ACCOUNTING INFORMATION USAGE AND EFFECTIVE DECISION MAKING PRACTICES AMONG SME OWNERS IN KWARA STATE

ACCOUNTING INFORMATION USAGE AND EFFECTIVE DECISION MAKING PRACTICES AMONG SME OWNERS IN KWARA STATE

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CHAPTER ONE

                                            INTRODUCTION

1. Background of the study

Accounting information is not only relevance in evaluation of the past and keeping the present record on check, it is also useful in planning and sustaining the future of every enterprise. Adoption of a sound accounting information becomes pertinent in decision making that produces a good internal control systems in SMEs. Small and medium scale enterprises (SMEs) in Nigeria is constantly faced with the challenges of alternative decision making especially in the presence of relatively scarce and limited resources. Therefore, it becomes imperative that good accounting information be applied for proper and accurate decision making, maximization of profitability and optimal utilization of scarce resource. Onaolapo, Fasina, Opoola & Olatunji, (2011), opined that there is bound to be an existence of single entries in SMEs accounting books resulting in incomplete records, which is caused by their inability to afford the complexity of a detailed accounting system.

Accounting information is a way of giving SMEs the financial information and control it needs to run a portable business or a profit driven organization. Accounting information provides SMEs with the basic information needed in making business decision. It is clear that a business cannot hope of accomplishing these objectives survival without an effective accounting information usage. Operating profitability and staying solvent without the application of accounting concept. Love & Roper, (2013) also concur that SMEs play a major role in economic development as they have been the main source of employment generation and output growth, both in developing as well as in developed countries. SMEs are also the fastest growing segment of most economies and are perceived to be more flexible and adaptable in terms of structure and speed of response than larger organizations (Kumar, 2012). Besides the contributions which SMEs make to the economy, SMEs are engaged in accounting. Amoako (2013) points out that accounting information users in SMEs is on the increase and the quality of accounting information utilized within the SME has a positive relationship with an entity’s performance as well as survival.

Accounting is the process by which the profitability and solvency of company can be measured. Accounting has been defined by various researcher in many different ways. According to Onovo (2004), accounting is an act or process by which an economic environment which focuses on dealing with information about the activities under focuses. According to Eneje (2006), accounting is a process of measuring, recording, classifying, summarizing and communicating of financial information that is used in making economic decision to interested persons or parties. It is also process by which profitability and solvency of company can be measured. To Romney and Steinbart (2012), Accounting Information System aims at collecting, recording, storing and processing data to generate information.

The survival of a business enterprise (both individual and corporate) depends solely on the quality of decisions (right) it implements. This decision is influenced by output from the accounting system in place, supplied to the management. An appropriate, accurate, detailed and up to date presentation of accounting information is indeed a product of an organization whose affairs is administered with good decision. Accounting information can also be classified into financial (quantitative) and non-financial (qualitative) information which is used by decision makers. Managers make use of financial and nonfinancial information in making decisions e.g. strategic, tactical and operational, and the application of these information demands a careful execution towards the accomplishment of the organization’s goal and objective (Royaee, Salehi & Aseman, 2012, p. 57).

There seems to be no uniformity in the definitions of Small and Medium scale Enterprises (SMEs) as the terms are relative, they differ from business to business and from one nation to another (Price water house Coopers, 2009). According to IFRS, Small and Medium Enterprises are entities without public accountability, as they are neither compelled to publish general purpose financial statements nor follow generally accepted accounting principles (GAAP). SMEs in Nigeria pay less attention to sound accounting information in their day to day transactions, on the premise that they owe no-one their financial statement as it is their entity and they run it as they like. Mukaila and Adeyemi (2011) attributed the untimely collapse of a host of SMEs in Nigeria to inadequacy and ineffectiveness of sound accounting practices. While some of the surviving entities engaged the services of practicing accountants to prepare their account, Holmes and Nicholls (1998); others tapped from the knowledge of their owners, (Ismail & King, 2007).

Studies have revealed that despite government efforts, progress of SMEs in Nigeria is still limited due to lack of proper accounting information and financial challenges (Ohachosim, 2012). Obstacles of SMEs access to funds in Nigeria have been linked to SMEs inability to generate and use quality accounting information (Richard, McMahon & Holmes, 2011). In the face of poor accounting or non-existence accounting information, good funds management is inhibited. The fact is that high rate of small business failure is due to poor or careless financial management has lain itself to empirical evidence. Effective financial management can only be established in the presence of quality accounting information.

1.2 Statement of the Problem

Most SMEs owners in Nigeria usually employ external accountants as professional advisers for preparing their financials reports, but sometimes SMEs owners do not keep proper records neither do they understand the data and figure from the report and also not aware or convinced of the usefulness of accounting and financial reporting requirements for control and decision making purposes. That is why the SMEs are unable to carry out the accounting functions internally, (Marriott & Marriot, 2000). As a result of the above assertion SMEs performances have fallen short of expectations in Nigeria (Osotimehin, 2012). Nigeria is still characterised with alarming unemployment rate of 19.7% in 2010 (CIA, 2010), as well as, high level of poverty for more than half of the population still live below the poverty line (Abu and Abdullah, 2010). This shows that Small and Medium-Scale Enterprises are not very effective in this part of the world. Most SMEs die shortly after their establishment and few that survive die following the ageing or physical incapacitation or death of their owners. The failure rate of small business stands around 50 percent in Africa (Adelakun, 2008; Ebiringa, 2011). Huyghebaert & Gucht, (2004) have noted that 50% of new entrepreneurial ventures disappear within the first five years after their establishment in USA and probably that of Nigeria is higher. It should be noted that most business failures result in heavy personal loss for the entrepreneur (Bannock, 1980; Watson, 2003). The country also count losses; the loss in taxation and the business contribution to gross domestic product (GDP) as well as employment, add up to very huge losses for the country as a whole. The absence of basic accounting information practices in most SMEs in Nigeria tends to compound their financial challenges. Most SMEs can’t access funds because banks and other financiers cannot readily verify their vibrancy and their access to quality projects (Srinivas, 2005). Therefore, this present study will bridge this identified gaps by analyzing accounting information usage and effective decision making practices among SME owners in Kwara State.

