THE IMPACT OF ACCOUNTING INFORMATION SYSTEM ON

EFFECTIVENESS OF MANUFACTURING FIRMS IN KENYA

BY

EMMANUEL C. ROTICH

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT

OF THE REQUIREMENT OF THE AWARD OF DEGREE IN MASTER

OF BUSINESS ADMINISTRATION, UNIVERSITY OF NAIROBI

NOVEMBER 2017
 DECLARATION

I declare that this is my own research work and has never been submitted for the award of

any degree in this or any other institution of higher learning

Signature………………………… Date………………………………

Emmanuel C. Rotich

Reg No: D61/83768/2016

This research project has been submitted with my consent as the official University

supervisor.

Signature………………………… Date………………………………

Prof Josiah O. Aduda

Department of Finance and Accounting

University of Nairobi

i
 DEDICATION

This research project is dedicated to my family and friends for their continued moral support

and encouragement throughout my studies.

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 ACKNOWLEDGEMENT

I acknowledge the Almighty God for seeing me through the entire research project. Many

thanks go to my Supervisor Prof. Josiah O. Aduda for his guidance, relentless support and

patience during this entire period. I am indebted to you for your guidance and mentorship.

I thank the University of Nairobi school of Business Staff and more specifically the library

department for the use of the library resources that made me undertake this study well.

I pass my gratitude to all the organizations that provided me with information that has gone a

long way in helping me realize the objectives of this research.

I also thank my family and friends for their encouragement and support during this entire

period. This final document is as a result of your participation and input.

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 ABSTRACT

Accounting processes have moved from manual process to being automated. Economic
competition has created a lot of pressure on the cost of information which a company needs
to access and utilize during decision making. The objective of the research aimed to carry out
a study on how manufacturing firms in Kenya utilize accounting information technology in
their financial reporting process. The research analyzed how Accounting Information System
(AIS) affect manufacturing firm’s effectiveness. The study adopted descriptive design of
study and Questionnaires were used to collect data which was presented to managers and
senior accountants. Data collected was presented in the form of tables and graphs. The
sample of the study consisted 51 manufacturing companies in Kenya selected through non-
proportional quota sampling technique. Data collected was analyzed using Microsoft Excel
and Correlation and regression analysis was used to analyze the data. The study found that
there exist a positive relationship between accounting information systems and organization
efficiency. The results are consistent with empirical reviews which indicated that there exist a
relationship between AIS and organizational performance. The study concluded that
accounting information system has an impact on the efficiency of manufacturing firms in
Kenya in terms of effective management, decision making and controlling operations. The
key recommendation of this study is that manufacturing companies desiring to increase their
efficiency in terms of profitability and adaptability to market changes can achieve that by
investing in a good accounting information system in their financial accounting processes.

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 TABLE OF CONTENTS

DECLARATION ........................................................................................................................ i

DEDICATION ...........................................................................................................................ii

ACKNOWLEDGEMENT ....................................................................................................... iii

ABSTRACT .............................................................................................................................. iv

LIST OF TABLES ................................................................................................................. viii

LIST OF FIGURES .................................................................................................................. ix

LIST OF ABBREVIATIONS .................................................................................................... x

CHAPTER ONE: INTRODUCTION .................................................................................... 1

1.1 Background of study ........................................................................................................ 1

1.1.1 Accounting Information Systems .............................................................................. 2

1.1.2Organizational Effectiveness ...................................................................................... 3

1.1.3The Relationship between Financial Accounting Information Systems and Firm

Effectiveness....................................................................................................................... 3

1.1.4 Manufacturing companies in Kenya .......................................................................... 4

1.2 The Research Problem ..................................................................................................... 5

1.3 Research Objective ........................................................................................................... 7

1.4 Importance of the Study ................................................................................................... 7

CHAPTER TWO: LITERATURE REVIEW ....................................................................... 9

2.0 Introduction ...................................................................................................................... 9

2.1 Theoretical Literature Review .......................................................................................... 9

2.1.1 Contingency Theory .................................................................................................. 9

2.1.2 Agency Theory ........................................................................................................ 10

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 2.1.3 Behavioral Theory ................................................................................................... 11

2.2 Defining Criteria of Effectiveness.................................................................................. 12

2.3. Determinants of Financial Accounting Efficiency in Manufacturing Companies. ....... 13

2.3.1 Accounting Information System.............................................................................. 13

2.3.2 Financial Accounting Leadership ............................................................................ 14

2.3.3 Human Resources .................................................................................................... 15

2.3.4 Internal Controls ...................................................................................................... 16

2.4 Empirical Literature Review .......................................................................................... 18

2.5 Conceptual Framework .................................................................................................. 21

2.6. Conclusion of Literature Review .................................................................................. 22

CHAPTER THREE: RESEARCH METHODOLOGY .................................................... 23

3.1 Introduction .................................................................................................................... 23

3.3 Population of the study................................................................................................... 23

3.4 Sample and Sampling Design ........................................................................................ 24

3.5 Data Collection ............................................................................................................... 24

3.5.1 Reliability and Validity of Data .............................................................................. 25

3.6 Diagnostic Test ............................................................................................................... 25

3.7 Data Analysis and presentation ...................................................................................... 25

3.7.1. Conceptual Model .................................................................................................. 26

3.7.2 Analytical Model ..................................................................................................... 26

CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION ........................ 28

4.1 Introduction .................................................................................................................... 28

4.2 Data Collection ............................................................................................................... 28

4.3 Response Rate ................................................................................................................ 28

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 4.4 Data Validity and Reliability.......................................................................................... 29

4.5 Descriptive Statistics ...................................................................................................... 30

4.5.1 Accounting information system .............................................................................. 30

4.5.2 Human Resources .................................................................................................... 32

4.5.3 Financial Management Leadership.......................................................................... 33

4.5.4 Organizational Effectiveness ................................................................................... 35

4.6 Correlation Analysis ....................................................................................................... 38

4.7 Regression Analysis and Hypothesis Test ..................................................................... 39

4.8 Summary and Interpretation of Findings ....................................................................... 39

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS ......... 43

5.1 Summary ........................................................................................................................ 43

5.2 Conclusions .................................................................................................................... 44

5.3 Recommendations for policy and practice ..................................................................... 45

5.4 Limitation of the Study .................................................................................................. 46

5.5 Areas for Further Research ............................................................................................ 47

REFERENCES ....................................................................................................................... 48

APPENDICES ........................................................................................................................ 52

Appendices 1: Research Questionaire .................................................................................. 52

appendices 2: List of Enterprises in the Sample Population ................................................ 58

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 LIST OF TABLES

Table 3.1 Operationalization of Variables ............................................................................... 27

Table 4.1 Response Rate .......................................................................................................... 29

Table 4.2: Cronbach Alpha ...................................................................................................... 30

Table 4.3 Accounting information system used and nature ..................................................... 30

Table 4.4 Factors considered in choosing AIS ........................................................................ 31

Table 4.5: Internal Controls ..................................................................................................... 34

Table 4.6 Organizational Performance .................................................................................... 37

Table 4.7 Correlation Analysis ................................................................................................ 38

Table 4.8 Summary of correlation analysis and p-value.......................................................... 38

Table 4.9 Regression Analysis ................................................................................................. 39

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 LIST OF FIGURES

Figure 2.1: Conceptual Framework ......................................................................................... 21

Figure 4.1 Accounting information systems ............................................................................ 31

Figure 4.2 AIS performance rating .......................................................................................... 32

Figure 4.3 Nature of human resources ..................................................................................... 33

Figure: 4.4 leadership............................................................................................................... 34

Figure 4.5 Financial report quality........................................................................................... 35

Figure 4.6.Change management ability ................................................................................... 36

Figure 4.7 Organizational performance ................................................................................... 37

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 LIST OF ABBREVIATIONS

AIS – Accounting Information System

BOD - Board of Directors

CFAS - Computerized Financial Accounting Systems

ERP - Enterprise Resource Planning

GAAP - Internationally Generally Accepted Accounting Principles

IASB - International Accounting Standard Board

IFMIS - Integrated Financial Management Information Systems

IFRS - International Financial Reporting Standards

IS - Information Systems

IT - Information Technology

KRA - Kenya Revenue Authority (KRA)

MIS - Management Information Systems

NGOs - Non-Governmental Organization

SMEs - Small and Medium Enterprises

SPSS - Statistical Package for Social Science

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 CHAPTER ONE

INTRODUCTION

1.1 Background of study

Accounting information system (AIS) is responsible for recording, analyzing, monitoring and

evaluating the financial condition of companies, processing of documents necessary for tax

purposes and providing information support to many other organizational functions, (Amidu

et al., 2011). In the context of manufacturing firms accounting information is important

because it helps the firm’s manager make decisions in critical areas such as costing,

expenditure and cash flows by proving information to support monitoring and control

(Mitchell et al.; Son et al., 2006).

