A SURVEY ON THE COMPUTERIZED BASED ACCOUNTING SYSTEM USE AMONG MANUFACTURING COMPANIES IN KUCHING, SARAWAK

A SURVEY ON THE COMPUTERIZED BASED ACCOUNTING SYSTEM USE AMONG MANUFACTURING COMPANIES IN KUCHING, SARAWAK PREPARED BY: CORINA JOSEPH TAMOI JANGGU JANUARY 2003 i

Date : March 2003 Project File No: 100-UiTMKS (UPP5/2/18/5KK) Professor Dr. Azni Zain Ahmed Deputy Vice-Chancellor (Research) Bureau of Research and Consultancy (BRC) MARA University of Technology (UiTM) 40450 Shah Alam, Selangor Darul Ehsan Malaysia Dear Professor FINAL RESEARCH REPORT ON "A SURVEY ON THE COMPUTERIZED-BASED ACCOUNTING SYSTEM USE AMONG MANUFACTURING COMPANIES IN KUCHING SARAWAK" With reference to the above, enclosed are three copies of the Final Research Report entitled, "A SURVEY ON THE COMPUTERIZED-BASED ACCOUNTING SYSTEM USE AMONG MANUFACTURING COMPANIES IN KUCHING SARAWAK" by a group of researchers at UiTM Sarawak. Thank you. Yours sincerely CORINA JOSEPH Leader Research Project 11

RESEARCH TEAM CORINA JOSEPH Project Leader TAMOI JANGGU Team Member iii

ACKNOWLEDGEMENTS First and foremost, we would like to praise God almighty for giving us his blessings to execute this project despite many challenging moments, which we faced especially during the early stage of this undertaking. We would like to thank the following people for their constructive comments, invaluable advice and assistance in completing this project. i. Professor Dr. Azmi Zain Ahmed (Deputy Vice-Chancellor (Research) Bureau of Research and Consultancy (BRC), UiTM, Shah Alam. ii. Associate Professor Dr. Rosmimah Mohd Roslin (Research Coordinator (Social Science), BRC, UiTM, Shah Alam) iii. The Research and Consultancy unit of Mara University of Technology, Sarawak branch. iv Associate Professor Dr. Abdul Rahman Deen, the Campus Director of Mara University of Technology, Sarawak branch. v. Associate Professor Iris Syawe, senior lecturer of Mara University of Technology, Sarawak branch. vi. Technical committee of the Research and Consultancy Unit of Mara University of Technology, Sarawak branch. vii. Puan Amrizah Haji Kamaluddin, the Coordinator of the Research and Consultancy Unit of Mara University of Technology, Sarawak branch. viii. Encik Norazmi Sahak, Encik Mohamad Nor Annuar and Encik Romei Selit, the Research Assistants of our project. ix. Encik Zakaria Embi, the Account Officer of the State Treasury Department. x. The interviewees. xi. Respondent companies. COPYRIGHT iv @ UiTM

xii. All participants of the Research Methodology Workshop (I - IV). Last but not least, we would like to thank our family members and all the other people who have been involved either directly of indirectly in this project. Without their cooperation and confident support, we would have not been able to carry out this project. COPYRIGHT v @ UiTM

TABLE OF CONTENTS Page Title page Letter of submission Research team Acknowledgement Table of contents List of Tables List of Figures List of Appendices Abbreviation Abstract i ii iii iv vi viii ix x xi xii CHAPTER ONE : INTRODUCTION 1.1 Introduction 1 1.2 Objectives of project 4 1.3 Significance of the project 4 1.4 Organization of the project 5 CHAPTER TWO : LITERATURE REVIEW 2.1 Introduction 6 2.1.1 Manufacturing sector in Malaysia 10 2.2 The development of accounting system 12 2.3 Consideration in purchasing and selection of accounting 15 software 2.4 Benefits of using the computerized accounting system 16 2.5 CBAS and productivity 16 2.6 Barriers to the implementation of computerized accounting 17 system COPYRIGHT vi @ UiTM

