CHAPTER 1
INTRODUCTION
1.1 Background of the Study
The business environment has become intensively dynamic and
increasingly unpredictable in recent decades and,correspondingly,
managing company has become more demanding. Cost Accounting is a task of
collecting, analyzing, summarizing and evaluating various alternative
courses of action. Its goal is to advise the management on the most
appropriate course of action based on the cost efficiency and
capability. The SMEs sector has been recognized worldwide for its role
in economic advancement through ways various like; wealth generation,
employment creation, and poverty reduction (Kithae, Gakure, &
Munyao, 2012). Small and medium scale enterprises are a fundamental part
of the economic fabric in most developing countries, and they play a
very important role in furthering growth, innovation and prosperity
(Dalberg, 2011).
Small and Medium Enterprises are critical to the development of any
economy has they possess great potentials for employment generation,
improvement of local technology, output diversification, development of
indigenous entrepreneurship and forward integration with large scale
industries.
Cost accounting is a task of collecting, analyzing, summarizing and
evaluating various alternative courses of action. Its goal is to advise
the management on the most appropriate course of action based on the
cost efficiency and capability. Cost accounting provides the detailed
cost information that management needs to control current operations and
plan for the future.
In Nigeria there has been gross under-development of SMEs sub-sector
and this has undermined its contribution to economic growth and
development. The key issue affecting the SMEs can be group into four:
unfriendly business environment, poor funding, low management skill and
lack of access to technology (FSS 2020 SME Sector Report, 2007). Small
and medium enterprises (SMEs) play an important role in the development
of a nation’s economy. The reasons for this are the fact that SMEs
provide benefits such as job creations, knowledge spillover, economic
multipliers, innovations driver and cluster development in an economy
(Chinaemerem & Anthony, 2012). Given the importance of SMEs in an
economy, it becomes quite plausible to look at factors affecting their
financial performance which is a major determinant of their survival and
growth.
An accounting system is an orderly, efficient scheme for providing
accurate financial information and controls. Regulatory requirements and
internal administration policies are key considerations in the design
of an effective accounting system. Thus accounting systems show the
books, records, voucher, and files and related supporting data resulting
from the application of the accounting process. It involves the design
of documents and transactions flow through an organization. The
uniqueness of small and medium scale businesses call for careful
consideration in the design of accounting systems.Small and medium scale
enterprises are a vast majority of businesses found in variety of
primary and intermediate production of the economy. These establishments
have tremendous impact on the state and well being of the nation in
employment generation, as sources of national outputs and revenues,
providing feedstock for large corporations They may lack the
sophistication to apply the detailed accounting processes, yet the value
of accounting systems to these businesses is quite profound.
1.2 Statement of the Problem
Most of the existing research literature on accounting in Port
Harcourt SMEs tends to be more biased toward the arm of cost accounting
techniques in performance of SMEs, more so only remote exists in regard
of the adoption of cost accounting techniques by SMEs in Port Harcourt
[(Wairegi, 2011),(Makau, Wawire, & Ofafa, 2013), (Waweru, 2012),
(Mugambi, 2010) (Aduda, Mogutu, & Githinji, 2012) , lack of
technical skills are as much obstacles to developing a small business as
is the inability to access credit (Mbogo, 2011). In Nigeria, SMEs cover
the entire range of economic activity within all sectors and share a
number of common problems that hinder them from effective performance in
Port Harcourt, include low market access to credit, poor information
flow, discriminatory legislation, poor access to land, weak linkages
among different sectors, weak operating capabilities in terms of skills,
lack of knowledge and attitudes, lack of infrastructural facilities
among others.
Another problems of SMEs failure is poor management ability which
includes accounting problem-solving.Small and medium enterprise
experiences difficulties in raising equity capital from the finance
houses or individuals. Even when the finance house agrees to provide
equity capital, the conditions are always dreadful. All these result to
inadequate capital available to the sector and thus lead to poor
financing.
