CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Accounting information is the results of accounting processes, generally presented

in a form of financial statement (Kieso, 2012:5) or an annual report (Maurice,

1994). If scrutinized, most of every definitions of accounting states that accounting

information is the output of accounting processes. Organization of any kind

always needs accounting information for economic decision making (Kieso, 2012).

Accounting information is used for such things as investment decision, stewards

evaluation, monitoring activities and regulatory measures (Hansen &Mowen,

1995). By using accounting information, decision makers would obtain

information on the future of their companies, such as forecasting that involves

annual plans, strategic plans, and decision alternatives (Susanto, 2008). The users

are interested in using the accounting information, becouse those information has

fulfilled a decision-usefulness-information criterion (Kieso, 2012). In a strategic

perspective, accounting information itself is one of the aspects of a company’s

competitive advantage (Baltzan, 2012). Useful accounting information is an one

that fits for used by the information user (Wang & Strong, 1996), or one that
cause user take to desirable actions (Hall, 2011), or one that may help the users in

making proper decisions (Gellinas et al, 2012).

Accounting information quality is information with characteristics/attributes that

make the accounting information valuable for the users (O Brien, 1996). The

quality of accounting information comes from the implementation of an accounting

information systems quality (Sacer, 2006. Baltzan, 2012). Among of author use

different terminologies when describing the quality of accounting information

system, such as: effectiveness, success, usefulness, efficiency, user satisfaction,

and also the term of quality itself. Gelinas(1990) suggests that the effectiveness of

AIS is a measure of an accounting information system success to meet the

established goals. A quality of accounting information system concerned with the

measurement of output the actual system that produces the ouput (Delon&

McLeod, 2003). An accounting information system quality is an integration of

quality hardware, software, brainware, telecommunication network, data base, and

quality of work and user satisfaction (Sacer, 2006). The governement institutions

of the Nigerian are until currently still faced with a problem of the quality of

accounting information system. That is reflected by the weakness of quality of the

financial statements of: central governments, the ministries and public institutions

and the regionals. In the time period of 2004-2010, results of audit on the financial

statements of central government’s, most of ministries and state agencies, and

regional government still have a qualified opinion categories (Warta BPK, 2010).

Gamawan (2012) said, a target of 50% of the regional governments to attain the

unqualified opinion categories in 2014 is hard to realize. The problem of low

quality of the government financial statements, as a reflection of the poor quality

of the accounting information system, is due to among others the weakness of

internal controlling system (Warta BPK, 2011).

The objective of accounting information systems is to provide the reliable

accounting information on a timely basis (Guan, 2006). An internal control system

is a series of procedures designed such that provide management with reasonable

assurance that the accounting information that provide by an accounting

information system presents is reliable and made available timely (Guan, 2006).

An accounting information system and record keeping will not success in

completely and accurately processing all transaction unless controls, known as

internal control, are built into the system (Millchamp& Taylor, 2008).

The utilization of accounting information system (AIS) effectiveness is extensive

spread of information required by various users of the organisation. It has an effect

on the decision making and assists organisation administrative co-ordination in the

organisation. It is thus founded that effective decision making is important to

organisational performance. This basically describes the link in between the

utilization of Accounting information system and organisational performance.

Taking into consideration the Situation in Nigerian banking sector, current issue

are the adaptable investment trend as well as the adopting of electronic

technologies in the banking sector (Al-Majali, 2011).According to(El-Qirem,

2013)reported that the modern trend of electronic banking application

advancement has called for research related to the antecedent factors to the

utilization of the IS and its upcoming effect on the organisational performance. The

critical success factors that impact the utilization have become a modern research

issue. It is consequently proposed that Nigerian banking industry is now taking the

issue on electronic technologies adoption more very seriously. The issue of

Accounting information system adoption and its influence on the organisational

performance of the Nigerian banking industry commonly can be safely classified

as components of the contemporary issues to Nigerian banking industry.

This research is also motivated to consist of these critical factors, as earlier stated

as antecedents to the achievement of organisational performance by the

organizations that are implementing the said technology. In this case in point,

service quality, system quality, information quality, and data quality are pointed

out. The vast majority of the Nigerian banks depend on accounting systems. They

employ Accounting information system in the process of connecting the services of

the banks industry on its departmental basis because of connection that will create

it reliable, time saving and also customers’ satisfactory (Wedyan, Gharaibeh, Abu-
dawleh, &Hamatta, 2012). From this effort, it is documented that commercial

banks that have implemented AIS in Nigeria have been obtaining competitive

benefit among the others. The utilization of AIS has been indicated as the recipe

for financial performance, most specifically by its capability of showing accurate

financial position to the customers, and a real time update of clients’ banking

activities like transfer, withdrawal and deposit (Hamdan, 2013; Wedyan, 2012).

This basically points to the need of an in-depth research of the influence of the

utilization of AIS on non -financial measures (operation) of the organisational

performance.

1.2 Statement of the Problem

The proliferation of computerized database with relative increase in errors of such

stored data base in organizations which depend on them to support business

process and decision making has been questioned by many analysts. The number

of errors in stored data and the organizational impact of these errors is likely to

increase (Klein 1998).

Also, inaccurate and incomplete data may adversely affect the competitive success

of an organization (Redman 1992). Indeed, poor quality information can have

significant social and business impacts. For example, NBC News reported that

“dead people still eat!” Because of outdated information in US government

databases, food stamps continued to be sent to recipients long after they died.

Fraud from food stamps costs US taxpayers billions of dollars.

Equally, losses in millions incurred by business organizations who were caught

unawares by dramatic changes in interest rates is of great concern to both owners

and management.

In particular, there are consequences of poor data quality in AIS. For example,

errors in an inventory database may cause managers to make decisions that

generate overstock or under-stock conditions (Bowen 1993). One minor data entry

error, such as the unit of product/service price, could go through an organization’s

AIS without appropriate data quality checks, and cause losses to an organization

and / or harm its reputation.

More so, most of the information system research into data quality focuses on the

theoretical modeling of controls and measurement while few studies have

attempted to understand what causes the difference in AIS data quality outcomes,

and what should be done to ensure high quality accounting information.

