Abstract

An investigation of the impact of financial reporting on the performance of small and medium-sized enterprises (SMEs) in Cameroon is being carried out. There were three specific goals in mind when conducting these studies: to evaluate financial reporting in Cameroon, to analyze the performance of SMEs in Cameroon, and to examine the relationship between financial reporting and the success of SMEs.

For this study, information was gathered from 50 SMEs located around Cameroon. Frequency distribution tables were used to illustrate the information that had been acquired. In order to evaluate the hypothesis, the linear regression approach was employed.

The findings reveal that poor record-keeping and a lack of knowledge about accounting processes are prevalent. In spite of this, the researchers came to the conclusion that financial reporting had an impact on the performance of SMEs in Cameroon.

When making suggestions, it is important to make certain that the right accounting principles and procedures are constantly followed. Small and medium-sized enterprises (SMEs) are being urged to hire individuals with appropriate accounting expertise, organize frequent training programs for the improvement of employees, and conduct periodic evaluations of their accounting procedures.

CHAPTERS ONE 

INTRODUCTION

1.1 Historical Context of the Research

Small and medium-sized firms (SMEs) account for a significant proportion of any economy’s total output. Given that the SME sector plays a critical role in the creation of new jobs, economic growth, and innovation, small and medium-sized enterprises (SMEs) are widely recognized around the world as the most essential actors in the process of socio-economic development (HandeKaradag, 2015).

SMEs outnumber major corporations by a substantial percentage and employ significantly more people, which is critical not only for developing countries but also for industrialized economies. Small and medium-sized enterprises (SMEs) account for 97 percent of all businesses in Australia, which employs 4.7 million people and generates one-third of the country’s total GDP. SMEs account for 90 percent of all products exporters and more than 60 percent of services exporters. (2015); (Aga et al. 2015).

Small and medium-sized enterprises (SMEs) account for between 60 percent and 80 percent of all new jobs created each year in China, according to a study conducted by Shandong University, and in Europe, 75 percent of all enterprises are small and medium-sized enterprises (SMEs), which account for 67 percent of total employment and 58 percent of gross value added (EC,2012).

SMEs account for 99 percent of all companies in Korea and account for 43 percent of the country’s overall exports, according to World Bank statistics (Ayyagari M. et al 2005). Small and medium-sized enterprises (SMEs) are regarded as an important component of the market. SMEs have, without a doubt, played an important role in industrialized countries throughout the twentieth century (Quilies, 1997).

A great deal of attention has been paid to the importance of the SME sector in the growth of emerging countries. They act as catalysts for the achievement of the growth objectives of emerging countries by stimulating the economy. In order to achieve national development objectives such as economic growth, poverty alleviation, democratization, and economic participation, as well as job creation and the strengthening of the industrial base and local production structure, small and medium-sized enterprises (SMEs) must be encouraged (Abeygunnasekera & Fonseka 2012).

Furthermore, it has been noted that the SME sector has grown to become a significant component of the private sector in developing countries (MED 2002). In this case, it might be claimed that the development of the SME sector would be beneficial to Cameroon’s economy. Even though the government of Cameroon has taken a number of initiatives to boost this industry, the results have not been thoroughly assessed as of yet.

According to the National Statistical Institute, small and medium-sized firms (SMEs) account for more than 90 percent of the country’s enterprises, accounting for 34 percent of the country’s gross domestic product (GDP) (World Bank 2013)

This indicates that the current contribution to the economy is not adequate and that further research into SMEs is required in order for them to realize their full economic potential. Consequently, for developing countries, it is critical to accelerating the expansion of SMEs in order to achieve long-term development success.

Accounting information is significant in the context of SMEs because it can assist enterprises in managing their short-term difficulties in critical areas such as costing, expenditure, and cash flow by giving information to support monitoring and management (Mitchell et al, 2000, son et al, 2006).

Chartered Accountants of Canada defines financial accounting as the “art of recording, classifying, and summarizing in a significant manner and in terms of money transactions and events that are, in part, at least of a financial character, and interpreting the result thereof” according to the American Institute of Certified Public Accountants.

Small and medium-sized enterprises (SMEs) are required to keep books of accounts in order to progress, and several companies, regardless of their size, are required to prepare financial reports that comply with Generally Accepted Accounting Principles (GAAP) in the countries in which they operate under the jurisdiction of the United Nations (GAAP).

An accounting system is a systematic, efficient method of supplying accurate financial information and controlling financial activities. The design of an effective accounting system must take into account a variety of factors, including regulatory requirements and internal administration standards. As a result, accounting systems display the books, records, vouchers, and files, as well as the supporting data that has been generated as a result of the application of the accounting process. It entails the design of papers as well as the flow of transactions through an organization.

When designing accounting systems for small and medium-sized businesses, it is important to take into account the specific characteristics of each firm. Small and medium-sized enterprises (SMEs) account for the great majority of businesses in the economy, which can be found in a wide range of primary and intermediate products.

These institutions have a significant impact on the status and well-being of the nation in terms of employment generation, as sources of national outputs and revenues, and as a source of feedback for large enterprises, among many other things. Despite the fact that they lack the knowledge to implement a sophisticated accounting process, the value of accounting systems to these organizations is substantial and widespread.

Small and medium-sized enterprises (SMEs) are often governed by accounting principles, accounting standards, and other regulatory obligations. Such accounting standards, on the other hand, were not created particularly for them. Therefore, many small and medium-sized enterprises (SMEs), particularly those with limited resources and knowledge, have challenges when they are forced to apply such rules, and in particular to prepare financial statements that comply with accounting standards.

