CHAPTER ONE
INTRODUCTION
1.1.
BACKGROUND TO THE STUDY
Accounting
information is a part and parcel of today’s life which is necessary to
understand the accurate financial situation of the organization and used as the
basis of making strategic decisions. Accounting plays a critical
role in the success or failure of contemporary business institutions.
Accounting information serves as a critical
tool for recording, analyzing, monitoring and evaluating the financial
condition of companies, preparation of documents necessary for tax purposes,
providing information support to many other organizational functions, (Amidu et
al.,2011). In the context of SMEs, accounting information is important as it can
help the firms manage their short-term problems in critical areas like costing,
expenditure and cash flow, by providing information to support monitoring and
control.
The range of
accounting information users is a broad one, and it has different information
needs, but the same quality requirements in terms of accounting information
contained in the financial statements. Even if a number of criticisms and
limitations can be brought and attributed to accounting information, it remains
the most important substantiation source of financial decisions for most small
and medium scale business.
According to Ademola et al (2012),
accounting information is essential to business management. It involves
identification, classification, storage and protection, receipt and
transmission, retention and disposal of records for preparation of financial
statements.
Within
contemporary economic conditions, a successful small scale business owner needs
a lot of reliable accounting information in order to be able to make quality
business decisions (Miko, 1998). Economical information especially financial
and accounting ones are the information which always small scale business
owners use in short term and strategic decisions and they may have most
application among different variables effective in decision-making and in all
types of decisions, thereby boosting productivity and profitability of the
business.
As
a result of the increasingly important role that the financial-accountinginformation plays today in small
and medium scale business as “social good”, accounting has consolidated its
central placewithin the
information system of any enterprises, be it public or private, clearly
bringing its“contribution
in an area of complex social, multilateral and multidimensional relations.
The impact of accounting information
is a function of the benefit that are derived by the members of the society who
had bind themselves into the social organization of their survival and want
satisfaction quest (Anyigbo 1999).
Business benefit from availability of
accounting information, equality important is the availability of accounting
information which facilitates the solution or resolution of business planning,
organization and control function of the enterprises as a social organization. The numbers of Small and medium
scale enterprises in Nigeria tend to increase continuously, they are the
largest business cluster in Nigeria, yet
with little or no criticisms they are regarded as the primary business
organisms that could help enhance and sustain wealth of an economy in the long
run.
Small and Medium Enterprises (SMEs) have
been very important in many countries, because of its role for the country's
economic growth.Thiscontribution is judged from providing employment to skilled
and unskilled workers,enhancing national Gross Domestic Products, and providing
support to other small and largebusinesmall scale business enterprise (Heenetigala
& Armstrong, 2009). Recognition of small business contributionmotivates
public and private organizations to support the small business sector by
providingthem with a diverse range of services. They are also important to the development of trades and
job market, moreover some Small and Medium Enterprises have high potential to expand their
enterprises to a larger scale, despite challenges especially in financial and
accounting systems.
Small businesmall scale business enterprise
are organized, operated, managed and controlled by a small business owner.
The term small business owner is being used throughout this study
replacing other titles such as operator, manager, self-employed, sole-trader,
and entrepreneur.
Small business enterprises (SMEs) have an
important role to play Nigeria development. The extent of contribution these
business units can make towards the growth and development of Nigeria is
dependent on the level of success attained by their operations. The fact is
that, underlying the success of a business enterprise is the establishment and
application of controls by the owners or management in addition to the
systematic record keeping of business transactions, which, at the end of the
period, keeps the owner well-informed about the performance of the business.
Furthermore,
accounting
information are needed so that financial statements will be fairly and
consistently describe as a financial performance. Without information and
standards, users of financial statements would need to learn the accounting
rules of each business, and comparisons between firm would be difficult. While
keeping track of your business’s finances may seem overwhelming, it’s not that
hard when you know the bases of accounting and bookkeeping.
It has been recognized that appropriate
accounting information is important for a successful management of any business
entity, whether large or small (European Commission (EC), 2008).
This
research; therefore, focuses on investigating the roles accounting information
plays on small and medium scale business in Nigeria, types of accounting
records being kept and maintained by SMEs, their completeness and the
availability of accounting skills and knowledge to capture and process
accounting information which can be used to measure productivity and
performance in SMEs.
1.2.
STATEMENT OF PROBLEM
A number of Small Scale Enterprises
have not given much attention to accounting information and book keeping in relation to their business transaction,
despite its importance in the success of small scale business enterprise. This
could be lack of sound knowledge in book keeping practices by owners or
respective managers.
Also, there was difficulty in
ascertaining whether comprehensive accounting records that satisfied the laws
under which it was incorporation had been kept. It was hard to determine to
what extent no adherence to laid – down accounting procedure and constituted in
the wheel of implementation of good accounting system.
Most small scale firm owners prefer to
recruit unskilled personnel especially clerical and accounting staff. The
product of these unskilled accounting (clerical staff) has only succeeded in
helping the small scale firms to stagnate; some firms have even wound up. This
was because unskilled accounting staff could not keep reliable accounting
records that would stand the test of time statutory; such staff could not
correctly determined the profit or loss of the firm preparing profit and loss
account.
Difficult exist in ascertaining how
far non – recognition of the necessity of accounting information to continued
existence and growth, low educational background of owners and the employment
of unskilled accounting staff had affected the production of unreliable
accounting or financial statement.
It has also been ascertained that most
small-scale enterprises fail to keep proper books of account and also fail to
observe basic accounting procedures. As a result, they are not able to portray
the exact financial position of their businesmall scale business enterprise.
This tends to impede the ability of the enterprise to obtain the much needed
loans from the financial institutions and other sources for expansion and
diversification. The financial statements, such as the profit and loss accounts,
the balance sheet and the cash flow statement of small-scale enterprises cannot
easily be prepared. Under such circumstances, annual profits cannot readily be
determined.
Small
and medium scale enterprises in Nigeria are however, often encountered with
accounting and financial management challenges. Poor record keeping,
inefficient use of accounting information to support their financial
decision-making and the low quality and reliability of financial data are part
of the main problems in financial management concerns of Small and medium scale
enterprises in Nigeria.
(Adeboye
2005) While proper accounting is a useful system for making sound economic
decisions, The misuse, untimely, poor record keeping, and inaccuracy of
accounting information also causes Small and medium scale business in Nigeria
to inaccurately a small scale business enterprises their financial situation,
and make poor financial decisions.
These
short comings might be the cause of difficulties to succeed and to raise fund
or borrow money during the later stage. In the worst case, might face with the failure and perhaps
bankruptcy in the end.
It is also important to state that the
absence of proper accounting information does not only impair the growth of the
small-scale enterprise but also, as stated earlier, reduces their chances of
obtaining credit facilities from the financial institutions and other fund
lenders. It is obvious that a cash starved small-scale enterprise is bound to
encounter difficulties in its attempt to expand and/or diversify its operation.
Based
on the fact that the financial accounting is one of the social sciences which
aim to serve various needs of the private and public business facilities, it is
affected by the changes of the general economic, social, legal and political
and political conditions prevailing in each country or certain environment at
each period. The accounting information is resulted by certain requirements
which change due to various environmental factors within the economic, social,
legal and political environments in which the accountancy works.