Most organizations have experienced the adverse effects of decision based on

information of inferior quality. However, not many of them have turned this belief

into effective action. Poor quality information can have significant social and

business impacts.
Therefore, there is lack of knowledge of the CSF for data quality in AIS that can

assist organizations to ensure and improve accounting information quality and

profitability.

These has necessitated the researcher to conduct this research on the application

and use of accounting information debt ratio and current ratio by firms and thus its

effect on the profit before tax and earning per share of some selected firms in Port

Harcourt.

1.3 Aim and objectives of the Study

The core aim of the study is to analyse empirically the relationship between

accounting information system and financial performance of firms in Port

Harcourt.

The specific objectives are to:

1 Ascertain the relationship between decision support system and return on

assets.

2 Ascertain the relationship between decision support system and return on

equity.

3 Evaluate how transaction processing system relates to return on assets.

4 Determine the relationship between transaction processing system and

return on equity.
1.4 Research Question

1. What is the relationship between decision support system and return on

assets?

2. How does decision support system relate to return on equity?

3. What is the relationship between transaction processing system and return

on assets?

4. How does transaction processing system relate to return on equity?

1.5 Research Hypotheses

Ho1 Decision support system does not relate significantly to return on assets.

Ho2 There is no significant relationship between decision support system and

return on equity.

Ho3 Transaction processing system does not relate significantly to return on

assets.

Ho4 There is no significant relationship between transaction processing system

and return on equity.

1.6 Significance of the study

This study will be useful to the following

Business Firms: it will give them a better understanding about the effect of

accounting information system and financial performance of firms in Nigerian.

Scholars: this study broadens the knowledge of accounting students on accounting

information system and financial performance and also teaches them how to use

internal control practices.

Investors: This study will teach investors how to manage and be cautious on

investments so as to know if they are maximizing profit or loss and also how to

plan for the future.

Creditors: This study will serve as a source of data to them and also increase their

knowledge.

Shareholders: this study enables them to work in line with the standard set for the

organization.

1.7 Scope of the study

Scope: The study scope was discussed under three perspectives – content scope,

geographic scope and unit of analysis.

a. Content Scope: The content scope of this study is streamlined to the

relationship between accounting information system and financial

performance of quoted firms in Nigeria. The study shall also examine the
 likely benefits and challenges accounting information system may pose on

financial performance of firms.

b. Geographic Scope: Geographically, the review of extant literature cuts

across the industry in Nigeria. However, the analysis was carried out in Port

Harcourt, Rivers State, Nigeria.

c. Unit of Analysis: Since the study is focused on the influence of accounting

information system and financial performance, in Nigeria, the unit of

analysis was at the microeconomic level.

1.8Definition of Terms

Accounting information system: it is the collection, storage and processing of

financial data used by firms to report information to shareholders

Decision Support System: is a computer-based application that collects, organizes

and analyzes business data to facilitate quality business decision-making for

management, operations and planning.

Financial performance: it is a measure of how well a firm can use assets from its

mode of business and generate revenue.

Return on Assets: it is an indicator of how profitable a company is relative to its

total assets.
Return on Equity: a measure of financial performance calculated by dividing net

income by shareholders equity.

Transaction Processing System:  is an information processing system for

business transactions involving the collection, modification and retrieval of

all transaction data. 

1.9 Organization of study

The study was organized into five chapters.

Chapter one anchors on introduction. This section discusses the background of the

study, statement of the problem, conceptual framework, objectives of the study,

purpose, the research questions, the research hypotheses, significance of the study

and scope and limitation of the study.

Chapter two reviewed related theoretical, conceptual and empirical literature on

accounting information system and financial performance of firms.

Chapter three deals with the methodology used in data collection and analysis

which includes research design, population of study, sample and sampling

techniques, nature of data, methods of data collection, validity and reliability of

instrument.
Results and discussion will be presented in chapter four which is made up of

presentation of data in table, data analysis and discussion of findings.

Finally, chapter five will discuss the summary, conclusion, recommendations and

contribution to knowledge.
 CHAPTER TWO

LITERATURE REVIEW

2.1 Theoretical Framework

Schoderbek, (1980) have defined the system by using the following words:

“It is a set of parts that connected with each other and with circumferential

environment, which those parts working as one group, to achieve the system goals,

In (Pincus, 2000) view “System is a combination of parts to form a complex

whole” All the authors have suggested the classification of the systems according

to the interaction with its environment up to four types:

1. Opened system: is the interaction with external environment which can

influence and be influenced by it, which takes its inputs from the circumference

environment, and the outputs influence in the environment, the opened system

outputs represent environment inputs. For example human, bank, management,

market etc. The opened system is always the effective parts by the other

components outside the system (bounder) boundaries.

2. Closed system: is the uninteresting with external environment, does not

influence, and remains unaffected by the external environment; consequently, there

are no outputs from or inputs to the external environment. Existence of the closed
system is not seen in real life. The closed system does not influence by the

circumference environment; its work limitative in the system boundary. The

closed system is considered as a theoretical case more than practical case, the

example of closed system is: systems of transportation by air and overland effects

by the weather and climate circumstances.

3. Relatively closed system: The system is considers relatively closed if it interacts

with its circumference environment by specific, identified, methods and applicable

to control, and considered the results of environment interaction with the system as

the system’s inputs. The results affected on the circumference environment as the

system’s outputs. For example; the airlines companies use the radars and other

techniques to work in frame of the bad weather to avoid the incidents which can be

resulted of that circumstances.

4. Feedback control systems: the system is considered to be one of the set of the

feedback control systems, if it happened return some of outputs to the system in

form inputs to the system. Always, design the multi accounting systems to provide

the possibility of feedback system for controlling purposes.

Different authors presented their opinions about information, the researcher

viewpoint agrees with the following definitions: “Information: is a data evaluated

for a specific purpose.

“Information: is created by an information system that manipulates data into a

form useful for decision-making”.

Pincus, (2000) further makes it clear which defined data as raw facts and figures;

raw facts and figures are the starting point (the input) for creating information. The

transformation of data into information, which is referred to as data processing or

information processing, may involve many different activities. These activities are

recording, classifying, merging, sorting, summarizing, analyzing, and verifying

data, as well as retrieving, reporting, and transmitting information.

