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The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 1
DECLARATION
The this my original work, has not been presented for a degree in any other university and that
all sources of material used for the thesis have been duly acknowledged.
Declared by:
Name of students’ I.D.No
1, Teshome Workineh .......................................40134
2,.Eyob Hailu.......................................................40112
3.Eshetu Shawangizaw.......................................40104
4, Gabisa Misgana...............................................40107
5, Ashetu Debela...................................................4087
6, Taresa Fufa........................................................40130
7, Almaz Darge........................................................4085
8, Working Hordofa..................................................40138
Approval by Advisor:
Signature: ___________________
Date: _______________________
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 1
ACKNOWLEDGEMENT
First and for most I would like to thanks GOD and this with to Group . Secondly, I would like to
thank my adviser MARGA Adugna for his patient and valuable advices through the work time of
this research paper. Thirdly, I would like to address my thanks to the manager and employees of
cooperative bank of oromia s.co, holeta branch for their valuable provision of data during data
collection and Finally, I would like to thanks my families.
ABSTRACT
This study was focused on the role of accounting information system for internal control in
cooperative bank of oromia, Holeta branch. The general objective of the study is to investigate
whether the application of accounting information system by cooperative bank of oromia at
Holeta branch affects the quality of internal control. Cooperative bank of oromia, Holeta branch
has 18 employees. The researcher contacted with 5 employee respondents by distribution of
questionnaires and with a bank manager by interview questions. The study was depending on
qualitative data which was collected from primary sources. Case study type research design was
adopted for the study. The researcher used descriptive analyzing method to analyze data. The
study showed that AIS is vital role on internal control in the cooperative bank oromia with
reducing risk, error and frauds for effectiveness and efficiency information to prepare financial
statement.
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 2
Table Contents
Contents Page
ACKNOWLEDGEMENT..........................................................................................................................II
Abstract……………………………………………………………………………………............................
....................………………III
1.4.1General objective.............................................................................................................................4
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 3
2.3.3 The accounting information and communication system..............................................................10
2.3.5 Monitoring………………….….
…………………………………………………………….......................................…….11
References.................................................................................................................................................26
Appendix…………………………………………………………………………………………………......
..........................................27
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 4
CHAPTER ONE: INTRODUCTION
Accounting Information System (AIS) is the information subsystem within an organization that
accumulates information from the entity’s various subsystems and communicates it to the
organization’s information processing subsystem (Moscove et al., 1999). The accounting
information system (AIS) has traditionally focused on collecting, processing, and communicating
finance– oriented information to a company’s external parties (such as investors, creditors and
tax agencies) and internal parties (principally management). Today, however, the accounting
information system (AIS) is concerned with non-financial as well as financial data and
information
Accounting information system has two positive effects regarding the relation between
accounting information technology relevance and production of quality information in the
banking industry. First, accounting information technology can reduce banks’ operational costs
(the cost advantage). Second, accounting information technology can facilitate transactions
among customers within the same and different network (the network effect). It cannot be denied
that the advancement of information technology was a necessity of the current era. Businesses
need to adopt and embrace new technologies to provide excellent business operation and services
to their clients Information, therefore, is data that have been processed into meaningful and
usable form, and it contains knowledge that reduces uncertainly in particular situation.
(senn,1999)
Much information need by management to control finances and operation come from the AIS.
One of managements major responsibilities is stewardship on internal control extend over a wide
range of activities such as maintenance of inventories, the consumption of supplies and the
payment of bills within allowed discount period.(Wilkinson, 1993)
Therefore, one could study of AIS is an important system that support and promote decision
making and effective internal control. (Romney.et al 2003)
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 5
1.2 Background of the organization
Cooperative bank of oromia (s.c) Holeta branch is located in west shoa welmara zone Gero-
Qeransa kebele (1) Holeta town . The bank was established in 2008 E.C with home office equity
amounted birr 100,000,000 million as branch of head office located in Addis Ababa. The bank
currently has 18 employees.
