The Impact of Accounting Information System on Decision Making

(A Case Study of Awash International Bank S.C, Mekelle Branch)

By :- Getachew Tefera

ID No CBE/UR 0809/03

Advisor : DR Kiros Habtu

DEPARTMENT OF ACCOUNTING AND FINANCE

COLLEGE OF BUSINESS AND ECONOMICS

MEKELLE UNIVERSI

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 Chapter one: Introduction

1.1 Background of the study

Accounting information system plays an important role to adopt and maintain strategic position
achieving a close fit among activities require that data to be collected about each activity.
Information system collected and integrate both financial and non-financial data about
organization activity.(Davis,1984)

Accounting Information System are specialized sub system of management information system.
Their purpose is to collect process and report information related to financial aspects of business
events. (Steve, 2001) .

Accounting Information System provide information in making decision about organization. An

accounting information system is a collection of resource such as people and equipment designed
to transform financial data in to information. The information is communicated to wide variety
of decision makers (James, 2008)

Generally the purpose of this study is to investigate the impact of accounting information system
on decision making particularly awash international bank S.C Mekelle branch.

1.2. Statement of the Problem.

Computer based documentation in line with accounting theories is called an. Along with this
information the information system is employed which is used to evaluate and verify trade and
business dealing where the sole idea is to prepare financial statement and provide valuable data
to clients. Even though, the current age is all about computers, some information system is still
operated as manual where records are made in large files and log books.

The objective of most organizations is to provide information to their customers. This requires
performing a number of different activities. In general the aim of this study will be to assess the
impact Of accounting information system for decision making.

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 1.3 Organizational Back ground

As the web of Awash international bank indicate river awash international bank was named after
the famous river awash. River awash plays an important role in the economic and social life of

millions of Ethiopians and it is the only rivers that finish its journey with in territorial boundary
of Ethiopia.

Awash international bank formed November 1994 as the first private commercial bank in
Ethiopia after degradation/down fall it started its operation in February 1995. As the web of
Awash international bank indicate the business philosophy listed as follows:

Vision

Is to be the most preferred bank of the public.

Mission

The bank mission is to provide efficient, competitive, diversified, and profitable banking service
to a continuously growing number of customers in a socially responsible manner supported by
appropriate modern technology as well as of qualities trained and motivated team management
and employees imbused with high professional and technical standards.

Values

Public trust and confidence are the very foundation of banking system. The banks believe
growing together with customer. The bank customers are the guest Of honor. The bank realizes
its social responsibility to the society in which it operates.

The bank desire is to build strong and healthy bank of which current and future generation will
be proud of awash international bank S.C the following are few of awash international bank S.C
service offering.

Providing long-term finance for large project. Providing expert advice in banking and finance.
Providing advisory service on policies related to the private sector in Ethiopia.

Providing short term loan and over draft facilities to all sector of economy (trade, industry,
construction, agriculture, transport and etc)

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 Awash international bank S.C provides international banking such as:

Import letter of credit

Export letter of credit Money transfer

Maintenance and operation of nonresident account international new work correspond

banking relation.

1.4 Objective of the study

1.4.1 General objective

The general objective of this study will be to find out the impact of
accounting information system on decision making in awash international
bank S.C, Mekelle branch.

1.4.2 specific objectives

The specific objectives of this study are the following

1. To assess the impact of AIS for making a sound decision.

2. To examine the difference between manual and computerized accounting system.
3. To find out how AIS can add value/support activity to the organization

1.5 Research Questions

1. How effective an organization information system should be to make informed decision?

2. How can AIS add value / support the activity of the organization?
3. How an information system including timely, and accurate accounting information
system, improve the business decision making?

1.6 Significance of the Study

The significance of this study will be seen from the following angles. This study will be expected
to come up with the impact of accounting information system for decision making. Conducting
this research also enhance the research skill of the researcher. To give awareness to users of
AIS/internal and external users about its impact on decision making.

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 1.7 Scope of the study

The scope of the study will be limited to only Awash international bank S.C of dMekelle branch
due to different factors I.e. it may require huge money and long span of time. If the area of the
study unlimited.

