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It is a widely researched topic to motivate small businesses to adopt IT. Even as, there is much research on the overall adoption of IT, there is little research focused specifically on the motivating factors for adopting computerized accounting systems (CAS) in small business. However, small business accounting software is an important sub-set of overall small business IT research. Accounting software was the biggest application package used and the driving factor behind the IT hardware acquisition decision. For example, in Australia the Yellow Pages (1997) reported that 76% of the small businesses surveyed had at least one computer and 75% of these used accounting software. Burgess (1998) in a review of IT adoption by Australian small businesses concluded that the main software application package used was accounting (see also Burgess 1997, and Wenzler 1996). To investigate the motivating factors for adopting accounting software, it would be reasonable to first review the more comprehensive literature on overall IT adoption. This literature review, therefore, begins with a discussion of the studies of general IT adoption and then reviews studies specifically focused on accounting software adoption.
2.1 FACTORS FOR ADOPTION OF IT
Some studies about small business IT adoption carried out by (Thong 1999), Harrison, Mykytyn and Riemenschneider (1997), Cragg and King (1993), Moore and Benbasat (1991) and Treadgold (1990) have identified a variety of motivating factors. Thong (1999) attempted to strengthen the myriad of IT adoption research by developing an integrated model of information systems adoption. This model is a useful framework in reviewing the variables that impact on a small business owner's decision to adopt IT. Thong categorized the factors into four elements:
Characteristics of the organization;
Characteristics of the management;
Characteristics of the technological innovation; and
4. Characteristics of the business environment.
2.2 Characteristics of the Organization
The characteristics of the organization are other variables that influences the decision whether to adopt IT. Organizational characteristics such as: employee's level of IT knowledge, business location, information-intensity, business size and industry sector has been analyzed in previous research studies of Fink (1999); Burgess (1998); Wenzler (1996); Attewell (1992); Yap (1990); and Delone (1988). In general, the greater the sales turnover are determined by the larger the number of employees and the more information-intensive the industry, thus the more likely a small business will adopt IT innovation .In addition, Thong (1999) states that small businesses tend to suffer resource poverty in terms of financial capacity, available time and IT skilled staff to facilitate innovation adoption. As a result, Attewell (1992) adds that resource poverty raises the barrier to innovation adoption in small business.
2.2.1 Information Intensity
Yap (1990) quoted in Thong (1999), that businesses have different information-processing needs in different sectors. Those in more information-intensive sectors are more likely to adopt IT than those in less information-intensive sectors Further, (Porter and Millar, 1985) have notified that greater uses of IT in businesses are due to greater information intensity. Greater information intensity will lead the owner or manager of small business to perceive IT as a major competitive tool and therefore increase the likelihood and complexity of using computer software.
2.2.2 Business Size
Dewar and Dutton (1983) and Moch and Morse (1977) quoted in Thong (1999), point out that the technological innovation literature has found that larger businesses have more resources and infrastructure to facilitate innovation adoption. However, Ein-Dor and Segev (1978), specify that small and medium businesses, face considerably more barriers, among others, a lack of in-house information system expertise, limited financial resources and are less likely to adopt information systems than large businesses. Further literature Alpar and Reeves (1990) quoted in Thong (1999) argue that, even among small businesses, the larger the business, the more able it is to hire people with specialized skills, such as knowledge of information systems.
2.2.3 Industry SEcTOR
Some particular industries are more likely to computerized record keeping than others are argued by some researchers. According to the Australian Bureau of Statistics (ABS) 1999-2000 report, Business Use of Information Technology businesses in the property, business services, electricity, gas and water supply industries had the highest use of computers at the same time as the lowest computer use was in the personal and other services, accommodation, cafes, restaurants, transport, storage, retail and construction where rates vary from 39 % to 46 %. Therefore, it is more likely to implement a CAS in industries in which there are more trading activities and transaction processing.
2.3 Characteristics of Management
Thong (1999) points out that in large businesses, group teams are usually involved in the IT decision-making process. However, this is in distinction to small businesses where the owner-manager is usually the IT decision maker. Therefore, Rizzoni (1991) indicates that in small businesses, the characteristics of the owner-manager are vital in determining the business's approach to IT. Thong (1999) asserted that the three main characteristics of owner- manager which are important to IT adoption are:
Level of IT education and accounting knowledge.