Manufacturing Firms have transformed from using manual processes to account financial

transactions and have welcomed the use of information technology (Maria, 2010). In the

recent past computerized accounting has become the order of the day since it has more

advantages compared to the manual process. However, the two methods ensure that the

fundamental principles of accounting and all concepts are adhered to. Bolon (1998)

elaborated that technical aspect of utilization of initially developed software and codes makes

automation of some of the processes a reality.

This study is anchored on the contingency theory that suggests that AIS need to be designed

in a way which is flexible and able to meet different environment and the structure of the

organization. A universal accounting information system that can be used to meet all

situations encountered by organizations does not exist (Chenhall, 2003). The second theory is

the agency theory which permits the integration of incentive problems, conflict of interest,

1
and control principle during implementation of AIS is the regulation of incentive snags,

(Kaplan and Norton, 1993). The third theory under consideration in this study is behavioral

theory which involves learning. It focuses on observable behavior and not mental activities. It

focuses more on how environmental factors and how they affect behavior through learning,

(McLeod, 2016).

The manufacturing sector in Kenya including mining, steel, and textile, among others has

seen a lot of growth in both size and complexities (Chege, Ngui & kumuyi, 2014). Business

operations including import processes, value chain and also customer relations have been

automated. Kenya Revenue Authority has made it mandatory that the application of

information systems is a necessity for organizations and more so those in the manufacturing

sector to survive.

1.1.1 Accounting Information Systems

Watts, (1999) elaborated that accounting is a process of recording, categorizing and

summarizing business transactions in a manner which is significant in monetary terms.

Information technology (IT) on the other hand involves the utilization and application of

computers, telecommunication resources in the storage, transition, retrieval and manipulation

of data. The areas in which AIS can be used include stock accounting, sales ledger, purchase

ledger, payroll, cost accounting and financial modeling.

According to Nzomo ,2013) definition, AIS is a device integrated in a field of information

technology (IT) responsible in the generation of reliable and more accurate financial

reporting used by business leaders to make decisions. From this definition, accounting

information system (AIS) is considered a tool that assists management perform its roles of

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planning, controlling and directing through provision of reliable data. The great development

in IT has unlocked the chance of producing data and utilizing financial accounting

information from a strategic view (Elena, Raquel & Clara, 2011)

1.1.2 Organizational Effectiveness

Daft (1983) well-elaborated organizational effectiveness as “the extent a business manages to

realize its set goals”. On the other hand, Oguntimehin (2001) explained that a firms’

effectiveness is the capacity to vintage desired outcome. From the two definitions, it is clear

that organizations effectiveness is an aspect of meeting set goals and objectives and also it is

the degree in which a firm is able to achieve expected results.

The measure of organizations effectiveness as stated by Campbell (1977) can be looked on

how information is being processed by a firm, flexibility in operations, adaptability to

changes economic environment and profitability. A firm which is able to achieve goals set

based on the different criteria and perspectives will be said to be effective.

1.1.3 The Relationship between Financial Accounting Information Systems and Firm

Effectiveness

Onaolapo and Odetayo (2012) affirmed that an AIS system majorly has got an impact on the

extent of effectiveness of organizations. From their study, investing in a good accounting

information system will lead to increased efficiency in transfer of financial information

within different department and also with external parties and in the long run improved

performance. The main major reason for invested in accounting information is to help in

proper and strategic decision making (Penemon & Nagida, (1990). Bolon (1998) concluded

that AIS ought to be of capacity to forecast future schedules. The forecast is in form of sales

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forecasts, production forecast, stock forecasts and revenue forecasts. Financial costs can also

be forecasted with the use of AIS in an organization.

Maria (2010) study on roles of information technology (IT) in accounting established that

there is a tendency for decentralization and change in accounting role efficiency with the use

of IT. The rise of globalization and change in technologies has led to rapid change in business

operation (freshman, 2002). Nzomo (2014) in his study also agreed that the benefits AIS can

be appraised by the effect it brings on the process of decision making, performance control

and internal control. It in evitable therefore, that AIS has a relationship with firms efficiency.

1.1.4 Manufacturing companies in Kenya

The manufacturing sector in Kenya is majorly geared to consumer goods with food products

being 22.42% and tobacco and beverages at 10.48 % (Chege, Ngui & kumuyi, 2014).

Processing of food and agricultural products is the leading activities in the sector followed by

textile and cement. The discovery of oil in the northern region has seen the development of

refinery companies. The sector grew in 2015 at 3.5% and in 2014 at 3.2%, this is however a

slower rate compared to Kenya’s general economy.

The GDP of Kenya is 10.3% attributed to the manufacturing sector being third after transport

and communication and agriculture according to Kenya national bureau of standards

(KNBS) 2016. The annual growth rate of the sector has been on the decline with 3.8% in

2015. The decline is majorly because of poor economic polies by the government,

competition from imports, high operation costs and low value addition. Manufacturing

companies are mostly located within Nairobi, Mombasa and Kisumu cities. They provide a

great source of employment to people living in these cities most of which is manual labor.

4
Employment in the sector has seen a growth of up to 1.48 per cent in the period 2005-09.

This is in line with Kenya’s vision 2030.

The challenges the sector is facing include the reorientation of the Chinese economy from

export driven to consumer driven. Stiff competition from global competitors is a great

challenge since retailers prefer importing than buying locally because of lower prices. High

level of taxation in Kenya hinders investors from investing in the country and also high cost

of operations posters a great challenge. The incorporation of information technology in the

operations of manufacturing companies will help in creating solutions to most of these

challenges.

1.2 The Research Problem

Capital expenditure (CAPEX) on information systems (IS) has been on the rise recently in

many organizations locally and globally. Operations within different departments in a firm

have seen a change from being manual and shifted to being automated with the utilization of

computer software. Competition and external conditions have increased the importance of

real time information gathering, processing, utilization and storage. Cost reduction can only

be a reality when proper analysis is carried out for decision making. Accounting information

systems is core to the achievement of firms’ goals; this means that an organization is as good

as its enterprise resource planning (ERP).

Accounting information is a tool for effective administration; bad AIS will jeopardize the

effectiveness of administration (Onaolapo & Odetayo, 2012). The world has moved from an

information age towards a knowledge based one. Knowledge is being acknowledged as a

very important asset in many organizations (Curtis, 1995). Business leaders therefore need to

5
but acquisition of strategic knowledge at their center stage for prosperity. Choe (1996)

alluded that knowledge in itself is not impersonal compared to money. Knowledge is

embodied on people; this can only be a reality if a firm invests on information search and

proper analysis. Institutions must therefore know how manage intellectual assets which is

concerned with development and exploitation on intellectual assets (Huber, 1999). Nzomo

(2014) stated that information technology (IT) and transparency in the financial sector is a

key driving force in organizations strategy and performance.

Management of manufacturing firms in Kenya depends on information generated from AIS

used by the firm. The manufacturing organizations are complex in nature with departments

like supply chain, manufacturing, sales and marketing, finance and human resources handling

a lot of transactions. Integration with other stakeholders is unavoidable hence the processes

have to be real time and accurate in nature. The importance of AIS is a major reason why the

government, business owners and researches need to invest more on researching this area.

Onaolapo and Odetayo (2012) carried a study on how accounting information system affects

organizational effectiveness for construction firms in Ibadan Nigeria. They recommended

that the leadership of construction firms Automated AIS and engage those who are computer

literate. Studies have been carried out in Kenya concerning accounting information in the

financial sector, automobile and the public sector but there is a gap on the manufacturing

sector.

Locally, limited research has been carried out on the impact of accounting information

systems on the effectiveness of organizations. Some of the research already conducted

include; Odero (2014) study with the objective of establishing the consequences of

accounting information systems quality on financial performance of SMEs. Sugut (2014)

6
studied the effect of computerized financial accounting on the value of financial statements of

Non-Governmental Organization (NGOs). Biwott (2015) carried out a research study on

integrated financial management information systems (IFMIS) implementation and its impact

on public procurement. Researchers have not carried out studies on how accounting

information systems affect the efficiency of manufacturing firms in Kenya. This study

therefore intended to address the research question: Does the use of Accounting Information

System affect the efficiency of manufacturing firms in Kenya?