Accounting practices are critical for all businesses, especially small and medium-sized enterprises (SMEs). Management will be meaningless if the management team does not understand the principles, concepts, and practices that affect the primary solvency. Using this valuable information from the financial statements to assist management in making business decisions

The Generally Accepted Accounting Principles (GAAP) are a concept and set of guidelines for the preparation of financial accounts (GAAP). As a result, when excellent accounting processes are implemented and accounting information is used effectively as a basis for decision making, the restricted resources’ solvency is increased.

1.2 Statement of the Problem

The function of small and medium-sized firms is critical in both developed and developing countries. However, evidence has been discovered that many SMEs in Cameroon have failed and that this failure has been caused by a variety of factors, one of which is “bad accounting records keeping.” The majority of small and medium-sized enterprises (SMEs) in Cameroon lack the financial resources to engage professional bookkeepers, purchase appropriate accounting software, and teach staff how to use the software, resulting in insufficient accounting books and records being maintained.

Additionally, in order to record transactions and prepare annual financial statements, SMEs must adhere to a variety of accounting standards and state laws, including the Occupational Health and Safety Administration-Accounting Laws, GAAP (Generally Accepted Accounting Principles), and International Financial Reporting Standards (IFRS) (IFRS). The existence of these standards frequently results in problems and misunderstandings.

A lack of experience in key critical business operations, particularly accounting and finance, as well as the use of poor accounting practices and fraud are all prevalent in Cameroon, and they affect firms of all sizes, including SMEs, according to the World Bank. As a result, performance and growth are poor.

Poor accounting record-keeping has been identified as a contributing factor to business failure in the United States, Europe, and several African countries, according to research. SMEs are harmed by the abuse and inaccuracy of accounting information, which causes them to incorrectly estimate their financial positions, make poor financial decisions, and experience a high failure rate (Byron& Friedlob,1984; Dipietro& Sawhney)

A lack of quality accounting information in financial reporting, which has an impact on decision-making, is most likely to blame for the poor performance displayed by SMEs, according to the evidence. Small and medium-sized enterprises (SMEs) rarely give serious consideration to the process of sound accounting practices, with the exception of statutory requirements. Nonetheless, the inadequacy and ineffectiveness of the accounting process have been responsible for the untimely collapse of a number of SMEs (Mukaila& Adeyemi 2011).

We must remember that accounting is a continuous process that requires continual attention and updating on a consistent basis. Many small and medium-sized enterprises (SMEs) discover that the simple process of staying on top of accounting requirements is too much for them to handle. Financial specialists such as Delliote noted in their 2016 economic forecast study that small and medium-sized enterprises (SMEs) are a significant source of employment.

Furthermore, the United States Small Business Administration found in 2003 that more than half of small enterprises fail in the first year and that 95 percent fail within the first five years of operation. The survival of businesses with fewer than 20 employees is only about 37 percent in the first four years and only about 9 percent in the first decade after that (Dun& Bradstreet, 2001).

Their argument is that out of all of these failing enterprises, only 10% close involuntarily due to bankruptcy, with the remaining 90% closing as a result of commercial failure and a lack of funding. According to Dun & Bradstreet (2006), 88.7 percent of all business failures are caused by faulty or insufficient financial record keeping, while 17.3 percent of those that thrive and grow to become major corporations establish detailed and complete financial record-keeping practices.

Small and medium-sized enterprises (SMEs) are increasingly in need of financial analysis abilities, which will allow financial statements to be read and comprehended. Small and medium-sized enterprises (SMEs) are plagued by a number of issues, including the high cost of hiring skilled and competent bookkeepers, complex documentation procedures, high taxes, a complicated legal system, a lack of planning, a lack of marketing knowledge, a lack of managerial skills, and a lack of competency in capabilities (dyer& Ross, 2008; Kamyabi& Devi, 2011).

Without a question, the numbers presented above demonstrate that small and medium-sized enterprises (SMEs) in Cameroon are business organizations that have the potential to increase and sustain the prosperity of the economy for many years to come.

It is important to remember that these businesses have the potential to grow and become large corporations in the future, despite the numerous challenges they face. These challenges include a lack of demand for their product, poor management and administrative skills of the management, insufficient capital, poor record-keeping, and the use of accounting and financial information in financial decision making, among other things.

Accounting and financial systems that are properly implemented are believed to be the engine that drives smart financial and economic decisions and to be a critical driver of small business success (stice, 1994). This issue contributes to the high failure rate of small firms in Cameroon, which is a major source of frustration.

Inability to offer correct accounting and accurate accounting and financial records to financial institutions will cause them to have difficulty accessing capital in the future, and they may finally be forced to close their doors. Because of poor record-keeping, a sector that has been identified as a major source of employment should be forced to close its doors.

Therefore, the research question of the study was set as what is the impact of financial reporting on the performance of SMEs?

The other specific research questions regarding this study will include:

1. What is financial reporting?
2. What is the performance of SMEs?

• What is the relationship between financial reporting and the performance of SMEs?

1. What are the recommendations made in the study?

1.3 Objectives of the Study

The main objective of this study is to analyze the effects of financial reporting on the performance of small and medium-sized enterprises (SMEs).

The other specific objectives of this study include:

1. To examine financial reporting in Cameroon.
2. To analyze the performance of SMEs in Cameroon.
3. To analyze the relationship between financial reporting and the performance of SMEs.
4. To make recommendations.

1.4 Hypothesis

Ho: Financial reporting does not significantly have an impact on the performance of small and medium-size enterprises.

Hi: Financial reporting has a significant impact on the performance of small and medium-size enterprises.