Now a day’s cooperative bank of oromia fully networked and currently uses automatic teller
machines (ATM).
Vision
Mission
To provide full-fledged and customer responsive banking service for cooperative societies,
individual, and other entities with special emphasis to agricultural and agro-based businesses
financing, and to maximize shareholders value through use of competent and disciplined
employee, visionary leaders and modern banking technologies.
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 6
1.3 Statement of the problem
Accounting information system is an important mechanism of an organization that is vital for
effective management decision making, controlling and administering organization activity and
vital for internal organizational control. The role of accounting information in the bank activity is
extremely important in the orientation of bank.
The AIS impacts management‘s operations to prepare financial reports that identifies and records
all valid financial transaction. The role of AIS will ensure the integrity confidentiality and
reliability of critical data that reduces risks and fraud.
Accounting information focus on in internal control (control environment, risk assessment, the
information and communication system, control activities and monitoring) activities of various
categories of business enterprises.
The major problems in banking sector are lack of utilize accounting information and
mismanagement of the accounting information technology resulted from technological problems,
communication problems, training and maintenance problems. (Awe, 2002)
Accordingly, the said failure may result into low productivity, loss of the accounting information
technology, inventory as well as loss of important and confidential data. The other problem is the
experience and awareness on the importance of AIS by the employees. Therefore based on the
above facts the study tries to investigate the role of AIS for internal control in cooperative bank
of oromia at Holeta branch.
3. How does AIS used to keep integrity, confidentiality and reliability of critical data and
financial information?
4. How AIS affects operational efficiency of cooperative bank of oromia, Holeta branch?
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 7
1.4 Objectives of the study
Initiate other researcher for further investigation and finding on the region.
Increase the status for the bank of its performing well and for mangers to know where the
banks stand in its performance and to take action in the future.
The study is also significance for other researcher as a base of the study or it will be used
as an additional reference.
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 8
1.6 Scope of the study
This study focused on accounting information system and its role on internal control in
cooperative bank of oromia, Holeta branch. It is better to study the overall role of AIS on internal
control in other banks but due to some limitation the study delimited to only cooperative bank of
oromia, Holeta branch.
During the study, researcher faces some external variables that affect the smooth implementation
of the study. For instance lack of sufficient information from respondents, lack of relevant and
up-to-date published literature, and other related preoblems; this may hinder the completeness of
the study.
The study have Three chapters, Chapter one of the study contains background of the study,
background of the organization, statement of the problem, objective, significance, scope and
limitation of the study and, next chapter two contains theoretical and empirical reviews and,
then chapter three contains research design, source and type of data, data collection
method, ,target population, sampling technique and sample size and Time Schedule and Cost
Budget.
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 9
CHAPTER TWO: LITERATURE REVIEW
In this section the role of accounting information system, theoretical review, and empirical
reviews on similar study and finally summary of the section has been seed.
The focus of AIS is all qualitative aspect of information processing then on quantitative problem
solving. The accountants’ jobs have changed dramatically with advances in computer
technology.
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 10
the network and improved external relationships for firm, mainly with foreign customers
accessed through the firm’s web. (Elena Urquiagrande, Et al. (2010)
Accounting information system has a lot of benefit to any company and corporation as follows:
Good Corporation, to meet the need of multi- users, to control after wards, and control in
advance and in current. (Mahdi Salehi P. 189, 2010)
To reach these goals accounting students need to understand how AIS is used to gather, process,
store and disclosed information. (Daniel A., (2008)
Clientele accounts, which can be availabilities in bank accounts, current accounts, stock
accounts or credit accounts. In this accounts the payment instruments, encashment card
operations, etc. are registered.
Bank entity accounts, which refers specially to cash accounts, interbank settlement
accounts, income and spending accounts of the bank, etc.
Bank computerized programs, which manage accounting data and statistical data, bank
management, etc.
