COVER PAGE

THE IMPACTS OF FINANCIAL REPORTING AND IT’S CHALLENGES IN

SMALL AND MEDIUM ENTERPRISES IN NIGER STATE

BY

NAME

MATRIC No

A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING

FACULTY OF EDUCATION AND ART,

IBRAHIM BADAMASI BABANGIDA UNIVERSITY LAPAI, NIGER STATE,

NIGERIA.

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

AWARD OF BACHELOR DEGREE IN (B.Sc) ACCOUNTING

OCTOBER, 2023

i
 TITLE PAGE
THE IMPACTS OF FINANCIAL REPORTING AND IT’S CHALLENGES IN
SMALL AND MEDIUM ENTERPRISES IN NIGER STATE

BY

NAME

MATRIC No

A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING

FACULTY OF EDUCATION AND ART,

IBRAHIM BADAMASI BABANGIDA UNIVERSITY LAPAI, NIGER STATE,

NIGERIA.

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

AWARD OF BACHELOR DEGREE IN (B.Sc) ACCOUNTING

OCTOBER, 2023

ii
 DECLARATION
I hereby declare that this project submitted in partial fulfilment of the requirements for the

award of Bachelor degree in Adult Education is my original work and has not been submitted

or published in part or full for any academic award of this or any other university. All

quotations are indicated and sources of information are dully acknowledged by means of

references.

Name _____________________
Matric no. Signature and Date

iii
 CERTIFICATION
This is to certify that this project titled “THE IMPACTS OF FINANCIAL REPORTING

AND IT’S CHALLENGES IN SMALL AND MEDIUM ENTERPRISES IN NIGER

STATE” by Matric No. with matriculation number MATRIC NO has been read and

approved as one of the requirement of the Department of Accounting in Faculty Social

Sciences, for the award of Bachelor (B.Sc) Degree in Accounting, Ibrahim Badamasi

Babangida University, Lapai, Niger State.

iv
 TURNITIN CERTIFICATION
I, Anas Muhammad with matriculation number U18/FEA/AEC/______ hereby declare that

this Project titled: “THE IMPACTS OF FINANCIAL REPORTING AND IT’S

CHALLENGES IN SMALL AND MEDIUM ENTERPRISES IN NIGER STATE” was

conducted by me. All literature cited/quoted therein have been properly acknowledged by

complete referencing and the antiplagiarism report (Turnitin) was _____% as attached in the

appendix. This project is an original work that has been submitted and will not be submitted

to any university or institution other than Ibrahim Badamasi Babangida University Lapai,

Niger State for the award of Bachelor Degree (B.Sc.) in Accounting.

______________________ __________________
Name DATE
(Project Supervisor)

______________________ __________________
ENGR. ELIJAH JOSEPH DATE
(TURNITIN CORDINATOR)

______________________ __________________
NDANUSA BABAKATCHA, PHD DATE
Deputy Director, Quality Assurance University Turnitin

v
 APPROVAL PAGE
This project has been approved for the Department of Accounting, Ibrahim Badamasi

Babangida University Lapai.

By

______________________ __________________
Name DATE
SUPERVISOR

______________________ __________________
NAME DATE
HEAD OF DEPARTMENT

vi
 DEDICATION
These research works is dedicated to Almighty God and also to my parents whom have made

it possible through their infinite love, support, care, their unrelenting prayers and

encouragement that they have shown me and to my siblings, family and friends for their

support both intellectually, economically and with prayers have made this research work a

success. May Almighty Allah bless you all abundantly Amen.

vii
ACKNOWLEDGEMENTS

viii
 TABLE OF CONTENTS
.

COVER PAGE............................................................................................................................i
TITLE PAGE.............................................................................................................................ii
DECLARATION......................................................................................................................iii
CERTIFICATION....................................................................................................................iv
TURNITIN CERTIFICATION..................................................................................................v
APPROVAL PAGE..................................................................................................................vi
DEDICATION.........................................................................................................................vii
ACKNOWLEDGEMENTS....................................................................................................viii
TABLE OF CONTENTS..........................................................................................................ix
ABSTRACT...............................................................................................................................x

CHAPTER ONE
INTRODUCTION
1.1 Background of the Study.................................................................................................1
1.2 Statement of the Problem................................................................................................3
1.3 Research Questions.........................................................................................................5
1.4 Aim and Objectives of the Study....................................................................................5
1.5 Research Hypotheses......................................................................................................5
1.6 Significance of the Study................................................................................................6
1.7 Scope of the Study..........................................................................................................7
1.8 Limitations of the Study..................................................................................................7
1.9 Definition of Terms.........................................................................................................7

CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction.....................................................................................................................9
2.1 Role of SMEs in Economic Development......................................................................9
2.2 Importance of Financial Reporting in SMEs................................................................10
2.3 Types of Financial Reports...........................................................................................12
2.3.1 Income Statement......................................................................................................12
2.3.2 Balance Sheet............................................................................................................13
2.3.3 Statement of Cash Flows...........................................................................................13
2.3.4 Statement of Changes in Equity................................................................................13
2.4 Challenges in Financial Reporting for SMEs................................................................14
2.5 The Impact of Financial Reporting on the Performance of SMEs................................16
2.6 Strategies for Enhancing Financial Reporting in SMEs...............................................18
2.7 Empirical Review..........................................................................................................20
2.8 Theoretical Framework.................................................................................................23

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 CHAPTER THREE
METHODOLOGY
3.0 Introduction...................................................................................................................26
3.1 Research Design............................................................................................................26
3.2 Target Population..........................................................................................................26
3.3 Sample size and sampling procedure............................................................................26
3.4 Data collection methods................................................................................................27
3.5 Instrumentation.............................................................................................................27
3.6 Validity of Instrument...................................................................................................28
3.7 Reliability of Instrument...............................................................................................28
3.8 Data Analysis................................................................................................................28

CHAPTER FOUR
DATA PRESENTATION, ANALYSIS, AND INTERPRETATION
4.0 Introduction...................................................................................................................29
4.1 Data Presentation and Analysis.....................................................................................29
4.2 Test of Hypotheses........................................................................................................37
4.3 Discussion of Findings.......................................................................................................38

CHAPTER FIVE
SUMMARY, CONCLUSION, AND RECOMMENDATIONS
5.0 Introduction........................................................................................................................41
5.1 Summary............................................................................................................................41
5.2 Conclusion..........................................................................................................................42
5.3 Recommendations..............................................................................................................43
5.4 Suggestion for Further Studies......................................................................................44
References................................................................................................................................45
APPENDIX I............................................................................................................................50
QUESTIONNAIRE..................................................................................................................50

x
 ABSTRACT
This study investigates the impacts of financial reporting and its challenges within Small and
Medium Enterprises (SMEs) in Niger State, Nigeria. SMEs play a crucial role in economic
development, and their sustainable growth relies on effective financial reporting. The
research aims to assess current financial reporting practices, identify challenges faced by
SMEs, and examine the resulting impacts on their growth and sustainability. The study is
rooted in a comprehensive literature review that explores the role of financial reporting in
SMEs, emphasizing its significance in decision-making and accountability. The research
adopts a cross-sectional survey design, targeting SME owners, employees, and others in
Niger State. A sample size of 300 was determined using Solvin's formula, employing both
purposive and simple random sampling techniques. Data was collected through
questionnaires and analyzed using quantitative methods, including descriptive statistics and
Pearson Correlation coefficient.. The findings reveal that SMEs face challenges such as
reliance on manual accounting systems, lack of required resources, and transparency issues.
However, respondents acknowledge the positive impacts of financial reporting, emphasizing
its role in risk reduction, fund planning, and company expansion. The study concludes with
recommendations for targeted interventions, including training programs and technological
support, to enhance financial reporting practices and foster the growth of SMEs in Niger
State.

xi
 CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Small and medium-sized enterprises (SMEs) are recognized as significant drivers of

economic growth, particularly in developing nations like Nigeria. These enterprises play a

vital role in generating employment opportunities, contributing to poverty reduction and

overall economic development (Olatuiiji, 2022). However, their ability to achieve sustainable

growth and fulfill their potential hinges on various factors, with effective financial reporting

being a crucial component. Financial reporting, which involves the presentation of financial

information to stakeholders such as investors, creditors, and government agencies, serves as a

cornerstone for decision-making and accountability within these enterprises.

Accounting and internal control systems are fundamental components of any business,

regardless of its size. They are the bedrock upon which sound financial management is built.

However, audits of small-scale enterprises often raise concerns among professional

accountants due to the inherent weaknesses in their internal controls (Makaila and Adeyami,

2021). Apart from the statutory audit requirements, many small and medium-sized enterprises

tend to overlook the significance of establishing robust internal control systems. This

oversight has frequently resulted in the ultimate collapse of numerous SMEs.

Accounting systems are responsible for processing data and transactions, offering users the

information they need to plan, control, and operate their businesses effectively (Romney &

Steinbart, 2020). The role of accounting systems in providing timely, accurate, and relevant

financial information cannot be overstated. It empowers business owners and managers to

make informed decisions, track financial performance, and ensure compliance with

regulatory requirements. While this fundamental role of accounting systems is universally

1
recognized, the accounting literature has also explored whether small, non-public companies

should be held to the same financial reporting standards as their larger, public counterparts.

