CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Gilbert, (2011) indicated that businesses are run with shareholders’ capital, long term and short term borrowing whether it is a small or medium enterprise and its performance is mainly measured in terms of profitability. He further reports that business contains exchange of goods and services which generates information for better analysis of business performance which is pivotal to profitability. Due to the nature and peculiarity of the Small and Medium-scaled Enterprises (SMEs), a well-organized, coordinated and operating accounting system will be difficult to maintain or run not forgetting that the most valuable resource an organization has is information which is generated from day-to-day operation of the business (Adebayo, Idowu , Yusuf , & Bolarinwa, 2013).
Gilbert, (2011) further proclaimed that it is worthy of note at this juncture that the information derived from the daily transaction needs to be carefully collected or gathered, recorded or stored, processed and analyzed in order to produce meaningful output of decision making. It has been recognized that appropriate accounting information is important for a successful management of any business entity whether large or small (European Commission, 2008). Accounting information system (AIS) is vital to all organizations Curtis (1995), Wilkinson, Cerullo, Raval and Wong-On-Wong (2000). Curtis, (1995) further elaborated that accounting information system provides a mechanism for proper recording of transactions most especially financial transaction, storage and re-production of information relating to financial flows and positions at a given period of time. It is also a “tool which when incorporated into the field of Information and Technology systems (IT), were designed to help in the management and control of topics related to firms` economic financial area” (Grande, Estanbanez & Colomnia, 2011). The SMEs in a competing business environment may not be able to strive for long time without proper management of its expenditure, cash-flows and also providing information for monitoring and control (Mitchell, Reid & Smith, 2000). This will aid effective budgeting, proper analysis of cost and decision making.
However, as mentioned earlier that by Gilbert, (2011), businesses are run with shareholders’ capital, long term and short term borrowing which should be adequately accounted for and with the accounting system mechanism created, organize a schedule of loan re-payment that will adversely affect the growth and expansion of the SMEs in the long-run as borrowing for expansion and continual existence is inevitable. Grande, (2011) poses that accounting information system can be used to translate these different dimensions into a common financial dimension. He further claimed that accounting information uses formalized categories for collecting and reporting information that creates a common language with which members of the organization can communicate and also that formalization permits the transmission of information with fewer symbols and this facilitates the coordination between different functions that needs to provide input to the decision-making process. However, accounting information is also an imperfect representation of the underlying decision problem, since not all aspects involved can be quantified perfectly in financial numbers (Galbraith, 1937). In recent years accounting information system received a lot of attention, it facilitates managers to take appropriate actions related to issues in organization, if AIS output is not accurate, management will take wrong decisions, moreover, it considered competitive advantage for organization with well-designed accounting information system (Majed, Adel, & Alsharayri, 2011).
1.2 Statement of the Problem
Entrepreneurs are known to be the wheel behind the moving train of the Nigerian economy and as we also know that every large business starts small. It’s worthy of note that in spite the importance and the indispensable nature of SMEs in Nigeria, a lot of small and medium scale enterprises have not given much attention to book-keeping in relation to their business transaction despite its importance in the success of businesses. This could be as a result of lack of sound knowledge in book-keeping practices by owners or respective managers (Martin, 2005) Curtis (1995) indicated that there is a difficulty in ascertaining whether comprehensive accounting records that satisfied the laws under which it was incorporated has been kept. He mentioned further that it is also hard to determine, to what extent its adherence to laid down accounting procedure is strictly maintained. Oladipupo and Ajase, (2013) mentioned that difficulty exist in determining how far non-recognition of the necessity of accounting to continued existence and growth, low educational background of entrepreneurs and employment of un-skilled accounting staff, have affected the overall performance of SMEs in Nigeria. They stated further that nevertheless, it’s not clear whether the accounting information derived from daily transactions is actually an important consideration in the overall performance of SMEs. The primary purpose of this study is to examine critically whether accounting information is an important consideration in the overall performance of SMEs in Nigeria. The secondary purpose of this study is to examine whether the level of skillfulness of the accountant also affects the overall performance of SMEs.