1.3 Research Objective

The key objective of this study is to examine impact of accounting information system on

effectiveness of manufacturing firms in Kenya.

1.4 Importance of the Study

The research will be of great significance directly to manufacturing companies and other

organizations in Kenya on how utilization of computerized accounting process can affect

their efficiency and performance. Business leaders can therefore, utilize the findings and

recommendations from the study to make decisions on Enterprise resource planning (ERP)

implementation. Government agencies and small medium enterprises (SMEs) will use the

findings in formulation of policies.

The research study will provide other researches in laying a foundation on investigating

further studies on the subject matter. It will provide a theoretical basis concerning successful

adoption of accounting information systems. Research findings from the study will give a

good basis other researches what they will likely expect and the processes to following order

7
to be successful. Opportunities for further research will be facilitated by the findings of the

study on accounting information system within an economy.

The study will give practical and empirical guidance on implementation of accounting

Information systems in business firms. It will ensure availability of information for

investment decisions on the system to implement and challenges to be faced and how to

avoid. Regulatory bodies like International Accounting Standard Board (IASB) and tax

authorities will use data from the research during formulation regulatory frameworks and

improving internal controls

8
 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This second chapter involves the appraisal of scholarly work done by selected scholars on

accounting information systems locally, regionally and internationally. Research outcome,

attributes and conclusions from research they conducted will be highlighted. The section is

split into theoretical literature, empirical literature, studies carried out in the same field and

summary.

2.1 Theoretical Literature Review

Theoretical framework is philosophical basis in which the actual research takes place (Odero,

2014). From this therefore, it creates the link between the theoretical orientations and actual

components the investigation is taken. Mertens (1998) stated that theoretical framework has a

significant implication on research methodology decisions. It is clear from the two researches

that theories on the area of research play a great role on setting the base on what direction the

study will take. According to Mackay (1993), it is relevant to establish a method compatible

with the nature of problem under investigation for a research to be successful. Developing a

good research methodology is the starting point for a study, the action plan, process

development and design is equally important. The method used determined the data

collection techniques and analysis processes to be applied (Crotty 1998).

2.1.1 Contingency Theory

The contingency theory suggested by Fred Edward Fiedler stressed the importance of the

personality of leaders and also the situation the leader is operating in. The theory suggests

9
that AIS need to be designed in a way which is flexible and able to meet different

environment and the structure of the organization. A universal accounting information system

that can be used to meet all situations encountered by organizations does not exist.

Gordon and Miller (1976) study on contingency Outline in the design structure of AIS, laid a

good framework. The study elaborated that implementation of accounting information

systems be it independent or incorporated in an enterprise resource planning (ERP) and

should be focused on the uniqueness of a firm. Environment uncertainty sets a direction on

management accounting systems ( Gordon & Narayanan(1984).Managers will have to look

for external information when choosing an information system .Langfiled & Smith(1997) did

a study on accounting information systems and effect on organization strategy, they

concluded that AIS is greatly a consequence of strategy. Chenhall (2003) also from his a

study affirmed that firms AIS is in line with organizations current situational strategy.

Despite the studies, contingency theory has not been a great look by organizations

implementing accounting information systems. Managers have been implementing AIS

projects based on what competitors use and not how their internal operations and structure is.

The research clearly looked at the needs of information systems in financial aspect of

manufacturing firms in Kenya. The study also highlighted empirical evidence on AIS in the

manufacturing sector within Nairobi’s industrial area.

2.1.2 Agency Theory

Agency theory elaborates the difficulties that come up because of the difference between

principals and agent on organizational goals. It is majorly used in firms’ shareholders and

company management. Ezzamel and Watson (1993) wrote that agency problems arise mostly

10
because of information asymmetries. They continue to explain that an agency problem is

catalyzed by managers not bearing substantial percentage of wealth effects during decision

making.

Jensen and Meckling (1976) alluded that potential agency conflict is brought up by the

discrepancy between managers and investors interest on the separation of ownership control.

Conflicts therefore arise because of the ideological difference between owners of firms and

the managers employed to run the firm. They continued to suggest that having managing

directors who own a good share of the company’s shares will likely reduce the problems than

total non-shareholders. Shareholders and firms leadership are assumed to be directed by

personal interest, this translates to conflicting goals. A good way of reducing conflict of

interest is utilization of compensation contracts (David, Julie Smith; et al 1999).

Compensation contracts help in determining the sharing of the financial outcome between the

agent and principal. This provides a basis of rewarding agents based on the effort put in

achieving objectives.

In this research, agency theory was used to elaborate the elements of financial information

accounting and systems of compensation. The theory will also help in explaining the

difference on designing accounting systems infrastructure view from both agent and

principal. The theory will help in explaining the different behaviors of individuals in the

organization.

2.1.3 Behavioral Theory

Behavioral theory involves learning; it focuses on observable behavior and not mental

activities. It focuses more on how environmental factors and how they affect behavior

11
through learning, (McLeod, 2016). Initial accounting research used behavioral theory to

explain the bivariate associations like budget participation and other criterion variables for

example performance. The theory nowadays is used by researchers in contingency firms’ and

that of individual behavior. Contingency theory explains that firms structure and control

system design relate to specific organizational design.

According to Kren and Liao (1988), the control systems actual characteristics must be

matched to the contextual variables defining firms’ environment. The explicit assumption is a

good match is related in a positive way to firms’ performance. In general, the understanding

of system design and effectiveness starts with analysis of physiognomies of individual

organizations and the environment (Merchant and Simons, 1986). The characteristic of the

firm under study and its environment formed the basis of this research study.

2.2 Defining Criteria of Effectiveness

According to Campbell (1977), various ways of measuring organizational effectiveness

exists. Some of the criteria he listed include: profitability, productivity, growth rate, sales

turnover, contribution, organizational stability and consistency. These factors affect the

market worth of manufacturing companies. The analysis of the factors of organization

financial performance is necessary for all investors. Financial pointers based in AIS are

sufficient in determining the value of the firm and its market position (Branch, 2000).Natural

system viewpoint focus on the output variables including morale, employee satisfaction and

interpersonal skills. Rational perspective on the other hand puts more focus on attainment of

goals and objectives like efficiency, quality and productivity. The open system perspective

looks at environmental factors including adaptability, profitability and flexibility in

processing of information (Downs, 1957).The effectiveness of an organization varies with

12
time. It is also different depending on the group of people being analyzed. Effectiveness

equally is affected by self-interest stated as a universalistic which can cause conflict among

subgroups within a firm.

2.3. Determinants of Financial Accounting Efficiency in Manufacturing Companies.

This section will discuss different factors leading to organizational efficiency of firms.

2.3.1 Accounting Information System

Accounting information systems (AIS) play a fundamental role in a firms' service,

information and systems quality leading to increased performance (Basel,Wan & Rosni,

2016). Hamdan (2013) concluded in his study that the employment of AIS is the recipe

towards financial results because of the capability to reflect actual financial status to

interested parties and a real time update on financial transactions like banking facilities.

Proper design of AIS will support organizations strategies in ways that will increase

performance through efficiency of departmental functions (chenhall, 2003). Efficiency is in

terms of the ability to report accurate transactions therefore setting basis for proper decision

making based on the information.

AIS perform a vital role in organizational Internal Control implementation and management.

Azhar (2016) concluded that organization can apply AIS to prevent and reduce fraud and

errors in generation of information and therefore, internal control needs to be used within the

system. The objective of having an internal control in any organization is to make sure that

everybody involved in daily operations follow set up procedures (Hall, 2011).

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As a determinant of performance, AIS is core, it ensures that coordination between different

departments is possible. Reports generated from the automated system are more reliable than

manual records. Accuracy is increased through use of IT and timely preparation of financial

reports is also made into reality. Cost reduction is enhanced more through automation since

they can easily be captured into the system and management can easily take charge on ways

of reducing.

2.3.2 Financial Accounting Leadership

McMahon(1999) illustrated that financial records like sales journal, purchase journal, cash

receipts and cheque books, petty cash record, general journal and other important accounting

documents should be kept and frequently conserved in a reliable accounting system. An

organization in that regard need to establish their process of how accounting information will

be recorded and maintained. Statutory standards also play a key role on financial processing

and disclosure, for instance the International Accounting Standard Board (IASB) in July 2009

published a new regulation to be followed by small and medium enterprises (SMEs) in

preparation of financial reports and was incorporated in the international financial reporting

standards (IFRS). This has influenced the scope in which SMEs volume of disclosures and

implementations because they have limited access to security markets and have fewer

external uses of financial reports.

