge, 25%

was not sure while 33% said that it was a challenge posed by AIS. On unsuitable technology

to business, 64% said it was not a challenge, 9% was not sure while 27% admitted that it was

a challenged when operating AIS. On cost associated with purchase and implementation, 36%

said cost was a challenge, 9% was not sure while 55% said this posed no challenge. When the

respondents were asked on time involved, 90% said it wasn’t a challenge while 10% found it

to be a challenge. On unreliable power supply, 60% said power cuts was a challenge, 10% was

not sure while 50% said this posed a challenge to the operation of AIS.

4.2 Findings from secondary data

A study was conducted by Ismail et al., (2003) in Melaka, Malaysia on SMEs adoption of

computer-based accounting system. Using related survey, most relationship amongst variables

was clearly related with those found herein. SMEs in Malaysia were reported to be at their

early stage of AIS adoption as majority of firms surveyed barely utilize web-enabled

applications. In addition, through statistical inference similar conclusions were reached as

regards the use of Off the shelf systems. Hence, similarity of subjects with those of this study

makes both more comparable.

In another study directed at small and medium accounting agencies carried out in India, Relhan

(2013) discovered that majority of surveyed enterprises utilize accounting software in

processing their transactions. Their primary reasons were tendency to reduce overhead cost,

achieve operational efficiency and acquire large data storage space as well as provide for

continuity in case of business process disruption. The outcome of the study found factors as

frequent breakdown in electricity supply and systems interruption as utmost encounters. We

are of the view that although electricity supply is a major challenge in Malawi, most companies

including SMEs continue to provide no sufficient backing for power supply by putting in place

power generating machines. Hence, reliance on public power supply is considerably high as at

the time of putting this work together.

35

In Chinhoyi, Zimbabwe, a study was conducted by Gwangwava et al., (2002) Evaluation of

Factors Influencing Adoption of Accounting Information System by SMEs, 56 % of the

respondents strongly agreed that cost benefit analysis plays a paramount role in non-adoption

of AISs with 33% simply agreeing that it plays a role in the adoption of AISs whereas about

11% of the participants argued that cost benefit analysis does not affect SMEs‟ adoption of

AISs. This implies that cost benefit is strongly behind non adoption of AISs by SMEs.

This is in support of Guo and Feng (2008) who highlighted that it is expected that perceived

usefulness directly affects cost–benefit perception and thus where SMEs owners perceive AISs

to be useful in relation to cost; they are likely to adopt it rather than those that perceive costs

as outweighing the usefulness of AISs.

Financial constraints as well as expensive nature of AISs directly affect adoption of AISs by

SMEs as indicated by a high agreeing participant rate of 56% and 72% respectively. 39% and

18% strongly agree that financial constraints and expensive nature of AISs highly affects the

adoption of AISs by SMEs whilst 5% and 6% disagree respectively. Wang (2004) confirmed

that SMEs either do not have sufficient resources or are not willing to commit a huge fraction

of their resources due to the long implementation times and high fees associated with AISs

implementation.

Complexity of AISs also greatly affects adoption of AISs by SMEs as indicated by a high

strongly agreeing response rate of 39%. 33% simply agree that complexity of AISs contributes

to non-adoption of AISs whereas 28% disagree that complexity of AISs does not hinder

adoption of AISs by SMEs. This was supported by Gibson et al., 2000 who highlighted that

ERP adoption and implementation could be a highly complex task in which strong managerial

and strategic competences are required to achieve the best fit between the business peculiarities

and the system itself. Strong managerial competences are a major deficiency in SMEs which

further complicates adoption of AISs by SMEs.

4.3 Response Rate

Here the research assed the response rate and the results are in figure 4.12 bellow.

36

Figure 4.12 Response Rate

Responding firms were classified industry-wise and presented in Figure 4.12. The analysis

indicates 75 percent response rate. 25 percent were non responsive.

4.4 Chapter summary

This chapter has presented findings from the primary data followed by a discussion of the

findings. The response rate has also been given in this chapter and finally findings from

secondary data has also been discussed.

75%

25%

Analysed Non responsive

Rat

e o

f re

spo

nse

Response Rate

37

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS

38

5.1 Conclusions

This study empirically examined the adoption of accounting information systems by Malawian

SMEs by evaluating finance and accounts executives who owes primary responsibilities for

financial transactions processing. It considered the extent of AIS adoption by responding

enterprises and with reference to the findings, it is concluded that:

5.1.1 Majority of SMEs are in the general service industry.

5.1.2 Majority of the SMEs had adopted accounting information system

5.1.3 The extent of AIS adoption in SMEs is high in majority of the enterprises.

5.1.4 Majority of the firms that have adopted AIS are using Sage Accounting System.

5.1.5 Adoption of AIS by SMEs is affected by how long the enterprise have be in operation.

5.1.6 Size of an enterprise has an effect on whether it adopts AIS or not.

5.1.7 Accounts educational qualification has an effect on whether it adopts AIS or not.

5.1.8 Facilitation of financial management is an important factor that determines the adoption

of AIS.

5.1.9 The most an important factor that determines the adoption of AIS is accuracy due to

the use of AIS.

5.1.10 The most encountered challenge when using AIS is power-cuts followed by cost of

purchase and lack of IT expertise.

5.2 Recommendations

From the research findings and conclusions the researcher have developed the following

recommendations:

5.2.1 AISs vendors should strive to provide custom made AISs packages that suit the needs

and requirements of SMEs in Malawi.

39

5.2.2 Also the packages should be easy to use and affordable.

5.2.3 AISs vendors should hold workshops with SMEs in order to educate them fully on the

benefits of adopting AISs.

5.2.4 Government through the ministry of information and communication technology,

should ensure that it provide easy access to AISs through financing the purchasing of

AISs by SMEs by providing subsidies on those SMEs that purchase AISs.

5.2.5 Also SMEs should strive to employ qualified human resource personnel that are

competent to use AISs. This will make it easy to adopt AISs.

5.2.6 SMEs should invest in power back-up equipment that will mitigate the erratic power

supply and ensure continuity in the use of AIS.

5.2.7 Government should put deliberate measure that would ensure that SMEs should thrive

and eventually grow from small through medium to large enterprises.

5.2.8 Government should take the provision of stable electricity in the country as it makes a

good environment for the operation of most SMEs.

5.3 Practical contributions

This study has appraised the researcher with empirical evidence as to what extent SMEs have

adopted accounting information system. It has also helped the researcher to explore factors that

motivate the adoption of accounting information, challenges that are encountered when

operating an accounting information system and has also revealed how these problems may be

overcome by SMEs and how government may move in to help SMEs adopt accounting

information Systems. Lastly this study has provided information to the researcher to understand

what government can do to foster the adoption of accounting information system by SMEs

which in turn can improve financial management and thence the economy at large.

5.4 Future research needs

The authors have considered Lilongwe as the primary area of survey. Hence it is suggested that

comparable research be conducted in other locations within the country. Such future

investigation may also consider wider group of respondents to enhance research credibility

when drawing conclusions about the population. Ultimately, it may be substantial if other

40

factors such as experience and education of the owners, acquisition and maintenance cost, and

suitability for tax purpose amongst other factors capable of influencing the use of AIS are

reflected.

5.5 Chapter summary

This chapter have talked about conclusion of the study, recommendations which, practical

contributions and future research needs.

41

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