2.7 Discussion of previous research 19 2.8 Future accounting marketplace 22 2.9 Role of professional accounting bodies in Malaysia 23 2.10 Conceptual framework 24 2.11 Conclusion 28 CHATER THREE : RESEARCH METHODOLOGY 29 3.1 Research design 30 3.2 Measurement of variables 30 3.3 Data analysis 32 CHAPTER FOUR : STATISTICAL ANALYSIS OF DATA AND DISCUSSION OF RESULTS 4.1 Introduction 32 4.2 Findings 32 4.2.1 Types of industry 33 4.2.2 General background of the respondents 36 4.2.3 Types of accounting system 37 4.2.4 Problems in using CBAS 50 4.2.5 Impact on the use of CBAS on employees' work 51 productivity 4.3 Discussion of results 52 CHAPTER FIVE : CONCLUSION 5.1 Conclusion 60 5.2 Problem and limitation of the project 61 5.3 Recommendations 63 5.4 Future research 67 BIBLIOGRAPHY APPENDICES vii

LIST OF TABLES Page Table 1 : Types of manufacturing establishments 34 Table 2 Respondents' profile 35 Table 2.1 : Years of inception by equity 36 Table 2.2 : Years of inception by paid-up capital 37 Table 3 : Types of accounting system 38 Table 3.1 : Accounting system by years of inception 39 Table 3.2 : Accounting System by manufacturing establishments 40 Table 3.3 : Accounting system by equity 41 Table 3.4 : Accounting system by paid-up capital 42 Table 3.5 : Accounting system by manpower size 42 Table 4 : Consideration to change from manual system to CBAS in 43 the future Table 5 : Consideration to change from semi CBAD to a full- 44 pledged CBAS Table 6 : CBAS software 44 Table 7 : Types of accounting software by the types of CBAS 45 Table 8 : Data processing 46 Table 9 : Implementation method 47 Table 10 : Types of modules used 48 Table 11 : Types of security used 49 Table 12 : Problems in adopting CBAS 50 Table 13 : Impact in using CBAS on the work productivity 51 viii

LIST OF FIGURES Page Figure 1 Definition and concepts 8 Figure 2 Paid-up capital 11 Figure 3 Manpower size 12 Figure 4 The gory-scott Morton framework (1971) 23 Figure 5 Conceptual framework 25 Figure 6 CBAS adoption rate 52 ix

LIST OF APPENDICES Appendix 1 Appendix 2 Appendix 3 Appendix 4 Research instrument Statistical results List of respondents Gaunt chart COPYRIGHT x @ UiTM

ABBREVIATION CBAS AFTA WTO 8MP IT ICT UBS ACCPAC MYOB GDP MIS GUI MSC SMI NEP PC DOS MIA MICPA CPD MARA SEDC IADP MEDEC SAINS CEO Computerized based accounting system Asean Free Trade Area World Trade Organization Eight Malaysian Plan Information technology Information communication and technology User Business Solution Accounting package Mind Your Own Business Growth Domestic Product Management Information System Graphical user Interface Multimedia Super Corridor Small Medium Industry New Economy Policy Personal computer Disk Operating System Malaysian Institute of Accountant Malaysia Institute of Certified Public Accountant Continuous Professional Development Program Majlis Amanah Rakyat Sarawak Economic Development Corporation Integrated Agriculture Development Program Malaysia Entrepreneur Development Centre Sarawak Information System Sdn Bhd Chief Executive Officer xi

ABSTRACT This study reports on the survey of computerized based accounting system (CBAS) use among the manufacturing companies in Kuching Sarawak. As there is limited published research carried out on this area, this report aims to identify the extent of CBAS adopted in the Sarawak manufacturing companies. This study is conducted through the questionnaire survey method. Besides exploring the types of accounting software adopted, this study also attempts to investigate the problems and impact in using the CBAS on the employees' work productivity. The results of this study have revealed that the CBAS is moderately used in the companies. The statistical analysis demonstrates that the respondents disagree to all the problems listed in the questionnaire distributed to them and gave positive responses to all the impacts listed in the questionnaire in using the CBAS and on the work productivity. The study concludes that the average adoption rate among the respondents is attributed to small size of the companies, lack of exposure and awareness, attitude problem, business needs and requirement and others. Some recommendations have been made to improve the existing scenario. They include increasing awareness especially among the small companies, implementing more stringent policy for certain procedures in order to increase high usage of CBAS and reviewing the existing accounting curriculum especially pertaining to the computerized accounting area. xii