Various studies and searches explain information system; the researcher will

present some of those explanations as below;

Information system is a combination of people, equipment, policies, and

procedures that work together to capture data and transform it into useful

information.

Husain (1997) explained his definition as that system which contains a group of

harmonized and interrelated of business, components, and resources which

grouping, processing, managing, and controlling the data for producing and

carrying the useful information for decision makers through network of the

channels and communication lines.

Stambaugh and Carpente, (1992) counted in briefly the Information characteristics

as follow:

1- Provided on timely basis.

2- Presented in an aesthetically appealing format.

3- Relevant to the decisions at hand.

4- Concise yet sufficient in scope to allow” what-if” analysis.

5- flexible to interface with information from other functional units.

There is also a several characteristics determine the qualities that make information

valuable:

1. Costs-versus-benefits: sometimes information costs more to get additional

information than the information is worth. Thus, cost-benefit considers provide an

overall constraint on the amount of information a decision-maker will get.

2. Understandability/Granularity/Aggregation: Many factors can contribute to the

understandability of information, including user knowledge, skill, training, and

motivation. In addition, information design choices such as its level of aggregation

(or granularity) will affect its understandability, hence, its usefulness for

controlling information integrity. For some purposes, highly aggregated

information may be called for; whereas for other purposes, very detailed
information may be required. Thus, appropriately tailored levels of

granularity/aggregation can be enablers of information integrity. A proxy for the

understandability of information is its conformity with userspecified requirements.

3. Reliability: the information must be reliable, you must be able to count on its

being what its purpose to be (this is known, more formally, as repressentational

faithfulness), and on its being reasonably free from error and bias (this is known,

more formally, as neutrality) . Additionally, for information to be reliable, it ought

to be true if several different people(or systems)set out to derive the information

from the data, they would all come to the same conclusion (this know, more

formally, as verifiability). Infomration that is not veriable , or not neutral, or not

represetationally faithful can’t be relied on for decision-making.

4. Currency/ Timeliness: It must be accepted that absolute completeness and

accuracy are impossible or impractical to achieve. Information Currency is affected

by real world changes over time (as well as by information processing delays) with

a commensurate impact on information accuracy. Since time is continuous,

completeness and accuracy must be understood in a context that defines acceptable

limits for information currency, hence accuracy. For example, if certain

information, such as cash receipts is only updated on a weekly basis to accounts

receivable, then accounts receivable could be considered accurate if it was missing

a day’s worth of transactions. However, if information such as airline reservation

transactions updates available seat inventory in real time, then seat inventory

would be considered unacceptably inaccurate if a day’s worth of transactions were

omitted. As presented here, processing timeliness and information currency are

really aspects of information completeness, which in turn, determines the degree of

accuracy that information possesses; however, because of their unique relationship

to the dimension of time and the change that time engenders, it is useful to identify

currency/timeliness as separate attributes of information integrity.

5. Validity/Authorization: Representational faithfulness of information about

intangible objects implies that the information is valid in ways other than

correspondence with an original physical condition. The concept of validity means

that information represents real conditions, rules or relationships rather than

characteristics of physical objects. In a general context, conditions, rules or

relationships are valid if what they purport is true.

In a business context, conditions, business rules or relationships are established or

approved by parties with the delegated authority to do so. Thus, transactions are

valid if they were initiated and executed by personnel or systems that have been

granted the authority to do so and if approvals are authentic and within the scope of

the authority granted to the approver(s). For example, if the credit limit assigned to

a customer reconciles to the company’s rules and procedures used to set credit

limits, the credit limit would be “valid.” Thus, the concept of validity includes
elements of both accuracy and authorization. A validation process may therefore

require an investigation of an individual item, a relationship between one item and

another item, or a relationship between an item and a business rule, policy or

standard.

6. Completeness: Accuracy by itself is insufficient to convey the full

dimensionality of the requirements for representational faithfulness which requires

completeness of information in both space and time. Thus, there is a fundamental

trade-off between completeness and accuracy because measurement and

processing limitations of information processing systems will prevent 100% real-

time completeness, especially for subject matter that changes frequently.

2.2 Conceptual Framework

2.2.1 Accounting information system

The value of information is directly linked to how it helps decision makers achieve

their organization’s goals. Valuable information can help people and their

organizations perform their tasks more efficiently and effectively (Stair and

Reynolds, 2012). Furthermore, information of high quality, that is, information

product whose characteristics, attributes, or qualities help makes it valuable to

them (O Briens, 2004). The quality of accounting information can be explained by

several dimensions.
Hall (2011) suggests that the dimensions of information quality consist of:

relevance, timeliness, accuracy, completeness, and summarizing. Moreover,

Gelinas (2012) and McLeod (2007) put forward that dimensions of the quality of

information are: accurate, timely, relevance, and completeness.

Hicks (1993) stated that relevance, timeliness, accuracy and verifiability as the

criteria of information quality. Whereas Maurice (1994) and O’ Briens&Marakas

(2010) summarizes the important of information and groups them into three

dimensions, namely: time (consist of: timeliness, currency, frequency, time

period); content (accuracy, relevance, completeness, conciseness, scope,

performance) and form (clarity, detail, order, presentation, media) In this study, the

dimensions of accounting information quality are:

(1) Relevancy. The Extent to which data is applicable and helpul for the task at

hand (Wang & Strong, 1996), the contents of a report or document must serve a

purpose (Hall, 2011).

(2) Accuracy. The Information must be free from material errors (Hall, 2011).

(3) Verifiability, the ability of confirm the accuracy of information by tracing

information to its original source (Hicks, 1993)

Accounting information system is a collection of data and processing procedures

that creates needed information for its users (Bagranof et al, 2011). Accounting
information systems (AISs) is a collection of resources, such as people and

equipment, designed to transform financial and other data into information. This

information is communicated to a wide variety of decision makers. AISs perform

this transformation whether they are essentially manual systems or thoroughly

computerized (Bodnar& Hopwood, 2010).

