Abstract

This study addresses the critical issue of accountability in small and medium-sized enterprises (SMEs) within Buea Municipality, focusing on the extent to which auditing practices enhance this accountability. The primary research question guiding this investigation is: To what extent does auditing practice enhance accountability in SMEs?

The objectives of this research include investigating the relationship between risk assessment procedures and audit outcomes, examining the impact of internal control on the likelihood of material misstatement in financial statements, and analyzing the relationship between the quantity of audit evidence and the reliability of audit conclusions.

The hypotheses formulated for this study suggest that risk assessment significantly affects accountability in SMEs in Buea Municipality, internal control evaluation has a significant impact on accountability, and audit evidence plays a crucial role in enhancing accountability in these enterprises.

Utilizing agency theory, policeman theory, and transparency and accountability theory, this research employs a quantitative methodology, collecting data through surveys and interviews with stakeholders in the local SME sector. The results indicate a strong correlation between effective risk assessment and improved accountability, as well as significant impacts of robust internal controls on reducing material misstatements. Additionally, the analysis reveals that the quantity of audit evidence directly influences the reliability of audit conclusions.

Based on these findings, it is recommended that SMEs in Buea enhance their auditing practices by prioritizing risk assessment and strengthening internal controls to foster greater accountability.

CHAPTER ONE

INTRODUCTION

This chapter acts as the prelude into the whole study. It highlights the concepts that are used in this study and acts as a framework for it. It provides the background of this study so that the foundation upon which the study is built can be understood. Furthermore, the chapter also highlights the statement of the problem upon which the research objectives and the research questions that guided the study were formulated. The significance of the study was also highlighted in order to provide understanding of the benefits the exploration into this study would bring to various stakeholders like the small and medium size enterprises, NGO’s, any other company or institution being affected by audit and accountability

The chapter also provides the justification for the study as a way of pointing out the reasons and importance of undertaking this study. The researcher also pointed out the limitations for this study and these will also provide the basis for recommendation for future studies.  Lastly, the chapter provides a breakdown and brief summary of other chapters in order to provide a comprehensive view of the work.

1.1 Background To The Study

Regulating small and medium sized enterprises Neil Gunningham J. Envtl. L. 14, 3, 2002 small and medium sized enterprises (SMEs) represent a high proportion of all businesses in industrialized economies.

In the United Kingdom, for example, over 99% of all businesses fall within this category (defined for present purposes as those with fewer than 200 people”), with about 90% of these enterprises having less than 1o employees. SMEs have different environmental performance characteristics from their larger counterparts. In particular, they commonly have a higher level of environmental impact per unit, and lower compliance rates with health, safety and environmental regulation. 2 Although their individual environmental impact may be small, their aggregate impact may in some respects exceed that of large business.

For example, collectively, they are claimed to be the source of around 70% of total environmental pollution in the United Kingdom. ‘In recent years, the environmental impact of SMEs may have been compounded by a substantial increase number of such enterprises. Ancial Accountability, Financial Accountability Outside certified public accountant (CPA) firm. Financial accountability structure serves as the Have ave special administrative purposes, such as auditing Financial records by professional accountants (Tuovila Processes(Chen & Stapleton; 2022). Financial Responsibility for their actions (Kenton & Kindness, A function, process, or production step. Some audits Aprocessorquality system, to ensure compliance to

Discrepancies, conduct toward employees, financial Accountability is an essential concept in corporate Finance. It is defined asan entity’s actions to take within a financial transaction process. A well-defined Of financial accountability and the final accounts often Financial activity, such as a key control procedure 2024).

This can range from accounting for financial accountability results from holding an Accountability is the responsibility for the way money Is used and managed: The budget is an important part include budgetary information. An audit is a formal review of a person or company’s Apply to an entire organization or might be specific to &James; 2024). Audits can be conducted internally, By employees of the organization, or externally, by an Requirements (Liberto& Mansa; 2024). An audit can Mismanagement, or losing shareholder confidence. Documents, risk, or performance, or following up on Individual accountable for effectively performing a Foundation for establishing effective financial

Audit Completed corrective actions. An audit refers to an Auditing is defined as the onsite verification activity, such as inspection or examination, of Examination of the financial statements of a company audits are conducted to provide investors and other internal controls, its corporate practices, processes, and Independent, objective assurance and consulting Accomplish its objectives by bringing a systematic, Processes(Kenton & Mansa; 2024). These types of Governance processes. Audits ensure compliance with laws and regulations Organization’s operations. It helps an organization.

External Audit Records of the company carefully in order to find out if Adhering to the appropriate legal and stakeholders with confidence that a company’s Disciplined approach to evaluate and improve the Isan independent analysis of your business and its Regulators with the assurance that a company is there is any misstatement in the records due to fraud, And help to maintain accurate and timely financial Error or embezzlement and then reporting the same to Independent service to evaluate an organization’s internal audits evaluate a company’s internal controls, Effectiveness of risk management, control, and Compliance with the various laws applicable to an Organization.

Clark (2022) sees internal auditing is an Reporting and data collection. Internal audit refers to an including its corporate governance and accounting Methods. An internal audit helps in securing Perform the task of examining the validity of financial Records of the company in which independent auditors Financial reports are accurate. Audits also provide External Audit is defined as the audit of the financial internal Audits Regulatory standards. Activity designed to add value and improve

On The stakeholders of the company. An external audit Accounting methods (Team & Vaidya;

2024). Aduda et al, (2018) determine the intervening effect of Internal accounting control, internal audit quality and Or laws. Taneja (2024) suggest that an external audit is Audit quality. Lastly, audit committee quality should Development accounting procedures. The financial Census survey was carried out on the performance of Descriptive statistical technique using table, that is voluntarily or involuntarily under audit.