Computer self-efficacy, and
2.3.1 Level of IT Education and Accounting KNOWLEDGE
Since managers have little knowledge about accounting or since they do not know how to prepare accounts and financial statements, they contract out the activities of the accounting cycle to public accounting firms. In addition, in several countries and in several businesses, managers neither studied the accounting subject at all nor the accounting subject in the secondary level or tertiary level. Accordingly, Lees (1987), DeLone (1988) and Neidleman (1979) quoted in Thong (1999), specify that the owners are not alert of the importance and the use of accounting information over and above the advantages of using computers to make effortless accounting works. Thus, there is unwillingness to apply computer software which still exists because business process outsourcing reduces the lack of accounting understanding of owners. Thus, there would be a greater probability that to implement a CAS, if managers have high level of accounting education or if they could be educated about the benefits of computer technology to generate quick and accurate accounting information.
2.3.2 Computer self-efficacy
Self-efficacy is the belief that one has the capability to perform a particular behavior that is extending the social cognitive theory. Compeau and Higgins (1995) defined computer self-efficacy as a "judgement of one's capability to use a computer".
Delone (1988) and Raymond (1988) state that small businesses' managers who have undertaken computer training and possess computer self-efficacy are more likely to implement IT. The key leader for innovation is the owner-manager and small businesses often cannot afford the luxury of experts to guide them towards the innovation adoption and diffusion process. Thus, it is important for the owner-manager to have computer self-efficacy. It is posited here that, to the degree that the owner-manager feels comfortable and confident with the information technology, here construed as the owner-manager's computer self-efficacy, innovative information technology will be adopted.
However, Gableand Raman (1992) found that managers in several firms are less concerned or have no idea of the likely benefits derived from the use of computers in accounting as they do not possess computer knowledge. Hence, managers would be willing to adopt such computer technology to process accounting data and generate timely relevant and reliable financial reports, if they could be educated about the benefits derived by using general software and accounting software package.
Innovation is defined as a change made in the traditional way of doing things. In this framework, innovation means the process of changing the way of preparing financial reports from manual system to adopt accounting software package as a tool for recording and processing accounting transactions and financial reports. Thong (1999) states that the owner is the one who is responsible for the management of the company in small and medium businesses. As a result, the characteristics of owners and management are important determinants of the innovation attitude since they are the ruler persons to take decisions. Kirton (1976) quoted in Thong (1999), contends that everyone is located on a continuum ranging from an ability to do things better to an ability to do things differently. The owner-manager will seek solutions that have already been tried and understood, if the latter is not an innovator. In contrast, Kirton, (1984) indicates that the owner or manager who wants to innovate will prefer solutions that have not been tried out and are therefore hazardous. However, Thong (1999) suggests that there is nothing that other members of the business can do to use computers for accounting works if the owner-manager has not the willpower to innovate.
2.4 Characteristics of the Technological Innovation
The characteristics of the technological innovation itself are also an important determinant in the decision to adopt IT. Rogers (1983) defined diffusion as " the process by which an innovation is communicated through certain channels overtime among the members of a social systems". Rogers uses the terms technology and innovation synonymously, but explains that technology is "a design for instrumental action that reduces the uncertainty in the cause-effect relationships involved in a desired outcome". There are five, potentially relevant, characteristics of innovation noted by Rogers (1983) which are potentially valuable in explaining the results of our research.
Complexity: how difficult technological innovation is perceived as easy or difficult to understand and use;
Compatibility: how technological innovation must be consistent with the existing values, past experiences and needs of potential adopters, for instance producing quick reports as efficiently and effectively;
Relative advantage: how much technological innovation must be perceived as better or worse to be compared to its predecessor system;
Trialability: is the degree to which an innovation may be experimented with by potential users on a limited basis;
Observability: how much time it takes for the results of technological innovation to become visible and generate profit.
It has been noticed, over the past decade that the advent of powerful, economical microcomputers together with available accounting software, have improved and lifted the barriers to IT modernization. (Thong 1999) shows that, this has led to an increase in the adoption of IT in the accounting zone of small businesses.
2.5 Characteristics of the Business Environment
Business environment encompasses all those factors that affect a company's operations, and includes customers, competitors, stakeholders, suppliers, industry trends (accounting firm and accountants), regulations, other government activities, social and economic factors and technological development.
