THE EFFECT OF IFMIS ADOPTION ON FINANCIAL REPORTING QUALITY IN TANZANIAN LOCAL GOVERNMENTS

Abstract

This study investigated the influence of Integrated Financial Management System (IFMIS) adoption in financial reporting quality (FRQ) in the Local Government Authorities (LGAs) in Tanzania. The FRQ in this study was addressed using qualitative characteristics (QCs) of accounting information which are understandability, relevance and reliability. This study used theoretical pluralism, whereby three theories and one model were applied, namely, innovation diffusion theory (IDT), technology, organization and environment (TOE), task technology tit (TTF) as well as the DeLone and McLean (D&M) model. Based on a theoretical framework, the study added six control variables: LGA type, LGA size, utilization capacity, IT control environment, internal audit function, as well as audit committee. The study used secondary data from Controller and Auditor General (CAG) reports for the period of 11 years from 2003/2004 to 2013/2014, covering 163 LGAs. To test for the difference between the Pre-IFMIS period and the Post-IFMIS period, a paired t-test and a generalized linear model (GLM) were applied and the results show that IFMIS adoption only has influence on the quality of the understandability. No significant influence was found for the quality of the relevance or the reliability. Further analysis was conducted using ordinary least square (OLS) while controlling for six control variables. The results from OLS show that IFMIS adoption has significant influence on the quality of both the understandability and reliability, while the quality of the relevance remained as not significant. Hence, this study reveals that the adoption of IFMIS has improved the quality of both the understandability and reliability of FRQ, while the quality of the relevance has not changed significantly. In addition, the study results show that for IFMIS adoption to influence reliability, utilization capacity and internal audit effectiveness have to be taken into consideration.