Challenges Of Accounting Practices On Small And Medium Scale Enterprises (Case Study Of Aqua Rapha Water Company Plc, Enugu State)

Description

ABSTRACT

A group of experts of national administrations from Member States and business organisations analysed various accounting systems applied by sole proprietorship/traders and partnerships with unlimited liability to identify how these accounting systems meet the actual needs of these small enterprises.

The objective of this project was to come forward with views on how to improve the accounting systems of small enterprises so that they can provide the owners, managers and other stakeholders with appropriate financial information. This was achieved through the identification and exchange of views in the area of accounting systems of small enterprises in Member States.
The purpose was in no way to add regulation or administrative burdens at Nigeria or national level, which would be contrary to the aim of simplifying the business environment for small enterprises and reducing administrative burdens; therefore proposals to change the accounting legislation at Nigeria level were beyond the scope of this project.

On the basis of collected data from Member States on applied accounting systems in small enterprises, the experts suggested a number of good practices for the accounting systems which may be considered appropriate for small enterprises according to their particular circumstances and needs.

This study explores the e-accounting practices among SMEs in Nigeria. The study also looks at the expectations, realities and barriers in adopting e-accounting. The research design is based on a survey methodology using a sample of systematically selected SMEs throughout the country. The findings reveal that SMEs put in place accounting softwares to generate their financial information. The main value of this paper is the discussion of e-accounting practices of SMEs in Nigeria.

TABLE OF CONTENTS

Title page

Approval page

Dedication

Acknowledgement

Abstract

Table of content

 

CHAPTER ONE

INTRODUTION

1.0      introduction

1.1     background of study

1.2     aim of study

1.3     Research questions

1.4     desk research

1.5     objectives of the study

1.6     research question

1.7     statement of problem

1.8     research hypothesis

1.9     significance of study

1.9.1 Scope of the study

1.9.2  Plan of the study

CHAPTER TWO

LITERATURE REVIEW

2.1     Introduction

2.2     Meaning of small and medium scale industry

2.3     Government policy

2.4     Support systems

2.5     Financing

2.6     Monetary policy development in favour of small and medium scale enterprises

2.7     Benefits of small and medium scale enterprises

2.8     Problems facing small and medium scale enterprises

2.9.1  Financing the project

2.9.2  Technical knows how

2.9.3  Personnel, matters and general administration

2.10   Improving funding small and medium scale industries

References

CHAPTER THREE:   

METHODOLGY

3.0     research methodology

3.1     study on accounting requirements for SMEs

CHAPTER FOUR:      

PRESENTATION AND ANALYSIS OF DATA

4.1     data analysis

CHAPTER FIVE         

CONCLUSIONS AND RECOMMENDATIONS

5.1     Conclusion

5.2     Recommendation

5.3     Bibliography

CHAPTER ONE

1.0                                        INTRODUCTION

Accounting plays a critical role in the success or failure of contemporary business institutions.

Accounting systems are responsible for recording, analysing, monitoring and evaluating the financial condition of companies, preparation of documents necessary for tax purposes, providing information support to many other organizational functions, and so on. Prior to the advent of personal computers, businesses were limited to manual methods for keeping track of financial data. According to Tavakolian (1995), the manual accounting systems consisted of paper ledgers, typewriters and calculators.

Typewriters were used to type invoices and cheques, and all calculations were performed using calculators. However, with this system it was possible for errors to be introduced into the data since they could go undetected for quite some time. Like many other industries, the accounting industry changed with the arrival of personal computers. A computerized accounting system is able to handle financial data efficiently, but the true value of an accounting system was that it was able to generate immediate reports regarding the company. What is therefore e- accounting practice?