CHAPTER ONE INTRODUCTION Introduction Malaysia is working towards achieving Vision 2020 when it hopes to step into the ranks of developed nations. In line with this, one of the crucial aspects of the National Development Policy is the promotion of human resource development including the creation of a productive and disciplined workforce and the development of the necessary skills to meet the challenges of a developed economy. This involves the roles played by the accountants in handling all aspects of business activities, which has become both broader and more specialized especially with the rapid changes in accounting practice and in the overall business environment. The changes include the growing trend of globalization of business activity especially with the onslaught of AFTA in 2005 and WTO in 2006, the ever growing importance of information technology, rising public expectation and changing consumers' needs. The globalization of business and the rapid advancement in information and communication technology (ICT) call for serious changes to be implemented in order to strengthen the accounting profession. The new-millennium accountant must have a high level of competency in ICT in order to be covenant with global business practices and provide relevant, effective and value-added services. (MIA 2001 annual report). This directly has a significant impact on the manufacturing industries in Malaysia which has been identified as one of the major sectors contributing to the growth during the Eighth Malaysia Plan (8MP). In the 8MP (2001-2005), the Malaysian economy is projected to grow at an average rate of 7.5% per annum. One of the key strategies to be undertaken by the manufacturing sector during the 8MP period is to expand the usage of information communications technology (ICT) within and across sectors to accelerate the growth 1

process. (Sarawak Industrial Bulletin, 2001). This indirectly signifies the importance of information technology to achieve the desired level of work productivity, particularly in processing the information in the business. Meanwhile, at the Sarawak state level, to ensure the manufacturing sector continues to be the leading sector, it is the State's policy to attract more investment from both domestic and foreign sources. The thrust of the State's manufacturing sector during the period of this plan are: Growth target at 17.5% per annum Promote establishment of higher value-added processing and high-tech industries Promote foreign investment in technology intensive and knowledge-based industries Develop more industrial estates in less developed areas with economic potential to disperse industrial development Develop the industrial corridor to facilitate and enhance inter- and intra- industry linkages Encourage strategic alliances in higher value-added and high-tech industries Promote SMIs through the construction of ready built factories in designated areas Under the current development plan, the Sarawak State government had embarked on restructuring its economy and reducing its reliance on the primary sector as its service of growth. The manufacturing sector has been ranked as second after mining and quarrying in terms of the state's GDP contribution, surpassing the forestry and agriculture sector. Sarawak manufacturing sector is expected to grow at 17.5 % per annum and make contribution to GDP at 31 % by 2005. (Sarawak Tribune, 2002) Consequent to the above statement, it can be mentioned that the policies designed at both national and state level in relation to the manufacturing sector are in line with the 2

government's aspiration that is to develop Malaysia into a knowledge- based society. This involves the shifted role played by the accountant which are traditionally used to keep the books and accounting records into a more complicated role as the decision maker, auditor, tax consultant, managers and others whom requires various skills such as interpersonal, communication, analytical, critical and not forgetting the computing skill. The expertise in handling the computer to process the accounting information will equip the business particularly the manufacturing companies to face the competition and complexities. With the increased role of accountant, the accounting software and other business solution becomes more essential to increase the work's efficiency and effectiveness. Currently there are a lot of accounting softwares and business solutions available in the market namely; ACCPAC, UBS, Mr. Accounting, ValuePlus, MYOB, Sun- System, Navision and others. As far as the Sarawak government is concerned, it has provided the environment to prepare and help business rise to the challenges of the dynamics of industry and the market - be it in the area of institutional and legislative framework, physical and financial infrastructure, human resource development or science and technology. It is the choice of business now to draw on those resources from the government. It has also been assured that the State has sufficient IT facilities for its manpower to work in any manufacturing plant. (Sarawak Tribune, 2002) The importance of information in developing effective strategy for sophisticated business maximum utilization and usage of information technology would help in the manufacture of quality and effective products beside generating publicity and helping promoting them. Presently, there is only one research conducted on the use of the computerized-based accounting system (CBAS) among the manufacturing companies in the northern region of the Peninsular Malaysia in 2000. With regard to this, the researchers are interested in finding out the extent of the CBAS use among the manufacturing companies in Kuching, Sarawak and identifying the employees' perception and problems in using the system in the sector. 3

