Impact of ICT on Accounting

1. Introduction

Information and communication technology (ICT) connectivity (PCs and Internet) is very widespread in businesses of all sizes in Sierra Leone. As is the case with all technologies, small businesses are slower than large ones to adopt new ICTs. Potential small business benefits and firm and sector-specific strategies drive the adoption and use of ICTs. Furthermore, sectors are increasingly global and dominated by large firms and the structure of their values chains and operations shape opportunities for small and medium size enterprises (SMEs). Principal reasons for non-adoption are lack of applicability and little incentive to change business models when returns are unclear. SMEs also face generic barriers to adoption including trust and transaction security and IPR concerns, and challenges in areas of management skills, technological capabilities, productivity and competitiveness. The issues for governments are to foster appropriate business environments for e-business and ICT uptake (e.g. Sierratel to diffuse broadband, enhance competition), and target programmes to overcome market failures to the extent that they are needed in particular areas (e.g. Skill formation, specialized information).

Advancement in technology has affected the way things are done in various domains. Accounting is no exception. The traditional books are being replaced by computers. Accounting staff are required to be computer literate and spend more time in front of a computer screen than writing on papers and in books.

Information and communication technology (ICT) and e-business applications provide many benefits across a wide range of intra- and inter-firm business processes and transactions. ICT applications improve information and knowledge management inside the firm and can reduce transaction costs and increase the speed and reliability of transactions for both business-to-business (B2B) and business-to-consumer (B2C) transactions. In addition, they are effective tools for improving external communications and quality of services for established and new customers.

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For small firms to adopt e-business and e-commerce strategies and tools, benefits must outweigh investment and maintenance costs. Commercial considerations and potential returns drive adoption. Beyond a certain level of connectivity (PC, Internet access, on-line information or marketing), not all SMEs will necessarily “catch up” with large firms, simply because e-commerce may not bring large benefits and SMEs will stay with traditional business processes. Other barriers have been seen to be the availability of ICT competencies within the firm, and availability and cost of appropriate interoperable small-firm systems, network infrastructure and Internet-related support services. Lack of reliable trust and redress systems and cross-country legal and regulatory differences also impede cross-border transactions.

2. Why Have So Few SMEs Adopted ICT in Sierra Leone?

Given the benefits that ICT can bring to SMEs, SMEs in Sierra Leone have been slow to adopt it. For example, 90 percent of SMEs still use basic communication technology such as fixed phone line and fax, and approximately 10% percent use CRM software. Meanwhile, their counterparts in developed countries are using advanced ITs. One cause of limited adoption is the lack of dynamism between ICT firms and SMEs outside of the ICT sector. ICT firms have not provided goods and services tailored to SMEs in the past because demand from SMEs has been low. However, their demand is low in part because ICT products available in the market are too complex and expensive. The result is a vicious cycle of limited supply and limited demand that ultimately excludes SMEs from the benefits of ICT. Other factors also contribute to the limited supply and demand of ICT for SMEs:

Supply Side

1. Poor communications infrastructure results in limited access and higher costs.
Sierra Leone have poor communications infrastructure. Outdated equipment and state-owned monopolies often result in expensive charges and limited coverage, especially in rural areas. This discourages SMEs from adopting even the basic ICT of fixed lines or mobile phones.

2. Most advanced ICT products are designed for larger firms and not SMEs.
ICT firms used to target large enterprises because they had a larger budget and were willing to pay for more complex ICT services. Their products are often too expensive and too complex for SME users. However, competition in this market is making firms – both large and small – turn their attention towards the untapped SME market. Rosetta, for example, is pushing to capture SME customers by lowering prices by 50 percent and increasing awareness.

Demand Side

1. Limited ICT literacy of SME owners hinders their ability to choose the appropriate technology and understand the concrete benefits it can bring to their business. Many SME owners in Sierra Leone are unfamiliar with operating a computer, are skeptical of the concrete benefits to its core business, and have the stereotype that ICT is only for larger companies. Even if they have the will and financial resources to integrate ICT into their core business, SME owners are often at a loss when needing to choose the most appropriate and cost-efficient product.

2. Limited ICT literacy of employees in SMEs hinders ICT adoption. Even if SME owners have a strategic understanding of why they should adopt ICT, their staff is often untrained. Training costs both time and money – resources that SMEs usually lack.

3. Adopting ICT is an adaptive challenge, not a technical challenge. Adopting ICT is a difficult task for companies of all sizes, whether they are in developed or developing countries. In fact, a lot of management literature focuses on the organizational changes that firms must go through in order to effectively adopt ICT because they change the way firms do business. While the changes may be beneficial in the long run, they often hurt one department and strengthen another. For example, Zhang Hongwei, senior consultant with D’Long International Strategic Investment, comments that “in order to make ERP’s cost-saving and efficiency-building features work, managers must be willing to take measures that can be anathema in the state-owned sector, such as selling businesses, laying off workers, and changing longstanding vendor relationships. All of this can be tough to do.” Thus, SME owners are often reluctant to bring their firm through a learning curve that may be difficult and costly.

