A SURVEY OF ACCOUNTING INFORMATION USAGE AMONG SME OWNERS IN KWARA STATE
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CHAPTER ONE
INTRODUCTION
- Background of the study
The importance of accounting information for planning, control and decision making in both public and private organization cannot be over emphasized. Accounting information gives management data regarding the financial position of the business, such as; profit and loss, cost and earnings, liabilities and assets, etc. The primary importance of accounting information is to record financial transactions systematically in the books of accounts and to find out the profit-loss and financial position of a business. For making the right decision in both public and private organization, management depends on statistical data and information that accounting provides. Accounting information prevents the misuse of assets, increases production and profit, controls costs and helps increase the efficiency of the overall management. The main functions of accounting information include Ascertainment of profit-loss and financial position, interpretation and analysis of accounts and statements, development of accounting system, a collection of statistical and economic data, and formulation of financial principles and financial planning and controlling results as per plan, etc. (Salehi, 2010).
Accounting information is very important for the decision making the body of any organization. Most organization uses accounting information to decide their level of management, which makes accounting information to be very crucial. Because to make a decision, it has to be based on genuine facts and figures. Therefore, most management cannot make decision without reasonable information for backing it up. Accounting helps management-organization by providing information like percentage of profit over the capital, capital investment position, management efficiency in controlling, etc. management uses accounting information during the preparation of various budgets which is essential in running the organization successfully. The historical information which is needed in the preparation of the budget is supplied by accounting information.
Management uses accounting information to report every pieces of financial data that go in and out of the business operations that allow both company managers and outside investors and analysts to understand the company’s health and make informed decisions. Therefore accounting information is directly involved in providing information for the decisions of investors and creditors that help the organization to efficiently and effectively allocate resources to other partners. Thus, accountant information holds an essential role in evaluating the method of carrying out the investment projects, as well their final profitability (Vatasoiu, Gheorghe, Motoniu & Boca, 2010).
1.2 Statement of the Problem
Most SMEs owners in Nigeria usually use guesswork or rule of thumb during their financial reporting. This method happens to be outdated and no longer relevance in the 21st century accounting techniques. 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 on incomplete records (Onaolapo et al., 2011). Audits of small scale enterprises have proven to be among the most worrisome for professional accountants because of the inadequacy of the internal controls. Therefore, this present study will bridge this identified gaps by analyzing a survey of accounting information usage among small and medium enterprises business owners in Kwara State.
1.3 Purpose of Study
The primary aim of this study is to examine a survey of accounting information usage among small and medium enterprises business owners in Kwara State. The researcher intends to cross examine the following sub objectives;
- To assess the usage level of accounting information for long term planning
- To determine the degree of usage of accounting information for short term decision making
- To gauge the usage level of accounting information for control activities
- To identify factors influencing usage level of accounting information for various activities identified in 1-3 above
1.4 Research Questions
The following questions were formulated to guide the indebt of this study;
- Does the usage level of accounting information has any significant impact on long term planning of SMEs in Kwara State?
- Does the degree of usage of accounting information has any significant effect on short term decision making in Ilorin South, Kwara State?
- Are there factors influencing the usage level of accounting information in the long term planning?
- Is accounting information usage an effective management tool in decision making of SMEs in Nigeria?
1.5 Hypotheses
The following hypotheses will be tested in the course of the study using T-test;
H0: The degree of usage of accounting information have no significant effect on short term decision making in Ilorin South, Kwara State.
H1: The degree of usage of accounting information have significant effect on short term decision making in Ilorin South, Kwara State.
H0: The usage level of accounting information have no significant impact on long term planning of SMEs in Kwara State
H2: The usage level of accounting information have significant impact on long term planning of SMEs in Kwara State
1.6 Justification of the Study
The study on a survey of accounting information usage focuses on big companies in Kwara State, with little or no interest in small companies.
This study will make recommendation that would boost the financial performance of the Nigerian government in terms of SMEs survival in the region. Also it will boost appreciation of accounting information usage as well as suggest ways that will enhance the effectiveness and efficiency of small scale enterprises in Nigeria. Importantly, the outcome of this study will serve a reference materials to students and academia who wishes to embark on a study of this nature in future.
