Chapter one 1.0 INTRODUCTION 1.1 BACKGROUND OF THE STUDY · 1 Oloya Andrew Richard Reg No: 03/13517/ext students no: 203013692 Supervisor: Mr. Kajumbula Richard Chapter one 1.0 INTRODUCTION

1 Oloya Andrew Richard Reg No: 03/13517/ext students no: 203013692 Supervisor: Mr. Kajumbula Richard

Chapter one

1.0 INTRODUCTION

This chapter presents the background of the study, statement of the problem, objectives

of the study, research questions, scope of the study and the significance of the study

1.1 BACKGROUND OF THE STUDY

Record keeping can be defined as a day to day recording of events correctly into the

books of accounts and accurately manipulating them to produce accurate and consistent

financial statements (Panday, 1998). Omunuk (1999) looks at recordkeeping as a record

making process of accounting. It is a subset or a component of accounting. It includes the

preparation of books of accounts such as the cash books and ledgers. A good record

keeping system is characterized by the following steps: identifying whether the

transaction has occurred, preparing source documents e.g. receipts, invoices, Analyzing

and classifying transactions, recording transactions into appropriate journals, posting

details in the Journals into general ledgers and finally extraction of the trial balance.

Quality financial reports are statements that are prepared to communicate financial

information to influence decision of users of accounts and such reports posses certain

desirable qualities, particularly the report must be relevant, understandable, timely and

consistent (Clarke 1998). Nkundabanyanga (2004) defines the Quality of financial reports

as an extent to which the information provided in the financial statements is useful to

users. The principle characteristics of quality financial reports include: understandability,

relevancy, reliability, compatibility, timely, materiality, prudency, verifiability, substance

over form, and faithful presentation.

According to the report by Uganda cooperative savings and credit union, (2009), Koch

Goma SACCO was experiencing a number of problems in keeping proper records of

accounts which include lack of qualified staff, single entry record keeping system, lack of

required documents and this is evidenced in the lack of accurate, consistent, timely and

reliable information presented in the financial statemnts thus failing to the objective of

having quality financial reports, the SACCO has taken considerable time and effort to

establish an efficient accounting system by recruiting new staff in the accounting


department, equip the departmental staff with computerized accounting packages and

skills of using these packages.

Despite all these efforts, the problem still persists and this may be as result of poor record

keeping, unqualified staff or lack of knowledge of the generally acceptable accounting

principles, international financial reporting standards and the company act. The main

determinant of poor quality financial reports was determined in the findings of this

research report.

1.2 Statement of the problem

Koch goma SACCO has persistently produced low quality financial reports (audited

financial report, 2009) .UCSCU has tried to alleviate the problem at hand by training staff

and computerizing the accounting system. Despite these efforts, the quality of financial

statements has remained low. The probable cause could be poor record keeping and it is

still unknown, whether this is as a result of incomplete records or some other factor. If the

situation stays like this, the cooperative will fail secure credit from government and also

savings from the members and this could culminate into a financial distress with all its

consequences.

1.3 Purpose of the study

The purpose of the study was to examine the relationship between record keeping and

quality of financial reports.

1.4 Objectives of the study.

The objective of the study was:

a. To assess the record keeping system of Koch goma SACCO.

b. To establish the quality of financial reports of Koch goma SACCO.

c. To establish a relationship between record keeping and quality financial reports.


1.5 Research questions

The research questions are:

a. How is the record keeping at Koch goma SACCO?

b. What are the qualities of financial reports in Koch goma SACCO?

c. What is the relationship between the record keeping and quality of financial

reports?

1.6 Scope of the study

1.6.1 Geographical scope

The research was carried out in the premises of Koch goma SACCO in the department of

accounts, auditing, human resource, marketing, procurement, and management from their

offices in Koch goma, Koch goma sub county, Nwoya district.

1.6.2 Conceptual scope

This study was concerned with record-keeping as the independent variable with components

such as identifying occurance of a transaction, preparation source documents e.g. receipts,

invoices, Analysis and classification of transactions, recording of transactions into

appropriate journals, posting details in the Journals into general ledgers and finally extraction

of the trial balance and quality of financial reports as the dependent variable with

components such as understandability, relevance, reliability and compatibility as desirable

qualities of a good financial report.

1.7 Significance of the study

i. The study was to highlight issues that are lacking in the record keeping system of

Koch goma SACCO and will guide management in improving on financial reporting.

ii. The study was to help the researcher understand better record keeping in relation to

quality financial reports.

iii. The study was to assist other cooperative societies to understand more about record

keeping and quality of financial reports. The study was also to assist in improving the

record keeping systems of these other cooperatives.


Chapter two

Literature Review

2.0 Introduction

In this chapter, the related literature is reviewed as provided by different authors

concerning the various aspects of financial reports and record keeping system such as

definition of record keeping system, documents and Records of record keeping, definition

of quality financial reports and characteristics of quality of financial reports.

2.1 RECORD KEEPING

Record keeping is defined as the art and science of recording, classifying and

summarizing financial transaction of a business in the books of accounts (Omunuk,

1999). In this context record keeping is the record-making phase of accounting concerned

with the production of documentary evidence and recording of transactions in the

journals, cashbooks, and ledgers plus the extraction of the trial balance. However, Baston

(1986) views record keeping as an art, but not a science and it is concerned with the

recording the financial transactions of a business, or individuals, in terms of money in a

set of books in order to obtain necessary information when required. This definition

reveals that record keeping is an art but not science; it is concerned with recording

financial transactions only in terms of money and its objectives is to provide information

about the conduct and status of the business. In other precise terms, record keeping is the

process of entering details of transactions in the books of accounts with a view to fulfill

business objectives (Mill Champ, 1997). As the process, record keeping ensures that as

soon as a transaction occurs, its properly documented and entered in the proper accounts;

and this is done on a daily basis. At the year-end, adjustments are made on accounts prior

to the production of financial statements. However, the Institute of Certified Public

Accountants, best defines Record Keeping as the art of recording, classifying and

summarizing in significant manner and in terms of money transactions and events that

are, in part at least, financial character in the books of accounts.


2.2 Record keeping system

A record keeping system is defined as a set of related components that records and keeps

track of business transactions from the stage of occurrence to the point of extraction of

the trial balance (Grabutt, 1969). In this context, the components of a record keeping

system include book keepers, managers, methods, procedures, software and facilities that

play a role in recording of business transaction in books of accounts and generation of

financial information used in preparation of financial reports. These methods are the

means of implementing the record keeping system and are classified into single and

double entry method. Whereas double entry system records the dual aspect of

transactions, single entry methods record a single aspect of the transaction. In another

angle, warren, (1993) believes that record keeping system refers to the ledgers and

journals of record keeping together with operation rules of Debit and Credit. He says that

the function of record keeping system is to provide management with information

efficiently, quickly and accurately whilst at the same time minimizing the cost of

operating the system and guarding against the possibility of theft or fraud. In another

perspective, record keeping system is a set of components that collects, classifies,

processes and summarizes business transactions in the books of accounts. The system

may be manual or computerized (Romney, 2003) with the computerized record keeping

system; flexibility can be achieved particularly where enterprise resource system is used

by organizations that have high volumes of transactions. Romney further connotes that

the functioning of any record keeping system heavily relies on the way management

addresses factors in the business control environment like; commitment to integrity and

ethical values, organizations structures, forming audit committees of the board of

directors, improving methods of assigning authority and responsibility and good resource

policies. However, Kibera, (1996), contents that record keeping system is a system of

documenting, recording and processing the transactions of business in the books of

accounts. He concurs with other scholars that the nature and type of the business records

and its recording system will greatly influence the quality of their financial reports

especially by adhering to, or ignoring procedures and accounting principles in

establishing what transactions to be recorded, how they are to be recorded and what to be

recorded. It is also argued that a good record keeping system is not only important in


Sustaining business but also aids organizations to safeguard against the risks of hitting

cash flow crunches, wasting of money and missing out on the opportunities to expand

(Lumumba, 1998).

2.3 Types of Record Keeping System

2.3.1 Tabular/column system

This is a method of record keeping in which the items are subjected to continuous

analysis or classification, thereby saving the trouble of periodic dissection and

summaries. A “total” column is provided so that arithmetical accuracy of the analysis can

be verified by means of cross casting. It is particularly suitable where transactions are of

regular type and frequent in occurrence. This system can be used in departmental

accounts, branch accounts, and investment by utilizing records such as cost ledgers,

stores ledgers and bills receivable ledgers. This system is reliable in that it is simple to

apply, it can be adapted to almost any books of accounts, whether a books of account or a

statistical books; it economizes time and saves labour (Garbutt, 1969). However,

limitation with this system is that the books required to carry it out are often of unwieldy

dimensions and thus are liable to errors.