Sian and Roberts (2006) explained that majorly financial statements of SMEs is more

concerned with current liquidity position and short term cash flow and not forecasts with

long-term horizon. Firms in the manufacturing sector will need to ensure that efficiency

achieved in that the information achieved from the systems can be relied during decision

making. Financial record on date of delivery of imports of raw materials, letter of credits,

14
collection of debts, payments to creditors, statutory obligations, financial and operation costs

. Information on these key organizational transactions should be duly available when needed

and accurate in all details. Users of financial information in SMEs generally are interested in

short-term assessments on cash flow, liquidity and solvency (McMahon, 1999).

2.3.3 Human Resources

Flamholtz, Kannan-Narasimhan & Bullen (2004) concluded that it very Important for

organizations to have specialized personnel in their organization. They explained that firms

need to invest on their workforce with equal emphasis as physical assets and financial

investments. To increase organizational efficiency, managers have to set aside resources in

terms of time and money in training staff. Training and educating staff will put them on

speed on new skills and also get updated on changes of carrying out their roles. The study

objective was to examine whether decisions on accounting information systems (AIS)

investment is affected by the nature of staff an organization have. The qualitative nature of

accounting information is greatly affected by human resources, the higher the quality of the

staff in terms of skills and expertise the better the financial information an organization has.

Hansson (1997) study examined the price of knowledge-based firms in relation to firms that

does not give focus to their employees. The results of the study concluded that firms who

give consideration to their staff development and welfare have more chance of increased

performance. Human resource and AIS have a great link (Daft, 1983). The findings from the

study clearly indicated that employees have an economical and financial impact both the

long-run and short-run financial performance of a firm.

15
The nature of human resource an organization will utilize in the process of AIS

implementation will determine the final results desired. Management should factor in the

quality of employees taking charge of AIS processes. Human resource qualities in terms of

education, experience, motivation, reliability among other factors are key for a firm to

achieve effectiveness it desires through the use of computer aided accounting processes.

2.3.4 Internal Controls

Internal controls is an organizational process of assuring shareholders that financial

statements being reported to them meet the operational effectiveness, unfailing financial

reporting and compliance with guidelines and policies. Shareholders invest in reliable AIS

with the aim of ensuring that particulars being reported by management are free from errors

and biasness. Nzomo (2013) alluded that internal controls incorporates policies, guidelines

and procedures in provision of reliable financial reports.

Azhra (2016) concluded that internal controls systems (ICS) have an effect on the quality of

AIS. Internal control process is carried out by comparing the actual performance and the

standards set and analyzing the variances achieved (Rue and Bayars, 2007). Control is the

edge assigned to a use and the system being used to analyze data (Effy, 2009). The

implementation is directed towards ensuring that “wrong” data does not set foot to the

organizations’ database.

O’Brien and Marak (2010) stated that control in its nature is an activity that can appraise and

make modifications needed from records input, processing and final output. Internal control

systems (ICS) according to (azhar, 2013) is a process majorly influenced by shareholders and

is designed to give assurance and able of ensuring firms goals are achieved through the

16
effectiveness and efficiency of departmental operations represented in financial statements

that are dependable and conform to laws and regulations. ICS is the process implemented to

improve achievable assurance about the achievement of a company (Romney and Steinhart,

2009). Romney and Steinhart continued to elaborate that an effective internal control system

(ICS) should exist in any company’s AIS to assist attain improved performance and increase

profitability and to a great extent reduce risks.

According to Lander (2004) the process of designing an internal control process should be

under the leadership of financial division and the board of directors (BOD) and implemented

by all line managers within the company. This ideally will give more assurance that relying

on the financial statements by external users is in accord with the internationally generally

accepted accounting principles (GAAP). A reliable financial accounting reporting process

will in most cases led to increased efficiency of operations towards meeting operational

objectives and compliance with set laws and policies (Bodnar, 2010).

The primary objectives for internal control systems are: to uphold assets, to ensure

dependability of financial statements, to increase organizational efficiency and to ensure

compliance adherence (Hurt, 2008). Asset security involves maintenance of records in a

sufficient detail to accurately and equitably reflect the firm’s assets position, acquisition and

disposition and financial reports prepared according to GAAP. Effy (2009) Internal control

systems (ICS) help in the attainment of information confidentiality. Accounting information

system performance towards achievement of organization efficiency can be determinant

through analysis of how a firm achieves its internal controls objectives.

17
2.4 Empirical Literature Review

Locally, a study by Nzomo (2013) investigating the impact of AIS on automobile company

effectiveness in Kenya employed the descriptive research design. The study collected primary

and also secondary data for analysis. Primary data was acquired using interviews and

questionnaires. The findings of the research indicated that (AIS) is a significant mechanism

for companies‟ effective management.

Biwott (2015) carried out a research study on integrated financial management information

systems (IFMIS) implementation and its impact on public procurement. His objective was to

establish IFMIS implementation procedure at the national government and also to find out the

factors affecting the implementation at the public sector. The research adopted cross-sectional

survey research design and targeted a population of 18 ministries under the national

government. Data was collected using primary source and a questionnaire based on five-point

Likert scale, oral interviews was also utilized. Qualitative data got was examined using both

content analysis and SPSS for quantitative. The researcher concluded that a moderate level of

IFMIS implementation in Kenyan public sector.

Odero (2014) did a research with the objective of establishing the consequence of AIS quality

on firms’ financial performance of SMEs. Target population was within Nairobi County and

adopted descriptive study design. A sample of 50 enterprises was considered. Data gathered

analysis using SPSS version 20. The researcher concluded that there exists a very strong

positive connection between AIS quality with financial performance of SMEs.

18
Otieno and Oima (2013) pursued an investigation the result of computerized financial

accounting systems (CFAS) on audit threat administration. The study engaged an exploratory

survey design which was longitudinal and cross-sectional by questionnaires. A sample of 41

public enterprises was used within in Kisumu County. A descriptive analysis was engaged.

The finding was that there is a positive association amid the computerized accounting system

employed and audit risk administration policy within the enterprises.

Sugut (2014) did a study on effect brought by computerized financial accounting on the

value of financial statements of Non-Governmental organization (NGOs). The target

population was NGOs within Nairobi County in Kenya. The research design employed

descriptive survey and primary data collection. The sample comprised 100 NGO is selected

through non-proportional quota sampling. Data analysis carried out through SPSS and

presentation in tables and graphs.

Njeru (2016) carried an assessment of how IFMIS implementation leads to effective

management practice in Lamu and Nairobi counties. He employed a correlation research

design. Primary data he analyzed using SPSS. The study used random stratified and

purposive sampling method. The research finding showed that IFMIS leads to effective

administration practice. Management of human capital 51.6%, delivery of service 49.4% and

procurement 18%.

Njihia and Mwirigi (2014) studied the effect of ERP systems on firm performs in commercial

banks in Kenya. Study design used was descriptive and questionnaires used to collect primary

data. Collected data examined using SPSS V 20 and presented in graphs and tables. Chi

square test was used in testing hypothesis. The findings of the study were that financial

19
resource existence, employee perception, management support and regulatory requirements

affect implementation of ERP hence firms’ performance.

Internationally, Onaolapo & odetayo (2012) carried out a study with the objective of finding

out the consequence of AIS on firms’ effectiveness towards resolution making. The study

was carried out in Abuja Nigeria. The research adopted a purposive sampling technique.

Descriptive and also the inferential tools of statistics were used in analysis. They concluded

that AIS has an effect on organizational effectiveness.

Azhar (2016) did a research study with the aim of getting empirical evidence on the influence

of internal control system to be applied inside an accounting information system. The study

was carried in Pandadjaran University Indonesia. The study used a population of 59 samples

and used primary and secondary data. Data analysis was done with the aid of structured

equation modeling. The findings illustrated that internal control affects information quality.

Alshebeil (2010), study aimed to find out the purpose of (AIS) in attaining competitive

advantage for the Jordanian banks. Findings of the study were, statistically substantial impact

existed for AIS on realizing the magnitudes of competitive advantage through improved

pricing and cost reduction of banking services.

Ali, Bakar and Omar (2016) carried a study with the objective of investigation the effect of

AIS on organizational performance being moderated by organizational culture. The data

collection technique applied was questionnaire with a sample population of 273 respondents

within Jordanian banking sector, data was analyzed using PLS SEM technique. The research

findings concluded that service quality and system quality are significant accounting

information system success factors.

