Role Of Accounting Information On Small And Medium Scale Business In Nigeria With Respect To Covid 19 ( A Case Study Of Alapere In Ketu, Lagos)

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Role Of Accounting Information On Small And Medium Scale Business In Nigeria With Respect To Covid 19 ( A Case Study Of Alapere In Ketu, Lagos)


Abstract


The relevance of SME-sub sector in Nigeria’s economy has necessitated the need for empirical investigations into the nature of its financial challenges. This study evaluated the extent accountants can help to ameliorate the financial challenges of SMEs in Nigeria. A total of 336 responses were validated from the survey. It made use of questionnaire for collecting data from the sampled population of SMEs in Alapere area of Ketu Lagos state of Nigeria. Z-score, Chi-square(X2), T-statistics and F-statistics were utilized in testing the hypotheses. Also, by the technique of Ordinary Least Square (OLS), the researcher estimated the group logit (GLOGIT) model specified in the study. Our analyses revealed that SMEs in Nigeria have poor accounting system. It was also found that SMEs’ access to finance depends largely on the quality of accounting information they can generate. The study recommended that SMEs should access the services of the accountant to be able to establish reliable accounting system. Quality accounting information will enhance SMEs’ financial management as well as accessibility of finances.


Chapter One


Introduction

1.1 Background to the Study

With the current pandemic that hit the world at large, due to this companies, individuals, and corporate bodies has had a fair or large share in losses, ranging from job termination, loans unpaid, restrictions to internal movements only etc.

This pandemic has birth many SME businesses, since survival is a most for humans hence the need for accounting roles, if the businesses want to strive beyond the start up phase.

Accounting information is a part and parcel of today’s life which is necessary to understand the accurate financial situation of the organization and used as the basis of making strategic decisions. Accounting plays a critical role in the success or failure of contemporary business institutions.

Accounting information serves as a critical tool for recording, analyzing, monitoring and evaluating the financial condition of companies, preparation of documents necessary for tax purposes, providing information support to many other organizational functions,(Amidu et al.,2011). In the context of SMEs, accounting information is important as it can help the firms manage their short-term problems in critical areas like costing, expenditure and cashflow, by providing information to support monitoring and control.

The range of accounting information users is a broad one, and it has different information needs, but the same quality requirements in terms of accounting information contained in the financial statements. Even if a number of criticisms and limitations can be brought and attributed to accounting information, it remains the most important substantiation source of financial decisions for most small and medium scale business.

According to Ademola et al (2012), accounting information is essential to business management. It involves identification, classification, storage and protection, receipt and transmission, retention and disposal of records for preparation of financial statements.

Within contemporary economic conditions, a successful small scale business owner needs a lot of reliable accounting information in order to be able to make quality business decisions (Miko, 1998). Economical information especially financial and accounting ones are the information which always small scale business owners use in short term and strategic decisions and they may have most application among different variables effective in decision-making and in all types of decisions, thereby boosting productivity and profitability of the business.

As a result of the increasingly important role that the financial accounting information plays today in small and medium scale business as “social good”, accounting has consolidated its central place within the information system of any enterprises, be it public or private, clearly bringing its contribution in an area of complex social, multilateral and multidimensional relations.

The impact of accounting information is a function of the benefit that are derived by the members of the society who had bind themselves into the social organization of their survival and want satisfaction quest (Anyigbo 1999).
Business benefit from availability of accounting information, equality important is the availability of accounting information which facilitates the solution or resolution of business planning, organization and control function of the enterprises as a social organization. The numbers of Small and medium scale enterprises in Nigeria tend to increase continuously, they are the largest business cluster in Nigeria, yet with little or no criticisms they are regarded as the primary business organisms that could help enhance and sustain wealth of an economy in the long run.

Small and Medium Enterprises (SMEs) have been very important in many countries, because of its role for the country’s economic growth. This contribution is judged from providing employment to skilled and unskilled workers, enhancing national Gross Domestic Products, and providing support to other small and large scale business (Heenetigala & Armstrong, 2009). Recognition of small business contribution motivates public and private organizations to support the small business sector by providing them with a diverse range of services. They are also important to the development of trades and job market, moreover some Small and Medium Enterprises have high potential to expand their enterprises to a larger scale, despite challenges especially in financial and accounting systems.

Small scale business enterprise are organized, operated, managed and controlled by a small business owner.
The term small business owner is being used throughout this study replacing other titles such as operator, manager, self-employed, sole-trader, and entrepreneur.