E-Accounting refers to Electronic Accounting, a term used to describe an accounting system that relies on computer technology for capturing and processing financial data in organizations. In the literature, two more terms have been used to describe E- accounting: computer-based Accounting System and Accounting Information System (AIS). Stefanou (2006) observed that although accounting information system does not require a computer to function, the computerisation of the accounting function, the term AIS is used primarily to denote the computer-based AIS. In this study the terms E-Accounting and financial information system are used to refer to any accounting system that depends on Information and Communication Technology (ICT) for performing its information system functions.

Unlike other information systems, Accounting was one of the first functional areas to benefit from computerization when computers were initially introduced to organizations (Doost, 1999). Furthermore, Tavakolian (1995) noted that an accounting package is usually one of the first major computer packages that a company purchases and it is one of the two business applications often used, with word processing being the other. It should not be a surprise because Accounting plays a very significant role in the performance of organizations. According to Stefanou (2006) the primary purpose of an accounting information system (AIS) is the collection and recording of data and information regarding events that have an economic impact on organisations and the maintenance, processing and communication of such information to internal and external stakeholders. The information is used for the evaluation of the financial position of the organization and for decision-making purposes.

Despite the significance of E-Accounting and its widespread use, there has been relatively little research in the area. Stefanou (2006) noted that a number of authors in various countries share similar views on the lack of research in the area of AIS. This study therefore contributes to filling the gap by exploring the adoption and use of E-Accounting in Nigeria.

The specific objectives are to assess the state of the art of e-accounting systems use among Small and Medium Enterprises (SMEs) in Nigeria, and to examine the benefits and obstacles facing SMEs in the adoption of e-accounting systems.

The rest of the paper is structured as follows: Section two discusses the extant literature. Section three describes the methodology used. Section four discusses the results of the study and finally section fives concludes the study.

1.1                               BACKGROUND OF STUDY

Interest in the role of accounting practices on small and medium Enterprises in the development process continues to be in the forefront of policy debates in developing countries. The dynamic role of accounting practices on small and medium Enterprises (SMEs) in developing countries as engines through which the growth and development objectives of developing countries can be achieved has long been recognized and stated in the literature. The advantages of accounting  claimed for small and medium Enterprises are various, including: the encouragement of entrepreneurship (Safiru and Njogo, 2012; Ayozie and Latinwo, 2010; Ayesha, 2007); the greater likelihood that SMEs will utilise labour intensive technologies (Salami, 2003, Muritala et al 2012) and thus have an immediate impact on employment generation (Ayozie and Latinwo, 2010; Udechukwu, 2003; ogujiuba et. At, 2004: Henriques and Klock 1999); they can usually be establish rapidly and put into operation to produce quick returns: SMEs development can encourage the process of both inter-and intra-regional decentralisation (ogujiuba et al., 2004); and they may well becomes a countervailing force against the economic power of larger enterprises (salami, 2003). More genrally the development is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation. But in Nigeria, the sub-sector is still faced with a number of constraints with inadequate financial facilities as the principal constraint.

Financial accounting has been viewed as a critical element for the development of small and medium scale Enterprises (SMEs).

1.3                                     AIM OF THE STUDY

The overall aim of the Study was to produce a report which comprises both the existing accounting requirements for SME’s, the users’ perceived needs for accounting information from SME’s in Nigeria as well as the SME’s’ own needs for accounting information in the non-financial business economy.

The final result of the Study was concrete proposals on possible future accounting requirements for SMEs in the non-financial business economy.

The tasks were to provide an overview of challenges of accounting requirements and the perceived needs for accounting information from SMEs in Nigeria in the non-financial business economy from both the users’ and preparers’ point of view.