1.8. Research Methodology and Design

1.8.1 Research Design

The studies are carried out through descriptive study. Descriptive research design is appropriate
for this study because the impact of accounting information system on decision making is
described in organized way.(Deming,1990)

1.8.2 Source of data and Method of data collection.

The researcher will to use both primary and secondary source of data. The primary data are
collected through interview and questionnaire.

Questionnaire: the study used questionnaire that are distributed to the employee. Of Awash
international bank Mekelle branch. Structure questionnaire is appropriate for this study. The
data collected by this method would provide the attitude, opinion and suggestion of respondents.

Interview: provide an opportunity for interviewer to ask follow up questions and also help
respondents to ask clarity if there are any ambiguities in the question. So this study used
interview (structured and unstructured) with the concerned body of awash international bank S.C
Mekelle branch.

1.8.3 Sampling Technique

Sampling is essential to any research activity because it allow a shorter time and less money.
(Deming, 1990)

The primary objective of sample survey is to obtain accurate and reliable information about the
universe with a minimum of cost, time and energy. This study used simple random sampling.
Under this sampling technique each item in the universe has an equal or known opportunity of

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being selected. It is very simple and easily practicable procedure of selecting samples. In
addition to this method provides most reliable and maximum information at least cost which

Saves time, money and labor. The total populations of awash international bank S.C Mekelle
branch are 29 and out of this the sample size is 20.

Mathematical formula for determining the size of sample

There are three factors that determine sample size one of these are the Degree of confidence level
(c). The higher confidences level the larger sample size and vice versa. The second one is
maximum tolerable error (e) it is maximum error that will be tolerable at specified confidence
level. The last/ third one is population variation (α) A population with high variation require
larger sample size.

n= z2 pqN where n= Sample Size

e (N-1) + Z2 pq Z= From table using confidence level

P= Probability to be selected

q= Probability not to be selected

N= total population

e= error of level confidence

(1.64)2 (0.5*0.5)29

(0.1)2 (29-1) +1.642 (0.5*0.5) =19.5 /0.95 =20.4

1.8.4 Method of Data Analysis

For this study the following method of data collection tools have been used

The researcher after collecting the data will to edit and compile the results are present using both
qualitative and quantitative data analysis method from the data collection through questionnaire
and interview and then analyze by tables to present research finding.

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Chapter Two: Literature Review

2.1 What is accounting?

Accounting is a process of three activities identifying, recording, and communicating the

economic events of an organization (business or non-business) to interested users of the
information. (Hall, 1992)

Accounting has been called the “language of business” because it is a means of communicating
business information. The basic purpose of accounting is to provide information for decision
makers. (Hall, 1992)

2.2 Accounting system and sub-system

System is a set of interdependent element that together accomplish specific objective. System
must have organization, interrelationship, integration and central objective. Each part of system
known as subsystem. (Gelinal, 2011).

2.3 Information System.

An information system is manmade system that generally consists of an integrated set of

computer based and manual components established to collect, store, managing data, and to
provide useful information to users (Gelinal, 2011).

2.4 Accounting information system.

An accounting information system is a collection of resources such as people and equipment

designed to transform financial data in to information. The information is communicated to a
wide variety of decision makers. (Murphy, 2010).

2.5 Decision making

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Decision making is the process of making choices such as what product to sell, in which market
to sell those products, what organizational structure to use and how to direct and motivate
employees. A decision is easy to make when one option will clearly bring about a better outcome
than any other decisions became more difficult when more than one alternative seems reasonable

and when a number of alternatives are great. In business, there can be dozens, hundreds or even
millions of different course of action available to achieve a desired result (Romney, 2003)

2.6 Decision structure

Decision vary in terms of the degree they are structured. Decisions are classified in to three in
this regard: (Romney, 2003)

2.6.1 Structure Decision

Is repetitive, routine, under stood well enough that they can be delegated to low level of
employee in the organization? For example, the decision about extending credit to established
customer requires only knowledge about customers’ credit limit and current balance. Structured
decision often can be automated. (Romney, 2003)

2.6.2 Semi-Structured decision

Characterized by incomplete rule for making the decision and the need for subjective assessment
and judgments and judgments to supplement formal data analysis. Although such decision can’t
be fully automated, they are often supported by computer based decision aids. (Romney, 2003)

2.6.3 Unstructured decision

Is non- recurring and no routine decision. For example, choosing the cover of magazine, hiring
senior management, and etc, No frame work or model exist to solve such problems instead, they
require considerable judgment and intuition. Never the less, unstructured decisions can be
supported by computer based decision aid that facilitates gathering information from diverse
source. (Romney, 2003)

2.7 Users of accounting information system

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As (Murphy, 2002,) said that AIS must provide a decision maker with predictive information for
making important business decision. The users of accounting information fall in to two broad
categories internal and external users. (Murphy, 2002).