In banks the main sources for collecting accounting information come from the front
office clientele operations and inter and intra banking operations.
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 11
1. External users: include stock holders, investors, creditors’ government agencies, customer
and competitors, labor unions and the public at large. External users receive and depend on a
variety of outputs from an organizations accounting information system. Many of these
outputs are of routine in nature.
2. Internal users: comprise manager whose requirement depends on their level in an
organization or on the particular function they perform.
There are different information needs and demand at different managerial level, in an
organization. The AIS summarizes and filters the data available to decision makers by processing
the data and AIS influences organizations decisions. The production of useful information is
constrained by the environmental of AIS and the cost benefit structure inherent in user’s
decision. Various government agencies, private agencies, and legislation set statutory
requirement for record keeping and report. (Marshal P. 224-226, 2000)
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 12
2.3.1 Control environment
The control environment consists of the actions, policies, and procedures that reflect the overall
attitudes of top management, directors, and owners of an entity about internal control and its
importance to the entity.
The control environment sets the tone of an organization by influencing the control
consciousness of the people it is viewed as the foundation for the other components of the
internal control. (Whittingpany. P, 246-254, 2001)
Risk from internal factors related specifies activities of the organization. This includes eruption
of the information system. Error, due to untrained or unmotivated employees or to changes the
management responsibility employees and the result of an effective board of directors or and it
committee change is a source of risk for all organization. (Basu, (2010), 109-110)
An organization needs a process to identify changed condition that can significantly the
organizations ability to achieve its objective management’s responsibility is to identify risks to
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 13
organization objectives estimates the significations of each risk, assess its likelihood and identity
action that should be taken to reduce its significance or likelihood into provide risks.
Management may for example identify alternatives supply sources, expand product line and
obtain more relevant operating reports or improve training programs. (Whittingtonspany p.255,
2001)
Accounting information and communication system capture, process and report information to
be used by both internal and external users.
An organization’s accounting system which consist of the methods and records established to
identify, assemble, analyze, classify, record and report the organizations transaction and to
maintain accountability for the related asset and liabilities maintain organizations have systems
that are able to process, huge number of various type of transaction.
Information systems are designed. Good communication requires effective oral communication.
Adequate procedures manners policy manual and other type of documentation. (G. H. Bodnar.
And W.Hopwood P.164-165-1998)
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 14
D. Segregation of duties
2.3.5 Monitoring
Monitoring activities deals with ongoing or periodic assessment of the quality of internal control
by management to determine that controls are operating as intended and that they are modified as
appropriate for changes in conditions.
An internal audit function is common in large organization to monitor and evaluate controls on
an ongoing basic. The expended span of control and the growth in the volume of transaction
associated with large organization whose factors in the emergence of internal control function,
the objective internal audit function is to service management by furnishing management with
the results of analysis and appraisal of such activities and systems as:
External auditor may performances in monitoring control it is common practice for external
auditors to provide lists of specific recommendations for management to improve internal
control. (Ibid)
The analysis of internal control requires an understanding of the process both as it designated
and as it is actually operate. The actual process may or may not conform to expectations.
Documentation may be out dated and the structure may be operating undr new procedures
internal control process routinely collect information concerning fulfillment of internal of duties.
Transfer of authority is approval and verification. This documentation of internal of control
duties must be examined to evaluate the reliability of the system’s operations. Reliability is
dependent on the people who administer control processers. Designing an internal control
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 15
process is only the first part of the problem it is essential that internal control duties are actually
performed as prescribed. (G. H. Botnar and W Hopwood P. 194, 2000)
Now a day people can make cash withdrawal through information system called automatic teller
machines (ATM). Clients can now receive information a system over the phone and through
home computer. (Harangas and Daniela P.379, 2005)
The role and importance of accounting system in the bank activity is derived from the role and
function of commercial banks themselves. These function or operations traditional for the banks,
confirmed by law, generators of accounting information refer mainly to:-
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 16
Accepting deposit from clients
Issue and management of payment instrument and credit
Payments, Fund transfers, Transaction in the clients account and Mandate operation etc.
