Abstract

The aim of this study was to examine the role of accounting practices on the growth of small and medium-sized enterprises. For this to be accomplished, relevant literature was reviewed and necessary theories stated.

The objectives were guided by a hypothesis stated in the null form. The area under review was the Buea municipality. Fifty business establishments were sampled and questionnaires issued. However, forty-eight of the questionnaires were returned and forty-five were found analyzable.

The data collected was processed using the spreadsheet after coding had been done. From the analysis, it was discovered that there is a clear relationship between accounting practices and the growth of a business.

This is viewed as the percentage of response to the positive role of accounting practices on business growth was higher than average.

Therefore, the hypothesis of this research project that double-entry recording, historical cost, and accrual basis of accounting practices do not play any significant role in the growth of SMEs was tested using the Chi-Square test and the results necessitate that the hypothesis is rejected and concludes that accounting practices play significant roles on the growth of SMEs.

This paper recommends that an effort should be made by SMEs on regular basis in house training schemes to provide a forum for accountants to acquaint themselves with the available accounting practices, so as to make understanding of changes and or adjustments easy to comprehend when such changes or adjustments arise.

Also that in pursuance of business growth, competent staff should be put in place to assist in practicing acceptable accounting practices. Finally, it is recommended that SMEs in Cameroon adhere to good and standard accounting practices in their operations.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The history of the evaluation of accounting practices goes hand in hand with the history of business. Business as an economic activity developed gradually and the growth became significant during the industrial revolution in the 17th century. The evolution of many large industries entailed the use of large resources (human, material, and financial resources).

In spite of the fact that three resources were usually used (i.e. human, financial and material resources) investors were far from being satisfied because everything was at the best of management of such business organizations.

Hence the need for other resources arose and informational resources were discovered and the concept for stewardship reporting was encouraged in those times to present data.

Therefore accounting was developed at higher levels to serve the needs of the business. The practice of accounting keeps changing from one century to another as technology keeps changing and as accounting keeps finding grounds in other areas of life.

Today, according to Gill & Cosserat (1996) accounting services is one of the Business Advisory Services sometimes referred to as non-audit services. Non-audit services generally refer to the services above and beyond the related audit services

Equally, Amidu et al, (2011) found out that accounting plays a critical role in the success or failure of contemporary business institutions and that accounting practices recognize the need 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.

In the context of business, 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; hence accounting is often called the “Language of business”.

Nonetheless, the practices of accounting are not limited to particular firms or industries, such as large, organized, and well-established businesses but small and medium-sized enterprises are equally in need of accounting practices.

This goes to very small businesses ranging from small provision stores, sole proprietorship businesses, as well as businesses legally recognized as small businesses. In most nations of the world, the proportion of small businesses shows those small businesses are many, and most large businesses were once small.

Various reasons can be highlighted for the evolution of small and medium-sized enterprises’ business in the world of business and such reason includes capital constraints, personal preference, the need to serve small markets ignored by large manufacturers, or by becoming intermediate goods suppliers to larger industrial firms.

Most small businesses are actively managed by their owners, highly personalized, largely in their areas of operation, largely dependent on internal sources of capital to finance their growth.

Also, except for the nature of ownership (in terms of the number of owners), the characteristics of a small business are similar to that of a medium-sized enterprise: hence medium-sized enterprises that portray those features and have small operating size will be regarded as small enterprises (business).

Medium-sized enterprises/business today is highly known for dictating their accounting system.

Therefore, the failure and shut-down of small and medium-sized enterprises are not as pronounced as those of large and well-known corporations, but the SMEs keep failing due to either shortage of finance or poor planning, even in the most developed nations of the world, and this can be blamed to inaccuracy in accounting practices as well.

They fail mostly in their growth path and in attending to their specific objectives, (Gooderham et al, 2004; Lewis et al 2005; Berry et al, 2006; Mohd and Dahlan)

According to the world situations, a good number of scholars have conducted research and found out that, the accountants from the United Kingdom, Norway, Australia, and New Zealand, are reliable providers of advisory services and support SMEs about business advice, emergency advice, financial management support and statutory advice to improve growth (Gooderham et al, 2004; Lewis et al 2005; Berry et al, 2006).

The need for this advice arises principally because the SMEs do not adhere to the international accounting provisions, and if they do, they will not accurately practice the provisions.

GAAP has a good number of accounting practices that most enterprises fail to respect especially SMEs because of the cost involved in putting the principles into practice.

In the 21st century, the critical roles Small and medium-sized enterprises (SMEs) play in the economic growth and sustainable development of every nation cannot be over-emphasized especially for the rural economy (Maseko and Manyanui, 2011; Kwame et al, 2014).