2.7.1 Internal Users

Internal users are in a position to obtain financial information in a way that suits their needs. The
primary internal users are managers of the company that involved in the daily affairs of business.
But manager requirement depend on their level in organization or on the particular function they
perform. (Murphy, 2002)

2.7.2 External Users

External users on the other hand are those not involved directly in operation of business need
information that differs from the needed by internal users. Eg-lendors, renders, customers,
government unit, stock holders and soon.

2.8 Types of accounting information system

There are many different types of AIS used in business organization today. The size of
organization, the nature of its process, the extent of computerization, and philosophy of
management affect the choice of the system. Simply to organize the study to AIS (Turner, 2002 )
divided the system in to three categories as follow:

2.8.1 Manual system

Certainly most large or medium size organization used computerized accounting system rather
than manual record keeping system. Rather than manual record keeping system. However, there
are many small organizations that use manual system in the whole, in part to maintain accounting
records b/c system it is important to examine manual process in AIS. An entire manual system
require source documents, paper based ledger, and journal. (Turner, 2002)

2.8.2 Legacy system

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Legacy system is an existing system in operation within organization. A legacy system uses
older technology in organization has a considerable investment and might be entrenched in the
organization. Some legacy systems have been in place for many years, perhaps organization
spent much time developing, maintaining, and customization their system. (Turner, 2002 )

2.8.3 Modern integrated system.

In today AIS environment numerous accounting soft ware are available for purchase that
integrated many or all process with organization. (Turner, 2002 )

2.9 Role of accounting information system to decision makers.

The studies of accounting information system begin with the recognition that information is a
business resource like other business resources of raw material capital and labor. Information is
vital to survival of the contemporary business. Every business day vast quantity of information
flow to decision makers and other users to meet variety of internal needs. (Hall James, 1998).

The value of information is determined by its reliability. The purpose of information is to lead
users to a desired action. For this to happen must possess certain attributes relevance, accuracy,
completeness, and summarization and time lines.

The basic purpose of accounting is to provide information to decision makers.

2.10 Empirical Literature review

AIS is a computer based system designed to transform accounting data in to information can also
include transaction processing cycles, the use of information technology, and the development of
information system. I.e. AIS includes both manual and computerized accounting system.

Even if the above paragraph show the truth, Kaleab Girma (a person who done the research on
AIS, 2010) he said “AIS is generally computer based system designed to transform financial data
in to information”. AIS are not only generally computer based system. I.eprior to automation, all
system were manual in all processing was accomplished via people, pens, and pencils and ledger
books for posting entries. In the manual system, autographic register are used for recording by

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hand each receipt of cash. Each day the cash receipts transactions were journalized by hand, at
the end of the month, the total cash receipt were manually posted to the cash account and to the
room sales account.

As the researcher tried to show the above to the introduction of computer most large compares
maintained their financial information by mean of manual accounting system. When the
activities were done manually, it was time consuming, sometimes in accurate, need more effort,
and fraud would occur and hence it was difficult to control every activity. But, after the
introduction of computer, computer based system also increase the ability of accompany to

Operate profitably in a competitive envit of continual and unpredictable changes in customer

opportunity.

Generally the above point show as there is manual accounting system prior to the introduction of
computer and AIS is not only computer based system it also include manual sy

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Chapter Three: Data Presentation, Analysis and Interpretation

This section focused on interpretation and analysis of data collected from primary and analysis of
data collected from primary and secondary source of data. The primary data were collected
through the use of questionnaire from 20 respondents that work in different unit of the bank
especially finance department and through the use of structured and unstructured personal
interview. The main concern of this chapter is making analysis and interpretation of data towards
investigating the impact of AIS on decision making to reached on the end result.

