Review of Related Literature

Review of Related Literature
Accounting provides financial information about a business or a not-for-profit
organization. Owners, managers, investors and other interested parties need financial information
for decision making. Financial accounting is the art of systematically identifying, measuring,
recording, classifying and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of financial nature, and communicating,
analysing and interpreting the results there of (Woode&Sangster, 2008).
Marivic (2009) described a computerized accounting system as a method or scheme by
which financial information on business transactions are recorded, organised, summarized,
analysed, interpreted and communicated to stakeholders through the use of computers and
computer-based systems such as accounting packages. He emphasized that it’s a mechanized
process of facilitating financial information inflows as well as the automation of accounting tasks
such as database recording and report generation. Marivic also discussed that keeping accurate
accounting records is a vital part of any organization. Apart from helping it to keep its float
financially and legal, it is a requirement of funding bodies or donors.
According to Carol (2002), it is easy to do accounting functions using computerized
accounting systems. Posting transactions to the ledger, the principle of double entry can largely
be automated when done through the use of computerized accounting system.
Meigs (1986) stresses that there is a risk of improper human intervention with the
computer programs and computer files. Employees in the organization may temper with the
computer programs and computer-based records for the purpose of deliberately falsifying
accounting information. This may result into distortion of information that would essential be for
decision making.
According to Wahab (2003), another threat and limitation of computerized system is the
computer virus. Where a computer virus is a computer code (program)specially designed to
damage or cause irregular behavior in other programs on the computer. The adverse effect is that
it may lead to breakdown of the hardware thus leading to loss of valuable information (for
instance in financial institutions information such as customers’ accounts, previous financial
report, information pertaining loans advanced among others) already saved on the computer
The Magna Carta for MSMEs defines MSMEs as any business activity or enterprise
engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative,
partnership or corporation whose total assets, inclusive of those arising from loans but exclusive
of the land on which the particular business entity’s office, plant and equipment are situated,
must have value falling under the following categories:
 Micro: not more than Php 3,000,000
 Small: Php 3,000,001 – 15,000,000
 Medium: Php 15,000,001 – 1,000,000,000
On the report of International Trade Centre entitled “Promoting SME competitiveness in
the Philippines” it is stated that Small and medium-sized enterprises (SMEs) are the economic
lifeblood of the Philippines. They account for more than 99% of registered businesses in the
country and provide 60% of jobs. The COVID-19 crisis has made it more difficult for these firms
to participate in global value chains. Increasing the competitiveness of small companies can spur
resilience to the pandemic and future shocks while promoting inclusive and sustainable growth.
The Tech Wire Asia also discussed that SMALL and medium enterprises (SMEs) serve
as the driving force of a country’s economic growth. This is mainly because they make up a large
part of the business landscape in certain countries, especially in Asia.
In the Philippines, there are 4,769 large enterprises, 106,175 small enterprises, 4,895
medium enterprises and a whopping 887,272 units of micro business establishments. SMEs alone
have managed to create over 2.5 million jobs in the country, further signifying the vitality of
these establishments to the country’s development.
Due to the fact that they greatly influence the country’s income rate and development,
they must be able to constantly meet the global industrial demands, evolve alongside the new
globalization standards and catch up with the digital world.
The studies of Dyt and Halabi (2007) and Zhour (2010) concluded that the main problem
of business owner and managers of micro enterprises is mostly in their inability to keep
sufficient records to aid them in their decision-making. Another problem is their difficulty in
preparing proper financial statements because of poor or insufficient records. Results of their
studies show that majority of micro businesses rely more heavily on manual methods, while
small businesses are more likely to use computerized systems. They recommend the use of
accounting software by owner-managers in SMEs to improve accounting practices.
Yason (2014) believed that SMEs, despite having different products, services and
business strategies, have a common and immediate need for an adequate accounting
infrastructure that will provide them with timely and accurate financial statements. According to
Yason, many SMEs do not prioritize their finance and accounting infrastructure due to cost
considerations and the way they are structured. Yason also stated that SMEs have insufficient
finance personnel who are knowledgeable about the latest accounting standards and fast-
changing tax regulations.
The study of Cynthia Cudia (2008) in the Philippines revealed that 76% of her SME
respondents used the accrual method while 6% used the cash method for record keeping and
regularly converted to the accrual method for purposes of reporting to regulatory bodies. The
remaining 18% used the cash method and their external auditors were tasked to prepare year-end
adjustments using accrual method in accordance with GAAP. The accounting method used by
SMEs is based on the following factors: nature of their business, convenience of the method,
complexity of accounting, tax compliance, cost, usefulness in decision-making, and other factors
such as method required by Bureau of Internal Revenue (BIR), to support revenue during the
period.
https://www.academia.edu/5351394/The_Effects_of_using_Computerized_Accounting_S
ystems
https://pnl-law.com/blog/magna-carta-for-micro-small-and-medium-enterprises-msmes-
republic-act-no-6977-as-amended/
https://www.intracen.org/uploadedFiles/intracenorg/Content/Publications/Philippines_S
ME_v6.pdf
https://techwireasia.com/2020/01/amid-digital-disruption-smes-in-the-philippines-are-
pushed-to-transform/
https://www.researchgate.net/publication/337543307_Accounting_knowledge_and_practi
ces_of_Micro_Small_and_Medium_Enterprises_MSMEs_in_Metro_Manila_and_in_Quezon_Pr
ovince_A_Comparative_Analysis
Dyt, R. and Halabi, A. K. (2007). Empirical evidence examining the accounting
information systems and accounting reports of small and micro business in Australia, Small
Enterprise Research, 15 (2), pp. 1-9
Yason, S. (2014). Financial reporting: A challenge to SMEs; Association of CPAs in
Public Practices PFRS for SMEs; IFRS Application Around the World; Jurisdiction Profile:
Philippines.
Cudia, C. P. (2008). Accounting (Analysis) Small and Medium Sized Companies Journal
of International Business Research, 7 (1)

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Review of Related Literature

Accounting provides financial information about a business or a not-for-profit

recording, classifying and summarizing in a significant manner and in terms of money,

analysing and interpreting the results there of (Woode&Sangster, 2008).

Marivic (2009) described a computerized accounting system as a method or scheme by

which financial information on business transactions are recorded, organised, summarized,

computer-based systems such as accounting packages. He emphasized that it’s a mechanized

financially and legal, it is a requirement of funding bodies or donors.

According to Carol (2002), it is easy to do accounting functions using computerized

be automated when done through the use of computerized accounting system.

computer virus. Where a computer virus is a computer code (program)specially designed to

instance in financial institutions information such as customers’ accounts, previous financial

engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative,

must have value falling under the following categories:

 Micro: not more than Php 3,000,000

 Small: Php 3,000,001 – 15,000,000

 Medium: Php 15,000,001 – 1,000,000,000

On the report of International Trade Centre entitled “Promoting SME competitiveness in

part of the business landscape in certain countries, especially in Asia.

these establishments to the country’s development.

globalization standards and catch up with the digital world.

accounting software by owner-managers in SMEs to improve accounting practices.

changing tax regulations.

Dyt, R. and Halabi, A. K. (2007). Empirical evidence examining the accounting

Enterprise Research, 15 (2), pp. 1-9

Yason, S. (2014). Financial reporting: A challenge to SMEs; Association of CPAs in

of International Business Research, 7 (1)

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