2.1 look so far ahead, we can

2.1
Introduction

The
use of Accounting Information Systems (AIS) is a widely researched topic. While
there is much research on the impact of Accounting Information Systems (AIS) in
general; there is little research specifically on Computerized Accounting
System (CAS) and its impact on financial management. Computerized Accounting
Systems (CAS), however, is widely used in many corporate bodies including SMEs.
For example, in Australia, the Yellow Pages (1997) reported that 76% of the
small businesses surveyed had at least one computer and 75% of these used accounting
software. Burgess(1997) in his view of IT adoption by Australian small
businesses concluded that the main software application package used was
accounting (Burgess 1997 and Wenzler 1996).To investigate the impact of
Computerized Accounting Systems(CAS) on financial management, it would be
reasonable to first review the more comprehensive literature on CAS and financial
management. This literature review, therefore, begins with a discussion of the
brief history of accounting, manual accounting systems and then review studies
specifically focused on Computerized Accounting Systems and financial
reporting. It will also take into account the history and financial management requirement
of Kenyan banks.

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2.2
Theoretical literature

In
this section of the literature review, we will look at some of the theoretical
information on accounting and its roles in financial management, methods of
computerization in accounting, types of accounting systems, principles of
computerized accounting systems, computers and computer trends, types and uses
of computers, accounting packages, application of computers in accounting
system, merits and demerits of computerized accounting systems, effects of
computerized accounting systems in performance of banking industry in Kenya,
and the organizational profile of KCB bank.

2.2.1
Accounting

Accounting
is not only the oldest but also the most stable of the management disciplines.
In spite of its stability and continuity, accounting has seen major changes
during the past century. It would be surprising if a century from now,
accounting is the same as today. Although we cannot look so far ahead, we can
analyze the current conditions for clues about what to expect in the next
decade or two (Sunder1999). Accounting provides financial information about a
business or a not-for-profit organization. Owners, managers, investors and
other interested parties need financial information for decision making.
Financial accounting is the art of systematically identifying, measuring,
recording, classifying and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of financial nature, and
communicating, analyzing and interpreting the results there of (Woode &
Sangster, 2008).

2.2.1.1
Role/Functions of Accounting 

According
to Sunder (1997) a business organization can be seen as a set of contracts
among various participants: employees, shareholders, customers, vendors,
managers, creditors, auditors, government, among others. Each party in the
contract agrees to contribute resources. For example, employees and managers
contribute skills, shareholders and creditors contribute capital, vendors
provide machinery and materials, and customers provide cash. Each participant
demands an inducement at least as large as the opportunity value of his
contribution to the organization. For an organization to succeed, its
production technology and set of contracts must satisfy each one of its
participants. If he can get more elsewhere, he will quit the organization. If
enough people quit, the organization collapses. They therefore argued that,
accounting is necessary to assemble, implement, enforce, modify, and maintain
the contract set of organization. Accounting therefore plays five main
functions in an organization. The first requirement of control is to devise a
system of measuring the contributions made by each agent. It should also
determine the amount of incentive due them, and monitor the distribution of
inducements so that each agent receives his due, no more and no less.   In addition, accounting helps compare the
contributions made and the incentives received by each participant and
distributing this information. Furthermore, accounting distributes information
to various factor markets to keep them liquid and find replacements for
participants who leave. Finally, accounting makes some information available in
the form of common knowledge or public disclosure to help reduce conflict among
participants at the time they re-negotiate their contracts (Sunder1997). In its
second function, the accounting system measures, records, and controls the
outflow of resources from the organization. Payroll and benefit accounts for
employees, shipping to customers, accounts payable to suppliers, and tax
accounts measure the out flow of resources to the government (Sunder1997). In
its third function, the accounting system compares the data on resource inflows
and outflows to determine who has fulfilled his contract and to what degree.
The accounting system prepares comparative reports on resource inflows and
outflows related to various individuals in the organization. These statements
are used to evaluate and adjust the contracts of these individuals
(Sunder1997). In a fourth function, accounting helps assemble and maintain the
contract set by finding the appropriate participants in the factor markets for labor,
managers, customers, suppliers, and investors among others. All these people
must be convinced that participating in such an enterprise is in their own best
interests. Proforma financial statements, business plans, and budgets prepared
by the organization before the enterprise starts functioning help agents assess
the costs and benefits of participating in the proposed enterprise in various
roles. When contractual slots fall vacant, they must be filled from the factor
markets (Sunder1997). Finally, when contract terms expire, they   are often re-negotiated under changed
circumstances. Agents are tempted to issue threats, to quit their position in
the organization if their terms were not revised in their favor. Such bluff
sand threats sometimes lead to deadlock in negotiations, strikes, and therefore
dead weight losses to society. Accounting performs its fifth function by
sharing at least a minimal set of information among the negotiating parties to
make it common knowledge, and help reduce the chances of breakdown. This is the
primary purpose of public disclosure in larger organizations (Sunder 1997).
Conclusively, an organization can be seen as a set of contracts or alliances
among many people who join them with the expectation of gain. Accounting,
therefore, is the mechanism that defines implements, enforces, modifies, and
maintains this system of contract.