1.2. Objectives of the project The specific objectives of the project are: 1. To identify the status of Computerized Based Accounting System (CBAS) use among manufacturing companies in Kuching, Sarawak. 2. To evaluate the extent of CBAS use by the manufacturing companies. 3. To identify problems in adopting and using the CBAS. 4. To find out the employee's perception on the use of CBAS and the impact on their work productivity. 1.3. Significance of the project It is hoped that this project would benefit the following parties: 1. The findings would enable the institution of higher learning to review the loopholes in the accounting curriculum particularly in the computerized accounting related area. 2. The findings would enable the accounting software vendor and manufacturer to evaluate the marketability of the existing accounting software. 3. The training agencies such as MARA, Entrepreneurial Development Unit of State Financial Secretary Office and Human Resource Development and Quality Unit of the Chief Minister's Office can use the findings to identify relevant course related to computerized accounting system that suit the entrepreneurs in Sarawak. 4. Entrepreneurs in Sarawak will benefit from the findings in terms of their awareness on the technology adoption among their competitors as a whole. 5. The accounting profession would come out with a new system, which suits the Sarawak economic climate based on the findings highlighted in the research. 4

Lastly, it is hoped that this research will remedy the shortage of literature on the use of computerized -based accounting system amongst the businesses in Malaysia. 1.4. Organization of the project In chapter two, the literature review will discuss the introduction of the accounting system, manufacturing sector in Malaysia, the development of accounting system, considerations in purchasing and selection of accounting software, benefits of using computerized accounting system, CBAS and productivity, barriers to the implementation of the computerized accounting system, discussion of previous research, future marketplace, role of accounting professional bodies, conceptual framework and conclusion of the literature review. Research methodology is discussed in chapter three while chapter four presents statistical data results, analysis of data and discussion of the results. The final chapter, will present the conclusion and recommendation of the study. Limitation of the study and opportunities for future research will be also included in this final chapter. 5

CHAPTER TWO LITERATURE REVIEW 2.1. Introduction Traditionally, the accountant has performed an attest function to determine the reliability of financial information presented in printed financial statement. Nowadays, the role is expanding to include: Non-financial information Use of information technology to create or summarize information from databases An assurance function whereby the accountant will interpret information to determine the quality and relevance of information to be used for decision making. (Gelinas,1996) In other words, the accountant's job and information related activities are closely interrelated. Gelinas (1996) defines accounting Information system as 'a specialized subsystem of the Management Information System (MIS) whose purpose is to collect, process and report information related to financial transactions.' An accounting system is comprised of accounting records, journals, ledgers and a series of processes and procedures assigned to staff, volunteers, and / or outside professionals. The goals of the accounting system are to ensure that financial data and economic transactions are properly entered into the accounting records and that financial reports necessary for management are prepared accurately and in a timely fashion. The accounting system includes the following components: Chart of Accounts General Ledger Journals and Subsidiary Journals 6

Cashbook Accounting procedures manual The accounting system can be categorized into manual and computerized system. Today's accounting methods have changed dramatically from that of traditional manual accounting methods to a more complicated and automated one. According to Campbell (2000), today all major accounting firms and most major companies are involved in computerized accounting information system. 7

Other definitions and concepts, which are related to the current research, are as follows: Figure 1: Definition and concepts Application software Programs allowing a computer to tackie tasks like accounting or word processing. 1 1 2. Back-ups File copies made to be kept in case the originals ; are lost. 1 3. 1 % Batch file A file containing a series of commands which it} executes in sequence. 4. Graphical User A software package such as Windows, acting as P Si Interface (GUI) a user-friendly link between the operator and the i operating system by representing the possible \ I 5. Information commands as symbols, (icons) ' Ways of handling or transmitting information,, technology involving all aspects in use of computers and * telecommunications equipment. \ 6. On-line Connected to a working computer system. 1-7 Real-time Operation where a computer interacts with event and instruction as they happen. 8. Software The programs and data that a computer works with and on. (Irwin, 1999) According to Irwin (1999), basic computerized accounting system usually comprises the nominal ledger, sales ledger and the purchase ledger. 8

