Internal Control as a Mechanism Linking Digital Accounting and Financial Reporting Quality in Nigerian SMEs

ABSTRACT: Digital accounting systems can improve accounting processes, but the organisational value of adoption may depend on how system capabilities interact with internal controls. This study qualitatively explores how SME owners, managers and accountants describe internal control as a mechanism linking digital accounting adoption and financial reporting quality in Lagos State, Nigeria. Thirteen participants were purposively selected from a larger survey of 207 SMEs to provide variation in digital adoption, firm size, sector, internal control effectiveness and financial reporting quality. Semi-structured interviews were conducted and analysed using Braun and Clarke’s six-phase thematic analysis. Participants consistently described digital accounting systems as strengthening internal controls through audit trails, segregation of duties, approval workflows, exception reporting and standardised procedures. They also associated stronger controls with improvements in the accuracy, timeliness, reliability and completeness of financial reports. A further theme distinguished more extensive use of dedicated accounting systems from limited use of spreadsheets or unconfigured system features. The findings provide qualitative evidence of a pathway consistent with the proposed mediation model, while recognising that qualitative accounts cannot statistically establish mediation or causal effects. The study contributes by showing how control capabilities are experienced in practice and by developing the concept of shallow adoption as limited use of available accounting-system capabilities. The findings suggest that SME digitalisation programmes should combine software provision with control configuration, staff training and monitoring. Keywords: digital accounting; internal control; financial reporting quality; SMEs; technology adoption.