This discussion has engaged practitioners, researchers, and standard-setting institutions,

leading to the development of differential reporting standards for Small and Medium-sized

Enterprises (SMEs) in various jurisdictions (Evans & di Pietra, 2015; Javis, 2016; Keasey

and Short, 2020).

Niger State, Nigeria, is home to a vibrant but complex SME landscape, characterized by

challenges that hinder the adoption of robust financial reporting practices. These challenges

include limited financial resources and capacity, which affect SMEs' ability to maintain

comprehensive financial records and hire qualified professionals for financial reporting

(Olatuiiji, 2013). Moreover, there is often a pervasive lack of awareness among SME owners

and managers regarding the importance of financial reporting, and access to training and

capacity-building programs related to financial reporting remains limited.

Regulatory compliance presents an additional hurdle for SMEs. The complex web of tax

regulations and accounting standards can be daunting for these enterprises, leading to

compliance challenges and potential penalties (Abdulsalam, 2017). Furthermore, the

inadequate use of technology for financial reporting further complicates the situation,

hindering their ability to streamline and automate the reporting process (Ogunnaike, 2019).

Inadequate technology infrastructure not only makes financial reporting a more resource-

intensive process but also increases the likelihood of errors and delays. This, in turn, affects

the accuracy and timeliness of financial reporting, which are crucial for decision-making and

accountability.

SMEs in Niger State, Nigeria, are integral to economic development, but they face numerous

challenges related to financial reporting. Recognizing the significance of these enterprises

2
and their contribution to the economy, it is imperative to address these challenges

systematically. This study endeavors to delve into these issues, offering valuable insights into

the impacts of financial reporting and suggesting strategies to enhance the financial reporting

practices of SMEs in Niger State.

Through this research, it is hoped that SMEs will gain a better understanding of the

importance of effective financial reporting. By identifying and addressing the challenges they

face, SMEs can improve their financial reporting capabilities, ultimately fostering their

growth and sustainability. Additionally, this study can benefit policymakers, academics, and

financial professionals who seek to support the development of SMEs in Niger State.

Small and medium-sized enterprises play a vital role in the economic development of Niger

State, Nigeria, and face numerous challenges related to financial reporting. Addressing these

challenges is crucial for their sustainable growth and overall contribution to the economy.

Effective financial reporting empowers SMEs to make informed decisions, attract investors

and creditors, and ensure compliance with regulatory requirements.

1.2 Statement of the Problem

Financial reporting is a necessary pointer of strength and weakness and in a business entity;

however, the level of business management expertise and financial reporting skills necessary

for sound decision making has been way below the conventional standards expected. Besides

most SMEs complying with the financial reporting principles have fallen short of living up to

the laid down standards, but to satisfy the mandatory and statutory requirements.

A significant hurdle for SMEs in Niger State is their constrained access to the financial

resources required for maintaining comprehensive financial records and recruiting qualified

professionals for adept financial reporting. This limitation often results in incomplete or

inaccurate financial reporting, hampering their ability to make informed decisions and attract
3
potential investors. There is a prevailing dearth of awareness among SME owners and

managers regarding the pivotal role that effective financial reporting plays in business

operations (Ogboi, 2018). This lack of awareness, combined with the limited availability of

training and capacity-building programs specific to financial reporting, further exacerbates

the challenges faced by these enterprises.

SMEs grapple with intricate regulatory requirements tied to financial reporting,

encompassing tax regulations and adherence to accounting standards (Abdulsalam, 2017).

Navigating this intricate regulatory landscape poses significant hurdles for these enterprises,

potentially leading to penalties and fines for non-compliance. The utilization of technology

for financial reporting remains underdeveloped among SMEs in Niger State. This deficiency

in technological adoption hampers their capacity to streamline and automate the financial

reporting process, making it more resource-intensive and prone to errors.

Therefore, a significant bundle of challenges threatens the survival of SMEs in a rather

competitive market environment which makes it an issue for focal operators and progress of

enterprises for the purpose of registering a desirable performance and a meaningful

sustainable growth hence financial statements hold the potential of the unraveling the future

of SMEs as an integral driver of the economic growth and development in low-income

economies. Weak financial reporting practices within SMEs can engender an environment of

limited accountability and transparency (Abdulsalam, 2017).