2.3.2 Slip system.

This is a system that records transaction usually entered in subsidiary books on loose

sheets of paper. The slip system avoids the constant recording of transactions in the

books of original entry and the copying of transactions in the ledger particular with the

ordinary system. The books utilized for slip system include slip daybooks, and slip

ledgers (Clarke, 1998). This slip system has been adopted by banks for many years. The

advantages of a slip system include; saving of time and labour, as it reduces the number

of subsidiary books, minimizing risk of error as much copying into intermediate books is

dispensed, affords prompt posting of ledgers and providing ready reference from the

original slips (Brookson, 2001).

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However, this system is not very appropriate to saving and credit societies companies

owing to the nature of their operations that require incorporating activities at the office

with activities at field located far away from offices.

2.3.3 Manual accounting system

The manual system of record keeping uses special journal to streamline the journalizing

and posting processes. This system handles large volume of transactions rapidly and

efficiently, it is helpful to classifying transactions and using special journal for each class.

In this system, the majority of transactions usually fall into sales of merchandise on

credit, purchase of merchandise on credit, receipts of cash and payments of cash

(Matulich, 1990). According to Lumumba, (1998), the manual system can produce

reliable accounting information if organizations put in place policies and procedures for

maintaining properly accounts books like cash book, journals and ledgers.

2.3.4 Dual system

This is a system that uses a fax machine and central computer. The system connects up

the fax machine in the branch office to the central computer in the head office via a

modem/fax linkup. The hand filled standard forms are faxed to this central computer

where an optical character reader engine translates the faxed hand writing images into

computer readable data. This system is required to incorporate branch personnel with

insufficient computer skills in fast transmission of field data to head office for further

processing (Kizza, 2000).

This system cannot be adapted by saving and Credit society companies in Uganda at the

moment due to the fact that most SACCOS branches are located in rural areas which are

still lacking telecommunication facilities.

2.3.5 Computerized systems

This system of record keeping utilizes information technology to ease tedious keeping of

records and laborious storage of information. Recommended software for large scale

SACCO is Quick books accounting package (Kizza, 1998). This soft ware integrates the

SACCOS business process into a single process, which accords easy management of

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contracts, sub contracts, orders, budgets and daily events. However, the use of

information technology in SACCO‟s branches is still low despite the availability of many

computer software for such applications (Madoi, 2003). With the computer systems, data

from the manual generated source document are entered into punched cords or magnetic

devices, which can be read by the computer. This computer information processed

performs routine tasks, like printing journals. This system is highly reliable and the

possibility of errors caused by the hardware is small.

However, micro finance companies in Uganda are still adapting to computers and their

systems are normally partly computerized; implying that these systems are still

vulnerable to manipulations by dishonest record keeping staffs.

2.4 DOCUMENTS USED IN RECORD KEEPING

2.4.1 Receipts

This is a document prepared to show evidence of money received (Omunuk, 1999).

However, Saleemi (1969), Substantiates that a receipt should be printed, having

counterfoil, or carbon copy and should be consecutively numbered. He further connotes

that whereas unused receipts are kept under lock, spoiled ones should be cancelled and

not detached from the counterfoil. He stresses that no blank counterfoil should be

accepted. In English speaking countries the term most frequently applies to the printed

record given to a consumer at checkout that lists the purchases made, the total amount of

the transaction including taxes, discounts and other adjustments, the amount paid and the

method of payment. Increasingly, these receipts may also include messages from the

retailer, warranty or return details, special offers, advertisements or coupons. Receipts

may also be provided for non-retail operations such as banking transactions. A receipt is

a legal document. In many countries, notably Uganda, it is mandatory by law for retailers

and individuals to show receipts of their transactions to the tax authorities and auditors

(Madoi, 2003).

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2.4.2 Voucher

A voucher is documentary evidence in support of a transaction in the books of accounts

(Saleemi, 1969). Within this context, the act of establishing the accuracy and authenticity

of entries in the books of account is called vouching. He argues that the essence of the

vouches is to substantiate an entry in the books of account with any documentary

evidence such as agreement, receipts, and counterfoils and also see that the transaction

has been authorized. A voucher is a bond which is worth a certain monetary value and

which may be spent only for specific reasons or on specific goods. Examples include (but

are not limited to) housing, travel, and food vouchers. The term voucher is also a

synonym for receipt and is often used to refer to receipts used as evidence of, for

example, the declaration that a service has been performed or that expenditure has been

made. (Kizza, 2000)

2.4.2 Invoice

This is a document submitted by suppliers demanding payments for goods and services

that they have supplied on credit (Baston, 1986). He argues that an invoice provides

information to the buyer about the cost of the goods, trade discount and net amount

owing. However, Omunuk (1999) refers to an invoice as a document submitted by

suppliers demanding payments for goods supplied that they had provided on credit and it

is normally reconciled with other documents such as delivery notes, local purchase order

before it is paid. An invoice or bill is a commercial document issued by a seller to the

buyer, indicating the products, quantities, and agreed prices for products or services the

seller has provided the buyer. An invoice indicates that the buyer must pay the seller

according to the payment terms. The buyer has a maximum amount of days to pay these

goods and are sometimes offered a discount if paid before. In the rental industry, an

invoice must include a specific reference to the duration of the time being billed, so rather

than quantity, price and discount the invoicing amount is based on quantity, price,

discount and duration. Generally speaking each line of a rental invoice will refer to the

actual hours, days, weeks, months, etc being billed (Kizza, 2000).

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2.5 RECORD KEEPING RECORDS

2.5.1 Cash book

The cashbook is the book of original entry in which cash and cheque transactions are

entered (Omunuk, 1999). He contents that the cash book is a journal book with Debit and

Credit sides used to record cash receipts and cash payments respectively. However,

Garbutt (1969) contents that cashbook is merely a part of the ledger and it consists of

Cash and Bank accounts taken out of the ledger and bound separately for greater

convenience. Cashbooks are simple accounting books that are used to record basic

information about cash receipts and payments. Once available in hard copy form only,

cashbooks are often included in different types of money management software.

Providing an easy way of keeping up with how much money is coming in and what bills

are getting paid, the cashbook can be effectively utilized by just about anyone (Kizza,

2000).

2.5.2 Ledger

Omunuk (1999), defines a ledger as a book of accounts, and if the accounts are kept in

the books it‟s referred to as a ledger books. If on the other hand it‟s kept on cards in a file

try, the tray of cards is a ledger. He is also of the same view with other authors that for

bigger organizations the general ledger may be subdivided into general ledgers that

contain major control accounts and subsidiary ledgers in the form of sales ledger,

purchases ledger, private ledger and the cash book. A ledger is the principal book or

computer file for recording and totaling monetary transactions by account, with debits

and credits in separate columns and a beginning balance and ending balance for each

account. The ledger is a permanent summary of all amounts entered in supporting

journals, which list individual transactions by date. Every transaction flows from a

journal to one or more ledgers. A company's financial statements are generated from

summary totals in the ledgers.

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2.5.3 Journals

A Journal is books of original entry or prime entry in which transactions are recorded

before being posted to the ledgers (Omunuk 1999). He elaborates that journals are

prepared from source documents such as invoices and vouchers through a process known

as journalizing. Similarly, Baston, (1986) refers to journals as books of prime entry with

essential information consisting of date, the name of the account to be debited or credited,

the amount of money and a brief explanation of the transactions. A Journal is a book or

computer file in which monetary transactions are entered the first time they are

processed. This journal lists transactions in chronological sequence by date prior to a

transfer of the same transactions to a ledger in the process of record keeping.

2.5.4 Trail Balance

The trial balance lists and summarizes all the general ledger account balances to ensure

that the total of the debit balances equals the total of the credit balances (Lumumba,

1998). The sum total is not meaningful. The important thing is simply that the totals of

both columns (debits and credits) agree. A balanced trial balance ensures that there were

no recording errors. However, it does not guarantee that the amounts are correct. (I.e. the

right amounts may have been posted to the wrong accounts). Correct the discrepancies

identified from trial balance if required. Calculate and make adjusting entries in the

journals. Adjusting entries need to be made at the end of each accounting period to match

the revenue earned in that period with the expenses incurred in earning it. These

adjustments are called accruals and deferred items in accrual accounting. These entries

are also journalized and posted to the general ledger. The source document used to record

adjusting entries is typically a 10 column worksheet.