20
Qatani and Hezabr (2015) studied on the use of AIS towards improvement of business

organization value chain. A sample of 50 respondents was interrogated. The researchers used

primary data and collected data through questionnaires. From the results they obtained, the

two recommended that there is need for improvement of the level of basic components of

AIS in Bahrain. Management need to emphasize on training and continuous employee

education.

2.5 Conceptual Framework

Mugenda and Mugenda (2003) explained that the theoretical outline represents structure of

concepts put together to aid in showing association between dependent and independent

variables in a research study. The conceptual framework in figure below shows the various

determinants of financial accounting efficiency in manufacturing companies including AIS,

human resource training and capacity building, top management commitment, level of

financial record implementation, organizational culture and information technology

infrastructure and internal controls put in place to ensure information is without bias.

Successful implementation of AIS leads to increased organizational effectiveness through

accountability, cost reduction, transparency.

Figure 2.1: Conceptual Framework

Independent Variables Dependent variables

➢ AIS
➢ Human Resources
Firm’s Efficiency
➢ Management
Leadership
➢ Internal Controls

21
2.6. Conclusion of Literature Review

In conclusion, scholars have carried out research on how AIS affect organizations

effectiveness. The researchers looked at effectiveness in terms of productivity, cost

reduction, growth rate, sales turnover, contribution, profitability and organizational stability.

The determinants of accounting efficiency include: AIS used by a company, financial report

management, human resources working in that firm and level of internal controls.

Theories which was used in this research study though not limited only to them included:

contingency theory, agency theory and behavioral theory. Contingency theories explain AIS

implementation should be based on the prevailing economic conditions a firm is facing.

Agency theory, explains that the interest of the management whose main role is

implementing AIS in the company should be in line with the objective of shareholders.

Behavioral theory involves the how employees learn how the AIS work and uses it.

The majority of empirical studies analyzed adopted a descriptive research design. Secondary

and primary data was also utilized in the research studies. Collection of data involved

interviews and questionnaires. Data was analyzed using SPSS and presented using tables and

graphs. This research is also going to adopt the same.

In summary, there exist some studies carried out on the subject. Most of the studies show that

a positive relationship between use of a good AIS and organizational efficiency in terms of

increased performance.

22
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

The chapter will highlight on design, sampling design, sampling processes, collection of,

data analysis and reporting, diagnostic tasks and test of significance employed in the research

process.

3.2 Research Design

Robson (2002), defined research design as the procedure of revolving study questions into a

research study project. Nachmias and Nachmias (1993) elaborated that a research design

basically is the program guiding the researcher during the process of collecting, analyzing

and interpreting the data. The types of research include experimental, descriptive, exploratory

and interpretive (Kothari, 2008). This study adopted a descriptive survey design being

suitable for both preliminary and exploratory study allowing data collection, summarizing,

presentation and interpretation for the reason of interpretation. Primary data was collected

using questionnaires. The research design enabled the researcher bring out an understanding

on the impact of AIS leading to organizational effectiveness. The research study also adopted

a descriptive method of presentation including the use of tables and graphs.

3.3 Population of the study

Mugenda & Mugenda (2011) defined population as a comprehensive set of entities, cases,

and objects with mutual apparent features used in a research study. The population of this

research consisted of manufacturing firms in Kenya of over 800 enterprises according to

Kenya association of manufacturing (2016) published report.

23
3.4 Sample and Sampling Design

A sample of 51 manufacturing companies in Kenya was selected through quota sampling

technique which is non-proportional. This is the analogue of stratified random sampling used

to assure that the smaller groups are adequately represented Mugenda & Mugenda (2003).

This method was suitable because it was less restrictive and met the research objectives. The

researcher grouped the population into five strata according to the manufacturing sector

namely: consumer goods, textile, construction and mining products, agricultural processing

and pharmaceuticals. The process ensured that the sample included all the sectors in order to

be represented and was selected purposively due to the suitability to provide required

research information and analysis.

3.5 Data Collection

Primary data was obtained through questionnaires which was presented to organization

managers and senior accountants to ensure reliability of data. The questionnaire was used to

collect information about the respondents ‘effect of accounting information system on

manufacturing firms efficiency measured on a 5 point Likert scale , nature of human

resources in the organization, leadership and internal controls. The questionnaire was

structured into two parts , part A dealing with accounting information system, nature of

human resources, organization leadership and internal controls and part B dealt with

organizational effectiveness. Using questionnaires in data collection is superlative since it

assures confidentiality to the respondents thus will act without any fear or bias.

24
3.5.1 Reliability and Validity of Data

Data reliability was warranted by examining the instruments for reliability of alpha values.

Analysis was also conducted by getting alpha value for each variable being studied Cronbach,

(1946). McMillan and Schumacher (1993), reliability ensured that consistency of data exists

and the spread to which the results remain over various forms of similar instruments.

According to Borg and Gall (1989) validity help in identifying if the instrument measures

what is designed to. Validity of data involved going through the questionnaire to make sure it

contains the information required.

3.6 Diagnostic Test

Data was tested to ensure that it is good enough and are consistent. Test of normality was

used to determine if data set is well modeled by a normal distribution and compute how

random variable was set to be normally distributed therefore measuring goodness of fit.

Correlation technique was measure how the data are related.

3.7 Data Analysis and presentation

Data analysis involved coding questions and using Microsoft Excel and SPSS software to

analyze. Qualitative data was analyzed by means of descriptive statistics which include:

percentage and mean. On the other hand, qualitative data will utilize content analysis. Data

was presented using pie charts, bar graphs, tables and explanation in a prose format. This

gave a clear presentation and proper analysis of the data.

25
3.7.1. Conceptual Model

The independent variable is accounting information systems and dependent variable

organizational effectiveness. They can be represented with the linear expression:

Y= f(x1)…………………………………………………………………………………….. (1)

Where;

Y= Organization effectiveness

X1= Accounting Information System

3.7.2 Analytical Model

The regression Model is in an algebraic expression of form

Y= a+ b1X1 + b2X2+b3X3 + b4X4……………………………………………………… (2)

Where;

Y = Organization effectiveness. (OE) This was be measured in terms of increase in profits,

revenue growth and increased market share.

a = Constant

b = Regression slope

X1 = Accounting Information System (AIS).This was measured in terms of ability to be used

in recording financial data, speed, accuracy and quality.

X2 = Human Resource (HR) this was measured in terms of qualification, reliability, honesty

and motivation.

X3 = Financial Leadership (FL) this was measured in terms of standards, relevance,

reliability and understandability.

X4 = Internal Controls (IC) this was measures interms of availability of data security

systems,audit schedules and reports meeting IFRS quidelines.

26
Table 3.1 Operationalization of Variables

Variable Indicators Measure Scale Analysis

Code Tool
The organization been
Increased
reporting increased Likert
Profitability
profits

Increased The organization been

OE Likert Mean
Revenue having increased revenue
The organization has
Increased Likert/Ordinary
been increasing its
market Share scale
market share
Can the reports be used
Reliability Likert
for decision making?
Does AIS improve
speed Likert
AIS speed of financial entry Mean
Does the use of AIS
Timeliness help reduce report Likert
generation time
Do the financial reports
Timeliness Likert
meet timely deadlines?
Do the financial reports
Understandabi
users understand the Likert
lity
reports?
FL Mean
Do the reports generated
Likert/Ordinary
Relevance meet the financial
scale
obligations?
Can the reports be used
Reliability Likert
for decision making?
Employees have the
Qualification materials and equipment Likert
needed to do their job
Employees know what is
HRM Dependable Likert Mean
expected of them
Employees are
Reliability committed to doing Likert
quality work
Are organization
Data Security information secure from Likert
fraud and hacking?
Audit Does the system
IC Likert Mean
schedules generate audit schedules
Report meet Does the reports
IFRS generated adhere to Likert
guidelines IFRS guidelines?

27
 CHAPTER FOUR

DATA ANALYSIS, RESULTS AND DISCUSSION

4.1 Introduction

The chapter discusses the interpretation and presentation of the research findings. The

purpose of the study was to analyze the impact of Accounting Information System (AIS) on

the effectiveness of manufacturing firms in Kenya. The researcher made use of frequency

tables and figures to present data.

4.2 Data Collection

The data was collected and analyzed using both quantitative and qualitative data analysis

methods. Quantitative method involved both descriptive and inferential analysis. The

questions were inform of a Likert scale with a key of 1= strongly disagree 2= disagree 3 =

neutral 4 = agree 5= strongly agree. Descriptive analysis such as frequencies and percentages

was used to present quantitative data in form of tables and graphs.