According to Stair & Reynolds (2010), an accounting information systems quality

is usually flexible, efficient, accessible, and timely. Seddon (1997) state that an

information system success thus conceptualized as a value judgment made by an

one from stakeholders’ viewpoints. Moreover, Gelinas&Wriggins (1990) suggest

that the effectiveness of accounting information systems is a measures of

accounting information system success to meet the established goals. Meanwhile,

Delon& McLean (1992) state that the quality of system is concerned with the

measurement of the actual system in producing output. D&M IS Success Model

developed by Delon& McLean (1992) and The Technical Acceptance Model

(TAM) developed by Fred Davis (1989) are widely used as references by many

authors in measuring the dimensions of accounting information system success. In

D&M IS Success Model, the quality of AIS is accounted for by using six

dimensions, namely: (1) system quality, (2) information quality, (3) use, (4) user

satisfaction, (5) individual impact and (6) organizational impact. In Technical

Acceptance Model (TAM) (1989) the factors that can lead the best attitudes to a
system and then receive and apply the system are used as the measure of

accounting information system success, namely: (1) perceived usefulness, (2)

perceived ease of use, and (3) actual use (usage). Then, a related model is also

proposed by Seddon (1997) which includes: system quality, information quality,

perceived usefulness, user satisfaction, and information systems (IS) use. Within

the context of the current study, perceived usefulness, perceived ease of use and

Information system (IS) use (usage) will be considered as a well-respected

dimensions of Accounting Information Systems Quality. Perceived usefulness,

refers to the degree to which a person believes that using a particular system would

enhance his or her job performance (Davis, 1989). Whereas perceived ease of use

refers to the degree to which a person believes that using a particular system would

be free effort (Davis, 1989). As for an Information system (IS) use (usage) refers

to and manner in which a person utilizes the capabilities of an information systems

(Petter, 2008),

2.2.2 Decision Support System

Decision support systems (DSS) are interactive software-based systems intended

to help managers in decision-making by accessing large volumes of information

generated from various related information systems involved in organizational

business processes, such as office automation system, transaction processing

system, etc.
DSS uses the summary information, exceptions, patterns, and trends using the

analytical models. A decision support system helps in decision-making but does

not necessarily give a decision itself. The decision makers compile useful

information from raw data, documents, personal knowledge, and/or business

models to identify and solve problems and make decisions.

2.2.2.1 Programmed and Non-programmed Decisions

There are two types of decisions - programmed and non-programmed decisions.

Programmed decisions are basically automated processes, general routine work,

where −

 These decisions have been taken several times.

 These decisions follow some guidelines or rules.

For example, selecting a reorder level for inventories, is a programmed decision.

Non-programmed decisions occur in unusual and non-addressed situations, so −

 It would be a new decision.

 There will not be any rules to follow.

 These decisions are made based on the available information.

  These decisions are based on the manger's discretion, instinct, perception

and judgment.

For example, investing in a new technology is a non-programmed decision.

Decision support systems generally involve non-programmed decisions.

Therefore, there will be no exact report, content, or format for these systems.

Reports are generated on the fly.

Attributes of a DSS

 Adaptability and flexibility

 High level of Interactivity

 Ease of use

 Efficiency and effectiveness

 Complete control by decision-makers

 Ease of development

 Extendibility

 Support for modeling and analysis

 Support for data access

 Standalone, integrated, and Web-based

Characteristics of a DSS

 Support for decision-makers in semi-structured and unstructured problems.

 Support for managers at various managerial levels, ranging from top

executive to line managers.

 Support for individuals and groups. Less structured problems often requires

the involvement of several individuals from different departments and

organization level.

 Support for interdependent or sequential decisions.

 Support for intelligence, design, choice, and implementation.

 Support for variety of decision processes and styles.

 DSSs are adaptive over time.

Benefits of DSS

 Improves efficiency and speed of decision-making activities.

 Increases the control, competitiveness and capability of futuristic decision-

making of the organization.

 Facilitates interpersonal communication.

 Encourages learning or training.

  Since it is mostly used in non-programmed decisions, it reveals new

approaches and sets up new evidences for an unusual decision.

 Helps automate managerial processes.

Components of a DSS

Following are the components of the Decision Support System −

 Database Management System (DBMS) − To solve a problem the necessary

data may come from internal or external database. In an organization,

internal data are generated by a system such as TPS and MIS. External data

come from a variety of sources such as newspapers, online data services,

databases (financial, marketing, human resources).

 Model Management System − It stores and accesses models that managers

use to make decisions. Such models are used for designing manufacturing

facility, analyzing the financial health of an organization, forecasting

demand of a product or service, etc.

Support Tools − Support tools like online help; pulls down menus, user

interfaces, graphical analysis, error correction mechanism, facilitates the

user interactions with the system.

Classification of DSS

There are several ways to classify DSS. Hoi Apple and Whinstone classifies DSS

as follows −

 Text Oriented DSS − It contains textually represented information that

could have a bearing on decision. It allows documents to be electronically

created, revised and viewed as needed.

 Database Oriented DSS − Database plays a major role here; it contains

organized and highly structured data.

 Spreadsheet Oriented DSS − It contains information in spread sheets that

allows create, view, modify procedural knowledge and also instructs the

system to execute self-contained instructions. The most popular tool is

Excel and Lotus 1-2-3.

 Solver Oriented DSS − It is based on a solver, which is an algorithm or

procedure written for performing certain calculations and particular

program type.

 Rules Oriented DSS − It follows certain procedures adopted as rules.

 Rules Oriented DSS − Procedures are adopted in rules oriented DSS. Export

system is the example.

  Compound DSS − It is built by using two or more of the five structures

explained above.

Types of DSS

Following are some typical DSSs −

 Status Inquiry System − It helps in taking operational, management level, or

middle level management decisions, for example daily schedules of jobs to

machines or machines to operators.

 Data Analysis System − It needs comparative analysis and makes use of

formula or an algorithm, for example cash flow analysis, inventory analysis

etc.

 Information Analysis System − In this system data is analyzed and the

information report is generated. For example, sales analysis, accounts

receivable systems, market analysis etc.