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2.6 QUALITY FINANCIAL REPORTS

2.6.1 Definition of the quality of financial reports

Brookson, (2001) defines quality financial reports as statements prepared to the required

accounting financial reporting standards to show the financial position of the business at

the end of time period and also the operating results by which the business arrived at this

financial position. He is of view that accountants rely on record keeping systems,

particularly, double entry to produce meaningful financial statements that summarize

both the past and current financial positions of an organization. However, Clarke, (1998)

defines quality reports as statements that are prepared to communicate financial

information to influence decisions of users of accounts and such reports posses certain

desirable qualities, particularly, the report must be relevant, understandable, timely,

consistent, reliable, verifiable, complete, and comparable. He agrees with Brookson that;

underlying the preparation of financial statements in the record keeping system and

accounting processes within the enterprise. He argues that without records, financial

reports cannot be prepared. Quality financial reports are annual financial statements that

fairly present the state of affairs of the company as at the financial year and its profit and

loss for that year in conformity with generally accepted accounting practice (Kizza,

2000). In other precise words, wood (1999) defines Quality reports as financial

statements that present fairly the state of affairs of the business and its activities for the

year end and provide useful information to users of accounts. In this context the financial

statements prepared by business include: income statement which shows the income less

expense over the year, the balance sheet which shows the financial position of the

organization at a particular date in respect of the Assets, Liabilities and Equity. Other

financial statement that are required to be fairly presented include; Cash flow statements

that show the cash inflow and outflows of the business for the period, the Notes to the

accounts and reports in reconciliation on movements in the shareholders funds.

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2.7 CHARACTERISTICS OF THE QUALITY OF FINANCIAL STATEMENTS

2.7.1 Relevance

Relevance refers to the fact that accounting information must relate to the decisions being

taken. Information has the quality of relevance when it influences the economic decision

of the users by helping them evaluate past, present or future economic events (Clarke,

1998). Blanchet, (2004) believes that for information to be relevant, it should be timely.

Information is said to be relevant if it influences the decisions. To be relevant,

information must be available in time, must help in prediction, and help in feedback

(Kizza, 2000). Information that is not relevant in a particular context is not useful. Since

the purpose of financial reports is to provide information about the entity's performance,

financial position, cash flows and changes in equity, it follows that only information

pertinent to those should be included in the financial statements. Determination of

relevance is also affected by the nature of information and its materiality (whether it can

influence the economic decisions of users (Kizza, 2000).

2.7.2 Understandability

Financial reports should present accounting information in such a way that it would be

comprehensive to the less informed users of accounts without omitting information which

would be of value or material to the informed user (Brookson, 2001). Understandability

is referred to, when the quality of information enables users to comprehend their meaning

(IASB, 2008). Understandability is measured using five items that emphasize the

transparency and clearness of the information presented in annual reports (Blanchet,

2000).

First, Classified and characterized information refers to how well-organized the

information is presented. If the annual report is well organized it is easier to understand

where to search for specific information (Jonas, 2000). Further more disclosure

information, and in particular the notes to the balance sheet and income statement, may

be valuable in terms of explaining and providing more insight into earnings figures

(Beretta, 2004). Especially narrative explanations help to increase the understandability

of information (IASB, 2006). Additionally, the presence of tubular or graphic formats

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may improve understandability by clarifying relationships and ensuring conciseness

(IASB, 2006; Blanchet, 2000). Moreover, the preparer of the annual report combines

words and sentences that are easy to understand, the reader will be more likely to

understand the context as well (Courtis, 2005). If Technical jargon is unavoidable, for

instance industry related jargon; an explanation in a glossary may increase the

understandability of the information.

2.7.3 Reliability

Information contained in financial reports should represent the events it purports to

represent (Wood, 1999). Information is said to be reliable if it is free from error and bias

and faithfully represents what it seeks to represent. Information must be believed and

depended upon by the users for a given purpose. To ensure that information is reliable, it

must be verifiable, neutral and faithful in representing the economic condition

(Lumumba, 1998). Reliability, in the context of financial statements, refers to

information being free from material error and bias. Material errors refer to those that can

influence the economic decisions of information users. The characteristic of neutrality

also dictates that information is financial statements should be free from bias. Presenting

information in a manner that is designed to contrive an outcome or influence users in a

certain way is no longer neutral, regardless of whether it is verified by an external party

or not. (Lumumba, 1998).

2.7.4 Verifiability

Verifiability implies similar measures by different measurers. As a component of

verifiability, FASB ought to include auditability. If an external auditor cannot audit

something, it is hardly verifiable. More importantly, the audit function must be

strengthened for financial reports to have integrity; FASB can play a role in strengthening

the audit function by not issuing reporting requirements that involve measures that cannot

be audited. (FASB, 2009)


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2.7.4 Completeness

The information in financial reports must be complete, with reason. Omission could

cause information to be false or misleading and thus unrealistic and irrelevant

(Nkundabanyanga, 2004). Completeness complements the reliability of financial reports,

since omission of material information can mislead users. However, information should

only be complete once it is relevant and within the restrictions of materiality, timeliness

and cost. The accounting convention of full disclosure implies that accounts should make

a full disclosure of all monetary or financial information that can impact decision making

of different parties. This accounting information is of interest to the management, current

and potential investors and current and potential creditors of the business.

2.7.5 Consistency of preparation

Financial Reports need to be prepared on a consistent basis so as to allow meaningful

comparison between performance in different time periods and performance between

companies (Clark, 1978). The convention of consistency means that same accounting

principles should be used for preparing financial statements for different periods. It

enables the management to draw important conclusions regarding the working of the

concern over a longer period. It allows a comparison in the performance of different

periods. If different accounting procedures and processes are used for preparing financial

statements of different years then the results will not be comparable because these will be

based on different postulates or policies. The concept of consistency does not mean that

no change should be made in accounting procedures. There should always be a scope for

improvement but the changes should be notified in the statements. The impact of changes

of procedures should be clearly stated. It will enable the readers to analyze information

according to new procedures. In the absence of any information regarding the change, it

will be presumed that old methods have been used this time also. Whenever, consistency

is not followed this fact may be fully disclosed. For example, if a change in the method of

charging depreciation is made or a change is made in the method of allocating overhead

expenses to different products, a foot note to the financial statements should be given

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indicating the extent of change. If possible, net monetary effect of these changes should

also be given.

2.7.6 Comparability

Comparability is an important characteristic to include in this analysis. Therefore,

"comparability should not be confused with uniformity" and that "an overemphasis on

uniformity may reduce comparability…" I would like to see FASB prove these claims

rather than merely asserting them. In particular, as FASB (and IASB) continues moving

toward principles-based accounting, it should realize the peril that an under-emphasis on

uniformity will likely produce financial reports that are less comparable with one other.

Lease accounting is a great example. Principles-based accounting may well lead one

corporation to capitalizing more leases while another enterprise turns all its leases into

operating leases. Where is the comparability under that scenario? (IASB, 2009)

2.7.7 Substance over form

IASB included substance over form as a component of reliability, but FASB has not

embraced substance over form in this exposure draft. FASB defends its decision by

saying that substance over form is redundant once you admit representational faithfulness

to the conceptual framework. While I agree with the reasoning, I would nonetheless

prefer to add substance over form as a defining element of representational faithfulness.

The discussion becomes more lucid by emphasizing substance over form instead of

ignoring it. (FASB, 2009).

2.7.8 Prudence

Since most financial accounts are created based on accruals and not cash, there is a

degree of uncertainty in anticipating transactions. Prudence, one of the fundamental

assumptions of financial accounting, ensures that assets are not overstated and liabilit ies

understated. However, you must note that prudence does not permit understatement of

assets and overstatement of liabilities either (Lumumba, 1998). According to

Nkundabanyanga (2004) Prudence is an accounting principle that requires the recording

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of expenses and liabilities as soon as possible, but the revenue only when they are

realized or assured.

2.7.9 Faithful representation

Faithful representation states that where there are difficulties or uncertainty in identifying

transactions or measuring certain elements, an entity should avoid identifying it in the

financial statement. Another characteristic, substance over form, dictates that an entity

should account for a transaction according to economic reality as opposed to legal form.

Substance over form supports fair presentation (Lumumba, 1998). According to

Frankwood, (2001), faithful presentation exists when information represents faithfully the

transactions and other events it purports to represent or could reasonably be expected to

represent.

2.7.10 Timeliness

Timeliness means having information available to decision makers before it loses its

capacity to influence decisions (IASB, 2008:40). Timeliness refers to the time it takes to

reveal the information and is related to decision usefulness in general (IASB, 2008).

When examining the quality of information in annual reports, timeliness is measured

using the natural logarisms of amount of days between year end and the signature on the

authors‟ report after year end is calculated. According to frankwood (2001) if there is

undue delay in the reporting of information it may lose its relevance but information

presented too soon may be too uncertain to be reliable. In achieving a balance between

relevance and reliability, the overriding consideration is how best to satisfy the economic

decision making needs of the users.