Nominal ledger This is the most complex aspect of computerizing the account system. Input to the nominal ledger will come automatically from the sales and purchases ledgers, thus saving time. The nominal ledger is central to the computerized accounts system. Sales and purchases ledger In computerized systems, sales and purchases ledgers can be individually grouped together or integrated with the nominal ledger. Businesses will often manage all modules separately initially and then combine at a later date. Computerizing the sales and purchases ledgers will no doubt affect clerical procedures, because data input, etc. has to be systematic. Payroll As pay level remain largely unchanged each week, the printing and calculation of wages slip is extremely repetitive. This kind of task is ideal for computerization. Payroll needs priority at some point during the week and therefore is best run as a separate system to the rest of the accounts. Many packages have optional payroll modules and information can be held on the system relating to overtime maternity pay, sick pay, information and tax deduction. From the explanation above, it can be concluded that computers make bookkeeping easy. The availability of various accounting software packages makes it even easier. Thus, they will increase the productivity level of the accountant's work. 9

In Malaysia the extensive use of computerized-based accounting system is in line with the government's aspiration to be a world leader in information based technology. This is evident with the "celik IT' campaign publicized in the communications media as well as the set up of the Multimedia Super Corridor (MSC) in Putrajaya. In light of this, the researchers are interested in finding out on the extent of CBAS use among the manufacturing companies in Kuching, Sarawak. 2.1.1 Manufacturing sector in Malaysia Manufacturing can be defined as "the mechanical or chemical transformation of inorganic or organic substances into new products, whether the work is performed by power-driven machinery or by hand, whether it is done in a factory or in the workers' home and whether the product is sold at wholesale or retail outlets. "(SMI Database, 1995) Company is defined as "a distinct entity from the person comprising it". Most companies are registered under the Companies Act 1965. Companies may be limited by shares or by guarantee, or may be unlimited. A company has a perpetual life. (Dictionary of Malaysian Business, 1992) In terms of the development of manufacturing sector, it has occupied a strategic position in the Malaysia Economic Policy since the 1950s. Prior to 1970s, the main emphasis of the Industrial Policy was towards encouraging the proliferation of import substitution manufacturing industries. By 1970, due to the need and search for export market, the major emphasis has been geared towards manufacturing for exports. The development of the manufacturing sector continued to occupy a strategic position in Malaysian New Economic Policy (NEP) initiated in 1971 which was further emphasized in the succeeding five years plans. The process of industrialization has been used as a vehicle to achieve the objectives of NEP in restructuring of 10

employment and ownership of assets as well as in the alleviation of poverty. In relation to technology, adoption, Jan, Che Sah and Shaari in 1990 mentioned that the SMIs in general need expert assistance in problem diagnosis especially in the area of technology adoption and helping them to be accessible to technology. In this context, the technology also includes the computerized accounting system, which is used to process the accounting information. In undertaking the current project, the researchers deploy the definition of Ministry of Industrial Development Sarawak to explain on the size of the respondents' companies. Firstly, in terms of paid-up capital, the size of company is categorized as follows: Figure 2: Paid-up capital Size Paid-up capital 1. Small - Less than or equal to RM 500,000 2. Medium - More.than RM 500,000 but less than RM 2,500,000 3. Large - More than or equal to RM 2,500,000 Another criteria used to categorize the size of a company is manpower size which is as follows: 11

Figure 3: Manpower size Size Manpower size * 1- Small - 1 to 49 employees * 2. Medium - 50 to 199 employees 3. Large - 200 employees and above 2.2. The development of accounting system Lorentiu in 1996 mentioned that accounting professionals were one of the first major markets to embrace the PC with the advent of the affordable and effective computerized spreadsheet. Until late 1996, accounting software vendors have had difficulty in getting their products to market and in convincing the market of the advantages of Graphical User Interface (GUI) accounting system. Computerized accounting system gained widespread application in the 1960s on mainframe computers. Accounting software is one of the computerized accounting system components. Cohn et. al in 1997 mentioned that accounting software has had its ups and downs, but there is no denying that it has gotten easier to use. It actually pre-dates the introduction of the IBM PC and Apple Macintosh, and some of the early systems that these programs ran on now can only be found in computer museums. The demand of these computerized accounting programs in the marketplace led some programmers to write the software for a particular company and then take it to the public when the product proved successfully. MYOB was one of the first accounting programs with a graphical user interface. It offered both real-time and interactive modes for entering transactions. Neish (2000) has expressed the beauty of using MYOB in a form of poem as follows: 12