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THE PLACE OF ACCOUNTING INFORMATION IN THE MANAGEMENT OF SMALL SCALE INDUSTRIES

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND TO THE STUDY

An accounting system is an orderly, efficient scheme for providing accurate financial information and controls. Regulatory requirements and internal administration policies are key considerations in the design of an effective accounting system. Thus accounting systems show the books, records, voucher, and files and related supporting data resulting from the application of the accounting process. It involves the design of documents and transactions flow through an organization. The uniqueness of small and medium scale businesses call for careful consideration in the design of accounting systems. Small and medium scale enterprises are a vast majority of businesses found in variety of primary and intermediate production of the economy. These establishments have tremendous impact on the state and well-being of the nation in employment generation, as sources of national outputs and revenues, providing feedstock for large corporations They may lack the sophistication to apply the detailed accounting processes, yet the value of accounting systems to these businesses is quite profound.  

The place of sound accounting and internal control systems in any business, irrespective of its scale, cannot be overemphasized. A vast majority of small-scale businesses cannot afford the complexity of a detailed accounting system even if they would have. Hence, the existence of single entries in their books and in some cases incomplete records (Onaolapo, et al., 2014).  Audits of small and medium scale enterprises have proven to be among the most worrisome for professional accountants because of the inadequacy of the internal controls. Except for statutory demands, small and medium scale enterprises hardly give serious thoughts to the process of sound accounting, yet the inadequacy and ineffectiveness of accounting processes have been responsible for untimely collapse of a host of them (Adeyemi, et al., 2011). The level of book keeping and accounting in one man businesses have created many problems against the effective operation and accountability of a sole proprietorship. One man business suffers disproportionately from the regulatory burden compared to large companies, since the smaller enterprises often do not have sufficient financial and human resources to manage their obligations in the most efficient way (Abdulrasheed, Khadijat and Oyebola, 2012).

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. Bookkeeping and 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 cash flow, 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. Economical information especially financial and accounting ones are the information always being used by small scale business owners 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, equally 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 business enterprise (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. Small and medium scale 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 is needed so that financial statements will be fairly and consistently described 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 firms 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).

1.2 STATEMENT OF THE PROBLEM

Despite the recognized importance of accounting information in the management of small-scale industries, there remains a lack of comprehensive understanding regarding its precise role, effectiveness, and utilization within this context. This knowledge gap raises questions about the extent to which small-scale industries are effectively leveraging accounting information to enhance decision-making, financial management, and overall business performance. Additionally, there is a need to explore the specific challenges and barriers that small-scale industries encounter in accessing, interpreting, and applying accounting information within their managerial practices. Furthermore, understanding the potential disparities in accounting information utilization across different types and sizes of small-scale industries can provide valuable insights for developing tailored strategies to improve managerial effectiveness and organizational sustainability in this sector. Therefore, this study aims to investigate the place of accounting information in the management of small-scale industries by addressing these key research gaps and contributing to a more nuanced understanding of its role and impact in this vital segment of the economy.

1.3 OBJECTIVES OF THE STUDY

The main objective of this study is to determine the place of accounting information in the management of small scale industries. Specific objectives include;

1. To examine the current utilization of accounting information in the management practices of small-scale industries.

2. To identify the challenges and barriers faced by small-scale industries in accessing and applying accounting information for decision-making.

3. To assess the impact of effective accounting information utilization on the financial performance and sustainability of small-scale industries.

1.4 RESEARCH QUESTIONS

1. What are the predominant methods of utilizing accounting information in the management practices of small-scale industries?

2. What are the main challenges encountered by small-scale industries in accessing and effectively utilizing accounting information for decision-making?

3. How does the effective utilization of accounting information influence the financial performance and sustainability of small-scale industries?

1.5 RESEARCH HYPOTHESES

1. H0: There is no significant relationship between the utilization of accounting information and managerial decision-making in small-scale industries.

H1: There is a significant relationship between the utilization of accounting information and managerial decision-making in small-scale industries.

2. H0: Small-scale industries face no significant barriers in accessing and applying accounting information for decision-making.