2.7.11 Materiality

According to Frankwood, (2001) materiality is a concept or convention within auditing

and accounting relating to the importance or significance of an amount, transaction or

discrepancy. The objective of an audit of financial statements is to enable the auditor to

express an opinion whether the financial statements are prepared in all material aspects,

in conformity with an identified financial reporting framework such as generally accepted

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accounting principles (GAAP). The assessment of what is material is a matter of

professional judgment. Blanchet,(2000) states that information is material if its omission

or misstatement could influence the economic decisions of the users taken on basis of the

financial reports. Materiality depends on the size of the item or error judged in the

particular circumstances of its omission or misstatement. Thus, materiality provides a

threshold or cut off point rather than being a primary qualitative characteristic which

information must have if it is to be useful.

2.7.12 Neutrality

According to McMullen (1996) neutrality as a lack of bias must be a characteristic of the

information presented in financial reports. The person preparing those statements

determines much of the information presented in financial statements. This often entails

taking decisions concerning what to include and what to exclude for example, what

allowance to make for doubtful debts. Any such accounting estimates must be neutral,

neither understated nor overstated. Reliability assumes the information being relied on is

neutral with respect to parties potentially affected. In that regard, neutrality is highly

related to the establishment of accounting standards. Changes in accounting standards can

lead to adverse economic consequences to certain companies, their investors and

creditors and other interest groups. Accounting standards should be established with

overall societal goals and specific objectives in mind and should try not to favor

particular groups or companies Landsman (2001).

2.8 RELATIONSHIP BETWEEN RECORD KEEPING AND QUALITY FINANCIAL

STATEMENTS

2.8.1 Quality Financial Statements

If management is to ensure Quality Financial Reporting, it should constantly review and

improve the record keeping systems. Record keeping impacts on the quality of financial

statements in a number of ways denying users of accounts the opportunity to make

rational economic decisions.


2.8.2 Vouchers and Quality Financial Reports

According to Boston (1996) the accuracy of any entry is verified by the voucher. With in

this context, for any entry to be made in any book of account it has to be supported by the

voucher. Saleemi (1989) also concurs when he defines a voucher as documentary

evidence in support of transactions in the books of accounts. He further contributes that

the voucher is used for authorization of transactions and this is to the effect that the final

accounts prepared from transactions that were properly authorized will be reliable. In this

regard, Saleemi is more elaborate. However, with cooperatives society‟s projects that are

located at branches far away from head office, it is difficult to promptly send vouchers to

head office for entry and authorization. There is need for additional information on how

to best incorporate the vouchers at the branch activities.

According to Guerrire (1993) Quality Financial Statement should have an attribute of

accuracy. With regard to the voucher this attribute is achievable; however, this is only to

the extent that the vouchers are not abused.

2.8.3 Journals and the Quality of Financial Reports

According to bull (1986) a Journal is a chronological record, showing for each

transaction the debit and the credit changes caused in the specific ledger accounts. He

says that the journal reduces the risk of omitting a transaction, the possibility of errors,

and reduces the irregularities or fraud by demanding an external explanation of all

entries. Proper use of journals will thus accord the organization reliable financial reports

as ledgers from which accounts are drawn are fed with only reliable information.

However, Saleemi (1996) while appreciating the usefulness of journals cautions that there

is a lot of committing fraud through journals, for example writing a good debt as a bad

debt and this will lead to the quality of reports generated in this respect to be unreliable as

management „doctor‟ accounts to conceal fraud.

2.8.4 Ledgers and Quality Financial Reports

According to Omunuk (1999) a ledger is a collection of accounts and these accounts are

used to produce financial reports. Incorrect posting of transaction to wrong ledger


accounts may lead to the production of low quality reports, Failure to classify

transactions, For example Improperly classifying transaction, cultures and practices of

people in different countries, societies or businesses that have contrasting respect to

quality financial reporting.

2.8.5 Trial balance and the quality of financial reports

The trial balance lists and summarizes all the general ledger account balances to ensure

that the total of the debit balances equals the total of the credit balances (Lumumba,

1998). However, it does not guarantee that the amounts are correct. (I.e. the right

amounts may have been posted to the wrong accounts). Correct the discrepancies

identified from trial balance if required. Therefore when the figures in the trial balance

are wrong, then the users of financial statements will not make relevant and reliable

decisions from the statements.

2.9 Conclusions

In conclusion, therefore, record keeping plays an important role in determining the

quality of financial reports. Proper record keeping system ensures that reliable, relevant,

complete, understandable reports are produced by organization. Alongside this literature,

a lot has been presented to ensure that performance of record keeping system is a

prerequisite for quality reports. The control of the business controllable record keeping

environment is fundamental element that organizations can explore to produce quality

reports.


CHAPTER THREE

METHODOLOGY

3.1 Introduction

This chapter describes the data collection method that was followed in conducting the

study. It is upon the findings of the study that interpretation and recommendations were

based. It gives details regarding research design, population of the study area, sample and

sampling techniques, a description of data collection instruments used, as well as the

techniques that were used to analyze data. It also indicates the problems incurred during

the study.

3.2 Research Design

The nature of the study sought to describe the relationship between record keeping and

the quality of financial reports generated in Koch goma saving and credit society limited.

The study used a descriptive research design that enabled the researcher make an in depth

analysis of the organization.

3.3 Area of the Study

The study was conducted at koch goma saving and credit society limited which is located

in Koch goma sub county, (Nwoya district).

3.4 Population of the Study

The population of the study comprised of the accountants, members of the loan

committee, employee‟s involved in record keeping, employees engaged in accounting,

handling and recording of books of account‟s, members of the board, members of koch

goma SACCO, their bankers and other users of the financial reports.

3.5 Sampling Design

3.5.1 Sampling Method

A stratified random sampling method was used in selecting the respondents from those

areas relevant to the study that is accounting department, management, heads of different


departments, those in charge of quality financial reports, handling and recording of

figures among others.

3.5.2 Sample size

A sample of 30 respondents was selected from the survey population in three different

strata.

3.5.3 Sampling Procedure

The researcher selected respondents from Koch goma SACCO using a method of

stratified random sampling; random sampling is advantageous because it is free of bias.

The areas of the study included staff in the accounting department, procurement, storage,

handling and recording, which acted as the different strata from where the researcher will

select his/her respondents at random

3.5.4 Purposive Sampling

The researcher focused on the staff and management who are well equipped with the

knowledge of financial reports in the SACCO. These respondents acted as key informants

since they were believed to be more reliable and knowledgeable about the topic under

study and were in a better position to give dependable and detailed information about

record keeping and the quality of financial reports in Koch goma SACCO.

3.6 Data Collection

3.6.1 Sources of Data

Two sources of data were used in this study, (primary and secondary sources). The

primary source provided primary data which was collected by the use of questionnaires

and the secondary source provided data from text books, journals, financial statements

and any other published research that was deemed relevant the study for instance

company documents relating to record keeping and quality of financial reports.


3.6.2 Data Collection Instruments

The researcher used self-administered questionnaires as an instrument for the collection

of primary data from the respondents. Questionnaires are popular with research because

information can be obtained fairly, easily and the questionnaire responses are easily

coded. Caution was taken in ensuring that short and simply worded questions are used as

instruments when collecting data. Heads of departments and other managerial staff were

interviewed using the same instrument (questionnaire) to ensure that the information

provided by the employees is verifiable and able to be cross checked.


CHAPTER FOUR

PRESENTATION, INTERPRETATION AND ANALYSIS OF FINDINGS

4.0 Introduction

In this chapter, results of the study are presented and discussed. Findings were done in relation to

study objectives. In presentation of findings tables and frequencies were used to explain the

findings. The study objectives were: to assess the record keeping system of Koch goma SACCO,

to establish the quality of financial statements of Koch goma SACCO and to establish the

relationship between record keeping and quality financial statements

4.1 Back ground information about respondents

Here respondents were asked about their gender, age, academic qualification, and departments in

which they work.

4.1.1 Gender of respondents

In order to avoid bias responses, the researcher obtained a sample of both male and female

respondents as shown below;

Table 1: Gender of respondents

Gender Frequency

Percentage (%) Cumulative

Percentage (%)

Male

19 63.33 63.33

Female 11 36.67 100

Total 30 100 100

Source: primary data

From table 1 above, 63.33% of respondents were male and 36.67% were female. This shows that

there was no gender bias and thus has no effect on the findings of the study.

