DEMAND AND SUPPLY OF ACCOUNTING AND AUDIT SERVICES BY SMALL SCALE BUSINESSES

  • Type: Project
  • Department: Accounting
  • Project ID: ACC0026
  • Access Fee: ₦5,000 ($14)
  • Chapters: 1-5 Chapters
  • Pages: 137 Pages
  • Methodology: binary logistic regression and the Z-test statistic
  • Reference: YES
  • Format: Microsoft Word
  • Views: 2.6K
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DEMAND AND SUPPLY OF ACCOUNTING AND AUDIT SERVICES BY SMALL SCALE BUSINESSES

CHAPTER ONE
INTRODUCTION

1.1    BACKGROUND OF THE STUDY
The interest in the role of small scale businesses in the development process of a country continues to be in the forefront of policy debates in developing countries. Every business whether small or large, simple or complex, private or public is formed to provide competitive prices (Ayozie, 1999). In this regard, Ariyo (2008) opines that “in many sectors around the world, small scale businesses are responsible for driving innovation and competition. Small businesses enterprises are the primary economic units and catalysts for boosting economic growth and development (Izedonmi, Umoren, and Odejayi, 2003). Globally, small scale businesses account for 99% of business numbers and 40% to 50% of GDP”. Ariyo also observed that “the UK government firmly believes that small and medium sized businesses are crucial to a successful enterprise economy and is fully committed to stimulating the creation, competitiveness and growth of new and small businesses”. In 2005 across the EU-27, there were around 20 million enterprises in the non-financial business economy; of these enterprises 99.8% were SMEs, the majority of which were micro enterprises. SMEs accounted for 67.1% of the EU-27 non-financial business economy workforce (European Commission Enterprise and Industry Directorate-General) (ECEID), 2008). Chu, Kara and Benzing (2008), viewed that “small enterprises are the leading force in the development of African economies. They are essential for economic growth in many developing countries”. Schumpeter (1950) and Ukaegbu (2000) (as cited in Chu et al, 2008), pined that entrepreneurial activities such as innovation, risk bearing, employment creation, finding new opportunities and the commercialization of their inventions have been contributed to the prosperity in all regions of the world. These unprecedented challenges have rapidly moved the focus to financial and cost management, liquidity, risk and future growth of businesses (both small and large) globally.

In both developed and developing countries, the government is turning to small and medium scale industries as a means of economic development and a veritable means of solving economic and societal problems. Historical facts have shown that prior to the late 19th century, cottage industries, mostly small and medium scale businesses controlled the economy of Europe (Akogu, 2003). Many developed and developing economies have come to realize the value of small businesses. Small scale businesses are seen to be characterized by dynamism, witty innovations, efficiency, and their small size allows for faster decision-making process. Governments all over the world have realized the importance of this category of businesses and have formulated comprehensive public policies to encourage, support and fund the establishment of small scale businesses. Small scale businesses as growing enterprises given their significant roles in developing countries need accounting and audit services to boost their financial management, business operations, and so on (Karnishan and Levine, 2004).

In recognition of the significant contributions that small scale businesses make towards economical development; many countries are now refocusing their economic policy framework to include them and Nigeria is not an exception. In Nigeria, small firms play a vital complementary role to large firms (Itambo, 2009). Given the roles played by these small entities in the Nigerian economy, it will not be out of place if their services to customers are properly accounted for or audited, taking into cognizance the benefits obtainable from accounting and auditing services. In this regard, European Commission views that it is important that the accounting systems for small enterprises should fulfill functions such as providing essential financial information for their owners and managers in order for them to be able to manage their businesses in a competitive environment and to make informed decisions to prevent business failure and to expand the business. However, small enterprises and their management may have particular needs and conditions, so that accounting systems need to be flexible in order not to impose unnecessary administrative burdens. Every business both small and large set up, makes profits or losses in business periodically. It is a financial characteristic of all businesses. Such profits and losses are normally accounted for by an accountant as gross or net profit or loss for the business entity. In other words, recognizing such profits and losses is an accounting function.

