ACCOUNTING INFORMATION AND MANAGERIAL DECISIONS ON SMALL AND MEDIUM SCALE ENTERPRISES A STUDY OF SME’S IN LAGOS METROPOLIS
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CHAPTER ONE
INTRODUCTION
1.1 Background to the study
Accounting plays a vital role in the success or failure of contemporary business institutions. Systems are responsible for recording, analyzing, monitoring and evaluating the financial condition of business institutions, preparing documents necessary for tax purposes, providing information support to many other organizational functions, (Amidu, John & Joshua. 2011). In the context of small and medium scale enterprises (SMEs), accounting information is important as it can help the firms to manage their short-term problems in critical areas like costing, expenditure and cash flow, by providing information which will be used to support monitoring and control (Mitchell, Reid & Smith, 2000; Son, Marriot, & Marriot, 2006).
Small and Medium Scale Enterprises are the reasons behind any growing economy. Some of the roles of small and medium scale enterprises include generating employment opportunities, rural development, youth empowerment, immense contribution to national income and growth, spread and development of adaptable technology and regional balanced growth channel. These enterprises are faced with diversity of challenges in Nigeria due to numerous domestic and global economic problems and policy inconsistencies. The result is a high mortality rate of the firms (Dasanayaka, Kankanamge & Sardana, 2011). Some of the challenges are internal to the enterprise and they include inadequate working capital, high competition from larger companies, difficulties in sourcing raw materials, low capacity utilization, poor of management strategies, and poor educational background of operators, huge financial problems and reluctance in embracing technology (Tafamel & Idolor, 2008; Osamwonyi and Tafamel, 2010).
Small companies are often established from family business. Mostly, in family business, are manage by family members. However, the workforce can be from non-family members. Therefore, the business environment is different according to the style of management as well as the culture that the family inherited from generations to generations (Peter and Buhalis 2004). SMEs have an important role to play in the development of Nigerian economy. The extent of contribution these business units can make towards the growth and development of Nigeria depend on how successful they are in their operations. The fact that is 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. (Mbroh, John & Attom, 2011).
The Financial Management of the Small Enterprise conducted by Ismail (2009) emphasized the common belief that better financial information means better control and higher chance of success. Accounting information is information provided by the accountants and accounting systems. This information is usually presented in financial statements such as the income statement and the balance sheet. It also includes any financial ratios extracted from these financial statements. Accounting systems are responsible for analyzing and monitoring the financial situation of firms, preparation of documents that are necessary for tax purposes, providing information to support many other organizational functions such as production, marketing, human resource management, and strategic planning. Without such a system it will be very difficult for SMEs to determine performance, identify customer and supplier account balances and forecast future performance of the organization. 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 upon organizations and the maintenance, processing and communication of such information to internal and external stakeholders for proper decision making (Stefanou, 2006).
The growth of computer technology in 1950’s had initiated increasing development in information storing and processing (Rashid, Hossain, & Patrick, 2001). Computer technologies increase the use of information due to its ability to analyze massive amount of data and also producing accurate and timely reports. These unique features of computer capabilities have led to the introduction of various information systems such as Accounting Information System (AIS), Manufacturing Resource Planning (MRP) system, Human Resource (HR) System. Information system technology has definitely changed the way businesses are being operated (Elliot, 1992). This system has contributed to increases in business productions and transactions as firms are in better positioned to achieve their objectives. Thus, this enhances business activities. More businesses and transactions implied that there will be more accounting data needed to be recorded and updated. Prior traditional accounting method of manually inputting and recording daily transactions has become inefficient and time wasting. Errors such as wrong data entry, inefficient tasks performance and massive utilization of paper product created many problems to business activities and organization’s performance. These inadequacies have led to the emergence of accounting information system. A system that is able to gather, analyze and produce reports more efficiently (Saira, Zariyawati & Annuar, 2010).
Aremu & Adeyemi (2011) argued that except for statutory demands, Small and medium scale enterprises hardly give serious thoughts to the process of sound accounting, while also noting that the inadequacy and ineffectiveness of accounting processes have been responsible for untimely collapse of most of them. The circumstances highlighted above have persisted due to poor generation and use of accounting information in Nigeria. The absence of accounting information system in most small and medium enterprises in Nigeria tends to compound their challenges.