3.1 Personal attributes of respondents

3.1.1 Respondents age and sex distribution.

Age group No of respondents Respondents sex No of Respondent

in % respondents in %
25-30 8 40% Female 4 20%
30-35 5 25%
35-40 3 15%
40-45 2 10% Male 16 80%
45-50 2 10%
Table 4.1 Respondents age and sex distribution
Source (primary data)
As shown from the above table 80% of the respondents are male and 20% are females. It can be
seen that the number of males and females is not fairly proportional in the department concerned.
This is because of the number of females’ employees less than males’ employees in the bank.

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In addition to the sex distribution, the age groups indicate most respondents are young people.
This has a positive impact to the company. Because most respondents are young people they can
to serve for a long period of time, they are energetic and soon.

3.1.2 Educational level of Respondents

Educational level of respondents No of respondents Respondent in %

Below diploma 0 0%
Diploma 10 50%
BA degree 8 40%
Master and above 2 10%
Total 20 100%
Table 4.2 Educational level of respondents
Source (primary data)
The above table describes the educational level of the employees in different department. From
the total respondents 50% are diploma holders, 40% are BA degree holders, and 10 % are MS
and above. This shows that the focus division has degree and diploma holders of employees.

3.1.3 Work experience of respondents

Work experience No of respondents Percentage %

Less than 1 year 0 0%
b/n 1-3 years 7 35%
b/n 3-5 year 8 40%
Greater than 5 years 5 25%
Table 4.3 Work experience of respondents
The above table indicate that out of the total respondents, of have work experience of 1-3 years,
8 have between 3-5 years, and the rests 5 have above 5 years work experience. The above result
shows that the bank has experienced workers. This have positive impact to the company.

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3.1.4 The level of job responsibility

Level of job responsibility Respondent in No Respondent in %

Non-magt employees 17 85%
Middle mgt employees 2 10%
Top mgt employees 1 5%
Total 20 100%
Table 4.4 the level of job responsibility
Source (primary data)
As it is seen from the above table, 85% of the respondents engaged in non management
activities, 10% of the respondents are engaged in middle management employee, and 5%
engaged in top management employee.

3.2 Respondent opinion towards types of accounting information system in the

bank

3.2.1 Types of accounting information system

respondents in No Respondent in %
Manual 2 10%
Automated 16 80%
Both 2 10%
Total 20 100%
Table 4.5 Types of accounting information system

Source (primary data)

The above table indicates the accounting system of the company follow mostly automated 80%,
manual 10%, and both 10%. As the respondents said the company mostly followed computerized
or automated information system. The reason of most respondent indicate that computerized
accounting information system saves time as many manual functions are handled automatically,
at the same time it will reduce labor cost, it provides necessary information to decision makers
with high clarity, enable to control organizational resource in a computer data base system, and

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effective communication among departments using computerized accounting information
system.

From the above analysis one can conclude that AIS that the company using has strong capability
to help managers meet their objective and help in decision making.

3.3 Respondent opinion towards the attainability of employees relating to

accounting information system

3.3.1 Is all departments communicating effectively through using accounting

information system?

Educational level of respondents No of respondents Respondent in %

Yes 20 100%
No 0 0%
Total 20 100%
Table 4.6 Effective communication among department using AIS

Source (primary data)

As we can see from the above table all the respondents states that each department are
communicate effectively by using accounting information system. All related department are
communicate by using accounting information system will facilitated the performance of
workers to deliver service to their customer and have positive impact on the company.

3.3.2 Is your company gives training on the new system?

Educational level of respondents No of respondents Respondent in %

Yes 8 40%
No 12 60%
Total 20 100%
Table 4.7 Training given by company on the new developed system

Source (primary data)

The above table indicates that 40% of the respondents states that the company are given training
on the new developed system. On the other hand 60% of the respondents reply that the company
does not give training on the new developed system. The manager stated that “training are given
for the staff to prepare them to manipulate the system easily to feed the right information and to
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communicate with other computer, but even if the company give training to the workers on the
new developed system, some workers have no well- organized skill to use and process the
system” this will result on decrease the service performance and also result incorrect decision
making. So it has negative impact on the company.

