Effect of ICT adoption on financial reporting efficiency in Kenya: A study of Public Enterprises in Tana River County

Abstract

The purpose of this study was to investigate the effect of ICT adoption on financial reporting efficiency in Kenya, a case of public enterprises of Tana River County. Business organizations worldwide have come under immense pressure to maximize efficiencies as they reduce their spending in order to make profits in order to remain competitive. However the recent advancement in technology has seen numerous changes in styles of competition, production environment, and cost structures of firms. These changes have been advocated as imposing pressures for changes in operational strategies and financial reporting in order to improve overall firm efficiency. Firms that don’t yield to these pressures end up being faced out of the market. In Kenya this pressure resulted in the exit of giant public enterprises while many more continue to register dismal performance due to high operational costs, inefficient service delivery suboptimal practices, ambiguous systems/processes and inadequate internal controls. While it is believed that use of ICT improves efficiency at firm level, there is no consistent empirical evidence to support that belief. Prior study results give mixed findings with some supporting while others oppose, hence the need for this study. The objectives of the study were to;- establish the effect of IS adoption on financial reporting efficiency, examine the effect of MRP on financial reporting efficiency, analyze effect of ERP usage on financial reporting efficiency, explore effect of e-business on financial reporting efficiency and determine the challenges facing ICT adoption in financial reporting in the context of public enterprises. The study was supported by several theories relating to individual variables including Technology acceptance model (TAM), Diffusion of innovation theory (DOI), Resource based view (RBV) and information richness theory (IRT). Descriptive census survey method was used in which all the 200 accountants and auditors working in public enterprises in Tana River County were given questionnaires which they filled and handed back, The data was then organized analyzed and interpreted using Statistical Package for Social Sciences (SPSS ver. 18.0). Multiple regression analysis was used to test the hypothesized cause-effect relationship between ICT adoption and efficiency in financial reporting. Results were presented in charts, graphs and tables. The study model established that financial reporting efficiency is a function of adoption of IS, MRP practices, ERP usage and to a minor level, e-business. The researcher therefore suggested the following standardized multiple regression model for prediction of financial reporting efficiency in public enterprises in Tana River County; FRE = 0.202IS + 0.106E-Business + 0.222MRP + 0.691ERP. Based on these findings, the study concluded that ICT adoption significantly influences efficiency in financial reporting in public enterprises of Tana River County. Consequently it is recommended that the government should enhance use of ICT in financial reporting in order to improve general efficiency of public enterprises in Kenya.