1.2 Statement of the problem
Small and medium scale enterprises are known to be the wheel behind the moving train of the Nigerian economy, and as it is also known that every large business start small. Its worthy of note that in spite the importance and the indispensable nature of SMEs in Nigeria, a lot of SMEs have not given much attention to accounting information and book keeping in relation to their business transactions, despite its importance in the success of SMEs. This could be as a result of lack of sound knowledge in book keeping practices by owners or respective managers.
Difficulty exist in ascertaining the level of non-recognition of the necessity of accounting information to continued existence and growth, low educational background of owners and employment of unskilled accounting staff had affected the production of unreliable accounting or financial statement which in turn affect managerial decision making.
It has also found out that most SMEs 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 the enterprise. This tends to impede the ability of the enterprise to obtain the most needed loans from financial institutions and other source for expansions and diversification. The financial statements, such as the profit and loss accounts, the balance sheet and the cash flow statement of SMEs cannot easily be prepared. Under such circumstances, annual profits cannot readily be determined. SMEs in Nigeria are however, often encountered with accounting and financial management challenges. Poor record keeping, inefficient use of accounting information to support their managerial decision making and the low quality and reliability of financial data are part of the main problems of financial management concerns of SMEs in Nigeria.
GAPS
The existing body of literature is exposed to a number of limitations in terms of scope and context of this work, which this article attempts to address. In terms of context, this study seeks to address these limitations by exploring the effect of accounting information managerial decisions on SMEs growth in a developing country like Nigeria. In terms of scope, the study focuses on SMEs in Lagos metropolis as case study, but its findings are relevant to other SMEs in the country due to similarities in cultural and managerial practices.
1.3 Objective of the study
The main objective of this study is to examine the role of accounting information and managerial decisions on small and medium scale enterprises. The specific objectives are to:
- To determine the effect of accounting information and managerial decisions on sales growth.
- To determine the effect of accounting information and managerial decisions on asset growth.
1.4 Research Questions
- What are the effects of accounting information and managerial decisions on sales growth?
- What are the effects of accounting information and managerial decisions on asset growth?
1.5 Research Hypothesis
The following hypothesis was formulated:
Hypothesis one
H0: Accounting information and managerial decisions has significant effect on sales growth.
H1: Accounting information and managerial decisions has no significant effect on sales growth.
Hypothesis two
H0: Accounting information and managerial decisions has significant on asset growth.
H1: Accounting information and managerial decisions has no significant on asset growth.
1.7 Significance of the study
A good accounting information system operated in a company is an indispensable aid to effective management. It assures management of the reliability of decision taken by them and that these decisions are in accordance with goals to be attained. This research work will be significant to persons or group investing in business to determine at any point in time, the profitability of their investment. The research work will create great awareness to the management of the firms or various businesses or other managers, the importance of appropriate, complete and reliable set of records using accounting information system for such purpose as quick, correct decision making and effective planning and control of activities of their business.
To the employees and consumers, it will help them to assess the ability of the business to produce goods and render services on continuous basis and pay salaries. The research will be of benefit to the government in terms of tax collection and the regulation of business activities.
Lastly, the study will contribute to the body of the existing literatures on the topic, hence it will be of used to the prospective researchers.
1.8 Scope/Limitation of Study
This study focuses on the “accounting information and managerial decisions on small and medium scale enterprises”. The population of the study comprises of SMEs in Lagos metropolis, Lagos State registered with “Small and Medium Scale Enterprises Development Agency of Nigeria” (SMEDAN).
The researcher comes across some constraints which stopped her from conducting a robust research; the limitations are;
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.10 Definitions of terms
Accounting is the systematic process of recording, communicating, summarizing, analyzing and reporting of financial information.
Accounting information this refers to the system of storing, processing of financial and accounting data that are used by decision makers.
Managerial decision this refers to any decision regarding the operation of firms. These decisions include choice of firm size, firm growth rate, and employee compensation.
Small scale businesses this refers to a generally privately own business that employs a small number of workers and does not have a high volume of sales.
Medium scale enterprises this refers to the typically result from the slow and steady growth that results from a successful small business
Financial statement is the formal record of the financial activities of a business, persons or other entity. It also provide information about the regarding the position and performance of the business such as its assets, liabilities, equity, income, expenses and cash flow.
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