Data from questionnaire were coded and logged in the computer using Microsoft Excel .This

involved coding both open and closed ended items in order to run simple descriptive analyses

to get reports on data status. Descriptive statistics involved the use of absolute and relative

frequencies, measures of central tendency and dispersion.

4.3 Response Rate

The researcher administered questionnaires to 51 respondents selected through quota

sampling technique which is non-proportional. 51 respondents gave back the questionnaires

This represented a 100% response rate. The high response is because the questionnaires were

28
semi-structured therefore easy for the respondents to fill and return it. Most of the

questionnaires were also delivered and collected by hand, the direct contact to the

respondents allowed a high response rate. This is a reliable response rate for data analysis as

Babbie (2002) suggested that any response of 50% and above is adequate for analysis.

Table 4.1 Response Rate

Number Percentage

Responded 51 100%

Total 51 100%

Source: Research Findings

4.4 Data Validity and Reliability

The Validity of a questionnaire is basically the extent to which it measures what it claims to

measure (Mugenda & Mugenda, 2003). In testing validity, the researcher prepared

questionnaires and the supervisor then scrutinized and found it valid for data collection. As

shown in table 4.2 Cronbach Alpha was established for every variable which formed a scale,

the overall reliability of all items was 0.7866 this results are reliable as their reliability values

exceeded the prescribed threshold of 0.6. Gliem and Gliem (2003) established the Alpha

value threshold at 0.6.

29
Table 4.2: Cronbach Alpha

AIS HR FL IC OE
1
AIS 0.9078 1
HR 0.04178 0.05343 1
FL 0.09078 0.12035 0.05343 1
IC 0.06354 0.07949 0.03808 0.07949 1
OE 0.09078 0.12035 0.05343 0.12035 0.07949 1

Average (mean ri) 0.3806

K x Mean 2.2836 Rcc = K x mean (ri)
1 + mean 2.903
Cronbach's Alpha 0.78663 1 + mean (ri) x ( k-

4.5 Descriptive Statistics

4.5.1 Accounting information system

The researcher sought to know the respondents response on the availability and the nature of

accounting systems. 88% agreed that the accounting system they are using is computerized,

86% responded that all financial data is recorded using the system. 83% of responded that

financial reports are generated within the system,75% alluded that budgetary system is done

with the help of accounting system and 74% responded that the system has the ability of

helping in cash flow management.

Table 4.3 Accounting information system used and nature

MEAN PERCENTAGE
Accounting system is computerized 4.39 88%
Data is recorded using accounting system 4.31 86%
Financial Reports generated from system 4.16 83%
Budgetary system done within the system 3.75 75%
cash flow management done within the system 3.71 74%

Source: Research Findings

30
Figure 4.1 Accounting information systems

4.60

4.40

4.20

4.00

3.80

3.60

3.40

3.20
AIS Datarecorded Reports Budgetary in cashflow done in
computerized AIS generated AIS Sytem AIS

The researcher inquired what motivated the investment and implementation of accounting

information systems. 89 % of the respondents said that their firms invested on AIS to

facilitate better financial management processes. 83% agreed that the positive impact on

company performance contributed in decision making while 86% wanted to improve the

quality of their reports, 72% user friendliness of AIS and 60% responded that it was because

of competitors’ pressure.

Table 4.4 Factors considered in choosing AIS

MEAN PERCENTAGE

Facilitate financial management 4.45 89%

Positive impact on company performance 4.16 83%

Improving quality of reports 4.29 86%

User friendly systems 3.61 72%

Competitors pressure 2.98 60%

Source: Research Findings

31
From the data collected on how the respondents rated their AIS, 23 of the respondents agreed

that the system increased speed to a very great extent; this was at a mean of 4.12. 21 of the

respondents said that data accuracy improved to a great extent. 20 alluded that management

of financial reports improved very greatly with the use of AIS. Generally more than half of

all the respondents agreed that ease of recording, timely delivery of financial reports, data

security, organization of data and quality of financial reports has been positively impacted by

the use of computerized accounting system as shown in the graph below.

Figure 4.2 AIS performance rating

Source: Research Findings

4.5.2 Human Resources

The researcher sought to find out the nature of human resources within companies finance

department. From the respondents 85% agreed that staff are qualified in terms of academic

qualifications based on their level of professional qualifications and certification and period

they have practiced. 78% noted that staff are tech-savvy meaning that they are able to use

Accounting information systems with ease having been trained, certified and acquired enough

32
experience, 80% agreed that human resource are reliable in delivering desired results,81%

said staff are honest and 76% alluded that staff are motivated working in the organization and

within the same department.

Figure 4.3 Nature of human resources

4.40
4.30
4.20
4.10
4.00
3.90
3.80
3.70
3.60
3.50
Qualified Tech- savvy Reliable Honesty Motivated

4.5.3 Financial Management Leadership

The researcher sought to find out if leadership has any influence on the quality of financial

reports and the factors under consideration were if the company had a clear vision and

mission, staff is involved in decision making, mangers set personal and business objectives,

there is regular measurement of organizational performance, performance shared regularly

and financial reports are published regularly. The respondents rated the above in this means

of 3.84, 3.59, 3.75, 4.06, 3.35 and 3.2 respectively as presented in the chart below.

33
Figure: 4.4 leadership

Source: Research Findings

4.5.4 Internal Controls

The researcher collected data concerning the nature of internal controls practiced by the

organization. Internal controls was in terms of accountability, data security where the system

is able to detect fraud, data organization to ensure that it is in conformity with IFRS, data

accuracy and availability of audit schedules. The respondents responded to the statements

with a mean of 4.14, 4.06, 3.88, 4.12 and 3.88 respectively as shown in the table below.

Table 4.5: Internal Controls

Adequate Accountability 4.14 83%

Data Security 4.06 81%

Data Organization 3.88 78%

Data Accuracy 4.12 82%

Audit Schedules 3.88 78%

Source: Research Findings

34
4.5.4 Organizational Effectiveness

The researcher collected data on the firm general effectiveness by asking respondents closed

questions in three dimensions quality of financial reports, change management and

organizational performance.

The quality of financial reports was looked at in the dimensions of: whether board of

management understood, reports contained reliable information on budgetary control,

adequate financial accountability and availability of cash flow information. The respondents

rated the questions with a mean of 4.14, 3.80, 3.82, 4.14 and 3.67 respectively. The graph

below paints a clear picture same.

Figure 4.5 Financial report quality

Source: Research Findings

35
On how Accounting system facilitates change management the researcher inquired to know

whether staff are committed to the organization, morale is positive, expectations is known by

employees, management encourages knowledge and skills development. The respondents

responded with a mean of 4.02, 3.78, 4.04, 3.82, 3.49 and 3.88 respectively.

Figure 4.6.Change management ability

Source: Research Findings

The respondent also established whether after implementation and the use of accounting

information system the organization reported improved performance in terms of stabilizing

their market, increased profits, increased revenue, reduced costs and increased market share.

The response was in a mean of 3.08, 3.41, 3.51, 3.33 and 3.16 respectively.

36
Table 4.6 Organizational Performance

Organizational Performance Mean percentage

operate in relatively stable market 3.08 62%

Increased Profits 3.41 68%

Increased Revenue 3.51 70%

Reduced costs 3.33 67%

Increased market share 3.16 63%

Source: Research Findings

Figure 4.7 Organizational performance

Source: Research Findings

37
4.6 Correlation Analysis

Since p<0.05 then the model is significant. P=0.3524

Table 4.7 Correlation Analysis

OE AIS HR OL IC
OE 1
AIS 0.8575 1
HR 0.9107 0.9024 1
OL 0.8484 0.8258 0.8258 1
IC 0.4410 0.5501 0.6933 0.6486 1

Table 4.8 Summary of correlation analysis and p-value

Variables Correlation Coefficient P- Value

Accounting Information System (X1) 0.8575 0.3524

Human Resource Nature (X2) 0.9107 0.3776

Managerial Leadership (X3) 0.5484 0.0000

Internal Controls (X4) 0.4410 0.3394

Source: Research Findings

This will allow us to predict the quality of financial reports in any given time provided we

have the Accounting Information System.

It is clear AIS affects quality of financial reports positively since all coefficients are positive.

