ACCOUNTING SERVICES AND THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA

ABSTRACT

Accounting services play a critical role in enhancing the financial performance of small and medium enterprises (SMEs), providing essential insights for decision-making, profitability assessment, and compliance with accounting standards. This study investigates the impact of various accounting services—including management consultancy, outsourcing of accounting functions, and costing services—on the financial performance of SMEs in Lagos and Ogun States, Nigeria. Guided by the theories of real income, asymmetric information, and the Unified Theory of Acceptance and Use of Technology (UTAUT), the study employs a quantitative research design. Data were collected through structured questionnaires administered to SME owners and staff and analyzed using descriptive statistics and Pearson’s product-moment correlation via SPSS version 20. The findings reveal that outsourcing accounting services has a significant positive effect on SME performance, whereas management consultancy and costing services showed no statistically significant impact. The study concludes that SMEs can enhance financial outcomes by strategically outsourcing accounting functions and recommends increased awareness and adoption of contemporary accounting standards and professional accounting practices to strengthen SME performance and sustainability.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Accounting services are essential for measuring, monitoring, and communicating the financial position, performance, and tax obligations of businesses. They encompass a range of activities, including financial accounting, management accounting, auditing, taxation, and consultancy services, all of which contribute to organizational decision-making, resource allocation, and long-term sustainability (ACCA, 2013). These services provide stakeholders with accurate financial information, which is critical for assessing profitability, managing costs, and ensuring compliance with statutory and regulatory requirements, including International Financial Reporting Standards (IFRS).

While extensive research has focused on large corporations, there is limited empirical evidence on the impact of accounting services on small and medium enterprises (SMEs). SMEs represent a vital component of Nigeria’s economy, driving employment, innovation, and economic growth (Onugu, 2005; Tambunan, 2014). Despite their importance, SMEs often underutilize professional accounting services due to cost constraints, limited awareness, or reliance on bookkeepers rather than qualified accountants, which may compromise financial reporting accuracy and decision-making effectiveness (Mutua, 2015).

The adoption of accounting services in SMEs goes beyond routine record-keeping. Effective accounting practices provide managers with actionable insights, facilitate access to financing, and enhance operational efficiency. However, challenges persist, including inadequate knowledge of IFRS, limited professional capacity, and the misconception that accounting is solely for compliance purposes (Sava, 2013). Therefore, understanding the relationship between accounting services and SME financial performance is crucial for promoting sustainable business growth and economic development.

1.2 Statement of the Problem

Despite the critical role of SMEs in economic development, their financial performance often falls short of expectations due to limited access to professional accounting services and inadequate adoption of contemporary financial management practices. Many SMEs rely on bookkeepers with limited expertise, resulting in suboptimal financial reporting and decision-making (Mutua, 2015).

Additionally, the convergence to IFRS has created new challenges, as many SME operators lack the knowledge and resources to implement these standards effectively (International Accounting Standards Board, 2009). The resulting gaps in financial reporting compromise the ability of SMEs to attract investment, manage costs, and enhance profitability.

This study seeks to address the research gap by examining how accounting services—including management consultancy, outsourcing, and costing services—affect the financial performance of SMEs in Nigeria. By understanding these relationships, policymakers, SME owners, and financial professionals can identify strategies to improve SME performance and contribute to broader economic growth.

1.3 Objectives of the Study

The general objective of this study is to evaluate the relationship between accounting services and the financial performance of SMEs in Nigeria.

The specific objectives are:

1. To assess the impact of management consultancy services on the return on assets of SMEs.

2. To examine the effect of outsourcing accounting services on SME financial performance.

3. To determine the influence of costing services on the financial performance of SMEs.

1.4 Research Questions

1. What is the relationship between management consultancy services and the return on assets of SMEs?

2. How does outsourcing accounting services influence the financial performance of SMEs?

3. What is the impact of costing services on SME financial performance?

1.5 Research Hypotheses

Hypothesis 1

• H0: Management consultancy services have no significant effect on the return on assets of SMEs.

• H1: Management consultancy services significantly affect the return on assets of SMEs.

Hypothesis 2

• H0: Outsourcing accounting services has no significant effect on SME financial performance.

• H1: Outsourcing accounting services significantly affects SME financial performance.

Hypothesis 3

• H0: Costing services have no significant effect on SME financial performance.

• H1: Costing services significantly affect SME financial performance.

1.6 Scope of the Study

This research focuses on SMEs operating in Lagos and Ogun States, Nigeria, with a particular emphasis on accounting practices and their effect on financial performance. The study covers a variety of SME sectors, including trade, services, agriculture, and manufacturing. The research was conducted between September 2017 and April 2018, considering both primary and secondary data collected from SME owners, staff, and accounting professionals.

1.7 Methodology Summary

The study employs a quantitative research design. Primary data were collected using structured questionnaires administered to SME owners, managers, and selected accounting professionals. The data were analyzed using descriptive statistics, correlation analysis, and multiple regression techniques via SPSS version 20 to determine the relationship between accounting services and SME financial performance. The dependent variable is financial performance, measured through indicators such as return on assets and profitability, while the independent variables include management consultancy services, outsourced accounting, and costing services.

1.8 Significance of the Study

This research is significant for several stakeholders:

• SME owners and managers: Provides insights into how professional accounting services can enhance business performance and profitability.

• Policy makers and regulatory authorities: Offers evidence to support policies promoting professional accounting adoption and SME financial literacy.

• Academic researchers and students: Contributes to the literature on SME financial management and accounting practices in developing economies.

• Investors and financial institutions: Highlights the importance of accurate financial reporting for informed investment decisions.

1.9 Definition of Terms

• Accounting: The systematic process of recording, measuring, and communicating financial information for decision-making (Inanga, 2000).

• Professional Accountant: An individual with formal training and expertise in accounting, capable of providing financial advice and ensuring compliance (International Federation of Accountants, 2011).

• Small Enterprise: A business employing 11–50 employees (Group Independent Evaluation, 2008).

• Medium Enterprise: A business employing 51–200 employees, with assets ranging from 100 million to 500 million Naira (Bank of Industry, 2013).

• Financial Performance: A measure of a firm’s ability to generate profits, manage assets, and maintain liquidity (Weston, Besley & Brigham, 1996).

• Stakeholders: Individuals or groups affected by an organization’s financial decisions, including managers, investors, employees, and customers (Yusuf, 2002).