A CRITICAL REVIEW OF THE IMPACT OF GOOD ACCOUNTING SYSTEM IN THE GROWTH AND DEVELOPMENT OF INSURANCE INDUSTRY( A CASE OF IGI,LEADWAY AND NICON INSURANCE COMPANY

A CRITICAL REVIEW OF THE IMPACT OF GOOD ACCOUNTING SYSTEM IN THE GROWTH AND DEVELOPMENT OF INSURANCE INDUSTRY( A CASE OF IGI,LEADWAY AND NICON INSURANCE COMPANY

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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

1.1.1 Accounting Information Systems

Accounting Information Systems (AIS) are a tool which, when incorporated into the field of Information and Technology systems, are designed to help in the management and control of topics related to organization’ economic-financial area. But the stunning advance in technology has opened up the possibility of generating and using accounting information from a strategic viewpoint (El Louadi, 1998). Accounting Information System (AIS) is vital to all organizations (Borthick and Clark, 1990; Curtis, 1995; Rahman et al., 1988; Wilkinson, 1993; Wilkinson et al., 2000) and perhaps, each organization either profit or non profit-oriented need to maintain the AISs (Wilkinson, 2000: 3-4). On the other hand, an AIS is the whole of the related components that are put together to collect information, raw data or ordinary data and transform them into financial data for the purpose of reporting them to decision makers (LI, M., YE, L.R. 1999).To better understand the term ‘Accounting Information System’, the three words constitute AIS would be elaborated separately. Firstly, literature documented that accounting could be identified into three components, namely information system, “language of business” and source of financial information (Wilkinson, 1993: 6-7). Secondly, information is a valuable data processing that provides a basis for making decisions, taking action and fulfilling legal obligation. Finally, system is an integrated entity, where the framework is focused on a set of objectives (Watts, 1999).

Accounting literature argues that strategic success is considered an outcome of Accounting Information Systems (AIS) design (Langfield-Smith, 1997). Several, studies have analyzed the impact of AIS in strategic management, examining the attributes of AIS under different strategic priorities (Ittner and Larcker, 1997; Bouwens and Abernethy, 2000). It has also been analyzing the effect on performance of the interaction between certain types of strategies and different design of AIS (e.g. different techniques and information). The appropriate design of AIS supports business strategies in ways that increasing the organizational performance (Chenhall, 2003). Increasing AIS investment will be the leverage for achieving a stronger, more flexible corporate culture to face persistent changes in the environment. Innovation is the incentive with which a virtuous circle will be put in place, leading to better firm performance and a reduction in the financial and organizational obstacles, while making it possible to access capital markets. AIS are systems used to record the financial transactions of a business or organization. AIS combines the methodologies, controls and accounting techniques with the technology of the IT industry to track transactions, provide internal reporting data, external reporting data, financial statements, and trend analysis capabilities to affect on organizational performance (GUL, F.A. 1991).

In managing an organization and implementing an internal control system the impact of accounting information system (AIS) is crucial. An important question in the field of accounting and management decision-making concerns the fit of AIS with organizational requirements for information communication and control (Nicolaou, 2000). Benefits of accounting information system can be evaluated by its impacts on improvement of decision-making process, quality of accounting information, performance evaluation, internal controls and facilitating company’s transactions (Bolon, 1998).

1.1.2 Organizational Growth and development

Organizational growth and development is the concept of how effective an organization is in achieving its goals. Every employee in a company contributes to organizational growth and development. Taking into account skills, experience, motivation and rank, some employees play a bigger role than others. These are the people who contribute to the development of organization mainly with their knowledge (Scott, 1977).

Organizational growth and development was succinctly defined by Daft (1983) as “the degree to which an organization realized its goals”. However, Mondy, (1990) defined it aptly as “the degree to which an organization produce the intended output” As Daft rightly argued. Organizations pursue multiple goals, and such goals must be achieved in the face of competition limited resources, and disagreement among interest groups. Oguntimehin (2001) submitted that organizational growth and development is the ability to produce desire results.

There are many ways to measure the growth and development of an organization, which include different criteria such as productivity, profits, growth, turnover, stability and cohesion. Rational perspectives focus on the achievement of previously set goals and on output variables such as quality, productivity and efficiency. Natural system perspectives focus on the support goals of the organization such as employee satisfaction, morale and interpersonal skills. Open system perspectives focus on the exchanges with the environment; this includes information processing, profitability, flexibility and adaptability (Campbell, 1977).

1.1.3 Relationship between a good Accounting Information Systems and Organizational Growth and development

Ponemon and Nagida (1990) assert that the main reason for which accounting information is generated is to facilitate decision making. However, for financial reporting to be effective, among other requirements, it is relevant, complete and reliable. These qualitative characteristics require that the information must not be unfair nor has predisposition of favoring one party over the others. Accounting information should give a decision maker the capacity to predict future actions. It should also increase the knowledge of the users to identify similarities and differences in two type of information (Bolon, 1998). Therefore, reliable accounting information can be described as an essential pre-requisite for stock market growth. Based on the “engine of economic growth” potential of the stock market, developed nations do not toy with their Stock Markets and relevance of financial reporting.