 Accounting System − It keeps track of accounting and finance related

information, for example, final account, accounts receivables, accounts

payables, etc. that keep track of the major aspects of the business.
  Model Based System − Simulation models or optimization models used for

decision-making are used infrequently and creates general guidelines for

operation or management.

2.2.3 Transaction Support System

A transaction processing
system performs routine,
day-to-day operation
of a business that helps a
company add value to its
products and
services.
 It requires a large
amount of input data and
produces a large amount of
output without requiring
sophisticated or complex
processing.
 Examples are, order
entry, inventory control,
payroll, accounts payable,
accounts receivable, and
general ledger.
 An automated TPS
consists of all the
components of a CBIS
such as
hardware, software,
databases,
telecommunication, people,
and
procedures.
 A transaction processing
system serves the
foundation of other
systems,
such as MIS, DSS, and
AI/ES. These systems
handle less input and
output, but more
sophisticated and complex
processing.
A transaction processing
system performs routine,
day-to-day operation
of a business that helps a
company add value to its
products and
services.
 It requires a large
amount of input data and
produces a large amount of
output without requiring
sophisticated or complex
processing.
 Examples are, order
entry, inventory control,
payroll, accounts payable,
accounts receivable, and
general ledger.
 An automated TPS
consists of all the
components of a CBIS
such as
hardware, software,
databases,
telecommunication, people,
and
procedures.
 A transaction processing
system serves the
foundation of other
systems,
such as MIS, DSS, and
AI/ES. These systems
handle less input and
output, but more
sophisticated and complex
processing.
A Transaction Processing System or Transaction Processing Monitor is a set of

information which process the data transaction in database system that monitors

transaction programs (a special kind of program).

The essence of a transaction program is that it manages data that must be left in a

consistent state. E.g. if an electronic payment is made, the amount must be either

both withdrawn from one account and added to the other, or none at all. In case of

a failure preventing transaction completion, the partially executed transaction must

be 'rolled back' by the TPS. While this type of integrity must be provided also for

batch transaction processing, it is particularly important for online processing: if

e.g. an airline seat reservation system is accessed by multiple operators, after an

empty seat inquiry, the seat reservation data must be locked until the reservation is

made, otherwise another user may get the impression a seat is still free while it is

actually being booked at the time. Without proper transaction monitoring, double

bookings may occur.

Other transaction monitor functions include deadlock detection and resolution

(deadlocks may be inevitable in certain cases of cross-dependence on data), and

transaction logging (in 'journals') for 'forward recovery' in case of massive failures.

Transaction processing systems were among the earliest computerized systems.

Their primary purpose is to record, process, validate, and store transactions that

take place in the various functional areas/of a business for future retrieval and use.

A transaction processing system (TPS) is an infor- mation system that records

company transactions (a transaction is defined as an exchange between two or

more business entities).

Transaction processing systems (TPS) are cross-functional information systems

that process data resulting from the occurrence of business transactions.

Transactions are events that occur as part of doing business, such as sales,

purchases, deposits, withdrawals, refunds, and payments. Transaction processing

activities are needed to capture and process data, or the operations of a business

would grind to a halt.

Characteristics of Transaction Processing Systems

1. A TPS records internal and external transactions for a company. It is a

repository of data that is frequently accessed by other systems

2. A TPS performs routine, repetitive tasks. It is mostly used by lower-level

managers to make operational decisions

3. Transactions can be recorded in batch mode or online. In batch mode, the files

are updated periodically; in online mode, each transaction is recorded as it occurs.

4. There are six steps in processing a transaction. They are data entry, data

validation, data pro- cessing and revalidation, storage, - output generation, and

query support.

2.2.4Financial Performance

A firm’s financial performance is critical to its health and survival. A firm’s high

performance reflects its effectiveness and efficiency in the management of its

resources for operational, investment and financing activities (Naser&Mokhtar,

2004). While there exists a large and growing body of theoretical and empirical

literature the financial performance of listed firms, it is inconclusive on both the

measurement and determinants of firms’ financial performance (Liargovas &

Skandalis, 2008). Past studies have proxied the financial performance of firms by

EPS, PBT, PAT, ROA, ROE, ROI and Tobin’s Q (Tobin, 1956). These studies

remain inconclusive on which of these proxies is theoretical and/or empirically the

best measure of a firm’s financial performance. Consequently, like previous,

previous studies have employed all or some of these proxies of the firm’s financial

performance.

Past studies have identified both firm specific (internal) factors (including

corporate governance, leverage, and liquidity and firm size) and industry specific

(external) factors (including growth, concentration, capital intensity, advertising

intensity, etc.) as key determinants of the financial performance based on capital

structure relevance; working capital management; and organizational behavior

theories. The capital structure relevance theories underpinning the identified

factors include the tradeoff theory (Chirinko&Singha, 2000), pecking order theory

(Myers, 1984), free cash flow theory (Jensen, 1986; Dorff, 2007)), agency theory

(Berle& Means, 1932; Elliot et el., 2002) and the Modigliani and Miller capital

structure relevance theory ( Modigliani & Miller, 1958,1963; Myers, 2001;

Brigham &Ehrhardt, 2004) and emphasize the role of leverage on the firm’s

performance.

The working capital management theories of Baumol (1952), Tobin (1956) Miller-

Orr (1966) Dash and Ravipati (2009), Stone (1972) Srinivasan and Kim (1986) and

Opleret el. (1999) emphasize the role of liquidity the firm’s performance. The

organizational behavior theories capture the multidimensional aspects of the firm’s

performance including the effects of structure (corporate governance), systems,

firm size, history (age), and organizational climate factors (e.g. top management
team characteristics, motivation, group dynamics, decisionmaking practices,

leadership, communication flow, goal emphasis and planning, job conditions, etc.)

(Hansen &Wernerfelt, 1989; Hambrick& Mason, 1984).

Previous empirical literature is inconclusive on the relative importance of firm

level (internal) and industry level (external) determinants of the firms’ financial

performance during any state of the economy. While some studies (Hawawini,

Subramanian, &Verdin, 2003) argue that industry or external firm factors outplay

internal factors in influencing the firms’ performance, others (Opler& Titman,

1994) argue that internal (firm specific) factors outplay external factors in driving

the firms’ performance.