Small business enterprises (SMEs) have an important role to play in Nigeria development. The extent of contribution these business units can make towards the growth and development of Nigeria is dependent on the level of success attained by their operations. The fact is that, underlying the success of a business enterprise is the establishment and application of controls by the owners or management in addition to the systematic record keeping of business transactions, which, at the end of the period, keeps the owner well-informed about the performance of the business.

Furthermore, accounting information are needed so that financial statements will be fairly and consistently describe as a financial performance. Without information and standards, users of financial statements would need to learn the accounting rules of each business, and comparisons between firm would be difficult. While keeping track of your business’s finances may seem overwhelming, it’s not that hard when you know the bases of accounting and bookkeeping.

It has been recognized that appropriate accounting information is important for a successful management of any business entity, whether large or small (European Commission (EC), 2008).

This research; therefore, focuses on investigating the roles accounting information plays on small and medium scale business in Nigeria, types of accounting records being kept and maintained by SMEs, their completeness and the availability of accounting skills and knowledge to capture and process accounting information which can be used to measure productivity and performance in SMEs.


1.2 Statement of Problem

A number of Small Scale Enterprises have not given much attention to accounting information and book keeping in relation to their business transaction, despite its importance in the success of small scale business enterprise. This could be lack of sound knowledge in book keeping practices by owners or respective managers.

Also, there was difficulty in ascertaining whether comprehensive accounting records that satisfied the laws under which it was incorporation had been kept. It was hard to determine to what extent no adherence to laid – down accounting procedure and constituted in the wheel of implementation of good accounting system.

Most small scale firm owners prefer to recruit unskilled personnel especially clerical and accounting staff. The product of these unskilled accounting (clerical staff) has only succeeded in helping the small scale firms to stagnate; some firms have even wound up. This was because unskilled accounting staff could not keep reliable accounting records that would stand the test of time statutory; such staff could not correctly determined the profit or loss of the firm preparing profit and loss account.

Difficult exist in ascertaining how far non – recognition of the necessity of accounting information to continued existence and growth, low educational background of owners and the employment of unskilled accounting staff had affected the production of unreliable accounting or financial statement.

It has also been ascertained that most small-scale enterprises fail to keep proper books of account and also fail to observe basic accounting procedures. As a result, they are not able to portray the exact financial position of their business. This tends to impede the ability of the enterprise to obtain the much needed loans from the financial institutions and other sources for expansion and diversification. The financial statements, such as the profit and loss accounts, the balance sheet and the cash flow statement of small-scale enterprises cannot easily be prepared. Under such circumstances, annual profits cannot readily be determined.

Small and medium scale enterprises in Nigeria are however, often encountered with accounting and financial management challenges. Poor record keeping, inefficient use of accounting information to support their financial decision-making and the low quality and reliability of financial data are part of the main problems in financial management concerns of Small and medium scale enterprises in Nigeria.(Adeboye 2005) While proper accounting is a useful system for making sound economic decisions, The misuse, untimely, poor record keeping, and inaccuracy of accounting information also causes Small and medium scale business in Nigeria to inaccurately asmall scale business enterprises their financial situation, and make poor financial decisions.

These short comings might be the cause of difficulties to succeed and to raise fund or borrow money during the later stage. In the worst case, might face with the failure and perhaps bankruptcy in the end.

It is also important to state that the absence of proper accounting information does not only impair the growth of the small-scale enterprise but also, as stated earlier, reduces their chances of obtaining credit facilities from the financial institutions and other fund lenders. It is obvious that a cash starved small-scale enterprise is bound to encounter difficulties in its attempt to expand and/or diversify its operation.

Based on the fact that the financial accounting is one of the social sciences which aim to serve various needs of the private and public business facilities, it is affected by the changes of the general economic, social, legal and political and political conditions prevailing in each country or certain environment at each period. The accounting information is resulted by certain requirements which change due to various environmental factors within the economic, social, legal and political environments in which the accountancy works.


1.3 Objectives of the Study

The main objective of this study was to evaluate the role of accounting Information on small and medium scale business in Alapere area of Ketu Lagos State.

The specific objectives of this study were to:

  1. Examine if accounting practices affect SMEs finances.
  2. Investigate the extent SMEs’ access to finance is controlled by accounting practices.
  3. Assess the extent SMEs use accountants to mitigate their financial challenges.
  4. Ascertain the impact of analysing accounting information on SMEs’ financial challenges.

1.4 Research Questions

The research strived to answer the following thought provoking questions.