When it comes to improving the business’ internal control procedures as well as clarifying certain financial procedures with regard to the preparation of documents ranging from source documents to financial statements and other aspects of accounting, the accountant or auditor is useful.  Small businesses need trusted financial advisors more than ever if they are to succeed beyond failure. According to Abubakar (2009), “the worst state of a business is that of failure that may result into liquidation. A business owner or other business stakeholders never pray to experience such state. It, however, occurs very frequently, most especially, to small businesses and sometimes to big businesses and it is usually with enormous consequences”.

In America, the CPA serves as the 'trusted adviser' of the small business owners (Association of National Accountants of Nigeria) (AICPA), 2002). For example, a CPA firm will often assist a small business as it is just starting out, providing guidance on setting up its recordkeeping systems, providing tax and estate planning, and making suggestions to help make its business more successful. The CPA also helps the business as it grows. It is likely that, in many cases, if the accounting firms in Nigeria do not have the ability to act as the trusted adviser to many small businesses as clients, the small business owners will simply not seek their inputs financially and otherwise. It is vital both for the small business persons and for the survival of registered accounting firms in Nigeria, that current laws need be changed in a manner that is sensitive to these concerns. William Balhoff, PCPS Chairman, in his testimony before the Committee on Banking, Housing, and Urban Affairs in the United States Senate, 2002 addressed the concerns faced by small firms and small businesses in the United States in light of the Enron crisis. One of the topics addressed in his testimony was “The adverse impact of restricting the performance of non audit services on small business owners and the CPA's ability to meet their very diverse needs”. He emphasized the importance of small firms and small businesses and their impact on the economy. According to AICPA (2002), small businesses have long depended on small accounting firms to provide much more than auditing services. Amidst the universal trend, the audit professionals’ primary focus still remains to add value to businesses while applying the highest standards of professional integrity, objectivity, independence and technical excellence. In Nigeria, various audits are normally carried out in the form of accounting and auditing services which are only provided or supplied by registered audit firms that possess a practice certificate from the Institute of Chartered Accountants of Nigeria (ICAN) and Association of National Accountants of Nigeria (ANAN).

The prevalent issue in the country necessitating this study is whether small scale businesses demand for professional services rendered by the audit firms or not. If Nigeria is to reach its full potential in terms of economic and social development, it cannot afford to ignore the importance of necessary quality audits and other relevant accounting services for its indigenous small enterprises. The public confidence in small enterprises’ products and services is as important as that in large companies’ products and services. Investors invest their money in small and large businesses. The small business owners’ perception of business in this regard is very critical. They need not to undermine or disregard the inherent advantages of engaging professional services of accountants and auditors if their financial performance is to be guaranteed and public confidence in their business attained. Globally, accounting and audit services serve key functions in the world’s economic engine. The world’s capital markets rely on financial statements certified by independent auditors. If the integrity of the financial statements is not trusted, investment would come to a halt and economic growth would be paralyzed. For example, in China, since the establishment of the People’s Republic of China’s free market policy, the first CPA firm was set up in 1981 (Yan 2002). The Chinese CPA profession has grown rapidly as the expansion of the stock market increases the demand for independent audit. By the end of 2003, there were about 4,500 CPA firms and 60,000 CPAs in China (Heibatollah and Zhongxia, 2005). In addition, audited accounts of small, medium and large businesses can be very useful in investigating bank loans or overdrafts, undue award of contracts and frauds associated with taxes not paid by enterprises. Auditing services can also help in highlighting the strengths and weaknesses of the internal control system of an enterprise (Izedonmi, 2000). The auditor’s work facilitates the process of economic development through the presentation of reliable information concerning the financial position of the companies (Wahdan, Spronck, Ali, Waassen, and Hernick, 2005). Professional accountants in Nigeria must realize that they do not only play a critical role in contributing to strategy support, planning, decision support and control, adding value to organizations and to the information, needed by operators or management of medium and large companies, but also the small business owners or managers. Their work provides the foundation for credible and reliable financial information, which is vital to building investor confidence.

The Professional Accountants in Business Committee (PAIB), a committee of the International Federation of Accountants (IFAC) focuses on educating a wide range of stakeholders about these and other roles of professional accountants in small and large business entities. From the foregoing, there is no gainsaying that audit services are beneficial to both small and large scale businesses. The issue is whether small businesses demand for accounting and audit services putting in mind the inherent benefits.