4.1.2 Respondents level of education

The researcher was interested in finding out the academic qualifications of the respondents.

The findings are given in the table below;


Table 2: Academic level of respondent

Academic Level Frequency

Percentage (%) Cumulative

Percentage

Masters 1 3.33 3.33

Degree 3 10 13.33

Diploma 21 70 83.33

Certificates 5 16.67 100

Total 30 100 100

Source: Primary data

The table 2 above: shows that 3.33 % of the respondents had attained Masters Level of

Education, 10 % had attained degree level, 70% had attained diploma, and 16.67 % had attained

certificates. This shows that respondents were literate enough to answer the questions

meaningfully.

4.1.3 Departments in which the respondents work.

The researcher was interested in finding out the departments in which the respondents work in.

The findings are given in the table below

Table 3: Department in which respondents worked at Koch goma SACCO

Department Frequency Percentage (%) Cumulative

Percentage

Management 4 13.33 13.33

Accounts 5 16.67 30

Loan 10 33.33 63.33

Marketing Depart 7 23.33 86.67

Other 4 13.33 100

Total 30 100 100

From table 3 above, the researcher selected respondents from the 5 departments of which 13.33%

were in management, 16.67% worked in the accounts department, 33.33% of the respondents were

employed as loan staff, 23.34% worked in the marketing department, and 13.33% were other

categories of respondents. This shows that the information concerning record keeping and quality

of financial reports was collected from a range of informed users.



4.1.4. Age of Respondents

The researcher was interested in finding out the age groups of the respondents and three

categories were selected, those between 20-30 years, those between 31-40 years and those above

40 years as illustrated below.

Table 4: Age of respondents

Age bracket (Years) Frequency Percent (%) Cumulative

Percentage

20-30 6 20 20

31-40 9 30 50

Above 40 15 50 100

Total 30 100 100


In table 4, The researcher found out that the majority of the respondents were in the age bracket

of 40 and above years making 50% and 9 respondents were in the age bracket of 31-40 years

(30%) and 6 of the respondents were between 20 and 30 years of age (20%). This shows that the

respondents were eligible to give information that is reliable.

4.2 Findings on objective one: (to assess the record keeping system of Koch goma

SACCO)

4.2.1 The first indicator of record keeping is recognizing a transaction when it occurs

Recognition means that the business has chosen to recognize that a transaction has occurred and

has done so. Recognition is done by recording its existence on the accounts. For most part,

recognition is a more important concept in accrual basis accounting where it has more and more

complex criteria for when recognition may take place.

4.2.1.1 Findings on whether there is a standard in place for recognizing that a transaction

has occurred at Koch goma SACCO.

The researcher found out that out of the 30 respondents that were interviewed at Koch goma

SACCO, only 20 respondents strongly agreed that there is a standard that is used to determine


occurrence of a transaction, 5 respondents agreed, 3 were not sure and 2 disagreed as illustrated

in the table below

Table 5: Whether there is a standard for recognizing occurrence if a transaction.

Response Frequency Percentage (%) Cumulative

Percentage

Strongly Agree 20 66.7 66.7

Agree

Not sure

5

3

16.6

10.0

83.3

Disagree

Strongly disagree

2

0

6.70

0.00

100

Total 30 100 100


From the table 5 above, it shows that 66.7% of the respondents strongly agreed that there is a

standard for recognition of occurrence of a transaction, 16.6% agreed to the statement, 10% of

the respondents were not sure, and 6.7% disagreed. This implies that most of the employees of

Koch goma SACCO are aware of the existence of the standard that spells out when to realize that

a transaction has occurred, a sign that record keeping is exercised in Koch goma SACCO.

4.2.1.2 Findings on whether the standards set are followed whenever the SACCO is

carrying out its dealings with other organizations or individuals.

The study revealed that 5 of the employees of Koch goma SACCO strongly agreed that the

standards in place are followed when transacting with other organizations while 5 respondents

agreed, 3 were not sure and 15 disagreed and 2 strongly disagreed with the statement as it is

illustrated in the table below.

Table 6: Whether the standards in place are followed when transacting with other

organizations or individuals.


Percentage (%)


Agree

Not sure

5

3

16.67

10

33.34

43.34

Disagree

Strongly disagree

15

2

50

6.66

93.34

100

Total 30 100 100

Source; Primary data

93.3

100


From the table 6 above, it shows that 16.67% of the respondents strongly disagreed that the

standards are followed all the time whenever Koch goma SACCO is transacting with other

organizations, 16.67% agreed to the above statement, 10% of the respondents were not sure, 50%

disagreed and 6.66% strongly disagreed. This implies that there is inconsistency in the record

keeping process hence poor quality reports.

4.2.2 The second indicator of record keeping is preparation of source documents.

4.2.2.1 Findings on whether authorization and approval of transactions takes place in Koch

goma SACCO

Out of the 30 respondents who were asked whether all accounting procedures specify who is

authorized to approve financial transactions. 5 of the respondents strongly agreed, 4 agreed 2

were not sure and 19 disagreed as illustrated in the table below.

Table 7: Findings on whether accounting procedures specify who is authorized to approve

financial transactions in Koch goma SACCO.


Percentage (%)


Agree

Not sure

4

2

13.3

6.7

30

36.7

Disagree

Strongly disagree

19

0

63.3

0.00

100

100

Total 30 100 100


The table 7 above shows that 16.7% of the respondents strongly agreed to the fact that

accounting procedures specify who is authorized to approve financial transactions, 13.3% of the

respondents agreed, 6.7 % were not sure, and 63.3% of the respondents disagreed. The

disagreement by the 63.3% shows that there is a problem with the effectiveness of record

keeping since accounting procedures specifying who is authorized to approve financial

transactions in Koch goma SACCO are poor.


4.2.2.2 Findings on whether all expenditures are approved for all financial transactions in

Koch goma SACCO.

The researcher found out that out of the 30 respondents in Koch goma SACCO, 3 strongly

agreed that all expenditures are approved for all financial transactions, 10 agreed, 3 were not

sure, and 14 disagreed with the statement.

Table 8: Showing whether all expenditures are approved for all financial transactions in

Koch goma SACCO.


Percentage (%)

Strongly Agree 3 10.0 10

Agree

Not sure

10

3

33.3

10.0

43.3

53.3

Disagree

Strongly disagree

14

0

46.6

0.00

100

100

Total 30 100 100


From the table 8 above, 10.0% strongly agreed that all expenditures are approved for all

financial transactions in Koch goma SACCO, 33.3% agreed, 10% of the respondents were not

sure and 46.7% disagreed that all expenditures are approved for all financial transactions in Koch

goma SACCO which implies that the record keeping systems are inefficient since there is a

problem in the area of approval of financial transactions in Koch goma SACCO.

4.2.2.3 Findings on whether Koch goma SACCO prepares documents to show evidence of

money received.

Out of the 30 respondents who were asked whether the SACCO prepares documents to show money

received, 4 of the respondents strongly agreed, 19 agreed, 2 were not sure and 5 disagreed as illustrated in

the table below

Table 9: Findings on whether the SACCO prepares documents to show money received


Percentage (%)


Agree

Not sure

19

2

63.3

6.7

76.6

83.2

Disagree

Strongly disagree

5

0

16.7

0.00

100

100

Total 30 100 100



The table 9 above shows that 13.3% of the respondents strongly agreed to the fact that Koch

goma SACCO prepares documents to show money received, 63.3% of the respondents agreed,

6.7 % were not sure, and 16.7% of the respondents disagreed. This means that the SACCO

prepares source documents hence the availability of record keeping in Koch goma SACCO.

4.2.3 The third indicator of Record keeping is analysis and classification of transactions.

Management need to ensure that all transactions are properly classified in order to make relevant,

reliable, understandable and timely decisions.

4.2.3.1 Findings on whether all transactions are recorded into their appropriate accounts.

Out of the 30 respondents the researcher asked whether all transactions are recorded into their

proper accounts, 7 strongly agreed, 12 agreed, 6 were not sure, 3 disagreed and 2 strongly

disagreed as illustrated in the table below.

Table 10: Findings whether all transactions at the SACCO are recorded into their

appropriate accounts


Percentage (%)


Agree

Not sure

12

6

40

20

63.33

83.33

Disagree

Strongly disagree

3

2

10

6.67

93.33

100

Total 30 100 100


From the table 10 above, 23.33 % strongly agreed, 40% agreed, 20% were not sure, 10%

disagreed and 6.67 % strongly disagreed that all transactions are recorded into their appropriate

accounts. This implies that Koch goma SACCO is strong in this department since most of the

respondents agree that records of accounts are classified in their proper accounts.