A major indicator of a booming economy is a vibrant Small and Medium Enterprises (SMEs) sub-economy and how efficient they contribute to GDP.

African countries benefit a lot from the existence of Small and Medium Enterprises (SMEs). Kwame et al, (2014) opined that SMEs contribute in diverse ways to employment creation, provision of basic goods and services, and generation of export and tax revenues for national socio-economic development.

SMEs also contribute immensely to economic diversification; exports, social stability, being the seed for nurturing multi-national companies (MNCS) and large corporations emerge from them

Consequently, SMEs capacity development plays a critical role in poverty alleviation and sustainable economic development endeavors. It is therefore considered as the most effective way of wealth creation and putting the people’s life into their own hands (Dalitso and Quartey, 2000; Kwame et al, 2014).

Cameroon as a nation in Africa benefits a lot from the existence of SMEs. In spite of the commendable contributions of SMEs to the country as in other nations, the sector still faces some challenges that hinder the small business growth and its potential contributions.

1.2 Statement of Problem.

Most enterprises fail to grow; others dwindle while a good number of them shut down on a daily basis around the world in Africa, Cameroon, and specifically in Buea.

The cause of their failures to attain their preplanned objectives is due to a number of factors linked to managerial, human, material, and financial aspects.

The growth of a company is measured in terms of its market share, size, turnover, number of employees, capital, share value, as well as the types and number of products.

Accounting plays a vital role in the achievement of the growth of most enterprises, but its role seems to be undermined

With respect to this, full benefits of SMEs have not been realized in Cameroon largely due to the difficulty SMEs have over the years experienced in accessing capital, insufficiency of entrepreneurial skills, lack of access to high quality and affordable business development services, erratic power supply, lack of adequate technical and management support services and limited access to information on market opportunities

As a matter of fact, SMEs in Cameroon have not always obtained the required amount of support from concerned Ministries, Departments, and Agencies as well as the Banks, Financial Institutions, and most corporate entities.

This shortage of support has been a major hindrance to the development of SMEs to a position where they can be locally and globally competitive.

This challenge is mainly being attributed to the fact that Banks and financial institutions assess SMEs as being inherently riskier to do business with because of their insufficient assets and low level of capitalization, vulnerability to market fluctuations, and high mortality rates. All of these facts turn to hinder the growth of SMEs.

SMEs also suffer credit rationing from financial institutions due to their lack of reliable collateral or collateral mismatch between the type of assets held by SMEs and the type of assets required by banks for collateral and even in cases where SMEs are granted these credit facilities, they access them at comparatively high-interest rates.

If adequate accounts are kept by SMSs, then they can be assessed based on such accounts, and confidence granted them by these financial institutions.

Equally, the practices of SMEs are not monitored to ensure compliance with standards, this ultimately explain why the SMEs have failed most often in Cameroon and specifically in Buea to comply with the standards required for accounting practices.

Therefore, since the accounting department is perceived as a service unit to support the firm’s operations by making available information on costs and performance indicators, a large number of business failures have been attributed to the inability of financial managers to account properly the current assets and the current liabilities of their respective firms (Dodge et al, 1998; Kwame et al, 2014). This is not just the case in Ghana but Cameroon is facing the same problem.

The issue here is that SMEs in Cameroon have failed to adhere to the accounting practices provided by international bodies in the field of accounting. It has caused many businesses to provide financial statements that are not trustworthy. Such is the case with single-entry bookkeeping, failure to record assets appropriately.

And in most circumstances accounting Clarks upon obtaining appropriate qualifications are trained to follow suits in wrong accounting practices. It is the wrong practices that prevent them from accessing capital from external sources such as financial institutions since their assets values in most cases do not present fairly.

Since adherence to Generally Accepted Accounting Principles (GAAP) is beneficial to small, medium, and large companies; but most large companies implement them in Cameroon, we can be led to ask the following questions:

1. Why do SMEs in Cameroon find it difficult to adhere to international accounting practices?
2. How applicable are the recognized accounting practices to SMEs in Cameroon?
3. How has failing to adhere to accounting practices impaired the growth of SMEs in Cameroon?

1.3   Objectives of the Study

This piece of work is structured to have two main categories of objectives that the researcher seeks to achieve; the main objective and the specific objectives.

1.3.1 Main Objective

Our main objective is to examine the role of accounting practices on the growth of SMEs.

1.3.2 Specific Objectives

In order to achieve our main objectives, the specific objectives of this study include:

1. To identify the difficulties associated with the adherence to accounting practices by SMEs.
2. To examine the role of accounting practices on the growth of SMEs.
3. Providing recommendations.

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