This section presents research methodology that the researcher used to conduct the research. It
contains the design, sources and types of data, data collection method, target population
sampling procedure, sample size, method of data analysis and method of data presentation.
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 17
3.3 Data collection method
Questionnaires and interview outline were used for the method of data collection. The researcher
constructs number of questions in a logical order. Besides, the researcher also asked question in
face to face interview with the bank manager.
Total employees working in the cooperative bank of oromia, Holeta branch were source of data
for the study.
From the total 18 employees working in the cooperative bank of oromia, Holeta branch, the
researcher contact 5 employee respondents by distributing questioner and the manager of the
bank was selected for interview questions and the rest 2 were excluded because of several
reasons like unrelated field, lack of knowledge or awareness about AIS that related to the
accounting information system dependents.
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 18
3.7 Method of data analysis and presentation
After completion of data collection, descriptive method of analyzing was used to analyze the
data collected from respondents. Finally, the results from questionnaires were presented in
written form supported by tables and percentage.
1 Title selection xx
2 Literature xx
searching
3 Finalizing xx
proposal
4 Submission of Xx
proposal
5 Actual Data xx
collection
6 Data Analyzing xx
7 Report Writing xx
8 Submission xx
research
9 Final paper xx
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 19
required required
5 Telephone 4 25 100.00
expense
Total 1600.00
References
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 20
H.sajady, M.dastgir & nashemnejad, 2008, international journal of economics &
finance,Vol,16,PP324-326
James A, Hall, 2008,Accounting information system 6thed.Thomson,south western NJ
James o.brien & goergemareka, zolo, management information.
Mahdi selehe, 2010, international journal of economics & finance, Vol.2, No.2, pp.186-195.
Osmandvitez,2011,accounting information system 6th edition
Rommey and stain bart,2000,accounting information system 6th,7th,8th,9th ed entice hall
S.K Bhattechrya,1976, international journal of economics & finance
Stairs & reyolds, 2003, principle of information system.
Senn G., 1993 Adoption of technology with network effect: An empirical examination of the
adoption of automated teller machince.
Whityingpany2001 introduction to auditing.
APPENDIX
Harambe University
Dear respondents
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 21
These questionnaires are designated to conduct a proposal on the role of accounting information
system on internal control in cooperative bank of oromia, holeta branch. The purpose of this
study is for partial fulfillment of BA degree in Accounting and finance.
Therefore, please provide genuine answers for the following questions. Thank you in advance for
your time scarifies.
Instructions
General questions
1. Gender. Male female
2. Job position..................................
3. Education status. Below diploma Diploma Degree MA PHD
4. Work experience <1 year 1-5 years 6-10 years above 10years
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 22
4 AIS supports supply of
information for decision making of
the bank.
5 AIS used for producing
managerial reports and financial
statements of the bank.
6 AIS maintain confidentiality
within bank and employees.
7 AIS used to keep information
secretly.
8 AIS used to initiate strong moral
principle of work for the
employees of the bank.
9 AIS used to keep integrity in
preparing financial reports.
10 AIS are used to process the
financial reports effectively and
efficiently.
11. Do you think that AIS able to adherence with prescribed managerial policies in your Bank?
YES NO
12. For question number 11 your answer is “YES” please give your
justification? ..............................................................................................................................
....................................................................................................................................................
...............................................
13. For question number 11 your answer is “NO” please give your
justification? ..............................................................................................................................
....................................................................................................................................................
........................................
14. Do you think that AIS has a contribution in reducing the financial risk in your Bank?
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 23
YES NO
20. Do you think that AIS has a contribution in reducing risk of error in your bank?
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 24
YES NO
22. Do AIS used to make sure controls accurately record and process data of the bank?
YES NO
Interview question
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 25
The Role of AIS for internal control in cooperative bank of oromia (S.C) Page 26