1.3 Purpose of Study

The primary aim of this study is to examine accounting information usage and effective decision making practices among SME owners in Kwara State. The researcher intends to cross examine the following sub objectives;

1. To determine the extent at which budget information usage aid SMEs’ survival in Ilorin South, Kwara State.
2. To identify how accounting information may be used to prepare profit planning information to guarantee loan grant supports for SMEs in Kwara State.
3. To evaluate the efficiency and effectiveness of accounting information usage as a management tool in decision making of SMEs in Nigeria.
4. To ascertain whether capital budgeting information usage has a significant impact on decision making of SMEs in Kwara State.

1.4 Research Questions

The following questions were formulated to guide the indebt of this study;

1. Does capital budgeting information usage has any significant impact on decision making of SMEs in Kwara State?
2. Do budget information usage aid SMEs’ survival in Ilorin South, Kwara State?
3. Is accounting information usage an effective management tool in decision making of SMEs in Nigeria?
4. How can accounting information be used to prepare profit planning information to guarantee loan grant supports for SMEs in Kwara State?

1.5 Hypotheses

The following hypotheses will be tested in the course of the study;

H₀: Capital budgeting information usage does not have any significant impact on decision making of SMEs in Kwara State.

H₁: Capital budgeting information usage do have any significant impact on decision making of SMEs in Kwara State.

H₀: Budget information usage does not aid SMEs’ survival in Ilorin South, Kwara State.

H₂: Budget information usage do aid SMEs’ survival in Ilorin South, Kwara State.

1.6 Significance of the Study

This study findings will be of immense importance to the SMEs owners who in one way or the other will use it to properly organize the affairs of their business. Also it will help to indent the understanding and appreciation of accounting information usage as well as suggest ways that will enhance the effectiveness and efficiency of small scale enterprises. Furthermore, it will be good interest to the SMEs owners in Illorin South, Kwara State. Importantly, the outcome of this study will broaden the scope of accounting as a discipline and equally serve as a source of information or input for further researches, where student in accountancy would avail themselves with outcome. The result of the findings would provide another source of information for SMEs owners to adopt in making sound and informed decision in effective realization of organisation goals. Finally, this study will make recommendation that would boost the financial performance of SMEs in Nigeria.

1.7 Scope and Limitation of the Study

The scope of the study covers some selected small and medium enterprises in 

Ilorin South, Kwara State, the study is limited to small business owners as they are the channel of accessing information. Although in the cause of the study the researcher encounters some constraint which limited the scope of the study. Such as;

a)     Availability of Research Material: The research material      available to the researcher is insufficient, thereby limiting the study.

b)     Time: The time frame allocated to the study does not enhance wider         coverage as the researcher has to combine other academic activities and examinations with the study.

c)     Finance: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.

1.8 Definition of Terms

Accounting Information: Accounting information is data about a business entity’s transactions. From buying inventory and machinery to entering into long-term building contracts, the events that occur in business operations almost always translate into accounting information.

Decision making: This is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions. This is the process of sufficiently reducing uncertainly and doubt alternative to allow a reasonable choice to be made from among them (Harris, 2002).

SMEs: Small and mid-size enterprises (SMEs) are businesses that maintain revenues, assets or a number of employees below a certain threshold. Each country has its own definition of what constitutes a small and medium-sized enterprise (SME).

Accounting Period: it refers to the time span usually one year covered the financial statement.

Accountant: is a person whose profession is to keep and examine business account” and also said to be one who basically deals with the recording, planning and control of financial transaction whether income or expenditure.

Bookkeeping: According to Etukudo (1975) Bookkeeping is the art of keeping business transaction in such a manner that a financial position of business can be ascertained at any time.

Budget: Hornby (1977) define budget as “an estimate of the future income and expenditure. It is also defined by NASB (1984) “as a financial or quantitative statement prepared and approved prior to a defined period of time, for the policy to be pursued during that period for the purpose of attaining a giving objective it may be income expenditure and the employment of capitals.

Profit and Loss Accounts or Income Statement: This shows the net profit or loss, which is difference between the gross profit plans any other income and the total expenses. The resultant balance, which may be a profit or loss is transferred to the capital account (Etukudo, 1995).

Note of Account: It usually form an integral part of financial statement and provide details on supplementary information is respect of items disclosed in the balance sheet and the profit and loss account (Weilgeband, 1973).

Cost Accounting: The application of costing and cost accounting principles, for the purpose of classifying analyzing recording, standardising, forecasting, interpreting and recommending the data for the purpose of cost control aiding.

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