4.2.3.2 Findings on whether accounts are reviewed to make sure transactions are not

wrongfully classified.

The researcher asked whether all accounts are reviewed by another person to make sure that

transactions are classified in their right accounts. Out of the 30 respondents asked, 3 agreed, 7

were not sure and 20 disagreed as shown in the table below.


Table 11: Findings on whether all accounts are reviewed by another person to make sure

that a transaction is classified in their right accounts


Percentage (%)

Strongly Agree 0 0 0

Agree

Not sure

3

7

10.0

23.3

10.0

33.3

Disagree

Strongly disagree

20

0

66.7

0.00

100

100

Total 30 100 100


The table 11 above shows that 10% agreed, 23.3 % was not sure, and 66.7% strongly disagreed

on whether all accounts are reviewed by another person to make sure that transactions are

classified in their right accounts. This implies that records of accounts are unreliable as they are

not assessed or audited by another person.

4.2.4 The fourth indicator of record keeping is recording of transaction details into

appropriate journals.

4.2.4.1 Findings on whether details of all transactions are recorded in a chronological

sequence into the journal.

The researcher was interested in knowing whether details of all transactions are recorded in a

chronological sequence into the journal. Of the 30 respondents asked, 3 strongly agreed, 2

agreed, 16 disagreed and 9 strongly disagreed with the statement as illustrated in the table below.

Table 12: Findings whether details of all transactions are recorded in a chronological

sequence into the journal


Percentage (%)


Agree 2 6.67 16.67

Not Sure

Disagree

Strongly disagree

0

16

9

0.00

53.33

30

16.67

70

100

Total 30 100 100



The table 12: above shows that; 10% of the respondents strongly agreed that details of all

transactions are recorded in a chronological sequence, 6.67% agreed, 53.33% disagreed and 30%

strongly disagreed. This implies that record keeping in Koch goma SACCO is weak and records

of accounts can be easily manipulated.

4.2.4.2 Findings on whether all monetary transactions are recorded into the journal before

they are processed.

The researcher was interested in knowing whether all monetary transactions are recorded before

they are processed. Of the 30 respondents asked, 6 agreed, 11 were not sure, 12 disagreed and 1

respondent strongly disagreed as illustrated in the table below.

Table 13: Findings on whether all monetary transactions are recorded into the journal

before they are processed


Percentage (%)


Agree

Not sure

6

11

20.0

36.67

20

56.67

Disagree

Strongly disagree

12

1

40.0

3.33

96.67

100

Total 30 100 100


The table 13 above shows 20.0% of the respondents agreed that all monetary transactions are

recorded into the journal before they are processed, 36.67% was not sure, 40% disagreed with

the assertion and 3.33% strongly disagreed. From the data above one realizes that a great number

of people disagreed that all monetary transactions are recorded before they are processed which

implies that there is possibility of omission of accounts data hence poor record keeping at Koch

goma SACCO.

4.2.5 The firth indicator of record keeping is posting of all details into the general ledger.

4.2.5.1 Findings on whether all details of transactions are kept in the general ledger

The researcher was interested in knowing whether all details of transactions are kept in the

general ledger. Of the 30 respondents asked, 4 strongly agreed, 3 agreed, 4 not sure, 12 disagreed

and 9 strongly disagreed with the statement as illustrated in the table below


Table 14: Findings on whether all details of transactions are kept in the general ledger


Percentage (%)


Agree

Not sure

3

4

10

13.33

23.33

36.66

Disagree

Strongly disagree

11

8

36.67

26.67

73.33

100

Total 30 100 100


The table 14 above shows 13.33% of the respondents strongly agreed that all details of

transactions are kept in the general ledger, 10% agreed, 13.33% was not sure, 36.67% disagreed

with the assertion and 26.67% strongly disagreed. From the data above one realizes that a great

number of people disagreed that not all the details of transactions are kept in the general ledger,

therefore Koch goma SACCO is week in this area as this can lead to omission of accounting

records.

4.2.6 The sixth indicator of record keeping is extraction of the trial balance.

4.2.6.1 Findings on whether the SACCO summarizes all transactions in the general ledger

into the trial balance at the end of the financial year.

The researcher was interested in knowing whether the SACCO summarizes all transactions in the

general ledger at the end of the financial year into the trial balance. Of the 30 respondents asked,

3 strongly agreed, 4 agreed, 9 not sure, 12 disagreed and 2 strongly disagreed with the statement

as illustrated in the table below

Table 15: Findings on whether the SACCO summarizes all transactions in the general

ledger at the end of the financial year into the trial balance


Percentage (%)


Agree

Not sure

12

9

40

30

23.33

53.33

Disagree

Strongly disagree

4

2

13.33

6.67

93.33

100

Total 30 100 100



The table 15 above shows 10% of the respondents strongly agreed that the SACCO summarizes

all transactions in the general ledger at the end of the financial year into the trial balance, 40%

agreed, 30% was not sure, 13.33% disagreed, and 6.67% strongly disagreed with the assertion.

From the data above one realizes that a great number of people agreed that the SACCO

summarizes all transactions in the general ledger at the end of the financial year, therefore Koch

goma SACCO is strong in this area which means that Koch goma prepare records of accounts

and financial reports.

4.2.6.2 Findings on whether adjusting entries are made at the end of each financial

period to much the revenue earned and the cost incurred in generating it.

The researcher was interested in knowing whether adjusting entries are made at the end of each

accounting period to match the revenue earned and the cost incurred in generating it.

Of the 30 respondents asked, 6 strongly agreed, 4 agreed, 12 not sure, 6 disagreed and 2 strongly

disagreed with the statement as illustrated in the table below.

Table 16: Findings on whether adjusting entries are made at the end of each financial

period to much the revenue earned and the cost incurred in generating it.


Percentage (%)


Agree

Not sure

4

12

13.33

40

33.33

73.33

Disagree

Strongly disagree

6

2

20

6.67

93.33

100

Total 30 100 100


The table 16 above shows 20% of the respondents strongly disagreed that adjusting entries are

made at the end of each financial period to much the revenue earned and the cost incurred in

generating it,13.33% agreed 40% was not sure, 20% disagreed with the assertion and 6.67%

strongly disagreed. From the data above one realizes that a great number of people were not sure

that adjusting entries are made at the end of each financial period to much the revenue earned

and the cost incurred in generating it.


4.3 Findings on objective two: to establish the quality of financial statements of Koch

goma SACCO

4.4.1 The first indicator of quality of financial reporting system is understandability.

Information provided in financial reports should be presented in a way that is readily

understandable by the users.

4.4.1.1 Findings on whether financial information provided in the financial statements is

readily understandable to the users in Koch goma SACCO

The researcher was interested in knowing whether the information provided in the financial

statements was understandable to the respondents. Of the 30 respondents that were asked, only

16 strongly agreed, 4 agreed, 10 were not sure and as illustrated in the table below

Table 17, Findings on whether the financial information provided in financial statements is

readily understandable to the users.


Percentage (%)


Agree

Not sure

4

10

13.33

33.34

66.66

100

Disagree

Strongly disagree

0

0

0.00

0.00

100

100

Total 30 100 100


From the table 17 above shows that 53.33% of the respondents strongly agreed that the financial

information was readily understandable to them, 13.33% agreed to the statement and 33.34%

were not sure this implies that the users of the financial information readily understand the

financial information provided which implies that the quality of financial statements is good in

this area.

4.3.2 The second indicator of quality of financial reporting system is relevance

Information must be relevant to the decision making needs of users. It is relevant when it

influences the economic decisions of users.


4.3.2.1 Findings on whether financial information provided is relevant in decision making

The researcher was interested in knowing whether the information provided to the respondents

was relevant to their decision making. Out of the 30 respondents asked 15 strongly agreed, 5

agreed and 10 disagreed as illustrated in the table below.

Table 18: Findings on whether the financial information provided in financial statements is relevant to decision making


Percentage (%)


Agree

Not sure

10

0

33.33

0.00

83.33

83.33

Disagree

Strongly disagree

5

0

16.67

0.00

100

100

Total 30 100 100


From the table 18 above 50 % of the respondents strongly agreed that the financial information

provided in the financial statement is relevant to their decision making. 33.3 % of the

respondents agreed and 16.7 % of the respondents disagreed. This implies that most of the

respondents find the information relevant to their decision making needs thus making the quality

of the financial reporting good.

4.3.3 The third indicator of quality of financial statements is reliability

Information is reliable when it is free of material error and bias and can be depended upon by

users to represent faithfully what it purports to represent.

4.4.3.1 Findings on whether the financial information provided is free from bias

The researcher was interested in finding out whether the financial information provided in the

financial statements is free from bias. Out of the 30 respondents asked 12 strongly agreed, 8

agreed, 6 were not sure, and 4 disagreed as shown in the table below.


