ABSTRACT

This study evaluates accounting practices within small and medium-sized enterprises (SMEs) in the vibrant business environment of Buea, Cameroon. Accounting practices play a pivotal role in facilitating financial management, decision-making, and performance evaluation in SMEs, yet their effectiveness and adherence to accounting standards vary widely across different contexts. Through a mixed-methods approach incorporating quantitative analysis of financial data and qualitative insights from interviews with SME owners and accounting professionals, this research aims to assess the current state of accounting practices within SMEs operating in Buea. The study examines various aspects of accounting, including financial record-keeping, budgeting, internal controls, and financial reporting, to provide a comprehensive understanding of accounting practices’ strengths, weaknesses, and areas for improvement within SMEs. Furthermore, the research explores the challenges faced by SMEs in implementing robust accounting systems and the potential impact of accounting practices on SME performance, growth, and access to finance. By identifying best practices and areas needing enhancement, this study aims to contribute valuable insights to SME owners, accounting practitioners, policymakers, and business support organizations seeking to promote financial transparency, efficiency, and sustainability within SMEs in Buea.

Keywords: Accounting practices, Small and medium-sized enterprises (SMEs), Financial management, Buea, Cameroon, Financial transparency.

Chapter One: Introduction

1.1 Background of the Study

Cameroon sanguinity to achieve her optimum goal of reaching vision 2035 of becoming an emerging nation is the limit. With this, small and medium-sized enterprises are key in reaching that destination since it contributes to the economy as well as allows a path to the decline of unemployment.  Small and medium-sized entities (SMEs) play importantroles in the economic growth of a nation. There has been a growing concern for supporting the operations of Small and Medium-Scale Enterprises (SMEs) among governments (Amoako, 2012). Given their contribution to national growth and economic development, it is believed that small and medium-scale enterprises (SMEs) are the backbone of many economies across the globe (Alhassan et Muazu, 2014; Okoli, 2011) growth and sustainabledevelopment of every nation, (Moore et al., 2008).

In most developing countries the private sector is mainly represented by small and medium enterprises (SME), this is also the case in Cameroon. Thus, in Cameroon SMEs could play a critical role in stimulating and alleviating poverty. It is widely acknowledged that SMEs are an effective instrument for employment creation, income generation and economic growth, even in developed countries such as the United States and in Europe, SMEs significantly and highly contribute to the GDP (Kinfack, D. &Akinbo, O. A.2011)

Since the 1960s to date, SMEs have been given due recognition especially in thedeveloped nations for playing very important roles towards fostering acceleratedeconomic growth, development, and stability within several economies. They make up thelargest proportion of businesses all over the world and play tremendous roles inemployment generation, provision of goods and services, creating a better standard ofliving, as well as immensely contributing to the gross domestic products (GDPs) of manycountries (OECD 2000). Over the last few decades, the contributions of the SMEs sectorto the development of the largest economies in the world have beamed the searchlight onthe uniqueness of the SMEs; and this has succeeded in overruling previously held viewsthat SMEs were only “miniature versions” of larger companies (Al-Shaikh 1998).

According to Saravanan et al (2008), SMEs comprise over 90 percent of African business operations and contributeto over 50 percent of African employment and GDP. SMEs sector has shown positive signs in South Africa, Mauritiusand North Africa.  As such the Small Business Act was introduced in 1996 (Nieman, 2001). Clusters of SMEs are little developed in Africa and are concentrated mainly in South Africa, Kenya Nigeria, Tanzania and Zimbabwe. In South Africa, SMEs constitute 22 percent of gross domestic product (GDP) in the year 2003. SMEs constitute 95 percent of formal manufacturing activity in Nigeria. Senegal and Kenya have provided conducive environment for SMEs. SMEs in Uganda constitute 90 percent of the private sector, with 80 percent being located in urban areas and, are largely involved in trade, agro-processing, and small manufacturing (Hatega, 2007), SMEs contribute approximately 75 percent of the gross domestic product (GDP) and employ approximately 2.5 million people. Congo has 2,100 firms in the formal and 10 000 in the informal sector, around 80 percent of firms in Congo have fewer than five workers. A 1997 survey in Benin showed that of the 666 SMEs counted, half were in commerce and the rest were mostly in construction or were pharmacies and restaurants. Only 17 percent were in manufacturing. SMEs in Senegal contribute about 20 percent of national value-added. In Morocco, 93 percent of all industrial firms are SMEs and account for 38 percent of production, 33 percent of theinvestment, 30 percent of exports and 46 percent of all jobs