So the model will be:

Y= 3.376 + 0.1124X1 + 0.1414X2 + 0.4730X3 + 0.1263X4

38
4.7 Regression Analysis and Hypothesis Test

In order to determine the effects of Accounting Information System (AIS) of manufacturing

firms in Kenya, a model was adopted. This study employed regression analysis where

Accounting Information System, Human Resource and Finance Leadership are independent

variables and Organizational Effectiveness is the dependent variable.

Table 4.9 Regression Analysis

Variables B SIG. f S.E R-squared

Accounting Information System (X1) 0.1124 0.3524 0.7099 0.0177

Human Resource Nature (X2) 0.1414 0.3776 0.7106 0.0159

Managerial Leadership (X3) 0.4730 0.0000 0.5993 0.2989

Internal Controls (X4) 0.1263 0.3394 0.7096 0.1864

Constant 3.3755

Observations 51

Standard errors p<0.1

Source: Research Findings

4.8 Summary and Interpretation of Findings

In summary, from the research study it was observed that the quality of the financial reports

are good with the 82% agreeing that the information in the reports are accurate, 89% said the

reports helps in accountability 81% said that the reports are timely and relevant whereas 83%

said the reports are reliable an average of 73% agreed that the reports are reliable.

39
The factors that influence the selection of an accounting system are the need to facilitate

financial management (4.5), the positive impact on company performance (4.2), improving

quality of reports (4.3), if the accounting system is user friendly (3.6) and pressure from

competitors (3.0).This findings agrees with what Onaolapo & odetayo (2012) carried out a

study with the objective of finding out the consequence of AIS on firms’ effectiveness

towards resolution making that AIS has an effect on organizational effectiveness in Nigeria

the financial reports generated conform to some of the quality attributes of good financial

information. This was emphasized by a positive correlation of response on quality attributes

of timeliness and accuracy but lower on the effect of competitors pressure most respondents

being neutral.

The findings clearly shows that taking all other independent variables at zero, a unit increase

in accounting information systems will lead to a 0.1124 increase in efficiency of

manufacturing organizations; a unit increase in quality of human resource will lead to a

0.1414 increase in efficiency of manufacturing firms; a unit increase financial leadership will

lead to a 0.4730increase in efficiency of manufacturing organizations. This infers that

accounting information system, human resource and finance leadership affect manufacturing

company efficiency with near equal measures. At 1% level of significance and 99% level of

confidence, accounting information systems had a 0.01424 level of significance; human

resource showed a 0. 08893 level of significance then transparency had 0.0516 thus most

significant.

The researcher found out that the factors that influence affect transparency including if the

organization share the program progress to its shareholders, if they have sufficient electronic

control, the framework/right of confidentiality, Integrity of top management, accountability

40
of funds and current reports value in the future which scored mean of 4.0 out of the possible 5

which is a good indicator that the manufacturing firms are transparent in their operation

which contributes to the quality financial reports.

The general objective of the study was to establish the impact of accounting information

system of organization effectiveness. From the study, an organization which has invested in a

reliable information system in terms of speed, data accuracy, data organization, user friendly,

reliability and availability. This will enable manufacturing companies become efficient in

terms of timely delivery of financial reports, reduced costs, increased profitability and

adaptability to changes in both micro and macro environment.

There is a strong positive relationship between AIS and Organizational Efficiency since R is

positive then it has a positive gradient. The correlation coefficient measures the goodness of

fit of the regression equation, which in this study R2=0.0177, showing a positive relationship.

The model is also significant since p<0.05 P=0.3524. Therefore, the regression model can be

used during decision making process on whether to invest on accounting information system

or not.

The research findings are similar to some of previous research studies carried out though in

different sectors. Odero (2014) carried out a research to establish the consequence of AIS on

quality of financial performance on SMEs and concluded that there exists a strong positive

connection between AIS and financial performance in SMEs. Biwott (2015) carried out a

research study on integrated financial management information systems (IFMIS)

implementation and its impact on public procurement and found out from his findings that a

moderate level of IFMIS implementation in Kenyan public sector led to efficiency. Njihia

41
and Mwirigi (2014) studied the effect of ERP systems on firm performs in commercial banks

in Kenya the findings of the study were that financial resource existence, employee

perception, management support and regulatory requirements affect implementation of ERP

hence firms’ performance. This therefore elaborates that implementation of accounting

information system will have a positive impact on the efficiency of organizations.

42
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

The objective of this research was to carry out a study on how manufacturing firms in Kenya

utilize accounting information technology in their financial reporting process. The researcher

analyzed how Accounting Information System (AIS) affect manufacturing firm’s

effectiveness. Organization effectiveness was in terms of increased profits, reduced costs,

adaptability to changes in the economy and timely delivery of financial reports to the board

of management. The study adopted a descriptive design and quota sampling technique. Data

collected was analyzed using Microsoft excel and presented in tables and graphs, correlation

and regression analysis was used to test data reliability and relationship.

The study found out that there exists a positive relationship between accounting information

system (AIS) and efficiency of manufacturing firms in Kenya. The study therefore, showed

that the use of Accounting Information systems affects the efficiency of manufacturing firms

to a great extent. The study also found out that well trained and motivated staff will facilitate

proper implementation of accounting information systems in manufacturing firms. Training

staff in accounting packages and computer packages will enable them increase productivity

and efficiency.

The study also indicated that accounting information system has an impact on the efficiency

of manufacturing firms in Kenya in terms of effective management, decision making and

controlling operations .The aspects of AIS that affect manufacturing firms include timeliness,

speed, accuracy, data security, internal controls and availability of necessary information.

43
The study results are consistent with empirical reviews studied. The empirical literature

reviews showed that there is a relationship between accounting information system and firms

effectiveness. Accounting information systems is a very important tool for data analysis

which in the long run helps in decision making for planning, controlling and coordinating

operations in an organization. Accounting information system (AIS) utilization in

manufacturing firms also increase departmental communication and point out areas that

management need to put more focus in order to remain competitive. The study indicated that

firms having AIS have either a stable or increasing profitability.

5.2 Conclusions

The study concludes that accounting information systems directly has an impact of the

efficiency of manufacturing firms. An organization planning to invest in a computerized

accounting system should also ensure that it does proper research to ensure that system will

be able to increase processing speed, uphold internal controls and data security. The system

should also be user friendly, facilitate financial management and have the ability of providing

strategic information pertaining cash flow planning and budgeting.

Investing in a good accounting information systems (AIS) will enable a firm generate

financial reports properly understood by board of management and having reliable data to

allow the management make decisions to counter economic challenges and face competition

strongly. Organizations will also be able to increase their efficiency also since from the

research most of the firms having strong AIS have reported having maintained their

profitability, market share, reduced costs and generally sticking towards their vision and

mission. Organization competitiveness depends on its ability to process data into reliable

information for decision making. The process of processing data can only be a reality when

44
an organization has invested in a quality accounting information system and the staff has the

ability and the motivation to ensure that the process is objective.

The study also deduced that organizations also need to invest in their human resources. Tech-

savvy staff that are reliable, honest and also motivated help in a great way in making AIS to

operate effectively and in the long run bring organizational efficiency system reliability and

transparency contribute mostly to manufacturing firms efficiency in terms of profitability and

ability to adopt on change management. Nature of human resource an organization employs

however is the major lead to achieving efficiency followed by accounting information

systems and last is firms’ leadership.

This study concludes that manufacturing firms efficiency in meeting set goals and objectives

is enhance through the use of accounting information systems. Organizations owners and

managers therefore can continue investing their finances in implementation of computerized

systems because from the study it is a great pillar in meeting organizations mission and

vision.

5.3 Recommendations for policy and practice

From the study findings, it was clear that computerized accounting information system leads

to increased processing speed, timeliness, accuracy, internal controls and quality of reports

generated affecting firms’ efficiency in its operations. The study therefore recommends that

in order to ensure that the manufacturing firms have quality understandable reports; they

should invest in computerized accounting system since it is seen to affect the financial reports

to a great extent. Based on the findings of the study an adoption of computerized accounting

information system is advisable for all firms in a bid to ensure correctness in reporting and

45
general record management as enterprises that had this system showed an increase in return

on investment as opposed to those that had a manual system.

The utilization of AIS need to be regulated by firms’ management. This is not only to bring

sanity but to set standards and ensure provision of certain informational requirements which

are of financial report format to encourage most business operators to be aware of basic

reporting skills. This can even be made on line in nature and such it leads to more adoption of

computerized systems.

The study further recommends that organization leadership need to enhance proper guidance

and ensure that staff are motivated in the process of using AIS to ensure that manufacturing

processes are accurate, timely and to create efficiency in both management and board of

directors and meeting set goals and objectives. Management need to factor in both current

problems and expected future challenges which the system will solve contingent to the firm.

