Accounting Information and Small and Medium Enterprises

Accounting Information and Small and Medium Enterprises

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Chapter One of Accounting Information and Small and Medium Enterprises

INTRODUCTION

BACKGOUND OF THE STUDY.

Accounting is and information system that identifies records, communicates the economic events of an organization to interested users. The success, growth and survival of any business depend on great extent on the quality of decision made by management. This decision depends on the quality and timeliness of the information provide by good accounting information. Information from a good source is competitively necessary for every business requiring a successful ending. This becomes imperative for every SME to manage a good information which entails the installation of a sound accounting information to guide and support the decision making process.

It has been recognised that appropriate accounting information is essential for a successful management of any business entity, whether large or small (European Commission 2008). As defined by the Central Bank of Nigeria CBN, SMEs is classified according to asset base and the number of employees. The criteria of an asset base is between N5 million and N500 million, and staff strength between 10 to 100 employees.  European define small and medium Enterprise as the categories of micro, small and medium–sized enterprise which made up of enterprises which have an annual turnover not exceeding 50 million euro and/or an annual balance sheet (statement of financial position) total not exceeding 43 million euro.

However SMEs have been very important to the growth and development of any country, because of role it play. This research will assess the level of usefulness of accounting information toward evaluating the performance of SME in Akwa Ibom State. Primarily, the role of accounting is to collect and communicate data that can be used for analysis and decision making, (Ethredge, Shane, and Smith, 1995)

From the International Accounting Standard Committee (IASC), frame work which identify the principles, and qualities of accounting information to include understandability, relevance, reliability and comparability. Federation of Accounting Standard Board (FASB), frame-work also provides the same characteristic.

It is noted the, most SME does acknowledge the importance of proper record keeping in their operation. According to Oladejo (2008), the achievement of the firm objective is greatly influenced by the application of accounting records. But some challenges of inadequate, Infrastructural facilities, inability of most business firms to demand accounting system adequate to them for their need. He concluded that, the accounting record has contributed immensely to the unprecedented rate in the growth of small business in identifying the expenses, income, and profit or loss of a firm at the end of an accounting year (usually 12 months).

Even though most SMEs prepare financial reports for statutory purposes, many fail to use accounting report. Small and medium enterprises owners/managers either lack the technique for using financial statements or simply are unaware that they can use them to support the financial decisions. These shows that, poor record keeping and inefficient use of accounting information are a major cause of the small and medium size enterprises failure (Berryman 1982 from Walton 2000).

The misuse and inaccurate accounting information causes small and medium size enterprises to assess their financial situation, and make poor financial decisions, as well as leads them to high failure rate (Byron and Friedlob (1984). Small and medium firms should recognize that accounting information can be a valuable component of a company management and decision-making systems for financial data, and provides the ultimate indicator of the failure or success of a business strategic direction.

The performance of small scale  enterprises however , indicates that their expected important role can be achieved through variables including the implementation of fundamental managerial expertise such as basic business accounting, which can serve as an important base for financial planning and controlling; most especially , in the function of forestall cash flow problems.

STATEMENT OF THE PROBLEM

The quality of accounting information influences decision making which in turn affect the performance level of small and medium size enterprises. Research on Small and Medium Enterprise development show that lack of reliable accounting information provided by SME is a problem in developed and developing countries, (UNCTAD.2001) and that rate of failure in developing countries is higher than in developed world, Arinaitwe (2002). The research further suggest poor financial management as a major  cause of business failure, Berryman (1993) and quality information is critical to organizations’ success in today’s competitive environment, Hongjiang Xu, (2004). In Uganga according to research, there are poor level  of record keeping and insufficient use of accounting information to support financial decision making are the major cause of the SMEs failure , Berryman (1997) quoted in Walton (2000) show that, poor performance and failure exhibited by SME in Uganda could be due to lack of quality accounting information.

In Nigeria, these is not exemption, The fact underlying the success of a business enterprise is the establishment and application of controls by their owners of management in addition to the systematic record keeping of business transactions which is at the end of the period keeps the owner well informed about performance of the business. Several challenges occurs that hamper the growth of SMEs in the Akwa Ibom State resulting from the accurate use of accounting information system which is expected to enable a fair preparation and presentation of accounting statement, to allow them meet their operational obligation.

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