Small and Medium scale enterprises (SMEs) play a vital role in economic and social development of developing countries. However, their existence is often threatened by the poor accounting practices they are characterized with. SMEs are often failing to leverage adequately the potential of management accounting for helping them achieve their financial objectives, including profitability and liquidity. This research examined Management Accounting Practices in three sectors of SMEs within Ilorin metropolis, Kwara State, Nigeria. Seventy seven (77) copies of the questionnaire were administered and 64 copies were retrieved. Descriptive and inferential statistics were used.
The result shows that more of traditional accounting method were being used and little of contemporary method which mean that the use of costing, budgeting and performance evaluation are more prevalent. The results also show that a significant number of respondents have adopted one or more measures both financial and non-financial but the reliance on financial measures is greater than non-financial measures. The main non-financial measures frequently used by respondents are survey of customer satisfaction, on-time delivery and employee turnover. The study also found out that three out of the five contingent factors (size, qualified internal accountant and owner/manager participation) affecting the extent of use of MAPs do not have significant relationship with MAPs. While technology has significant relationship with MAPs and also, MAPs also indicated strong large positive relationship with organizational performance.
1.1 Background to the study
Small and medium sized enterprises (SMEs) make up the vast majority of business population in most countries in world; therefore they constitute a vital force in modern information – based economics (Mitchell & Reid, 2000). Most of the large firms today started as a small-medium-large ones, who now has a robust plan for its activities and able to withstand any pressure and providing employment opportunities, thereby making a positive contribution to the economy at large. SMEs are defined as non-subsidiary, independent firms which employ fewer than a given number of employees, this number varies across national systems, other parameters other than the number of employee are used in categorizing businesses as SMEs, for instance in the European Union, SMEs must have an annual turnover of 40 million Euros or less and or a balance sheet valuation not exceeding 27 million Euros (Schreyer, 2000).
Small and medium enterprises (SMEs) operate in the same environment as their larger counterparts, but without the associated benefits such as adequate capital and extended human resources of the larger organizations. SMEs encounter increasing competitive pressure fueled by globalization, legislation and the relaxing of trade barriers, as well as an increase in market expansion due to emerging technologies and innovation. Small and medium enterprises often flourish on their adaptability and agility such as their close proximity to their customers, their openness towards new ways of working, and their risk
taking approach, but many micro, small and medium enterprise are susceptible to major external shocks (Berry, 2002; Laforet and Tann, 2006). Although SMEs experience difficulties in absorbing and coping with these obstacles, they need to develop an ability to deal with the ever increasing challenges, that is, risks faced by the organization (Leopoulos, 2006).
In the current globalized business economy, many small and medium-sized enterprises (SMEs) struggle for survival. There are many reasons for the discontinuity of business among SMEs besides rapidly changing market conditions. These include lack of adequate working capital, poor management skill and inadequate use of essential business and management practices. The use of management accounting practices which can provide crucial information to the management is vital to ensure the effectiveness and efficiency of the business. One of the established practices in organizations; management accounting practice which comprises financial and non-financial information is one of the important management information system that should be utilized by the SMEs. Hopper, Koga and Goto (1999) in their research among Japanese SMEs, argued that a failure to adapt management accounting practice (i.e cost management systems) in a comparable way to their larger counterparts and with new forms of control that are more profit oriented may be a factor in the currently high failure rate of SMEs. This claimed is consistent with Reid and Smith (2000) who argued that efficient information processing plays a vital role in successful smaller enterprises.
Given the importance of financial issues and the increasing need for enterprises to operate economically, efficiently, effectively, efficaciously and ethically management accounting has potentially a crucial role to play in improving the quality of planning and decision-making. However, little is known about the role of management accounting is SMEs and its contribution (Micheal, Malcolm & Glynn, 2013).
1.2 Statement of the problem
Richard (2000) stated that there are many reasons for the failure rate of startup businesses, including lack of adequate working capital, poor market selection, and rapidly changing external market conditions. However, the most significant reason for this high failure rate is the inability of SMEs to make adequate use of essential business and management practices. Similarly, Wichmann (1983) argued that one of the reasons for business failure is poor management ability which includes accounting problem-solving. Adelegan (2001) carried out a study on companies in developing country of Nigeria. The study found that management accounting in the country was still concerned with the process of cost determination and management planning and control through the use of decision analysis and responsibility accounting. Nandan (2010) who also argued that like larger firms SMEs also require adequate and sophisticated management accounting techniques and systems to better manage scare resources and enhance the firm’s values. Although SMEs may have some constraints in utilizing fully management accounting practices due to their relatively small size and limited resources, like larger firms SMEs face similar forms of complexities, uncertainties and are more prone to failures.
There are only few pieces of information regarding the use of Management Accounting Practices (MAPs) in SMEs that have been found in literature. Whilst acknowledging that this is an under-researched area, previous contributors to the management accounting literature (e.g Mitchell & Reid, 2000; Nandan, 2010) have suggested that SMEs are often failing to leverage adequately the potential of management accounting for helping them achieve their financial objectives, including profitability and liquidity. Therefore, the dearth of research into the use of MAPs among SMEs motivates this research.
1.3 Research questions
To approach the study descriptively and emphatically, attempt was made to address the issues raised in the following research questions;
- What is the nature of Management Accounting Practices (MAPs) of SMEs in Ilorin Metropolis?
- What are the factors that affect the extent of the use of MAPs by manufacturing companies Ilorin Metropolis?
- What is the relationship between the use of MAPs and organizational performance of SMEs in Ilorin Metropolis?
1.4 Justification for the study
Firstly, the project detected what management accounting tools is mostly being used by the SMEs in Ilorin metropolis. More so, the study contributed an additional study as regarding factors that affect the extent of MAPs use. Furthermore, the research tested for a relationship between the use of MAPs and the performance in SMEs. The focus on Ilorin metropolis was especially important because research on MAPs and SMEs is scarce in the state. Finally, the study expanded the existing management accounting literature by providing new empirical evidence on the use of MAPs.
1.5 Objectives of the study
The general objective of this study was to evaluate the management accounting practices (MAPs) of SMEs in Ilorin Metropolis, Kwara State. The specific objectives were as follows:
- examine the nature of MAPs by selected SMEs in Ilorin Metropolis.
- evaluate the factors that affects the extent of the use of MAPs among selected SMEs in Ilorin metropolis, Kwara State.
- assess the relationship between use of MAPs and the organizational performance of SMEs.
1.6 Hypotheses of the study
Based on the selected factors proposed in research question two, the hypotheses was broken down into H1 – H4, and research question three was H5 as follows:
H1: There is no relationship between size of SMEs and Management Accounting Practice in place.
H2: There is no significant relationship between technology and the use of MAPs.
H3: There is no significant relationship between the existence of qualified internal accountant and the use of MAPs.
H4: There is no significance relationship between owner/manager participation and the use of MAPs.
H5: There is no relationship between the use of MAPs and organizational performance.
1.7 Scope and limitation of study
This study examined the SMEs in manufacturing, mining, whole sale and retail trade and others in Ilorin metropolis, Kwara State.
1.8 Plan of the study
The study was divided into five chapters. Chapter one contained background of study, statement of the problem, research questions, justification of the study, objectives of the study, hypotheses of the study, scope and limitation of study. Chapter two embodied conceptual framework, theoretical framework and empirical evidences. Chapter three was divided into introduction, population for the study, methods of sampling, methods of data collection and method of data analyses. Chapter four contained data analyses and presentation while chapter five comprised findings, conclusion and recommendations.
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