1.4                                           DESK RESEARCH

Factual information on accounting requirements for SMEs as in force in November 2009 for the 20 countries in the non-financial business economy was identified and analyzed. Especially good accounting practices were identified, recommendations were made and conclusions were drawn based on the identified and analysed information in the desk research. Also some statistical data on SMEs were collected and presented;

1. Survey:
   The users’ perceived needs for accounting information from SMEs in Nigeria as well as the SMEs’ own needs for accounting information in the non-financial business economy for 19 countries were analized and identified. For this purpose the Survey was carried out through 1 560 interviews among users, preparers and accounting professionals in 19 countries. Recommendations on perceived accounting requirements were made and conclusions were drawn based on the analysed results of the Survey; and
2. Future policy initiatives:

Based on the results in the desk research and the Survey modules, possible future policy initiatives for accounting requirements for SMEs in the non-financial business economy were identified. This task has to be seen in the light of the Nigeria Commission’s work to exempt micro entities from the Accounting Directives and the revision of the Accounting Directives .

1.5                       OBJECTIVES OF THE STUDY

The main purpose of this study is to identify and consequently analyse the challenges of accounting practices on small and medium scale enterprises. In view of the above, the researcher intends to find out the following:

• The role played by government to promote accounting practices on small and medium scale enterprises (SMEs) in Nigeria.
• To examine the contribution of accounting practices of small and medium scale enterprises to the economy of Nigeria.
• To identify the financial constraint of confronting the promotion of small and medium scale enterprises.
• To find suitable strategies that will promote accounting practices to improve the development, growth and survival of small and medium scale Enterprises (SMEs).

1.6                                  RESEARCH QUESTION

The study would examine the following questions:

• What is the trend of accounting support given to SMEs in Nigeria?
• What contribution has the accounting practices made to the growth of the SMEs in Nigeria?
• What impact do accounting has with small and medium scale Enterprises make to Nigeria’s economy growth?
• How could the growth of small and medium scale Enterprises be enhanced in Nigeria through accounting practices.

1.7                       STATEMENT OF THE PROBLEM

Several studies have identified accounting constraint as the major obstacle to small and medium scale Enterprises Development in developing countries including Nigeria. For instance, Adelaja (2003) argued that access to institutional accounting has always constituted a pandemic problem for SME development in Nigeria. He recalled that in the past, a number of scheme have been put in place to provide special credit lines for SMEs but this achieved very limited impact.

The primary focus of this study emanates from the fact that small scale savings culture of the people in this part of the world. The reason for this is not far fetch: low level of income basically. While it is an establish fact that small and medium scale Enterprises face accounting challenges.

1.8                             RESEARCH HYPOTHESIS

H0 – that there is no relationship between Gross Domestic product and the operations of small and medium scale Enterprises (SMEs) in Nigeria.

H1 – that there is relationship between Gross Domestic product and the operations of small and medium Scale Enterprises (SMEs) in Nigeria.

1.9                        SIGNIFICANCE OF THE STUDY

Small and medium scale Enterprises (SMEs) in Africa rely largely on own savings, not only to grow but also to innovate, firms often need real services support and formal accounting assistance, failing which under – investment in long term capacities may result (Oyelaran-Oyeyinka, 2003).

This study is significant because it would help to evaluate the operation of a vital segment of the industrial sector – small and medium scale Enterprises (SMEs), which have been identified as having very high potential in promoting economic growth and development (Oni and Daniyya, 2012). The evaluation shall be done with special focus on their financial thereby adding to the existing literature on the subject matter.

   1.9.1                            SCOPE OF THE STUDY

This research work focuses on the accounting challenges of small and medium scale enterprises (SMEs) in Nigeria paying special attention to the challenges of accounting practices on small and medium scale Enterprises.

The research intends to study the essential accounting problems encountered by small and medium scale enterprises using Aqua Rapha water as a case study and suggest ways by which this accounting practices can be adequately tackled. Most of the information and data needed for the study would be gathered from existing literature and from relevant government agencies.

1.9.2                                PLAN OF THE STUDY

The study shall commences by providing a background of the subject matterudy in justifying the need for the study in chapter one. Chapter two shall present related literature concerning accounting practices on small and medium scale Enterprises (SMEs). The research methodology shall then be outlined in chapter three, while the chapter four focuses on the data analysis. Concluding comments in chapter five reflect on the conclusion and recommendations.