Table 19 Findings on whether the financial information provided is free from bias


Percentage (%)


Agree

Not sure

8

6

26.67

20.0

66.67

86.67

Disagree

Strongly disagree

4

0

13.33

0.00

100

100

Total 30 100 100


From the table 19 above, 40 % of the respondents strongly agreed that the financial information

provided in the financial statement is free from bias. 26.67 % of the respondents agreed and 20

% of the respondents were not sure and 13.33% disagreed with the statement. This implies that

most the respondents find the information provided to them free of bias and thus the quality of

the financial reports generated in Koch goma SACCO is sound.

4.3.4 The fourth indicator of quality of financial reporting is timeliness

Timeliness means having information available to decision makers before it loses its capacity to

influence decisions

4.3.4.1 Findings on whether financial information is delivered in time to the users

The researcher was interested in knowing whether the financial reports are provided in time. Out

of the 30 respondents asked whether the financial reports were timely, 18 strongly agreed, 6

agreed, 3 were not sure and 3 disagreed as illustrated in the table below

Table 20: Findings on whether financial information is delivered in time to the users


Percentage (%)


Agree

Not sure

6

3

20.0

10.0

80

90

Disagree

Strongly disagree

3

0

10.0

0.00

100

100

Total 30 100 100



From the table 20 above 60% of the respondents strongly agreed that the financial information is

delivered to them in time. 20% agreed, 10 % were not sure and 10 % disagreed. This implies

that the financial information presented is timely and thus we can conclude that the quality of the

financial reports is enhanced by the timeliness in Koch goma SACCO

4.3.5 The fifth indicator of quality of financial reporting is materiality

Information is material when its omission or misstatement can influence the economic decisions

of the users of the information

4.3.5.1 Findings on whether the financial information provided is free from material

misstatements

The researcher was interested in finding out whether the information provided in the financial

reports of Koch goma SACCO is free from material misstatements. Of the 30 respondents asked

8 strongly agreed that the financial information was free of material misstatements, 12 agreed, 5

were not sure and 5 strongly disagreed as illustrated in the table below.

Table 21 Findings on whether the financial information provided is free from material

misstatements


Percentage (%)


Agree

Not sure

12

5

40.0

16.67

66.66

83.33

Disagree

Strongly disagree

0

5

0.00

16.66

83.33

100

Total 30 100 100


From the table 21 above, 26.66% of the respondents strongly agreed that the financial

information was free from material misstatements, 40% agreed, 16.67% were not sure and

16.67% strongly disagreed with the statement. This implies that the financial information is to a

larger extent free from material misstatements and thus the quality of the financial reports is

greatly enhanced by the lack of material misstatements.


4.3.6 The fifth indicator of quality of financial reporting is comparability

Comparability is essential to financial information because the users need be able to compare the

information with that of other entities in the same industry to verify their performance and also to

compare the performance of the entity from periods to period.

4.4.6.1 Findings on whether the SACCO’s performance can be compared over time

The researcher was interesting in finding out whether the respondents were able to compare the

SACCO‟s performance over time. Of the 30 respondents that were interviewed, 6 strongly

agreed, 12 agreed with the statement, 5 were not sure and 7 Strongly disagreed as illustrated in

the table below.

Table 22 Findings on whether the SACCO’s performance can be compared over time


Percentage (%)


Agree

Not sure

12

5

40.0

16.7

60

76.67

Disagree

Strongly disagree

0

7

0.00

23.3

76.67

100

Total 30 100 100


From the table 22 above, 20% of the respondents strongly agreed that the SACCO‟s

performance could be compared over time, 40% agreed to the statement, 16.7% were not sure

and 23.3% strongly disagreed. This implies that the quality of financial reports is effective and

efficient in this area.

4.3.6.2 Findings on whether the financial information can be compared with that of other

similar financial institutions

The researcher was interested in finding out whether the respondents were able to compare the

SACCO‟s financial information with that of other similar institutions. Of the 30 respondents that

were interviewed, 1 strongly agreed, 3 agreed with the statement, 20 were not sure and 6

disagreed as illustrated in the table below


Table 23 Findings on whether the financial information can be compared with that of

other similar institutions


Percentage (%)


Agree

Not sure

3

20

10.0

66.7

13.33

80

Disagree

Strongly disagree

6

0

20.0

0.00

100

100

Total 30 100 100


From the table 23 above 3.3% of the respondents strongly agreed that the financial information

can be compared with that of other similar financial institutions, 10% agreed to the statement,

66.67% were not sure, and 20% disagreed .This implies that a greater number of the respondents

were not sure if the information generated could be compared with that of other similar

institutions.


4.4 Findings on objective three: to establish the relationship between Record keeping and

quality of financial reports

Table 24: showing the relationship between Record keeping and the quality of financial

reports

Record keeping Quality of financial reports

Record keeping Pearson Correlation 1

Sig. (2-tailed) .

N 30

.774 (**)

.000

30

Quality Financial

Reports

Pearson Correlation .774 (**)

Sig. (2-tailed) .000

N 30

1

.

30

** Correlation is significant at the 0.01 level (2-tailed)


Results revealed that the correlation coefficient is 0.774 meaning that there is a positive

relationship between record keeping and quality of financial reporting. This implies that record

keeping has an impact on the quality of financial statements and thus will be more reliable and

accurate.

Table 24: Correlation between record keeping and the quality of financial reports

Correlation


CHAPTER FIVE

SUMMARY OF MAJOR FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction

This chapter presents a summary of major findings, conclusions reached and the researcher‟s

recommendations derived from the study of the relationship between record keeping and quality

of financial reports.

5.1 Summary of the major findings

The research was carried out to establish the relationship between record keeping and the quality

of financial reports in Koch goma SACCO. This was done in relation to the following objectives:

To assess the record keeping system of Koch goma SACCO

To establish the quality of financial statements of Koch goma SACCO

To establish a relationship between record keeping and quality financial reports

5.2. Summary of findings on objective one: To assess the record keeping system of Koch

goma SACCO

The study revealed that most of the employees of Koch goma SACCO can compare financial

information by analyzing the relationship between record keeping and the quality of financial

reports. It can also be concluded that most of the employees strongly agreed that the standards

are set, however, the set standards are not followed in all the dealings of the SACCO.

The research revealed that most of the employees strongly disagreed that all expenditures are

approved for all financial transactions in Koch goma SACCO. Most of the employees of Koch

goma SACCO also agreed that documents that show evidence of money received are prepared.

This means that there are possibilities of omission of transaction‟s data hence fraud within the

SACCO.

According to the findings, most respondents agreed that transactions are recorded in appropriate

accounts but disagreed that the accounts are reviewed by another person to prove that they are


accurately recorded in the right accounts. This show that the financial reports are prone to

mistakes as they are not verified hence unreliable.

According to the findings, most respondents disagreed that the records stored in the journal are

recorded in a chronological sequence. This makes it difficult to make timely and accurate

decisions from the records of accounts as the data is very difficult to use. The respondents also

disagreed that not all monetary transactions are recorded before they are processed; this makes it

difficult to keep records that will be used in financial reporting hence possibilities of omission of

accounting records.

According to the respondents, most of the employees disagreed that all the transaction are kept in

the general ledger, this means that the records are prone to omission hence unreliable financial

reports.

According to respondents, most of the employees agreed that all transactions are summarized in

the general ledger at the end of the financial year, this means that both columns (Debit and

credit). The respondents also disagreed that the adjusting entries are made at the end of the

accounting period to match revenue earned and the expenses incurred in earning it. This means

that the SACCO has a problem with calculating accruals and deferred items in accrual

accounting.

5.3 Summary of findings on Objective two: To establish the quality of financial reports

of Koch goma SACCO.

The study on this objective revealed that most of the respondents understand the information in

the financial reports. The respondents further strongly agreed that the financial information

provided to them was relevant to their decision making process. The respondents strongly agreed

that the financial information provided to them is free from bias and delivered in time to them. In

regards to material misstatements in the financial information provided to the users of the

financial statements most agreed that the information was free from material misstatement. Most

of the respondents agreed that the SACCO‟s performance can be compared with that of other

institutions over time. Therefore, the quality of the financial reports generated in Koch goma

SACCO was efficient.


5.4 Summary on findings on Objective three: To establish a relationship between

record keeping and quality financial reports.

Findings on this objective revealed that there is a strong relationship between record keeping and

the quality of financial reports as shown by the Pearson‟s correlation coefficient of 0.774, the

coefficient of determination of 0.774 indicates that the two variables are related to the extent of

77.4% meaning that when there is inefficiency in record keeping, then the quality of financial

reports will also be poor or low.