The private sector which in the past in Cameroon was not so important is now being recognizedas an engine to economic growth in the country. In most developing countries the private sectoris mainly represented by small and medium enterprises (SME), this is also the case in Cameroon.Thus, in Cameroon SMEs could play acritical role in stimulating and alleviating poverty. It iswidely acknowledged that SMEs are an effective instrument for employment creation, incomegeneration and economic growth, even in developed countries such as United States and in
Europe, SMEs significantly and highly contribute to the GDP.When Cameroonattained independence in 1960, country-focused its development strategy onpromoting large enterprises. The government initiated amongst others, investment code with the aimof attracting foreign investment which the young state needed so much for the realization of its development objectives. Hence, for a decade, large and unprofitable foreign and local businessesthat existed in the country were not always driven by efficiency

Despite the effort of the government in order to improve the SMEs in Cameroon, the country stillhas a rigid business environment that hinders the development of local small enterprises andentry opportunity for foreign investors. This argument is supported by selected indicators of the business environment and investment climate of the country extracted from World Bankindicator (2008). Conditions for doing business in Cameroon have deteriorated significantly. Thecountry was ranked at 147th in 2005, 152nd in 2006 as against 164 in 2008 Cameroon performs poorly compared with other African countries measures of theease of doing business and investment climate of the country (World Bank, 2008).

1.2 Statement of the Problem

Notwithstanding the fact that financial reporting is of supreme importance as the life-wire ofevery business, it’s unfortunately reserved under the carpet by small scale business owners andthose that are kept are wholly inadequate and are for the purpose of yearly taxation returns,which in most cases, is the income statement but disregarding or infrequently using somefinancial reports as; balance sheet, cash flow statement, fund statement, production report,variance report etc. However, the limited use of financial and managementaccounting reports could be attributed to SMEs‟ inability to employ professional managerswith functional specialization in the field of finance due to their limited financial resources.

Little is known about the use of accounting practices in SMEs, the importance of financial record keeping among SMEs and the challenges SMEs face in preparation of accounting records. Earlier studies have suggested that record-keeping is at the heart of any external interaction with the SMEs be it access to finance or eligibility for assistance. That is, creditworthiness and growth potentials are all embedded in bookkeeping records of enterprises. It is theoretically plausible to expect some positive effects of proper record keeping and enterprise performances such as profitability and growth.In most cases SMEs do not follow or apply accounting practices because they lack the knowledge or do not know how important it is to business growth. Many business people end up losing track of their daily transactions and cannot account for their expenses and profits at the end of the reporting period. The implementation of financial accounting practices such as proper bookkeeping and preparation of financial statements affects the growth of SMEs positively. But this is not the case for SMEs in Buea municipality, as they neglect putting in to practice such, and end up not succeeding in making their businesses grow.

Research Questions:

1. What are the prevailing accounting practices adopted by small and medium-sized enterprises (SMEs) in Buea, Cameroon?
2. How do accounting practices within SMEs in Buea contribute to financial management, decision-making, and performance evaluation?
3. What are the challenges faced by SMEs in Buea in implementing and maintaining effective accounting systems?

Objectives:

1. To identify and analyze the accounting practices currently employed by SMEs operating in Buea, Cameroon.
2. To assess the role of accounting practices in facilitating financial management, decision-making processes, and performance evaluation within SMEs in Buea.
3. To investigate the challenges encountered by SMEs in Buea in implementing and maintaining effective accounting systems and processes.

Hypotheses:

1. H₀: There is no significant variation in the accounting practices adopted by SMEs in different sectors within Buea, Cameroon. H₁: Accounting practices differ significantly among SMEs operating in various sectors in Buea, Cameroon, reflecting sector-specific needs and characteristics.

2. H₀: The level of adherence to accounting standards within SMEs in Buea has no significant impact on their financial management effectiveness. H₁: SMEs with higher levels of adherence to accounting standards demonstrate superior financial management practices and decision-making capabilities compared to those with lower adherence levels.

3. H₀: External factors such as regulatory environment and access to accounting expertise do not significantly influence the implementation of effective accounting systems within SMEs in Buea. H₁: External factors such as regulatory environment and access to accounting expertise significantly affect SMEs’ ability to implement and maintain effective accounting systems and processes in Buea.