In an effort to validate MM theory in Nigeria, Maina and Kondongo (2013)

investigated the effect of debt-equity ratio performance of firms listed at the

Nairobi Securities exchange. A census of all firms listed at the Nairobi Security

Exchange from year 2002-2011 was the sample. The study found a significant

negative relationship between capital structure (DE) and all measures of

performance. The results collaborated MM theory that indeed capital structure is

relevant in determining the performance of a firm. The study further found that

that firms listed at NSE used more short-term debts than long term.
Abdul (2012) conducted a similar study to determine the relationship between

capital structure decisions and the performance of firms in Nigeria. The study

concluded that financial leverage has a significant negative relationship with firm

performance as measured by ROA, GM, and Tobin’s Q. The relationship between

financial leverage and firm performance as measured by the return on equity

(ROE) was negative but not statistically significant. In another study, Javed and

Akhtar (2012) explored the relationship between capital structure and financial

performance. They concluded that there is a positive relationship between financial

leverage, financial performance, and growth and size of the companies.

Daily and Dalton (2008) did an assessment on the corporate Governance in

manufacturing firms in the USA. Corporate governance was found to be positively

related with business survival. Liargovas and Skandalis (2008) did a study on the

financial performance and size of manufacturing firms in Greece. They found that

financial performance of majority of the firms was affected by firm size. They

argued that firm size is a basis of competitive advantage in the sense that larger

companies tend to be more efficient than their smaller counterparts and have better

resources to survive economic downturns.

Nosa and Ose (2010) did a study on the effect of capital structure on corporate

Performance of during economic downturns in Nigeria. Stratified random sampling

was used to select 20 firms from which 200 respondents were sampled. The
findings indicated that leverage has a significant and negative relationship with

firm’s performance.

Finally, the majority of the studies have focused on the insurance and

manufacturing sectors in the developed economies. The studies have not given a

clear picture on how the various factors may affect performance of firms.

Although, locally, there have a few empirical studies conducted on the

determinants of the financial performance of the firm, these have focused on

unlisted firms (Ogeto, 2003; Koros, 2001). The current study filled a research gap

by investigating the factors that affect performance of firms listed in the NSE.

To establish the effect of board size, board independence, debt to equity ratio,

liquidity and firm size on the financial performance of companies as proxied by

return on assets (ROA) and return on equity (ROE).

The government of Nigeria, together with companies and individuals in the private

sectors has put concerted efforts in ensuring the existence of a favorable

environment for doing business in Kenya and, as a result we have seen an

improvement in performance of most companies listed at the NSE. At the same

time, a number of companies, however, are experiencing declining fortunes and

some have even been delisted from the NSE over the last decade. Significant

efforts to turn around such companies or even liquidating them have focused
mainly on financial restructuring. However, managers and practioners still lack

adequate guidance for attaining optimal financing decisions (Kibet, Kibet, Tenei &

Muthol, 2011), yet many problems experienced by the companies put under

statutory management were largely attributed to financing ( Chebii, Kipchumba &

Wasike, 2011).

This situation has led to a loss of shareholders’ wealth and the overall investors’

confidence in the NSE. In Nigeria, however, we have seen a good performance in

other sectors especially banking, and the insurance sectors. However, the overall

financial performance of listed companies in Nigeria is somehow weak expect for

some companies which accomplished some considerable revenues streams. A

number of studies (Almajali, 2012; Liargovas & Skandalis, 2008) have been

done with regard to factors affecting the financial performance of listed

companies, especially in developed economies, but this studies have produced

mixed results. This study therefore sought to establish the factors that affect the

performance of listed companies at the NSE, first by excluding financial

institutions such as banks and insurance companies and instead focusing on 44 out

of the 44 non-financial companies, and secondly by introducing other variables

such as the firm size and corporate governance, covering a period between 2003-

2013.
2.2.5 Return on Assets (ROA)

Return on assets (ROA) is an indicator of how profitable a company is relative to

its total assets. ROA gives a manager, investor, or analyst an idea as to how

efficient a company's management is at using its assets to generate earnings (Gallo,

2016).Some investors add interest expense back into net income when performing

this calculation because they'd like to use operating returns before cost of

borrowing.

ROA tells what earnings were generated from invested capital (assets). ROA for

public companies can vary substantially and will be highly dependent on the

industry. This is why when using ROA as a comparative measure, it is best to

compare it against a company's previous ROA numbers or against a similar

company's ROA. Remember that a company's total assets are the sum of its total

liabilities and shareholder's equity. Both of these types of financing are used to

fund the operations of the company. Since a company's assets are either funded by

debt or equity, some analysts and investors disregard the cost of acquiring the asset

by adding back interest expense in the formula for ROA. In other words, the

impact of taking more debt is negated by adding back the cost of borrowing to the

net income, and using the average assets in a given period as the denominator.

Interest expense is added because the net income amount on the income statement
excludes interest expense. An analyst that chooses to ignore the cost of debt will

use this formula:

ROA = (Net Income + Interest Expense) / Average Total Assets

The ROA figure gives investors an idea of how effective the company is in

converting the money it invests into net income. The higher the ROA number, the

better, because the company is earning more money on less investment. Let's

evaluate the ROA for three companies in the retail industry (Macy, Penney &

Sears, 2017).

ROA is most useful for comparing companies in the same industry, as different

industries use assets differently. For example, the ROA for service-oriented firms,

such as banks, will be significantly higher than the ROA for capital intensive

companies, such as construction or utility companies. “ROA simply shows how

effective your company is at using those assets to generate profit.” This ratio is

more useful in some industries than in others, partly because how much money

your business has tied up in assets will depend on your industry.

2.2.6 Return on Equity

Return on equity (ROE), is a financial ratio that measures the return generated on

stockholders’/shareholders’ equity, the book or accounting value of

stockholders’/shareholders’ equity which reflects the accumulation over time of

amounts received by the company from stock/share issues plus the profits/earnings
retained by the company, i.e., not yet distributed in dividends (accounting value of

shareholders’ equity is also equal to a company’s net assets, i.e., assets minus

liabilities).

