The role of accounting information on small and medium scale enterprises in Nigeria
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.
1.3.
OBJECTIVES OF THE STUDY
The major objective aim is to examine the
role of accounting information on small scale business productivity and
performance.
Other specific objectives aimed to be achieved are:
1. To examine the importance of accounting information and basic
accounting procedures in small-and medium scale enterprises.
2. To
determine the extent to which accounting information and basic accounting
procedures have been implemented and applied in small-and medium scale
enterprises.
3. To
investigate the types of accounting records being kept and maintained by small-and medium scale enterprises.
4. To ascertain the extent to which
accounting information is being used as a financial tool for measuring
financial performance of SMEs.
5. Analyze the relationship between accounting
information & small scale firm performance.
6. To analyze the completeness of
accounting records being kept by SMEs as a source of information for economic
and financial decision making.
7. Determine the major barriers to accessing to efficient
accounting information.
1.4.
RESEARCH QUESTION
The research question provides a
framework and guidelines through which substantial knowledge of the research
study can be understood.
The research question
asked includes:
1. What are the importance of accounting information and basic accounting
procedures in small-and medium scale enterprises?
2. To
what extent is accounting information and basic accounting procedures
implemented and applied in SMEs?
3. What
are the types of accounting records being kept and maintained by small-and medium scale enterprises?
4. To what extent is the accounting
information is being used as a financial tool for measuring financial
performance of SMEs?
5. Is there any relationship between accounting
information & small scale firm performance?
6. How efficient is the completeness of
accounting records being kept by SMEs as a source of information for economic
and financial decision making.
7.Are there any barriers
to accessing to efficient accounting information by SMEs?
1.5.
STATEMENT OF HYPOTHESIS
The hypotheses are stated in the null form for
testing:
HYPOTHESIS ONE
Ho1 -There
is no significant relationship between accounting information and small scale enterprises
performance.
HYPOTHESIS
TWO
Ho2 - Accounting
information and procedure do not increase the chances of the business operating
and achieving success.
1.6. SIGNIFICANCE OF THE STUDY
Though, this study was initiated to evaluate the
importance of accounting information in small and medium scale business, no
gain saying that, accounting
information plays a positive role in the integrity of the decisions as well
asthe success of the small scale business.
The
significance of this study was to create through documentation, an awareness of
the importance of accounting information and basic accounting procedures to
small-scale enterprises.
In addition it will
be a source of knowledge to small-scale enterprises (SSE) on how to maintain
proper accounting records and standards. The result will greatly facilitate the
work of the Internal Revenue Services and the Value Added Tax officials in
developing strategies to extend the tax net to cover such enterprises which
form significant proportion of the Nigerian business community.
This study will also be of great significance
to policy analysts since it will assist in analyzing the effectiveness and
success of the work of the Small Scale Agency Board in Nigeria.
It will therefore equally be of immense help to
the National Board for Small-Scale Industries, in evaluating the success of its
activities with specific reference to the problem of poor accounting
information initialization and basic accounting procedures in such industries.
It would also assist the boards in determining or formulating their future
plans.
It will
also be of use to the student, researchers for further research study, the
existing and prospective entrepreneur as well as any interested party. It will
assist students in their knowledge build-up and appreciation of the practical
accounting situation of the small scale business.
1.7.
SCOPE OF THE STUDY
Conceptually
the study hovers around the implicit role proper accounting information and accounting
procedures play as far as small and medium scale business were concern in
Nigeria.((by making use of the accounting records, budgets
and loss account and other accounting information produced by them).
The
activities of the regulating body National Board for Small
Scale Industries were also put into consideration. However, The research was limited to small and medium
scale enterprises operator in Lagos metropolis due the schedule of the
researcher.
1.8. LIMITATIONS OF THE STUDY
As with all studies, limitations exist
and must be acknowledged. Moreover, the outcomes were based on the information
solicited from the respondents and such might be subjected to human errors,
omissions and possible mis-statements.
The
limitations of the study are as given below:
a)
First of all time did not allow the
researcher to glean information from all the Small scale business enterprise
and all institutions under NBSSI
b)
The study could not show the whole scenario of
the all small scale business in Nigeria.
c)
Because
the sample is chosen from the one state Of Nigeria. That’s why the findings and
analysis is varying slightly in organization to organization.
d)
The questionnaire was not understood by some
respondent.
e)
Some
respondent did not give enough concentration to understand the significant of
analysis.
f)
The
time was not enough to collect the data from the respondent.
1.9. DEFINITION OF TERMS
Management
accounting
Management accounting
or managerial accounting is concerned with the provisions and use of accounting
information to managers within organizations, to provide them with the basis to
make informed business decisions that will allow them to be better equipped in
their management and control functions.
Small
and medium enterprises
Small and medium
enterprise or small and medium-sized enterprise (SMEs, small and medium-sized
businesmall scale business enterprise, SMBs and variations thereof) are
companies whose personnel numbers fall below certain limits.
Financial
statement
A financial statement (or financial
report) is a formal record of the financial activities of a business, person, or
other entity.It also provide information regarding the position and
performance of a business, such as its assets, liabilities, equity, income,
expenses and cash flow.
Accountancy
Accountancy is the
process of communicating financial information about a business entity to users
such as shareholders and managers. The communication is generally in the form
of financial statements that show in money terms the economic resources under
the control of management; the art lies in selecting the information that is
relevant to the user and is reliable.
Consistency
In order for
accounting information to be useful in decision making, it must be recorded
consistently, meaning the same accounting treatment must be applied at all
times to a given type of accounting data.
SMALL
SCALE BUSINESS
It is defined as any business
undertaken, owned, managed and controlled by not more than two entrepreneurs,
has no more than twenty employees, has no definite organizational structure
(i.e all employees report to the owners) and has relatively small shares of its
market.
Accounting Information System
An accounting information system (ais) is a system of collecting, storing and processing financial
and accounting
data that is used by decision
makers. An accounting information system is generally a
computer-based method for tracking accounting activity in conjunction with
information technology resources.
Faithfull
Representation
Faithfull
representation requires that transactions and events should be accounted for in
a manner that represents their true economic substance rather than the mere
legal form. This concept is known as Substance Over Form.
Accountant:
An
accountant is any person who possess a professional license to practice
accountancy from a recognized professional body and has legal capacity and
authority to carryout the duties of accountants in taxation and audit practice.