Organization leadership should not be biased to the individual needs but should consider the

owners interests in choosing and implementing AIS.

5.4 Limitation of the Study

The study had some limitations. First, measuring the level of organizational effectiveness of

manufacturing firms in Kenya was difficult with limited subjectivity. The researcher only

relied on questionnaire response in measuring organizational efficiency. This is because of

the self-report nature of data of questionnaires.

46
Secondly, this study was only concentrated to manufacturing companies in. This did not

bring out how companies in the service sector are affected by the implementation of

accounting information systems, the results therefore can only be used by firms in the

manufacturing sector and not all firms who intent or those using AIS.

Thirdly, there was a time limitation. This could have allowed analysis over a longer time

horizon like a span of five years in order to allow a more study of the impact of accounting

information systems on organizational efficiency. A longer time period can be considered in

future so to establish the trend in order to ensure consistency. A firm which has been in

operation over a longer period of time tends to give a clear picture of the study variable.

5.5 Areas for Further Research

The researcher recommends further study the impact of accounting information systems on

changes in international financial reporting standards (IFRS). This will allow organizations

practicing full implementation of IFRS to monitor how changes in the standards will affect

accounting systems given that they are not static and recommend how the challenges can be

solved.

Secondly, more research needs to be done on the advantages of computerized accounting

system compared to manual accounting systems on the quality of financial reports Kenya. In

the recent past organizations have been implementing new information systems. The question

is, is it really important to implement computerized information systems?

Thirdly, Further research need to be done on the impact of accounting information Systems

on import and export trade in Kenya. Importation processes involves a lot of documentation

for clearance purposes. A research study will be appropriate to establish the impact of

automation of the processes could bring to an organization.

47
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 APPENDICES

APPENDICES 1: RESEARCH QUESTIONAIRE

Dear Respondent, the researcher is a student at The University of Nairobi pursuing Masters

of Business Administration. The questionnaire is designed for academic purposes only as a

requirement for the Award of a Degree in Master of Business Administration. It is only

through your response that the work can be completed well. Therefore any information

disseminated will be handled with maximum confidentiality. Please spare a few of minutes

of your time to answer the following questions, they mostly involve ticking a response in the

space provided and a few filling in.

Topic: The Impact of Accounting Information System on Effectiveness of

Manufacturing Firms in Kenya

Name of the company …………………………………………………………………………

SECTION A

Accounting Information System

Answer the following questions using a Key: 1=Strongly Disagree; 2=Disagree;

3=Neutral; 4=Agree; 5=Strongly Agree

Statement 1 2 3 4 5

The accounting system used in the company is

computerized

The company relies on the accounting system to record data

The company generates financial reports from the system

Budgetary processes is done within the system

Cash flow plan and forecast is generated from the system

52
What factors are considered in choosing the accounting information software? Please tick

as many as possible

Initial cost of installation [ ]

Cost Benefit Analysis [ ]

Cost of training [ ]

Acceptance by users [ ]

Knowledge of employees [ ]

Adaptability of workers [ ]

Other specify_______________________________________

To what extent do you agree that your choice of accounting information system was

motivated by the following factors?

Statement 1 2 3 4 5
The need to facilitate financial
management
The positive impact of AIS on
company performance
The need to improve quality of
reports
The accounting systems are user
friendly
The Pressure from competitors
using ERP Systems

53
Rate the Accounting Information System that the company is using in terms of the following

variables 1= Not at all 2= Little Extent 3= Moderate extent 4= Great Extent 5= very great

extent

Statement 1 2 3 4 5
Speed Improvement
Level of Data Accuracy
Financial statement
Ease Recording Procedure
Timelines of Report
Data Security
Organization of Data Processed

Financial Leadership Management

Key: 1=Strongly Disagree; 2=Disagree; 3=Neutral; 4=Agree; 5=Strongly Agree

Statement 1 2 3 4 5
The financial reports are clearly
understood by Board of
Directors
There is sufficient and reliable
information on budget
implementation
The financial accountability in
this company can be rated as
adequate
The financial reports contain
required cash flow reports
Audit schedules can be
extracted from the system

54
Human Resources

Please evaluate the degree of your agreement with the following statements relating to your

finance team.

Key: 1=Strongly Disagree; 2=Disagree; 3=Neutral; 4=Agree; 5=Strongly Agree

Statement 1 2 3 4 5

Staff working at finance department are qualified

are they CPA, Degree or MBA holders

The staff are tech-savvy,do they have computer

package or accounting package certification?

The staff reliable

The staff are honest

Staff are motivated at work

Internal Controls

Please evaluate the degree of your agreement with the following statements relating to your

finance team. Key: 1=Strongly Disagree; 2=Disagree; 3=Neutral; 4=Agree; 5=Strongly

Agree

Statement 1 2 3 4 5

Organization has adequate accountability

The organization data is Secure

Data organization is as per IFRS

The system generates accurate information

Audit Schedules can be extracted from system

55
Section B: Assessing Organizational Effectiveness

1. Please evaluate the degree of your agreement with the following criterions for assessing

Organizational effectiveness:

Key: 1=Strongly Disagree; 2=Disagree; 3=Neutral; 4=Agree; 5=Strongly Agree

Statement 1 2 3 4 5
Leadership
The leadership team have a clear
vision and mission
The vision is known to all
Staff are involved in achieving the
vision and mission
Performance Measures
Each team/department has
measures of their quality of service
Management regularly measure
organizational performance
Performance measures are shared
regularly with staff
Financial reports are published
regularly and available for review
Managers set personal and
business objectives

56
 1 2 3 4 5
Change Management
People are committed to the
organization
Staff morale is positive
The market that we operate in is
relatively stable
Employee Engagement
Employees know what is
expected of them
Employees have the materials and
equipment needed to do their job
Employees are encouraged to
development their knowledge and
skills
Employees are committed to
doing quality work
Organizational Performance
The company has been reporting
increased profits
The company has been reporting
increased revenue
The company is reporting reduced
costs
The company has been reporting
increased market share

Thank you for your valuable time

57
 APPENDICES 2: LIST OF ENTERPRISES IN THE SAMPLE POPULATION

1 CHUI AUTO SPRINGS INDUSTRIES27

LTDCARTON MANUFACTURERS LTD
2 R & R PLASTIC 28 RAY PHAMACETICALS LTD
3 CHEMID KENYA 29 SAMORE ENGINEERING FABRICATORS LTD
4 SUNFLAG TEXTILE AND KNIT LTD30 HALAR INDUSTRIES LTD
5 NESTLE KENYA 31 KENPOLY INDUSTRIES
6 BLUE RING PRODUCTA LTD 32 BROOKSIDE DAIRY LTD
7 TWIGA CHEMICAL INDUSTRIES 33 CHANDARIA INDUSTRIES
8 PREMIER OIL MILLS LTD 34 GENERAL EQUIP(1978) CO. LTD
9 CITY FARMING LIMITED 35 KALUWORKS LIMITED
10 PREMIER FLOUR MILLS LTD 36 PLASTIC AND RUBBER INDUSTRIES
11 CROWN PAINTS KENYA LTD 37 SPECTRA CHEMICALS KENYA LTD
12 MORRIS AND COMPANY(2004) LTD38 SAVANNAH CEMENT
13 BETA HEALTH CARE 39 UNILIVER KENYA
14 HIGHCHEM POLY SYNTHETICS LTD40 MUMIAS SUGAR
15 GALAXY PLASTICS LTD 41 MASTERMIND TOBACCO
16 ANGEL HAIR COLLECTIONS 42 BRITISH AMERICAN TOBACCO
17 SANA INDUSTRIES LTD 43 MABATI ROLLING MILLS
18 PACIFIC STATIONERIES KENYA 44 KENYA BREWERIES LTD
19 ITAL PRODUCTS LD 45 TONONOKA ROLLING MILLS LTD
20 PATCO INDUSTRIES LTD 46 APEX STEEL LTD
21 POLYFLEX INDUSTRIES LTD 47 BROLLO KENYA LTD
22 BROTHER KNITWEAR INDUSTRIES48LTD
TUFFSTEEL STEEL
23 TEPEE BRUSHMAN LTD 49 DOSHI & CO. (HARDWARE) LTD
24 TURN O METAL ENGINEERS 50 INSTEEL LIMITED
25 SMART COATINGS LTD 51 STARNDARD ROLLING MILLS
26 ALLIANCE GARMENT INDUSTRIES LTD

58