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ACCOUNTING INFORMATION AND SMALL AND
MEDIUM ENTERPRISES, IN AKWA IBOM STATE
CHAPTER ONE
INTRODUCTION.
1.0.
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.
1.1. 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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