Furthermore, the ROE can be decomposed to understand the fundamental drivers

of value creation in a company. This is known as the DuPont decomposition and

can be calculated as:

ROE = profit margin X asset turnover X gearing. ROE = (profit for the year ÷

sales) X (sales ÷ assets) X (assets ÷ shareholders’ equity).

First, APB Opinion 15 requires firms with complex capital structure to report the

primary EPS, which incorporates “expected” dilution. The criteria to determine the

possible future dilution had received substantial criticism. Before 1990s, many

papers discussed the computation of primary EPS. Frank and Weygandt (1970),

Arnold and Humann (1973), and Givoly and Palmon (1981) empirically

investigated the criteria for common stock equivalent. Frankfurter and Horwitz

(1972) investigated the criteria by simulation. Shank (1971) examinedthe

relationship between stock prices and the primary EPS. Curry (1971)

suggestedalternative way to disclose convertible bonds. Barlev (1983) examinedthe

modified treasury stocks method theoretically. In general, they all concluded that

the criteria of common stock equivalent could not provide good prediction of

future conversion.
2.3 Empirical Review

Several studies examine the relationship between accounting information system

and financial performance.

Jennings, (1997) empirically compared the extent to which basic, primary, and

fully diluted EPS explain variation in stock prices using a sample of firms from

1989 to 1995. They found that fully diluted EPS explains more variation in stock

prices than both basic and primary EPS.

On the other hand, some studies focus on the relationship between stock price and

dilution.

Huson, (2001) used a sample of firms from 1970 to 1995 and documented that the

stock return response to changes in accounting income is smaller for firms with

more shares reserved for conversion. They also showed that the return earnings

response is smaller for firms with higher recent returns, where recent returns proxy

for the extent to which options and convertible securities are in the money.

Core (2002) showed that the treasury stock method systematically overstates the

earnings per share when compared to the options-diluted EPS. Using firm-wide

data on 731 employee stock option plans over the period 1994-1997, their

proposed measure suggests that economic dilution from options is, on average, 100

percent greater than dilution in reported diluted EPS using the FASB treasury-
stock method. For intensive users of stock options, such as high-growth firms, the

difference between their estimate of economic dilution and the FASB treasury-

stock method dilution is as much as 8 percent of weighted average common shares

outstanding.

Garvey and Milbourn (2002) examined whether the stock prices incorporate the

potential dilution of employee stock options. They found that the stock market

tends to undervalue the costs of employee stock options.

Li and Wong (2005) showed that stock price estimate under a warrant-pricing

approach is lower than that under the traditional valuation method and is also

closer to the actual stock price.

Casson and McKenzie (2007) proposed a benchmark model to calculate the basic

EPS and the diluted EPS in the theory of contingent claims. In their model, the

basic EPS is defined as the changes in a firm’s net asset over a reporting period,

and the diluted EPS as the change in the value of the claims of each common share

on the firm’s net asset. Simulations are used to compare the benchmark with the

diluted EPS under the treasury stock method, imputed earnings method, option-

diluted method, and holding loss/gain method. They concluded that the treasury

stock method performs worst among the four approaches, while the imputed

earnings approach provides a reasonable approximation to the benchmark.

Elena, (2010). With the existence of more intercommunication, there are increased

chances for diversification of traditional businesses to improve firm's performance.

Ogah (2012) reveals that high level of profitability is not dependent on the use of

accounting information. The low explained variability implies that other variables

apart from AIS positively impact on the bank's profitability. This is true as the

employment of AIS if not supported with necessary and enabling facilities to make

it functional becomes monumental, which may affect the bank's operation process.

Thus, the successful integration of AIS will depend on how well other factors are

efficiently put in place to facilitate its operation.

Markus & Pfeffer (2013) asserted that the successful implementation of accounting

systems requires a fit between three factors such as perception of the organization

concerning the situation, the accounting system must fit when problems are

normally solved and the accounting system must fit with the culture, i.e. the norms

and value system that characterize the organization.

Grande, (2013) argued that IT is readily available and using them gives no

competitive advantage for achieving improved results. They argued that many

firms have invested in IT but they fail in attaining the established performance

goals. This, therefore, implies that AIS can only be used in organizational

operations when appropriate factors are put in place and operated harmoniously.
 Akpan & Riman (2013) used Return on assets (ROA), Return on equity (ROE) and

Non-Performing Loans (NPL) for measures of bank performance.

While Poudel & Hovey (2013) apply a ratio of non-performing loan (NPL) to

measures the efficiency of the firm.

A study by Razak, (2014) were used ROA to determine accounting performance

and used Tobin's Q which is a sign of market performance for measures the firm

performance of Malaysian GLCs and in-GLCs.

Bhagat and Bolton (2017) measured operating performance by using Tobin's Q and

ROA in their research.

Operational framework

Accounting Information Financial Performance

System

Demoatic
Decision Support System
Return on Assets

Transaction Processing
System Return on Equity

The operational framework for establishing the relationship between accounting information
system and financial performance of firms (accountants-day.info, 2014
 CHAPTER THREE

METHODOLOGY

3.1 Research design

A research design expresses both the structure of the research problem and the plan

of investigation used to obtain evidence in relation to the problem (Kerlinger

1986). It guides in the collection and analyzing of data.

This study will adopt quantitative research predicated on ex-post facto design. This

research design will be used based on the existence of quantitative data needed for

analysis and the relevant variables on accounting information system and financial

performance. Ex-post facto design will be used because of the nature and types of

data.

Variable on accounting information system and financial performance of firms

which are gotten from relevant documents, such as position descriptions, policy

manuals, organizational structure charts and training documents; as well as some

published information about organizations, such as financial statements and annual

reports, journals, magazines, text-books and internet. Thus, this research has to

adopt them and rely on such official publications for valid and reliable academic

exercise.
3.2 Population of study

1. Organization Senior Staffs Junior Staffs Total

First Aluminium Plc 6 14 20
Berger Paints 6 14 20
Energy Works 9 19 28
Technology Ltd
Total 21 47 68

The population of this study consisted of three selected firms in Port Harcourt

which are made up of 68 employees who are presently working in those

organizations through the use of simple random sampling. For this research, we are

going to consider three firms situated in Port Harcourt. The companies includes the

following; First Aluminium Plc company which consist of 14 junior staffs and 6

senior staffs, making it a total of 20 employees. Berger Paints consists of 14 junior

staffs and 6 senior staffs, making it a total of 20 employees. Energy Works

Technology Ltd consists of 19 junior staffs and 9 senior staffs, making it a total of

28 employees.

