Assessing Book-keeping Practices of Small and Medium Scale Enterprises in Ogoja Local Government Area
OBJECTIVES OF THE STUDY
The specific objectives of the study are:
- To identify the nature of small-scale enterprises in the Ogoja Local Government Area.
- To find out their record-keeping practices.
- To identify the factors that make it difficult for SMEs to pay taxes.
- To make appropriate recommendations that will ensure that proper records are kept by SMEs.
Irwin; (1993) described proper bookkeeping procedure as one of the ways through which an organization can keep track of its financial activities in order to ensure proper financial discipline. There is no proper definition of small-scale enterprise; however, it may be defined as one that is independently owned and operated and it is non-dominant in its field of operation ((Meggenso et al; 1994). There are also certain peculiarities that differentiate the small-scale enterprises from other enterprises. It is independently owned and operated and does not therefore form part of any larger enterprise. It is usually managed by its owner(s) in a personalized way without the need for a formalized management structure (Broom et al; 1993).
There are a few things one needs to understand in order to make setting up your accounting system easier. They are basic and they will probably clear up any confusion you may have had in the past when talking with your Certified Public Accountant (CPA) or other technical accounting type.
History of Bookkeeping
Bookkeeping has certainly been practiced many years ago: for we read of it amongst the Ancient Romans in J. Caesar’ time; but should not be supposed, that it ever arrived to the perfection, as now it is. The Italians were the first merchants, we read of in Europe, and first invented this exact way of keeping accounts, now in use amongst all. Amsterdam has been a great nursery of this science, since it was brought there (Yamey et al; 1963). Appeals to the long history and early origins of accounting, whether as a generic activity or a specific practice such as double-entry bookkeeping, have served a number of purposes. First, they were seen by several writers of early treatises on accounting as ways of convincing their potential audience of the value and relevance of the methods that the writers wished to reveal and promote.
This study is grounded on the compliance theory of Rautiala; (2000). This theory is relevant in the context of adherence of SSEs to accounting. Raustiala grouped compliance theories into rationalist and normative models. Rationalist models focus on cooperation to prevent non-compliance. Under the rationalist model called the deterrence theory, costs open up a range of enforcement options and address the corporate non-compliance with domestic rules. Cost to the firm is relevant to the SSEs. Another rationalist model described by Raustiala; (2000) is the behavioural decision theory, which acknowledges that people act according to their rational calculation of how a particular choice is framed. The awareness of the accrual and cash bases of accounting sets the frame of choice between the two methods to be applied. On the other hand, one of the normative models called the complexity critique focuses on the capacity of the regulated firm. Complexity charges regulations as too numerous, too difficult to understand, and too fluid or ever changing. This would particularly be the case for SSEs, which generally lack the resources to stay apprised of complicated, changing regulatory requirements.
FACTORS THAT DETERMINE ACCOUNTING STANDARDS AND PROCEDURES
The set of globally recognised accounting standards and procedures relating to the presentation of financial statements are called International Financial Reporting Standards (IFRS). When the International Accounting Standards Board (IASB) sets a brand new accounting standard, a number of countries tend to adopt the standard, or at least interpret it, and fit it into their individual country’s accounting standards. These standards, as set by each particular country’s accounting standards board, will in turn influence what becomes Generally Accepted Accounting Principles (GAAP) for each particular country. GAAP are imposed on companies so that investors have at least a minimum level of consistency in the financial statements they use when analysing companies for investment purposes. Accordingly,
the constant evolution of GAAP, therefore, fulfills its mission to disseminate quality financial information. This information obtained from the financial statements, earning in particular, facilities investors’ valuations and the monitoring of management.
The issue of application of accounting to small and medium enterprises has been the subject of numerous studies around the world (Allister; 1995). Fundamentally, general-purpose financial statements are prepared on the assumption that there are no basic differences in the needs of those who will use them. However, small companies’ accounts are prepared primarily for the benefit of owner-managers, their bankers and the revenue authorities who have little in the kind of information aimed at users of public companies’ statements. The board of directors or equivalent governing body controls the circulation of financial statements of non-publics entities (Mersereau; 2002). Such financial statements are generally restricted to management and leading institutions. Jankovic; (2007) enumerated several reasons why the application of IFRS is inadequate. These are:
- Users of SSEs’ financial statements need less information compared to the users of financial statements of listed companies;
- Particular transactions in IFRS occur seldom, if ever, in SSEs;
- The cost/benefit ratio of financial reporting is more favourable in large companies than in SSEs; and
- IFRS are prone to changes unlike national standards, which results in higher costs of IFRS implementation.
A survey sponsored by the American Institute of Certified Public Accountants (AICPA) revealed that respondents said that certain GAAP standards are not relevant and useful enough to help SSEs make management, credit and investment decisions (Tie; 2005). Alerding; (2003) believed that SSEs have been caught in the wake of increasingly complex accounting and disclosure requirements following the wave
of laws and new accounting pronouncements. Consequently, the Financial Accounting Standards Board (FASB) continues to address the complexity of the GAAP hierarchy in the standards it has issued Fitzsimons & Thompson, (2005). Ever so often, debate arises as to whether separate accounting and reporting rules should be set for SSEs (Sayther; 2004). The debate has risen as to whether SSEs should adopt a different set of accounting rules due to reasons such as differing needs of financial uses, rapid and widespread developments in financial reporting, compliance costs, and statutory requirements.
Most companies have only a few income accounts. That is really the way you want it. Too many accounts are a burden for the accounting department and probably don’t tell management what it wants to know. Nevertheless, if there’s a source of income you want to track, create an account for it in the chart of accounts and use it.
