A Study on Accounting Practice and Financial Reporting in SMEs (In Case of Arba Minch Town, Snnpr, Ethiopia)

Abstract

The research was conducted on ‘Accounting practices and Financial reporting in Small and Medium Sized Enterprises (SMEs)’ in Arba Minch Town, SNNPR, with the motive of to sort out areas of accounting practice and financial reporting information that are likely to be of significance to managers/owners of SMEs in their provision of information to users. To fulfill the objective of the study, descriptive research approach was used. Stratified sampling technique applied for the research study; in this regard out of 178 SMEs operating in Arba Minch Town 64 firms was selected. The required data were collected from primary source of data by using self-administered questionnaire and secondary source document which are available for the study including financial statement of the small enterprise. The collected data was analyzed by using different methods like tabulation and percentage code used for numerical and organizing large volume of data into homogenous group. The major finding of the study disclosed that the bookkeeping practices in SMEs are not organized to produce required information to both external and internal users for decision making purposes. Further the result shows that SMEs operating in construction sector maintained all receipts and invoices of their transaction in a systematic manner than the other sectors, while none of urban agricultural SMEs kept these activities well. However, the study show that the majority of SMEs encounters challenges in complying with accounting requirements and that most SMEs outsource the preparation of their financial statements to specialist service. One of the areas of financial reporting information that have been sorted out in this study as likely to be of significance to managers of SMEs in their provision of information to users is cash flow.

Keywords: Accounting Practice, Financial Reporting, SMEs, Managers.