3.3 Sample /sample size determination

This sample work, basically considered the accounting information system and

financial performance of firms in Port Harcourt. Judgmental sampling technique

was selected for this study.

The samples for the primary data were drawn from Choba and Trans- Amadi in

Port Harcourt.

The secondary data for the various oil and gas accounting and financial

performance will be extracted from the relevant documents, such as position

descriptions, policy manuals, organizational structure charts and training

documents; as well as some published information about organizations, such as

financial statements and annual reports, journals, magazines, text-books and

internet.

3.4 Method of Data Collection

Since the study will make used of primary and secondary data which indicates that

the researcher cannot manipulate the data. This data will be collected from

questionnaire, personal interview, relevant documents, such as position

descriptions, policy manuals, organizational structure charts and training

documents; as well as some published information about organizations, such as

financial statements and annual reports, journals, magazines, text-books and

internet.

3.5 Operational Measures of Variable

The independent and the dependent variable in this study were operationally

measured with the ordinal scale. The independent variable are the dimension of
accounting information system (decision support system and transaction

processing system), while the dependent variables are measures of financial

performance (return on assets and return on equity). The ordinal scale was used to

rank the effect of the independent variable on the dependent variable. The likert

scale was used to rank the responses from the highest to the lowest. Through such

ranking, the researcher was able to determine the relationship between the

independent and dependent variables using regression statistic.

3.6 Statistical Analysis

The method of analysis that will be used in this study is regression analysis. It is a

statistical technique used for fitting a regression line. As one of the commonly used

methods in estimating relationship, it has provided fairly satisfactory results. The

data for this study is mainly primary and secondary data collected from

questionnaire, personal interview, relevant documents, such as position

descriptions, policy manuals, organizational structure charts and training

documents; as well as some published information about organizations, such as

financial statements and annual reports, journals, magazines, text-books and

internet.
Model specification

The chosen creative financial performance indicator, as the dependent variable,

wasprofit before tax (PBT) and earning per share (EPS); while the independent

variables were debt ratio (DR) and current ratio(CR). In order to examine the effect

of oil and gas accounting on financial performance, the following functional

relationship is expressed as follows:

Functional Expression of Model:

AIS = f(DSS, TPS).................................................................................i
AIS = ROA and ROE.........................................................................ii
ROA = f(DSS, TPS)…………………………..........................…….. iii
ROE = f(DSS, TPS) ………………………………….........................iv
Mathematical Expression of Model:
ROA = α 0 + α1 DSS +α2 TPS................................................................v.
ROE = β 0 + β1 DSS +β2 TPS...................................................................vi
Econometrical Expression of Model:
ROA = α 0 + α1 DSS +α2 TPS +U1t..........................................................vii
ROE = β 0 + β1 DSS +β2 TPS + U1t.........................................................viii

Where;
AIS = Accounting Information system
αo, xo, βo,wo = Constant or intercept
α1, x1, β1,w1 = Coefficient or slope
ROA = Return On Asset
ROE = Return On Equity
DSS = decision support system
TPS= transaction processing system
U1t= Stochastic error term.
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 APPENDIX

University of Port Harcourt

Faculty of Management Sciences
Department of Accounting
Choba.
11th November,2018
Dear Respondents,
LETTER OF INTRODUCTION
I am an undergraduate of the above named university carrying out a
research on “Accounting Information System and Financial Performance of Firms
In Port Harcourt” as part of the fulfilment of the requirement of a B.Sc degree. I
crave your indulgence to please kindly fill out the questionnaire to aid in the
completion of this research and your prompt completion will facilitate early
completion of this research.
All information provided in the questionnaire will be treated with
discretion.
Thanks for your cooperation.
Yours sincerely,

Sampson Peace.
Section A: Demographic Data.

Please tick [√] where appropriate, and give candid information. Thank

you.

1. Educational qualification: a. GCE/SSCE [ ]. b. OND/HND/BSC [ ]. c.

ICAN/MBA/PHD [ ]. d. OTHERS [ ].

2. When was business established: less than 2 years [ ]. 2-5 years [ ]. Above 5

years [ ].

3. Staff strength: 10-20 [ ]. 21-40 [ ]. 41-60 [ ]. Above 61 [ ].

4. Great technical skill to manage and document the financial transactions of the

firm: yes [ ]. No [ ].
Section B:

S ITEM STATEMENT S A U D S
N A
D DECISION SUPPORT SYSTEM AND RETURN ON
ASSETS

1 Understand how the systems work, and the

importance of debt financing by everyone that is
involved in AIS.
2 Employ well-trained, experienced and qualified
individual personnel at all levels, from top, middle
management to employees
3 Have systematic cost/benefit analysis of DQ controls and
activities in order to maximize benefits at minimum cost.
DECISION SUPPORT SYSTEM AND RETURN ON
EQUITY

4 Independent internal and external audit on the systems

and the data quality to ensure that appropriate controls
are in place.
5 Promote the debt policy and culture within the
organization that there must be high quality data in AIS.
6 Identify key risk areas and key indicators of debt ratio
and monitor these factors.
TRANSACTION PROCESSING SYSTEM AND
RETURN ON ASSETS

7 Continuous and consistent improvement of system and

human data quality controls.
8 Allocate sufficient funds, technical tools, expertise,
skilled personnel to ensure profit.
9 Set up a skilled person or a group of people as data
manager/s to manage information flow: from input to
process, and to output.
TRANSACTION PROCESSING SYSTEM AND
RETURN ON EQUITY

10 Establishment of appropriate specific data goals and

 implementation /enforcement of policies and standards.
11 Working as a team and have sufficient communication.
12 Have appropriate data controls, approaches, and adequate
processes for data improvement activities.