1.2    STATEMENT OF PROBLEM
Accounting and Audit services are designed to provide reasonable assurance as to the accuracy of financial statements of an enterprise. These services are employed by owners of businesses to guarantee the financial performance of their businesses. Many small businesses have experienced financial failures that eventually collapsed their business. Globally, over 28% of businesses declaring bankruptcy cite problems with the financial structure of their businesses as the main cause of failure (Zahorsk, 2008). Many others have existed and are still existing with no proper financial records ranging from books of accounts to financial statements that reflect credible financial performance which attracts investors. This trend of demand for audit services by many small business operators in the country have amounted to numerous incidences of falsification of financial documents and wrongful appropriation of business assets to the personal use of business owners.

The problem therefore is to ascertain the state of audit services for small businesses in Nigeria particularly Edo state, and inquire whether the small business operators’ perception of audit services is actually right or wrong. The study mainly seeks to find answers to the following questions:
1.       Is there a gap between demand and supply of audit services for small businesses in Edo state,
2.       If there is a gap, what are the reasons for the gap?
3.       How can the gap be filled?

1.3    OBJECTIVES OF THE STUDY
The main objectives of this study to empirically achieve the following:
1.       To find out whether there is a gap between the supply of audit services by professional accountants and demand for the services by small businesses.
2.       To seek reasons for this gap if it exists.
3.       To find means of filling the gap.
4.       To provide views or ways on how to improve the accounting systems of small scale businesses in Nigeria so that they can provide appropriate financial information to owners/operators, investors and the general public.
5.       To identify views of owners and operators of small businesses in the area of accounting systems for small businesses.
6.       As a result of the project, descriptions of accounting systems, guidance and good practices in the accounting aspects for small enterprises will be delivered.

1.4    SIGNIFICANCE OF THE STUDY
The report and findings of this study will be relevant to small scale business owners/operators, investors and the public in general in the Nigerian economy as it attempts to provide an insight into the operations of small businesses in terms of the nature of accounting services necessary for such businesses in a developing country.
Professional accountants in the country will also benefit from the findings of the study because it will reveal the state and quality of the accounting and audit services they render to small enterprises in Edo state.

The study is of significance to the Nigerian government and institutionalized financial regulators in the country because it will show where legislation needs to be made or modified to provide for more effective regulation of the business activities of small scale businesses in the country.

1.5    SCOPE OF THE STUDY
          This study focuses on small businesses in Nigeria particularly, Edo state. Generally, a small scale business can be said to be that business that requires a small amount of capital to establish it. Nwoye (1991) defined a small business as any business with a total capital investment of less than two million naira with the number of employees not more than fifty (Nwoye, 1991). This kind of businesses usually has a small number of employees or in most cases personally handled by the owner. This study is a survey of such businesses that are independently owned and operated and is not dominant in its field of operation.

The study covers registered audit firms that provide accounting and audit services to businesses in Edo state. It is within the focus of ascertaining the position of demand for accounting and audit services by small scale businesses in Edo state and the supply of the professional services by audit firms in the state. The aim of the project is not to add accounting regulation in Nigeria regarding small scale businesses but to contribute good practices to the improvement of the accounting systems of small enterprises at national level.
 
1.6    STATEMENT OF RESEARCH HYPOTHESES
A hypothesis is a proposition that is yet to be tested for its validity. The hypotheses that are formulated to be tested in this study are stated in their null and alternative as follows:
HYPOTHESIS 1
Null Hypothesis (H0): Small scale businesses demand for accounting and audit services in Edo state.
Alternative Hypothesis (H1): Small scale businesses do not demand for accounting and audit services in Edo state.

HYPOTHESIS 2
Null Hypothesis (H0): Audit firms supply professional services to small scale businesses in Edo state.
Alternative Hypothesis (H1): Audit firms do not supply professional services to small scale businesses in Edo state.
DEMAND AND SUPPLY OF ACCOUNTING AND AUDIT SERVICES BY SMALL SCALE BUSINESSES
For more Info, call us on
+234 8130 686 500
or
+234 8093 423 853

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  • Type: Project
  • Department: Accounting
  • Project ID: ACC0026
  • Access Fee: ₦5,000 ($14)
  • Chapters: 1-5 Chapters
  • Pages: 137 Pages
  • Methodology: binary logistic regression and the Z-test statistic
  • Reference: YES
  • Format: Microsoft Word
  • Views: 2.6K

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