5.5 Conclusion

5.5.1 Conclusion on findings of objective one: To assess the record keeping system of Koch

goma SACCO

Based on the findings on objective one, record keeping in Koch goma SACCO is inefficient

because most respondents disagreed with statements made under this objective. Also basing on

the findings it can be concluded that record keeping in Koch goma SACCO is not reliable

enough as most respondents disagreed and strongly disagreed with the statements.

5.5.2 Conclusion on findings of objective two: To establish the quality of financial

statements of Koch goma SACCO

According to objective two the quality of financial reports at Koch goma SACCO limited was

good since most of the respondents could understand them readily, and most of the respondents

strongly agreed that the financial reports were relevant to their decision making, the respondents

further strongly agreed that the financial information was free from bias and delivered to them in

time. Most of the respondents also agreed that the information provided to them was free from

material misstatements and was comparable with that of similar institutions. It can thus be

concluded that they have a good financial reporting system.

5.5.3 Conclusion on findings of objective three: To establish a relationship between record

keeping and quality financial reports.

According to objective three, there is a positive strong relationship between record keeping and

the quality of financial reports that is 0.774


5.6 Recommendations

To ensure a strong record keeping system and good quality reporting system the following need

to be considered:

1. Koch goma SACCO need to continuously employ a consistent record keeping system to

positively have a continuous financial reporting system

2. Indicators for record keeping should be considered and emphasized in the accounting

procedures and these include identifying whether the transaction has occurred, preparing

source documents e.g. receipts, invoices, analyzing and classifying transactions, recording

transactions into appropriate journals, posting details in the journals into general ledgers and

finally extracting the trial balance.

3. Koch goma SACCO should employ only skilled and trained personnel in order to improve on

the quality of financial reports.


REFERENCES

1. Beckett D.W.I (1980) Book Keeping and Accounts, (2nd

Edition), stanly thorres

2. Benden (1978). BOOK Keeping guide for Beginners, (4th

Edition), pearson education

Limited

3. Frank wood and Alan Sangster (2002). Business Accounting (9th

Edition), pitman

publishing London

4. Frank wood (1989). Business Accounting, (6th

Edition), Pretence hall.

5. Fraser C.W. Understanding Financial Statements, (6th

Edition), pretence hall.

6. Larson, K.D. & pyle, W.W. (1998). Fundamentals Accounting Principles, (11th

Edition),

Irwin Homewood, Illionois.

7. Meneshwari S.N. (1996). Fundamental Accounting Principles (4th

Edition), Vikas

printing house.

8. Omunuk B Joseph (1999) Fundamental Accounting Principles, Uganda printing and

publishing cooperation.

9. Panday I. M. (2005). Financial Management (9th

Edition), Vikas publishing house.

10. Panday I. M. (1998) Essentials of Management Accounting, (1st Edition) Vikas publishing

house.

11. Stephen K Nkundanyanga, (2004) Advanced Accounting, (Practical approach)

12. Tony Blackwood (1999). Accounting for Business, (2nd

Edition), Business Education

Publishers.

13. William, Haka, Buttner, meigs (2002). Financial Managerial Accounting, (2nd

Edition)

Mcgraw Hilltandards. Journal of the Institute for Public Finance and Auditing, March

2000.


APPENDIX 1

QUESTIONNAIRE TO STAFF

Dear respondent,

I am a Bachelor of Commerce student of Makerere University College of Business and

Management Science. I am carrying out a study about the relationship between record keeping

and quality of financial reports of Koch goma SACCO as part of my academic requirement for

the award of Bachelor of Commerce. This information is purely and strictly for academic

purposes and will be treated with confidentiality.

Please tick the appropriate box as applicable.

1. Gender Female Male

2. What is your highest level of Education?

3. In which department are you working?

Management Accounts Human Resource Loans

4. Age bracket

20-30 years 30-40 years above 40 years

Record keeping

SECTION B: (identifying whether the transaction has occurred)

5. Koch goma SACCO has a standard in place for recognising that a transaction has occurred.

Strongly Agree Agree Not sure Disagree Strongly Disagree

Masters Degree Diploma Certificate Others specify)…………………


6. The standard set is followed whenever Koch goma SACCO transacts business with

individuals or organisations.


SECTION B: (Preparation of Source Documents)

Because of the relatively high risk associated with transactions involving cash, the SACCO has a

cash management program to safeguard cash and ensure accurate reporting of this asset.

7. The accounting procedures specify who is authorized to approve financial transactions

Strongly agree Agree Not sure Disagree Strongly disagree

8. All Expenditure are approved for all financial transactions


9. Koch goma SACCO prepares documents to show evidence of money received.


SECTION C: (Analysing and Classification of Transactions)

10. All transactions are recorded in their appropriate accounts.


11. All accounts are reviewed by another person to make sure that transactions are classified in

their right accounts.



SECTION D: (Recording transaction details into appropriate journals) 12. All transaction details are recorded in a chronological sequence into the journal. Strongly Agree Agree Not sure Disagree Strongly Disagree

13. All monetary transactions are recorded before they are processed into the journal. Strongly Agree Agree Not sure Disagree Strongly Disagree

SECTION E: (Posting the details from the journals to the general ledger)

14. All details of transactions are kept in the general ledger Strongly Agree Agree Not sure Disagree Strongly Disagree

SECTION F: (Preparation of a Trial Balance)

15. Koch goma SACCO summarizes all transactions in the general ledger at the end of the financial year into the trial balance.


16. Adjusting entries are made at the end of each accounting period to match the revenue earned in that period with the expenses incurred in earning it.


Quality of Financial Statements

SECTION F:

Understandable

17. Financial information provided in the financial reports is easily understandable to me



SECTION G:

Relevance

18. Financial information provided to me is relevant in my decision making.


SECTION H: Reliability

19. . The financial information provided to me is free from bias


SECTION I: Timeliness

20. The financial information is delivered to me in time.


SECTION J: Materiality

21. The financial information provided to me is free from material misstatements.


SECTION K: Comparability

22. I am able to compare the SACCO‟s performance over time


23. I can compare financial information of the SACCO with other similar SACCO‟s information.



24. What other factors affect the quality of the financial reports in Koch goma SACCO?

………………………………………………………………………………………………………

…………………………………………………………………….………………...………………

25. Suggest possible measures for the improvement of the quality of financial statements

………………………………………………………………………………………………………

………………………………………….…………………………………………..……………….

Relationship between record keeping and the quality of financial reports

26. There is a relationship between book keeping and the quality of financial statements.


26. What other factors influence the quality of financial reports amidst Book keeping?

............................................................................................................................................................

..............................................................................................................................................

27. Suggest ways on how to improve on the quality of financial reports at Koch goma

SACCO.

............................................................................................................................................................

..............................................................................................................................................

Thank you for your cooperation


APPENDIX 1

QUESTIONNAIRE TO USERS

Dear respondent,

I am a Bachelor of Commerce student of Makerere University College of Business and

Management Science. I am carrying out a study about the relationship between Record keeping

and quality of financial reports of Koch goma SACCO as part of my academic requirement for

the award of Bachelor of Commerce. This information is purely and strictly for academic

purposes and will be treated with confidentiality.

SECTION A: General information

Please tick the appropriate box as applicable.

27. Gender Female Male

28. What is your highest level of Education?

29. In which department are you working?

Management Accounts Human Resource Loans

30. Age bracket

20-30 years 30-40 years above 40 years

Record keeping

SECTION B: (Preparation of Source Documents)

31. I am a user of Koch goma records of accounts


Masters Degree Diploma Certificate Others specify)…………………


32. Koch goma SACCO prepares documents to show evidence of money received.


33. Koch goma SACCO prepares books of accounts


34. Koch goma SACCO prepare documents of accounts.


Quality of Financial Statements

SECTION C: Understandable

35. Financial information provided in the financial reports is easily understandable.


SECTION D: Relevance

36. Financial information provided to me is relevant in decision making.


SECTION E: Timeliness

37. The financial information is delivered in time.



SECTION F: Reliability

38. . The financial information provided is free from bias


SECTION G: Materiality

39. The financial information provided is free from material misstatements.


SECTION H: Comparability

40. I can compare financial information of the SACCO with other similar SACCO‟s information.


SECTION I: Verifiability

41. The information provided in the financial statements can be audited or verified


SECTION J: consistency

42. The financial information provided is consistent over the years


SECTION K: completeness

43. The financial information provided is complete



SECTION L: Faithfull representation

44. The financial statement provided are faithfully represented


Thank you for your cooperation