This chapter deals with the method of obtaining data for the research. It describes the procedure that has been followed in conducting the study. It deals with the research design, population, sample and sampling procedure, data collection instrument and data analysis.
The research is aimed at finding out the practices of small and medium enterprises in keeping their books of accounts. In order to gets credible information from the various business owners operating a small and medium enterprise in the metropolis, unstructured interview, questionnaires and observation was used. The illiterates were interviewed and the literates were given questionnaires to answer. Observation was used to gather other information that could not be collected through interviews and questionnaires.
The entire small and medium enterprises in the Ogoja Local Government Area were targeted but not every small business was required for the study. Consequently the study was limited to some form of business such as provisional stores, bookshops, boutiques and fishing could stores.
PRESENTATION, ANALYSIS AND DISCUSSION OF DATA
It is obvious that a small and medium enterprise fails to keep proper books of account on their business activities. In other to investigate into this issue, questionnaires were administered, interviews conducted among the various business owners of small scale enterprise in Ogoja Local Government Area as to their booking practices. Specific issues such as; the nature of small scale enterprises; record keeping practices, causes of improper records and problems associated with it were addressed. The result of the study obtained from the use of questionnaires, interviews, findings are discussed based on the respondents’ feedback.
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATION
This final chapter summarizes the findings of the study. It highlights the conclusion drawn from the study and makes recommendations for improvement of bookkeeping practices among small and medium enterprises in the Ogoja Local Government Area.
SUMMARY OF FINDINGS
Bookkeeping contributes to the success of every established business. It is the act of writing down the activities or events that have taken place in monetary terms, grouping them in terms of their common characteristics and finally producing a set of financial records.
The study is on bookkeeping practices among small and medium enterprises in the Ogoja Local Government Area.
According to the sampled data collected by means of questionnaire, interview and observation the following is the summary of the findings.
The findings show that due to the low standard of living and economic life in the metropolis, many people establish various kinds of small scale business in order to earn some income for themselves. From the information gathered, it was realized; that various kinds of small scale business had been established for a minimum number of 5 years with provisional stores as the largest established business in the metropolis.
It was realized that due to the importance of keeping business records, most of small scale business keeps records while a few do not keep records. Incomplete system of records keeping is adopted by most small scale business. A book not in the form of ledger are kept to record all the business activities. It was also realized that records kept by the various small
business operators contributes significantly to the success of their business, such records are used to determine prices of their products, to track debtors and creditors and determination of sales made within a period of time.
As a result of the socio-economic background of the people in the metropolis, it was discovered that lack of basic knowledge in bookkeeping and illiteracy is the main cause of such record keeping system. Small scale businesses are dominated by person with basic education while a few had attained secondary education. From the information gathered it was discovered that many small scale business operators shows reluctance to train or study to manage and control the business records.
The main problem realized was the right amount to be contributed for tax purposes and as a result taxes are paid according to sizes of the business. This ranges from smaller sizes to larger sizes businesses. Other problems such as profit calculation were also identified. Most small scale businesses find it difficult to determined profit made or losses, access to finance the business activity is also a problem.
Based on the findings of the study, the following conclusion is drawn. Businesses operators as small and medium enterprise in the metropolis are into commerce as compared to any other form of business. In spite of the importance of record keeping, various kind of businesses identified had made an effort to keep some form of records, but incomplete records was adopted by most small scale businesses, the double entry system used for record keeping are not being followed, most small businesses lacks knowledge in bookkeeping and as such are unable to adopt good bookkeeping practice. This explains why government and its agencies find it difficult to effectively monitor the activities of small business operators for the necessary policy, guideline and implementation. As a result taxes to be paid are determined according to the sizes of the business.
Based on the findings of the study we came out with the following recommendations which when implemented will help in improving the bookkeeping practices in the metropolis.
- The owners and manager of SMEs should be educated about the importance of bookkeeping. This could be done by way of organizing training programmes through seminars, conferences, workshops, etc at a lower cost to see the importance of bookkeeping so that even if they cannot prepare the books themselves, they will have the desire to employ qualified personnel to take charge.
- The activities of government organization such as NBSSl and others should be intensified. These activities include:
- provision of training that is, organizing training programmes it help entrepreneurs acquire the requisite skills needed for the management of the business.
- Provision of advisory service’s such as how to deal with and control income and expenditure, financial management practices
- Laws should be enacted to make it obligatory for sole proprietorships to keep certain records. The existing laws only focus on companies and partnerships.
- The government should make the study of accounting obligatory from primary to senior secondary level in order to make Nigeriansaware of the importance of bookkeeping. This is because whatever is the career of an individual, the person will still become a user of accounting information.
- Financial institutions that grant loans to SMEs should base their decisions on the audited statements of these enterprises. This will encourage proper bookkeeping and auditing among SMEs.
- More bookkeeping proficiency courses should be organized by professional accountancy bodies such as the Institute of Chartered Accountants (Ghana) and the Association of Chartered Certified Accountants (ACCA) to update the bookkeeping knowledge of owners of SMEs. Such courses should be designed in such a way to address their specific accounting needs. The mode of instruction should be in the local dialects since majority of the owners of SMEs are not proficient in the English language.
- Section 141 of the Internal Revenue Act. 2000 which states that “if a person deliberately fails to maintain proper records for a year of assessment, he or she is liable to pay a penalty of 5%f the amount payable by that person for the year. I his should be implemented to encourage SMEs to keep proper books of account. Although the law states clearly that ignorance of the law is no excuse, the government should take it upon itself to employ resource personnel to go to the field and educate the public about the existence of such a law so that anyone who violates it can be prosecuted.
viii) Bank statements should be requested for so as to cheek the authenticity of every transaction and used as reconciliation to the cash book. Finally, records on revenue and expenses should be properly kept.
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