2.5.1 accounting firm
Oran (1988) and Shannon (1986) indicate that many business managers are not alert of the additional services provided by accountants. Additionally, until a problem does not arise, managers will not consult accountants (Holmes 1987). Moreover, ASCPA (1992) and Breen et al. (1994) supported in their studies that an external accountant spent much of his time on complying accounting practice with accounting standards, thus he can assist a business in the purchasing and implementation of accounting software in the business accounting cycle. Gorton (1999) found that businesses that were recently established were more likely to approach an external accountant for advice than more grown-up organizations. Also, Wenzler (1996) states that accountants are the ones who are most likely going to provide accounting software advice and support to their clients. Such proposal shows to be efficient and effective for businesses to opt for accounting software.
There are close relationships between small and medium business owners and accountant, since several small and medium businesses contract out their operation transaction recording and reporting to external accounting firms. In addition, Davis (1997) noted that small and medium businesses rely heavily on accounting firms as their most trusted business advisors. Accounting firms have more knowledge about their clients and their clients' business. They know what their objectives are, and can put forward approaches to help in attaining those objectives. For this reason, as recommended by Yap et al. (1992), accounting firms can considerably influence IT adoption among small and medium businesses and besides those accounting firms' involvement may also contribute to the achievement of computerized accounting implementation.
Nevertheless, to minimize errors and prevent fraud, it is essential for accountants to understand the impact of the use of computers on the accounting procedures and controls that are designed. Computers cannot replace the opinion and insight of knowledgeable accountants but the computer software can facilitate the tasks by automating much of the everyday bookkeeping processes in the manual accounting systems (e.g. posting, trial balance preparation). Computer software allows the accountant to focus more on how to proceed with the accounting entries and methods on financial reports. More of the accountant's hard work can be focused on assisting management in understanding the impact of financing, investing and operating decisions on financial statements and other measures of performance by utilizing accounting software.
It is generally believed that Competition will increase the likelihood of innovation adoption (Ives & Learmonth (1984); Link & Bozeman (1991) quoted in Thong (1999)). Ettlie (1983) and Ettlie & Bridges (1982) quoted in Thong (1999) that Competition leads to environmental uncertainty and increases both the need for and the rate of innovation adoption. Porter and Millar (1985) advise that, businesses will be able to compete in three ways by adopting IT:
IT can create competitive advantage by reducing costs or increasing differentiation.
IT can change the industry structure and, in doing so, change the rules of competition.
IT spawns new businesses by creating derived demands from new products, often within existing operations of the business.
2.5.3 External Agents
Small business's customers were a considerable reason for implementing IT, more than the pressure of competitors suggested by Wenzler (1996). Luckily, Public Practice Accountants are in a superior position to provide systems analysis, design, implementation, and support advice to their clients as many small businesses are in lack of resources to adopt CAS.
Furthermore, the introduction of the Goods and Services Tax (GST) was an external influence on small business owner-managers' decisions to adopt a CAS. Many small businesses would have taken advantage of Government incentives to help with the transition costs of the GST. Many small businesses computerized their accounting systems following the introduction of the GST because accounting for the GST using manual records proved to be too complicated (Lief 2000). Since the introduction of the GST, it has been shown that many small businesses agree that the costs involved were usually: 'offset by better record-keeping and resultant better business management. The general consensus was that the move to computerized records was very positive for the small business sector overall'.
2.6 BARRIERS FOR ADOPTION OF IT
Computerized accounting implies that the only thing that employees do is inputting and recording transactions into the computer, which then processes the other steps of the accounting cycle automatically or by a request. Davis and Olson (1985) defined Information System adoption as using computer hardware and software applications to support operations, management, and decision making in the business. In this study, computerized accounting is defined as using computer software applications to support accounting operations. However, many small businesses are cautious about the effect computer may have in their firm. When a CAS is installed, if there is a bad option of hardware or software, or inadequate planning, this may lead to difficulties and may have severe long-term consequences. Some reasons constantly mentioned in literature to explain why small firms that had not yet adopted IT, identified the three main barriers to IT acquisition.
2.6.1 Lack of computer skills and knowledge
As computer technology permeates organizations both large and small, the need for employees with sufficient IT knowledge is critical. There are two possible solutions to this problem. The first is the employment of dedicated IT staff. However, this is costly and can be outside the budget of the small organization. IT training is a second option. Conversely, this also comes at a price. Not only are courses expensive for small firms, but in professional practices where clients are billed on a time basis, time spent undertaking training is considered by many owner-managers to be lost revenue. As a result, drains on time and money represent significant constraints as suggested by (Stanworth and Gray, 1992; Marlow, 1998). Accordingly, many SMEs struggle forward with what knowledge exists within the firm. The small body of research focusing upon the effect of training in small businesses is conflicting. Delone (1988), looking at critical process factors, reported that the level of computer training was not associated with IT success (measured as the impact of IT on the organization and computer use).