1.7 Scope of the Study
The scope will take into consideration a survey of accounting information usage.
The scope of the study covers some selected small and medium enterprises in
Ilorin South, Kwara State. Since Decision making exist in every organization, for the purpose of this research the researcher will be considering big companies in Kwara State for the period of the last five years.
Theoretical Review
Different opinions have continued to emerge on how accounting records can affect growth of the small scale businesses in Nigeria. Some aspects of the existing research delve into the relationship between record keeping and performance of firms. Tanwongsval and Pinvanichkul (2008) comment on the reasons why SMEs prepare financial statements, and argue that on the list, SMEs rank assessing profitability second to the purpose of tax returns. According to Cooley and Edwards (1983), owners of SMEs consider profit maximization as the most important financial objective. This has led to the argument that SME owners pay attention to profitability and measurement of net profit when are evaluate their firms performance. Holmes and Nicholls (1998) concludes that the extent of accounting practices in SMEs depend on a number of factors such as age of business, size of the business, and the nature of the industry. They further point out that most SME owners and managers engage public accountants to prepare required information.
According to Ismail and King (2007), the development of a sound accounting system in SMEs hinge on owners level of accounting knowledge and skills. Some authors have argued that small businesses use professional accounting firms for preparation of annual reports and for other accounting needs (Keasy and Short, 1990; Bohman and Boter, 1984). Lalin and Sabir (2010), reports that the main drivers why SMEs prepare financial statements is pressure from regulatory authorities. Hussein (1983) notes that, a good accounting system is not only judged by how well records are kept but by how well it is able to meet the information needs of both internal and external decision-makers. Clute and Gitman (1980) uphold that it is common for qualified accountants to do a good job of keeping records up to date but they fail to provide information needed by decision-makers. Interestingly, however, others argue that the high cost of contracting professional accountants has left SME owners with no better option but to relegate management of accounting information (Evaraert et al., 2006; Jayabalan and Dorasamy, 2009). Zhou (2010) has proposed the use of accounting software to improve accounting practices, albeit he laments the unavailability of medium-sized software for SMEs.
Empirical Review
Modugu and Eragbhe (2013) examined the implications of the International Financial Reporting Standards adoption for SMEs in Nigeria. By January 1, 2014 all SMEs in Nigeria that have met the criteria defined by the International Accounting Standards Board (IASB) will be required to prepare and present their financial statements in line with the global standards. The study chronicled the challenges imminent in the adoption and implementation decision. These include people, systems and process, business and reporting. Obamuyi (2007) state some standard criteria to assess the creditworthiness of borrowers as follows; financial strength, profitability, network, track record, management quality, relations and payment records with other banks, business prospects, business risks and collateral securities. All the above criteria cannot be good assessments without adequate accounting. It is because of the deficiency in the record keeping of SME that compels the banks to insist on collateral as a “must” for SME.
Adetula et al. (2014) studies the readiness of small and medium scale enterprises (SME) in Lagos State, Nigeria for the adoption of International Financial Reporting Standards (!FRS) and the likely challenges that may be encountered in the adoption process. The work employed a descriptive survey design and data were collected from primary source. Results show that a major factor why IFRSs would be adopted by Nigeria is because other countries have adopted them. Again results show that the IFRS for SMEs adoption process is currently confronted with diverse challenges that may prevent the effective adoption and implementation of IFRS for SMEs in Nigeria in 2014 if they are not addressed with promptness. Ojeka and Mukoro (2011) in the topic titled, “International Financial Reporting Standard (IFRS) and SMEs in Nigeria: Perception of Academic” found that there is still need to enlighten people especially the SME operators on the usefulness of the IFRS for SMEs. The accountant will really have a lot of work to do to implement the IFRS for SMEs in Nigeria. The listed advantages of IFRS for SMEs includes; improving the comparability of information presented in financial statement, increasing confidence in global annual invoices, SMEs reduce cost associated with maintaining accounting standards, presence of a complete set of accounting principles simplified for each type of entity; increased satisfaction of the needs of users of financial statements.
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