  1. How does accounting practices affect SME’ finances?
  2. What is the impact of accounting practices of SMEs on their access to finance?
  3. To what extent do SMEs use accountants to mitigate their financial challenges?
  4. To what extent do analyses of accounting information help SMEs to overcome financial challenges?

1.5 Statement of Hypotheses

This study postulated the following hypotheses:

  1. Accounting practices do not affect SMEs finances.
  2. SMEs’ access to finance is not controlled by their accounting practices.
  3. SMEs do not access the services of accountants to mitigate their financial challenges.
  4. Analyses of accounting information do not help SMES to overcome their financial challenges.

1.6 Significance of the Study

Though, this study was initiated to evaluate the importance of accounting information in small and medium scale business, no gain saying that, accounting information plays a positive role in the integrity of the decisions as well as the success of the small scale business.

The significance of this study was to create through documentation, an awareness of the importance of accounting information and basic accounting procedures to small-scale enterprises.

In addition it will be a source of knowledge to small-scale enterprises (SSE) on how to maintain proper accounting records and standards. The result will greatly facilitate the work of the Internal Revenue Services and the Value Added Tax officials in developing strategies to extend the tax net to cover such enterprises which form significant proportion of the Nigerian business community.

This study will also be of great significance to policy analysts since it will assist in analyzing the effectiveness and success of the work of the Small Scale Agency Board in Nigeria.

It will therefore equally be of immense help to the National Board for Small-Scale Industries, in evaluating the success of its activities with specific reference to the problem of poor accounting information initialization and basic accounting procedures in such industries. It would also assist the boards in determining or formulating their future plans.

It will also be of use to the student, researchers for further research study, the existing and prospective entrepreneur as well as any interested party. It will assist students in their knowledge build-up and appreciation of the practical accounting situation of the small scale business.


1.7 Scope of the Study

SMEs studied in this research are those that meet the features of SMEs as defined by Small and Medium Industries Equity Investment Scheme (SMIEIS) in Nigeria. The area of business operations of most SMEs surveyed include; trading, service delivery, manufacturing, construction and agriculture. The scope of financial challenges covered include: finance availability, finance accessibility and finance management.


1.8 Limitation of Study

The major limitations of this study are the unavailability of data and the quality of the obtainable data. Due to the nature of SMEs in Nigeria, documentation of secondary data has not become efficient enough to enhance studies of this nature. The researcher understands this and has made frantic effort to overcome this problem and obtained dependable data to work with. However, the dependability is still reliant on the frankness of the SMEs who supplied most of the data used for all empirical analyses in the research.


1.9 Definition of Terms

Under this heading, terms operationalised in this study are explained to elucidate on their special meanings in the research.

Financial Challenges:

This is used to refer to the difficulties that the SMEs experience in accessing funds, as well as, in managing the funds accessed for optimal use.

SMEs Finance:

All forms of funds at the disposal of the SMEs for business use. Finance includes monies obtained through loans, credit supplies, plough back profits; monies saved by skilful money management, etc. which are available for business use.

Funds Availability:

This explains the easiness with which funds are provided for SMEs’ use by government, banks or SMEs themselves.
Funds Accessibility: This refers to the convenience with which SMEs obtain and use funds. This study is interested in what controls the accessibility of funds for the SMEs.

Accounting Practices:

All activities undertaken by the SMEs to ensure good and dependable accounting system. Accountants should be able to guide SMEs to observe a set of generally accepted accounting practices (GAAPs) to ensure the generation of quality accounting information. The global practice now is that SMEs should observe the International Financial Reporting Standard (IFRS) for SMEs.

Emerging Tasks:

This is used to describe the new dimension which the work of the accountant has assumed. This study explains that the work of the accountant does not end in producing accounting information but has included the use of the accounting information in solving business problems which include financial challenges of the SMEs. The work of the accountant has in recent times included financial management.


Chapter Five


Summary of Findings, Recommendations and Conclusions

5.1 Summary of Findings

SMEs have proved very relevant in stimulating economic growth in Nigeria. However, SMEs’ progress is seriously frustrated by financial challenges facing them which have defied all efforts of the government and the SMEs themselves. The fact is that efforts have been made neither by the government nor by the SMEs themselves to ensure good financial management practices. Therefore, generally accepted accounting practices (GAAPs) are been compromised by the SMEs who rarely access the services of the accountants. The continued existence of SMEs financial challenges is attributed to their inadequate accounting practices.