As there is advantage using computerized accounting information system also there are
limitations. Most respondents indicate using a computerized accounting system comes with its
own set of problems, such as networking problems, the need to protect against data loss through
power failure or viruses, and the danger of hackers stealing data. Computer fraud is also a
concern, and you need to investigate a system of controls for who has access to the information,
particularly customer information. If there is a security breach and data is stolen, management
can be held personally liable for the loss of data. You also need to make sure that the data has
been correctly entered in to the system, as a mistake in data entry can throw of a whole set of
data.

3.4 Role of the current accounting information system for informed decision
making

Management must select a course of action consistent with its objectives in uncertain, complex
and dynamic environment. The management system design to implement operational, managerial
and strategic decision must be supported by an effective and efficient information system. The
information system is a key asset and it must support the organization decision. Information that
is available to a decision maker before it loses its capacity to influence a decision has time lines.

Lack of timeliness can make information irrelevant. Beside this there must be an agreement
between the information of the actual events or objects that the information represents; this will
keep the accuracy of information. Information must be complete; completeness is the degree to
which information includes data about every relevant object or every necessary to make decision.
(Romney, 8th edition, page 35, 36).

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3.4.1 Role of AIS for decision making

Criteria V.good Good Fair Bad V. bad Total

Accuracy 80% 10% 10% 0% 0% 100%
Timeliness 70% 20% 10% 0% 0% 100%
Completeness 75% 20% 5% 0% 0% 100%
Consistency 90% 5% 5% 0% 0% 100%
Table 4.8 Role of AIS for decision making

Source (primary data)

As it seen from the above table there exist well established information system. From the total
respondents majority of them stated that the current accounting information system enable to
control organizational resource in a computer data base system, it helps in accumulating and
summarizing financial report of the company. It provides the necessary information to decision
makers with high clarity.

From the above analysis one can conclude that accounting information system that the company
using has strong capability to help managers to meet their objective and help in decision making.

3.5 Accounting information system towards decision making

In the area of decision making most of the respondents stated that the current system is effective
for decision making through the help of different reports, some agreed by stating it is effective
with some limitation. From this one can understand that more or less the company is effectively
using the accounting information system for decision making.

3.6 Summary of finding

Awash international bank S.C is beneficiary from computerized accounting information system,
which enable to make informed decision making. Even if AIS of the bank help managers to meet
their objective and help in decision making also there is certain problem and limitations.

Effectiveness of accounting information system is measured by accuracy, timelines, completes

and consistency of accounting information system which obtained from the system. Accounting
information system that the bank using currently improve decision making by providing accurate
information on timely manner, which is complete and consistent. Based on this point, awash
international bank AIS can be regarded as effective which greatly improve decision making.

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Based on the main finding with respect to each objective of the study AIS being used by the bank
present sufficient data for making informed decision.

Chapter Four: Conclusion and Recommendation

Accounting is a process of three activities identifying, recording, and communicating the

economic events of an organization (business or non-business) to interested users of the
information. The purpose of accounting information system regardless of the nature of
organization is to aid decision making process by providing information accurately and timely.
This study deals with the impact of accounting information system for making informed decision
and in addition to this its specific objective is to find out how AIS can improve decision making,
to examine the difference between manual and computerized accounting system, to find out how
accounting information system can add value or support the activity of organization, and to
assess the impact of accounting information system for making a sound decision

5.1 Conclusion

Awash international bank S.C is beneficiary of computerized accounting information system

which enables to make informed decision. The company is practicing AIS with certain problem
and limitations.

Based on the main findings with respect to each objectives of the study AIS being used by the
bank present sufficient data for making informed decision. The current accounting information
system of the bank has strong capability to help managers to meet their objective and help in
decision making. It enables to produce effective and important information for required users
(internal and external users)

Effectiveness of accounting information system is measured by the accuracy, timeliness,

completeness and consistency of accounting information which is obtained from the system.
Accounting information system that the bank using currently improve decision making by
providing accurate information in a timely manner, which is complete and consistent. Based on
these points, awash international bank S.C. accounting information can be regarded as effective
which greatly improve decision making.