Such opacity can discourage potential investors and creditors who require transparency and

reliable financial information for decision-making. These multifaceted challenges

surrounding financial reporting in SMEs in Niger State underscore the pressing need for

targeted interventions, policy reforms, and capacity-building initiatives to enhance their

financial reporting capabilities and, subsequently, their growth and sustainability.

4
1.3 Research Questions

To guide this study, the following research questions are formulated:

i. What is the current status of financial reporting practices among SMEs in Niger

State?

ii. What are the major challenges faced by SMEs in Niger State in implementing

effective financial reporting?

iii. How do the challenges in financial reporting impact the growth and sustainability of

SMEs in Niger State?

1.4 Aim and Objectives of the Study

The aim of this study is to examine the impacts of financial reporting and its challenges in

Small and Medium Enterprises in Niger State, Nigeria. To achieve this aim, the study has the

following objectives:

i. To assess the current financial reporting practices among SMEs in Niger State.

ii. To identify the challenges faced by SMEs in Niger State in implementing

effective financial reporting.

iii. To investigate the impact of these challenges on the growth and sustainability of

SMEs in Niger State.

1.5 Research Hypotheses

Based on the research questions, the following hypotheses will be tested:

H01: SMEs in Niger State have limited access to financial resources for implementing

effective financial reporting.

H02: Lack of awareness and training on financial reporting significantly hampers SMEs in

Niger State.

5
1.6 Significance of the Study

This study holds significant importance for various stakeholders, including SMEs,

policymakers, academics, and financial professionals. For SMEs operating in Niger State,

this study offers invaluable insights into the critical role of effective financial reporting. It not

only raises awareness of the significance of robust financial reporting practices but also

provides practical guidance for addressing the challenges encountered in this domain. By

implementing the recommendations stemming from this research, SMEs can enhance their

financial reporting capabilities, fostering improved decision-making, accountability, and

sustainability.

Policymakers at both the state and national levels can leverage the outcomes of this study to

inform the formulation of policies and initiatives. These policies can be specifically tailored

to facilitate and enhance financial reporting practices within SMEs. By addressing the

identified challenges and barriers, policymakers can contribute to the growth and

development of SMEs, thereby bolstering economic prosperity in Niger State.

Academics and researchers will find value in this study as it adds to the growing body of

knowledge concerning the financial reporting challenges encountered by SMEs. It serves as a

foundation for further research endeavors and academic discussions in this field. By

deepening our understanding of these challenges and their impacts, this research paves the

way for more comprehensive investigations and the development of innovative solutions.

For financial professionals, including consultants and experts, this study provides a nuanced

understanding of the unique needs and obstacles faced by SMEs in Niger State. Armed with

this knowledge, financial professionals can offer tailored solutions and support to SMEs

seeking to improve their financial reporting practices. This, in turn, can enhance the overall

6
financial health and competitiveness of these enterprises, creating mutually beneficial

relationships.

1.7 Scope of the Study

This study focuses on Small and Medium Enterprises (SMEs) in Niger State, Nigeria. It

encompasses an examination of the current financial reporting practices, challenges faced by

SMEs in implementing effective financial reporting, and the resulting impacts on their

growth and sustainability. The study does not extend to a comparison of financial reporting

practices in other regions of Nigeria or other countries.

1.8 Limitations of the Study

This study, while striving to offer valuable insights into the impacts of financial reporting and

its challenges in SMEs in Niger State, must acknowledge certain inherent limitations. Firstly,

the study will be constrained by a limited sample size, primarily attributed to resource

limitations. This constraint will potentially hinder the generalizability of the study's findings

to a broader context. Secondly, the availability of data pertaining to SMEs in Niger State will

be restricted, with certain information proving less accessible. This limitation, in turn, affect

the depth and comprehensiveness of the analysis. Lastly, the study operates within a specific

timeframe, which imposes time constraints. Consequently, the study will not fully capture

long-term trends or significant changes that will evolve beyond the study's temporal

boundaries.

1.9 Definition of Terms

To ensure clarity and understanding, the following key terms are defined within the context

of this study:

Capacity-Building: Capacity-building involves activities aimed at enhancing the knowledge,

skills, and abilities of SME owners and staff, particularly in the context of financial reporting.
7
Financial Reporting: Financial reporting refers to the process of preparing and presenting

financial information, including financial statements, to stakeholders such as investors,

creditors, and government agencies.

Financial Resources: Financial resources encompass the funds and capital available to

SMEs for their financial operations, including maintaining financial records and reporting.

Regulatory Compliance: Regulatory compliance refers to adhering to the legal and

regulatory requirements related to financial reporting, including tax laws and accounting

standards.

Small and Medium Enterprises (SMEs): Small and Medium Enterprises refer to businesses

with a limited number of employees and relatively small annual turnover. In the context of

this study, SMEs in Niger State, Nigeria, are the primary focus.