4. Lack of financing options limits SME ability to purchase ICT. Lack of financing and appropriate technology is clearly a major handicap to developing country producers and exporters, and it inhibits developing countries from deriving full benefits from their trade rights. Rubens Ricupero, Secretary General of UNCTAD, 18 February 2002, Geneva

SMEs in Sierra Leone usually have limited ability to make larger investments in their firm due to the lack of financing options. Given the financial squeeze, IT budgets are usually small or nonexistent. In addition, adopting ICT is not a one-time cost because there are ongoing costs of maintenance, upgrading, and human capacity building.

3. Why Should SMEs Adopt ICT?

SMEs are often the main driver for a country’s economic growth. However, as the number of SMEs increases, competition increases, which then results in a decrease in prices, customer base, or both. This in turn will erode existing profits, creating less incentive for people to start SMEs. This dynamic is captured by balancing feedback loops where the greater the number of SMEs, the greater the competition, resulting in a slower rate of growth for SMEs. To counter the increasing competition, firms can lower prices, increase promotion of their product, improve their product, add new distribution channels, and/or improve their internal processes. The challenge is to counter competition when the firm still has the financial resources to do so. Otherwise, once the pressure of competition sufficiently erodes the SME’s profits, it will no longer have resources to counter the competition and will have to exit the market. Foreign firms in both the import and export markets further add to competitive pressures, especially if they react faster to improve their product, process, promotion, or distribution channels. This is the problem of the Digital Divide. When firms in developed countries adopt ICT, firms in developing countries like Sierra Leone will lose out on the competition. This in turn can slow the growth rate of SMEs and hurt the economy as a whole. ICT can thus play a very important role because it can help SMEs both create business opportunities and combat pressures from competition. Appropriate ICT can help SMEs cut costs by improving their internal processes, improving their product through faster communication with their customers, and better promoting and distributing their products through online presence. In fact, ICT has the potential to improve the core business of SMEs in every step of the business process.

In Sierra Leone where SMEs already have basic ICT, adopting more advanced ICT still brings enormous benefits. Advanced communication technologies such as email can help firms communicate faster and cheaper with both its suppliers and clients. In 2000, an organization that uses paper took on average 7.4 days to move a purchase from request to approval, but if done electronically, only took 1.5 days. Advanced ITs such as ERP software can capture cost savings. Beyond cost savings, SCM software can also help increase productivity, efficiency of inventory controls, and increase sales through closer relationships and faster delivery times

4. Conclusion

ICT has been now boon to every modern system to perform all its operations with “computer as the middle” principle. The application of ICT in Financial management has also accounted a lot more success and efficiency in performing various operations related to different activities to commit a financial transaction. So for as the efficiency and effectiveness of ICT is concerned it has notably produced better throughputs which were acceptable and reliable. The need of the hour is the plan and develops more security measures to ensure authentic and secure client and server communication.

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Sierra Leone SMEs in addition to don’t having required expertise and knowledge and also lack of familiarity with technology is also beginning to use ICT with face fixed costs very high in comparison to their size, while for large businesses, this is not so. These costs include costs such as creation website, using e-commerce and costs associated with projects of electronic auctions, search engines and similar cases. While the costs associated with deploying advanced ICT technologies for industries and big businesses are not very significant. These are issues that a broad group of SMEs doesn’t know digital technologies related to their business and their goods and services do not know appropriate for e-commerce (E-Business Policy Group 2002).

SMEs often have to accept market conditions and they are not in a situation like the big companies that form the market conditions (this issue is concerned follow and leader companies in the market). Moreover, instability (such as financial insecurity in SMEs) and potential risks in e-commerce, many SMEs may be inclined to risk aversion and the choice of conservative policies and in fact they adopt policy of “wait and observed” in acceptation of digital technology. For many SMEs, there is considerable uncertainty about the opportunities and benefits of ICT adoption, this opportunities for them is still unproven. This problem causes that they are reluctance to complete the adoption of new business models and technology. 3. Small and medium companies due to limitations such as low investment, lack of laboratories, capacity less for communicating with and external consultants is facing to experiment with more serious problems for testing new procedures of business. Although financial constraints are the most important limitations but factors such as less time, fewer resources and … also imposed to these enterprises. Using modern ICT technology is In fact new ways that SMEs will face a substantial risk. Accordingly, we can say that the use of ICT in enterprises depends on the size of the firm.

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