Accounting information most widely used in the business world is essential part of any business
activity because they are the means to prepare different financial statement according to GAAP
that help the management of the company for decision. Good accounting information should
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have to certain role advantage to the organization. AIS can add value/ support activity to the
bank by providing effective communication among departments, improving the quality and

Reduce the cost of providing service, reduce paper work, easy to access data that help for the
management, providing necessary information to decision makers with high clarity, improve
efficiency by providing timely information and so on.

Many factors affect the structure of the AIS with in a particular organization. Among the most
important are the company need accounting information and the resource available for operating
system. Even though, Awash international banks is practicing good AIS, there are some factors
that affect the smooth operation of the bank AIS. such as Lack of continuous training on the new
developed system to the employee, the banking system need further improvement, in order to
have fully computerized system and so on.

5.2 Recommendation

Companies in Ethiopia have to start and use the system, if they want to be successful in today
worldwide market. There are several advantages that AIS give. A few include, improve customer
service, better decision making ability, improved efficiencies, higher competitive advantage and
so on.

Based on the study the following suggestion and recommendation are made on AIS of Awash
international bank S.C

Many of employees are not getting continuous training on the new developed system so
continuous training and its availability is highly mandatory because without how know to
perform it is very difficult to get an accurate out comes. In order to facilitate and increase the
working condition, future improvements are needed to have fully computerized services.

Generally, the AIS of the company is effective for making decision and its role is important for
survival of the company.

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References

Romney and stain Bart, 2003, Accounting information system, 9th edition, pentice Hall USA,

Hall James, AIS, concept and practice for effective decision making, 2nd edition, 1984,

Fess and warren, Accounting principles, 16th edition, south-western publishing company,

Deming,W.E, sample design in business research, Newyork: John wiley and sons,

Raj, Des, The design of sample surveys, Newyork: MC graw-HILL,

Turner, Lesile, Accounting information system: Control and the processes, 2009,

Letich, Rovert A. Accounting information system theory and practice, 2 nd edition New Jersey:
prentice Hall, 1992

Steve G. sution, accounting information system, 2001,

l.Murphy, AIS, 3rd edition, 2002

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 APPENDIX

Questionnaire to be filled by the employee of awash international bank S.C jimma branch

Dear respondent

My name is Teshome Mekonnen I am accounting student in Jimma University. The following

questionnaire is prepared to collect data on the impact of accounting information system on
decision making of awash international bank S.C Jimma branch the research is being undertaken
as a part of requirement for the award of B.A program

Confidentiality

I assure you that all information obtained through these questioners shall be used for academic
purpose only and will be handle and with the highest order of confidentiality.

You are requested to answer truth fully and the best of your knowledge where appropriate place
an “X” remark in the box of your choice and explain the space provides

I thank you in advance for sparing your time to complete this questionnaire

1. personal information
Age____________ sex ____________

Your primary job function

2. Education background
Ms and above  B.A 

Diploma  below diploma 

3. work expressive
Below 1 year  1-3 year 

Between 3-5  above 5 year 

4. what is the level of your job responsibility

Non management employees 

Middle management employees 

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 Top management employee 

5. What type of accounting information system the companies follow?

Manual  automated  both 

6 .Which type accounting information system is mostly used and why?

_____________________________________________________________________________________
___________________________________________________________

7. How effective your company accounting information system for decision making?

Very good  good fair  bad  very bad 

8. What are the problems or limitations related to computerized accounting system?

_____________________________________________________________________________________
___________________________________________________________

9. Is all related department communicate effectively through using accountings system?

Yes  No 

10 .is your company gives training on the new system?

Yes  No 

11. How do you rate accounting information which exist in your bank ?

Criteria V. good Good Fair Bad v. bad

Accuracy

Time lines

Completeness

Consistency

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12. How do you compare the company accounting system with the principles of accounting system?

Principle of accounting system Strong Weak

Cost effectiveness

Flexibility to meet future need

Adequate internal control

Effective report

Sample question to be asked on interview

1. What look like the company accounting system from your point of view?
2. In what way you express the relationship between the accounting system profit
measurement and management?
3. What do you think the advantage of using computerized accounting system to
management?
4. In your a assumptions what are the major problem that are logical behind the process using
accounting information system and what are the suggestion?

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