A variable has statistically significant effect on the Explain exactly what an audit of this kind involves. A Fund. The population of this study comprised all the internal controls and financial reporting of public Analyzed and interpreted based on descriptive Kenya National Bureau of Statistics, the Auditor And combine with internal audit variable of the study Morgan the sample size of the study is 40 and simple restructured by the government for better performance.

Staff of Nigeria industrial training fund (ITF) in NG-CDFs have homogeneous governance practices Relationship between governance and performance of and adhere to internal audit mechanisms which ensure company itself. Kenya. The study was anchored on Agency theory. A Had corresponding hypothesis which was stated and The Sarbanes Oxley Act of 2002 (SOX) imposed strict Fund. Therefore, the study recommends that Ar Regulations are established.

This study also suggests and performance of National Government to enhance performance. The NG-CDFs management Adopted to select the sample size represented the Questionnaires was collated, cleaned, sorted, edited, Associated with the company or department that is Good moral standing as industrial training fund internal audit quality and audit committees’ quality) on constituencies Development Funds (NG-CDFs) in A party not associated with the company or department Be given appropriately attention in order to enhance Philosophy and a descriptive cross-sectional survey May consider strengthening governance interaction A drop and pick method to all the 290 NGCDFs out of A financial review that is conducted by a party not Population of the study. The study used a simple to analyze the data. The result of the study reveals that financial crime commission (EFCC), Independent design were used. Data collected using structured internal audit on the relationship between governance

Professional accountancy bodies in Nigeria should Internal audit and accountability of funds may also apply DEA technique to measure the Performance. In addition, future studies need to use Fund management in Sokoto state industrial training General’s reports and NG-CDF website which was Auditors. Industrial training fund management need to External audit takes place within a defined set of rules companies in the U.S.

An external audit results in Frequencies and percentage and a regression analysis Requirements on external auditors in evaluating build continuous improvement in the aspect of internal Established that internal audit as an intervening Was easily accessible from the National Treasury, That sound personnel policies to attract people with Sense that the NGCDF board should ensure that all Audit takes place within a defined set of rules or laws.

Aminu & Sulaiman (2023) examine the effect of impartial reporting to be used by investors, External audit is a financial review that is conducted by ensure that accountants are trained with the current which 185 filled and returned the questionnaires Voluntarily or involuntarily under audit. An external sokoto state therefore in. line with Krejcie and Audit committees’ quality has significant effect on Analysis. The questionnaire was administered through Performance in the NG-CDFs. Managers in NG-CDFs Statistics, simple, stepwise and multiple regression Fund management prevention techniques. All the 290

NGCDFs in Kenya. A positivistic research collected for the period 2014 to 2018. The objective Fund management in Sokoto state industrial training Which presents a 66.07% response rate. Secondary data corruption agencies in Nigeria such as economic NG-CDFs. The study benefits policy makers in the Government agencies, the general public or the Tested at 95 percent confidence level. It was Internal control system (internal accounting control, Corrupt Practices Commission (ICPC) should be Random sampling technique without replacement is Reporting council should ensure that best standards and

1.2 Statement of the Problem

There has been controversy as to why there is a declining business survival trend among Small and Medium scale Enterprises despite government’s commitment to availability of funds. Economic Survey 2009 statistics indicate a tremendous growth of small and medium scale Enterprises in Kenya over the last ten years; constituting about 96 per cent of all business enterprises in the country; yet 90% of the business start-ups do not operate beyond their third anniversary.

The main objective of this study therefore was to investigate the effect of internal control systems on financial performance among Small and Medium scale Enterprises in Kisumu city, Kenya; specifically assessing the relationship between internal control systems and return on investment; and establishing the level of business knowledge of an entrepreneur in internal control systems and its effect on financial performance. The sample was selected from the study population through stratified and simple random sampling techniques.

The research was conducted using both quantitative and qualitative approaches; adapting cross-sectional survey research design. The study used both primary and secondary data. Primary data was collected using structured questionnaire and interview, while secondary data was obtained from financial statements of the sampled enterprises. Data was analyzed using descriptive statistics as well as inferential statistics. The study specifically revealed that a significant change in financial performance is linked to internal controls systems. Based on the findings of the study, it is concluded that internal control systems as supported by the study findings significantly influence the financial performance of Small and Medium scale Enterprises. The investigation recommends training on the significance of internal controls among proprietors of Small and Medium scale Enterprises.

A recent development of the big GAAP/little GAAP debate in the UK was the proposal to raise the audit exemption thresholds for small companies to EC levels. This paper is based on a survey of the directors of 385 companies conforming to the EC definition of ‘small’. The study investigates whether the three size criteria in company legislation (turnover, balance sheet total and number of employees) are appropriate and sufficient proxies for the demand for the audit by developing and testing a number of theoretical models.

The results found that 63% of companies would choose to have their accounts audited if they were exempt, which suggests that the majority of those affected by the proposed increase consider the benefits outweigh the costs. It was found that turnover alone could represent size, but that size was less important than the directors’ perceptions of the value of the audit in terms of improving the quality of information and providing a check on internal records. Agency relationships with owners and lenders were also found to be   significant influences on the demand for the audit in companies of the size studied

1.3 Research Question

1.3.1 Main Research Question

To what extent does auditing practice enhance accountability in small and medium size enterprises?

1.3.2 Specific Questions

1. To what extent does the effectiveness of risk assessment procedures impact the overall quality of audit outcomes in small and medium-sized enterprises (SMEs) ?
2. How does the strength of internal controls influence the likelihood of material misstatements in financial statements, and what are the implications for audit procedures in SMES?
3. What is the relationship between the quality of audit evidence gathered and the reliability of audit conclusions in SMEs, and what factors contribute to variations in audit evidence quality?

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