On the other hand, Montazemi (1988) stated a positive relationship between levels of training and measures of the impact of IT. Where employees were dissatisfied with the levels of training available, he found their computer literacy, end-user satisfaction and appreciation of IT was lower than their better-trained counterparts Igbaria et al. (1997) also report training to be beneficial for small firms. Their study shows training to be positively associated with the perceived usefulness of IT and ease of use. On the basis of their findings, Igbaria et al. assert that individuals without adequate training are likely to experience problems using the system. Since they are struggling, they may actually believe that the system is too hard to use and that the performance benefits of usage are outweighed by the efforts of using it and eventually become reluctant to use the technology, thus defeating the purpose of introducing the new technology.
2.6.2 Lack of Time
Niederman et al.(1991) and Galliers et al.(1994) state that surveys undertaken in large organizations have consistently shown information systems (IS) planning to be one of the top priorities of information systems and business managers for time management. However, Fidler et al.(1993) and Dou- kidis et al, (1994) report that current research suggests that small firms are failing to follow the example set by their larger counterparts and remain, in terms of modern management practice, in the dark ages. While it is acknowledged that the formal planning techniques of large organizations are not necessarily appropriate for small firms, research suggests that small organizations that have adopted more formal planning systems encounter fewer IS problems (Malone, 1985; Cragg, 1990).
In spite of such findings, Cragg and King (1993) report finding `few formal planning and control activities associated with the computer, or for that matter, with the business as a whole'. Where planning does take place it tends to be; undertaken on an ad hoc, problem basis; only an activity of the owner-manager; informal, sporadic and closed; and influenced heavily by advice from outside sources with less skills and experience than the owner-manager. As Doukidis et al. (1996) report, while IT is usually associated with a systematic approach to management and decision-making and its introduction requires careful planning, much small business management practice is based on short-term, informal, ad hoc lines.
Furthermore, McMahon (2001) study mentioned that it actually improves management in small businesses and frees up time by using a computerized record keeping system. However, John Breen and Nick Sciulli (2002) found that business operators are probable to have difficulties finding time to implement a CAS as they lack the time to look into and or implement a computer software package. For that reason, it may have a positive effect on the business overall and may facilitate to find the time to adopt CAS. Besides, Proudlock et al (1999) research observed that some businesses owners did not have enough time to find and buy particular accounting software that satisfy their business requirements, and they did not have time to set up the accounting software and to record the routine business dealings. This is why they did not adopt Information Technology in the financial accounting system.
2.6.3 financial resources
Iacovou et al.(1995) states that small and medium enterprises need an ongoing supply of adequate financial resources for a successful adoption of CAS. The financial resources are needed to cover the installation costs, maintenance, and other current expenses that might occur during the entire course of the system operation. However, Iacovou et al. (2005); Quayle (2002); Riquelme (2002) added that not all small and medium enterprises have adequate financial resources needed to support the adoption of CAS and as such financial constraint becomes the barrier to CAS.
Head (2000) stated that: '..small business cries poor when it comes to buying computers.' This shows that it is very costly and difficult when transiting from manual system to computerized system. Also, due to costly investment, many small business managers were reluctant to use computer software in the accounting system as mentioned by Head (2000) research study.
However, consultant assistance comes at a high price, often too high for the small organization. As a result, many small firm owners prefer to obtain advice from neighbouring organizations and support organizations as well as less formal sources of advice such as immediate family, friends and acquaintances, who essentially have little or no knowledge of the business (Doukidis et al., 1994; Proudlock et al., 1998). Similarly, IT consultants may not always be the answer. While they are knowledgeable in terms of the application of IT in business, they rarely understand the specific needs of individual businesses in the same depth as the owner-manager (Delone, 1988; Gable, 1991).
This overview of past research studies has clearly demonstrated the criteria which influenced the factors for the adoption of information technology in the accounting profession for some small and medium businesses. Nevertheless, these past studies have raised a debatable issue in the literature. Consequently, no comparisons are made between businesses that use a computerized accounting system. This comparison would be useful in the reasons for using or not using computerized records, over and above what factors would persuade more businesses to adopt IT irrespective of their dimensions.
Moreover, according to the literature, all of the above characteristics influence the owner or manager's decision to implement IT in the accounting field to a varying extent depending on the economy and industry in which the business operates.