Hunton, (2002) study, which investigated the relationship between automated accounting information system and organizational growth and development; showed that there was strong relationship between accounting information system and organizational growth and development, which means access to accounting information will lead to organizational growth and development. Several recent studies on value of accounting information for equity valuation, share price and earnings prediction have queried current financial reporting model in the developed world. The same issue can be raised in Nigeria about the value relevance of accounting numbers to investors. This assists the researcher to determine whether the result agrees or digresses from the previous studies.

In managing an organization and implementing an internal control system the role of accounting information system (AIS) is crucial. An important question in the field of accounting and management decision-making concerns the fit of AIS with organizational requirements for information communication and control. Although the information generated from an accounting information system can be effective in decision-making process, purchase, installation and usage of such a system are beneficial when the benefits exceed its costs. Huber, (1990) agrees that automated accounting information system aids decision making for management of organizations. Benefits of accounting information system can be evaluated by its impacts on improvement of decision- making process, quality of accounting information, performance evaluation, internal controls and facilitating company’s transactions. Regarding the above five characteristics, the growth and development of AIS is highly important for all the firms.

1.2 Research Problem

Currently, most organizations continue to increase spending on information system and their budgets continue to rise. Moreover, economic conditions and competition create pressures about costs of information. Generally, information system is developed using information technology to aid an individual in performing their job. Therefore, most organizations focus on developing a good accounting system in order to support decision system, communication, knowledge management, as well as many others. The key part of information system needed for decision making in organization is accounting information system.

Today, information technology and an increasingly transparent financial sector have become key driving forces in business operations, strategies, structures, ownership, and performance. These forces cut across many industries to force changes that, in turn, have had significant economic and social impacts on the organizational growth and development (Doms, Jarmin and Klimek, 2004). Structurally, the emerging information technology industry is uncharacteristic of typical traditional processes which has gradually grown out of the need to increase efficiency and cut on operations costs in the industry. The ability of insurance firms to achieve competitive advantage is predicated, in part, on their capacity to develop efficient, internalized accounting information systems to provide market coordination and linkages between their operations and global commodity and financial markets (Curtis, 1995).

Accounting Information Systems (AIS) is an important topic for managers and researchers alike. However, there is evidence of a gap between FIS research and practice. Huber (1990) on accounting information systems and management decision- making opines that in managing an organization and implementing an internal control system the role of accounting information system (AIS) is crucial. He questioned the fit of AIS with organizational requirements for information communication and control and concluded that although the information generated from an accounting information system can be effective in decision-making process, purchase and installation, the usage of such a system are beneficial when the benefits exceed its costs.

Hunton, (2002) investigated the relationship between automated accounting information system and organizational growth and development. He showed that there was strong relationship between accounting information system and organizational growth and development. To compare Accounting Information System Chang, Y. W. (2001) studied the nexus between organizational strategies and performance. They found out that organizations systematically vary the AIS design to support their chosen strategy, recognizing that AIS have the potential to facilitate strategy management and enhance organizational performance (Chang, 2001).

Management in the insurance organizations in Nigeria relies heavily on information generated from the AIS employed by the company. Quality reports are very key to arrive at an ideal investment. Traditional way of recording, summarizing and reporting company financial reports led to less optimal decisions. Investment in good and reliable accounting systems has become a major concern for all managers as it leads to better management and analysis of firm’s performance. This has led the researcher to investigate on the application and use of accounting systems by automakers and thus, its impact on the organizational growth and development (Author, 2013).

This current study examines in detail two possible explanations for the gap. First, is the deficiency in transfer of academic knowledge on accounting information systems to practice and secondly, the insufficient use of the accounting information systems. It will examine the use and logic of transformation of AIS in the insurance industry. This study departs somewhat from the above practice of focusing on the ways in which specific information technologies affect the operation of organizations but specifically focus on the impact of Accounting Information Systems on the growth and development of the Nigerian Insurance Industry. How does accounting information system contribute to the growth and development of the insurance industry in Nigeria?

1.3 Objective of the Study

The objective of this study is to determine the impact of accounting information systems on the growth and development of insurance company in Nigeria.

1.4 Significance of the Study

The study is of key importance to the selected insurance company as well as other firms in the same sector in terms of determining the benefits accruing due to the integration of accounting information systems in their operations. This enabled insurance firms in gauging the model in terms of enhancing organizational growth and development. The study is useful to other researchers interested in the problem under investigation as the study has laid a platform on which further studies related to the subject can be undertaken.

The study would provide a theoretical basis about accounting information system successful adoption dimension to firms. It would provide practical guidance for accounting information systems implementation in small and medium business and it would also provide empirical and practical contributions for organization in effectively applying accounting information system in their operations.

Accounting information systems provide information about the financial resources, obligations, and activities of an enterprise that is intended for use primarily by external decision makers – investors and creditors. This study provides useful information in making investment and credit decisions.


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