H1: Small-scale industries face significant barriers in accessing and applying accounting information for decision-making.

3. H0: Effective utilization of accounting information has no significant impact on the financial performance and sustainability of small-scale industries.

H1: Effective utilization of accounting information has a significant impact on the financial performance and sustainability of small-scale industries.

1.6 SIGNIFICANCE OF THE STUDY

The significance of the study lies in its potential contributions to both academia and practical managerial applications in the small-scale industries sector. Specifically: 

1. Academic Contribution: The study will add to the body of knowledge concerning the role and impact of accounting information in the management of small-scale industries. By addressing existing research gaps, it will enrich theoretical frameworks and provide a basis for further scholarly inquiry into this area.

2. Practical Implications: Findings from the study can offer valuable insights to small-scale industry practitioners, policymakers, and stakeholders. Understanding the challenges and barriers in accessing and utilizing accounting information can inform the development of targeted interventions and support mechanisms to enhance managerial decision-making and financial performance within this sector.

3. Policy Development: Policymakers can utilize the study's findings to formulate policies and initiatives aimed at improving accounting information accessibility and utilization among small-scale industries. This can contribute to the overall growth and sustainability of the small-scale industry sector, which often serves as a vital component of local economies.

4. Business Sustainability:  Small-scale industry owners and managers can benefit from the study by gaining a deeper understanding of the importance of effective accounting information utilization in achieving long-term business sustainability. Insights from the study can guide strategic decision-making processes and foster better financial management practices.

5. Economic Development: Given the significant role of small-scale industries in job creation and economic development, the study's findings can indirectly contribute to fostering economic growth and stability at both local and national levels by enhancing the performance and competitiveness of small-scale enterprises.

1.7 SCOPE OF THE STUDY

This study focuses on investigating the utilization of accounting information in the management practices of small-scale industries. It encompasses an exploration of various methods and practices employed by small-scale industry owners and managers to access, interpret, and apply accounting information for decision-making purposes. The research will target a diverse range of small-scale industries across different sectors and geographic locations to provide a comprehensive understanding of the subject matter. Additionally, the study will consider the impact of effective accounting information utilization on financial performance and sustainability within the context of small-scale industries.

1.8 LIMITATIONS OF THE STUDY

Despite its comprehensive scope, this study is subject to certain limitations. Firstly, the research findings may be influenced by the availability and reliability of data, as well as the willingness of small-scale industry participants to disclose sensitive financial information. Secondly, due to resource constraints, the study may not be able to explore every potential factor affecting accounting information utilization comprehensively. Finally, the generalizability of the findings may be limited to the specific contexts and characteristics of the small-scale industries included in the study, thereby necessitating caution in extrapolating the results to broader populations or settings.

1.9 DEFINITION OF TERMS 

1. Accounting Information: Refers to financial data and reports generated by a business entity, including balance sheets, income statements, cash flow statements, and other relevant documents, used for decision-making, financial analysis, and reporting purposes.

2. Small-Scale Industries: Often referred to as small and medium enterprises (SMEs), these are businesses characterized by relatively small levels of revenue, limited resources, and a small number of employees. They typically operate on a smaller scale compared to large corporations and play a significant role in local economies.

3. Managerial Practices: The set of activities, strategies, and techniques employed by managers to oversee and control the operations of a business or organization. This includes planning, organizing, directing, and controlling resources to achieve organizational goals effectively and efficiently.

4. Decision-Making: The process of selecting a course of action from multiple alternatives based on evaluation and analysis of available information and consideration of various factors, such as goals, constraints, risks, and opportunities, with the aim of achieving desired outcomes.

5. Financial Performance: A measure of how well a business utilizes its resources to generate profits and create value for its stakeholders. It encompasses various financial metrics, such as revenue, profitability, liquidity, solvency, and efficiency, which are used to assess the financial health and viability of a company.

6. Sustainability: The ability of a business to meet its present needs without compromising the ability of future generations to meet their own needs. In the context of small-scale industries, sustainability involves managing economic, environmental, and social factors to ensure long-term viability and resilience while minimizing negative impacts on the environment and society.

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