Another problems facing SMES is Lack of competent management which is
the consequence of inability of owners to employ the services of
experts; Use of obsolete equipment and methods of production because of
owner’s inability to access new technology; Excessive competition which
resulted from sales which is a consequence of poor finance to cope with
increased competition in the industry; The high cost of available raw
materials affects the prices of good food. This only has adverse affect
on the turnover of the enterprise but also on the profitability; The
availability of infrastructural facilities is grossly inadequate in the
areas of access roads, electricity, water supply, etc. and Multiplicity
of policies and regulatory measures such as removal of fuel subsidy,
taxes, several charges on loans.
The place of sound accounting and internal control systems in any
business, irrespective of its scale, cannot be overemphasized. A vast
majority of small-scale businesses cannot afford the complexity of a
detailed accounting system even if they would have. Hence, the existence
of single entries in their books and in some cases incomplete records
(Wood, 1979; Onaolapo, et al., 2011). Audits of small and medium scale
enterprises have proven to be among the most worrisome for professional
accountants because of the inadequacy of the internal controls. This
study thus sought to assess the determining factors and the adoption
levels of modern accounting techniques by SMEs in Port Harcourt.
1.3 Purpose of the Study
The purpose of these study is to examine the effect of cost
accounting techniques on performance of SMEs in selected SMEs firms in
Port Harcourt. Specific objectives include, to:
i. To investigate the types of accounting records being kept and maintained by SMEs.
ii) To evaluate factors hindering Cost accounting Techniques in SMEs in Port Harcourt.
iii. To investigate the extent to which accountinginformation is being used in measuring financialperformance by SMEs.
1.4 Research Questions
i. What are the types of accounting records being kept and maintained by SMEs?
ii) What are the factors hindering Cost accounting Techniques and SMEs in Port Harcourt.
iii. How does accounting information being used in measuring financial performance by SMEs in Port Harcourt?
1.5 Research Hypotheses
HO1. There is no significant relationship between types of accounting records being kept and maintained by SMEs.
HO2 There is no significant relationship between the factors hindering Cost accounting Techniques and SMEs in Port Harcourt.
HO3 There is no significant relationship between accounting
information being used in measuring financial performance by SMEs in
Port Harcourt.
1.6 Significance of study
The effect of Cost Accounting Techniques and performance Small and
Medium Enterprise development has been an area of intense research both
in practice and academia. This work is to prove helpful to existing and
potential entrepreneur of SMEs since this study lends assistance in
strategic effect of sources of finance in the performance of a business
in order to plan ahead. The research work could also serve as a source
of future reference to future researchers who may find it helpful in
carrying out a research work of similar nature or related topic.
This empirical investigation of SMEs is therefore a significant
contribution to existing literature. Furthermore, the study would
provides evidence on the extent to which Rivers state Small and Medium
Enterprise are accounting accommodating in readiness for gaining
strategic competitive advantages in their businesses.
The study would also provides uniqueness of small and medium scale
businesses call for careful consideration in the design of accounting
systems. Small and medium scale enterprises are a vast majority of
businesses found in variety of primary and intermediate production of
the economy.
1.7 Scope of the Study
The general scope of this study covers Cost Accounting Techniques and
performance Small and Medium Enterprise. The geographical scope is
Rivers State of Nigeria. The study will be limited to selected SMEs in Port Harcourt.
1.8 Definition of Terms
Accounting: The bookkeeping methods involved in
making a financial record of business transactions and in the
preparation of statements concerning the assets, liabilities, and
operating results of a business.
SME:small and medium enterprises) are businesses whose personnel numbers fall below certain limits.
Cost accounting: Is ‘the process of accounting for
cost from the point at which expenditure is incurred or committed to
establishment of its ultimate relationship with cost centres and cost
units.
Technique: a way of doing something by using special knowledge or skill
Accounting records are all of the documentation and books involved in the preparation of financial statements or records relevant to audits and financial reviews.
Financial performance: Measuring the results of a firm's policies and operations in monetaryterms.