This study: “Financial Challenges of SMEs in Ketu Lagos State, Nigeria”, surveyed the economically vibrant Ketu Lagos state of Nigeria to evaluate the nature of SMEs financial challenges and their accounting practices.

On the bases of the Analyses and Tests carried out in this study, the following major findings were made:

  1. SMEs in Nigeria have very poor accounting practices and this has compounded their financial challenges by limiting their finances.
  2. SMEs that have maintained high level of accounting practices are known to access loans in Nigeria in good time.
  3. The level at which SMEs access the service of accountants in Nigeria to mitigate their financial challenges is poor and this further accounts for the chronic nature of their financial challenges
  4. SMEs in Nigeria are aware that by analysing quality accounting information, they can overcome their financial challenges.

Other relevant findings made include the following:

  1. Higher proportion of SMEs in Nigeria has post-primary education.
  2. Higher proportion of SMEs in Nigeria is engaged in trading.
  3. More than half of SMEs in Nigeria die after four years of commencement.
  4. The few SMEs that survived the first four years have tendencies to stay longer having understood the Nigerian business environment and they have been identified with dependable accounting practices.
  5. Higher proportion of SMEs in Nigeria make-up their start-up capital from personal savings and apprenticeship settlement.
  6. SMEs have almost as much chances of accessing loans with collateral as with dependable accounting system.
  7. The best way to identify and evaluate a genuine and viable business is to look into their books which reflect their business activities.

5.2 Recommendations

To enhance the performances of SMEs in Nigeria, this study based on the above findings, recommend the following:

  • SMEs should improve their accounting system to be able to generate quality accounting information so as to enhance their performances.
  • Banks and other financiers should use accounting information to identify genuine and actively operative SMEs in Nigeria.
  • SMEs should endeavour to consult accountants regularly to be able to maintain high accounting standard by adopting generally accepted accounting practices.
  • SMEs should utilise accounting information in the management of their finances by embarking on proper analyses of accounting information.
  • The accounting bodies in Nigeria, the Institute of Chartered Accountants of Nigeria (ICAN) and the Association of National Accountants of Nigeria (ANAN), should wear global outfit and train their members to serve SMEs’ accounting need due to their relevance in the economy.
  • Accountants should encourage SMEs to access their services. They should avoid scaring them away by quoting very high fees.
  • Government should stipulate minimum number of books to be kept by all SMEs that meet SMIEIS criteria for SMEs which will certify them to operate in Nigeria. This dimension will be in line with international order that have designed International Financial Reporting Standard (IFRS) for SMEs.

5.3 Contribution to Knowledge

This study has made the following contributions to existing knowledge:

  1.  It has contributed geographically to the understanding of the link between financial challenges of SMEs and their accounting practices.
  2. It has brought to bare the accounting needs of SMEs, as well as, the need to repackage accounting services to suite these needs.

5.4 Area of Further Studies

This study is only a stepping stone for further researchers. Suggested related areas include: working capital management of SMEs: the role of the accountant, International financial reporting standard for SMEs: relevance to SME finance, the impact of accounting information in the progress of SMEs, the level of accounting practice and the operative existence of SMEs, among others.


5.5 Conclusions

The need to build viable SMEs has emerged the focus of every economy today. The situation is not different in Nigeria following the need to reduce unemployment and enhance Nigeria’s economy. This study, “Financial Challenges of SMEs in Ketu Lagos state, Nigeria” is a dynamic approach towards the evaluation of SMEs’ finance challenges. It studied the nature of SMEs financial challenges, the nature of SMEs accounting practices and tries to establish a link between these financial challenges and their accounting practices.

Through a series of scientific and verifiable processes highlighted in the study, the researcher found among others that SMEs can overcome their financial challenges by improving the quality of accounting information generated by them. This has set emerging task for the accountant who must acquaint the SMEs on the generally accepted accounting practices. The findings of this study are in line with the submissions of Larson & Clute (1979), Opkara (2000), Ohachosim, Onwuchekwa & Ifeanyi (2012) and Okafor (2012).

This research should serve as a stepping stone on which prospective researcher can stand to make more meaningful impacts in the area of SME finances in our own part of the world. Suggested possible research areas includes; Working capital management of SMEs in Nigeria: the role of the accountant, International financial reporting standard for SMEs: relevance to SME finance in Nigeria, the impact of accounting information in the progress of SMEs in Nigeria, among others.

Finally, this study has provided empirical evidence that SMEs access to finance depend largely on their accounting information. It concludes that for SMEs to overcome their financial challenges they should access the services of the accountant to improve the quality of their accounting information.


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