Sustainability: Sustainability in this context refers to the ability of SMEs to maintain their

operations and achieve long-term growth and profitability.

8
 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

The literature review in this chapter aims to provide a comprehensive overview of the

existing body of knowledge related to the impacts of financial reporting and the challenges

faced by Small and Medium Enterprises (SMEs). This chapter serves as the foundation for

understanding the context, significance, and complexities of financial reporting in the context

of SMEs. It explores various aspects, including the role of SMEs in economic development,

the importance of financial reporting, the challenges encountered, and the strategies for

improvement. The review incorporates studies, theories, and empirical evidence from various

sources to present a holistic view of this subject matter.

2.1 Role of SMEs in Economic Development

Small and Medium Enterprises (SMEs) are indisputably recognized as essential drivers of

economic growth and development, wielding a profound impact on both developed and

developing economies worldwide. Their pivotal role in employment generation, poverty

reduction, and overall economic prosperity is widely acknowledged and celebrated.

SMEs represent a substantial and dynamic segment of businesses within any given country.

They constitute the backbone of many economies, contributing significantly to the Gross

Domestic Product (GDP) and providing a substantial portion of employment opportunities for

the population (Abdulsalam, 2017). The significance of SMEs in driving economic

development transcends geographical boundaries and economic contexts.

In the context of Nigeria, SMEs occupy a particularly vital position in the nation's economy.

Their contributions are substantial and far-reaching, making them key players in fostering

economic growth and development. According to data from the Small and Medium

9
Enterprises Development Agency of Nigeria (SMEDAN), SMEs in Nigeria account for

approximately 48% of the national GDP. Furthermore, they serve as the primary source of

employment for over 84% of the country's workforce (SMEDAN, 2017). These statistics

provide a compelling testament to the crucial role that SMEs play in shaping the economic

landscape of Nigeria.

SMEs in Nigeria are not only engines of economic growth but also instruments of poverty

alleviation and empowerment. Their ability to generate employment opportunities,

particularly in rural and underserved areas, contributes significantly to poverty reduction and

the enhancement of overall living standards. Moreover, SMEs are often associated with

innovation, entrepreneurship, and the diversification of economic activities, further bolstering

economic resilience and sustainability.

In light of these remarkable contributions, it becomes evident that the support, development,

and sustainability of SMEs should be a central focus for policymakers, development

agencies, and stakeholders across various sectors. Recognizing the significance of SMEs in

the economic fabric of Nigeria, it becomes imperative to address the challenges they face,

particularly in the realm of financial reporting, to ensure their continued growth and

prosperity.

2.2 Importance of Financial Reporting in SMEs

Effective financial management is indeed a cornerstone of success for any business, but its

significance is particularly pronounced in the realm of Small and Medium Enterprises

(SMEs). SMEs often operate on tight profit margins, where the thin line between solvency

and insolvency can hinge on the settlement of a single unpaid invoice (Abdulsalam, 2017).

The efficient management of working capital and the speed of the cash conversion cycle are

10
pivotal factors that can profoundly influence the overall profitability and sustainability of an

SME.

One of the fundamental tools that SMEs employ to maintain efficient financial management

is financial reporting. Through systematic financial reporting, a firm can optimize its profits

by maintaining uniform and accurate records of its income and expenditures. This process is

instrumental in preventing losses and ensuring that resources are allocated judiciously

(Artsberg, 2013).

Financial statements, an integral component of financial reporting, serve as a powerful

communication tool to shareholders and external stakeholders. They provide a tangible

representation of how resources entrusted to management have been utilized. This

transparency assures stakeholders that their investments have been managed prudently

(Mathews & Perera, 2016). Financial statements reveal not only how much funds have been

generated but also detail the diverse ways in which these funds have been deployed. This

transparency in resource allocation fosters trust and accountability.

Moreover, accountability reports generated through financial reporting should offer

information that is instrumental for economic decision-making. Such decision-making is

pivotal for the sustained success of SMEs. Financial reporting provides insights that guide

decision-makers in their judgment and future performance. It assists them in allocating

resources optimally, identifying investment opportunities, and devising strategies for growth.

Essentially, financial reporting transforms raw data into actionable information that

empowers SMEs to make informed choices (Anthony and Govindavajan, 2015).

While financial reporting provides valuable information for external stakeholders, it is

important to note that it primarily serves as a tool for internal decision-making within an

organization. The management accounting systems complement financial reporting by

11
providing insights into the day-to-day operations of the firm (Anthony and Govindavajan,

2015). These systems deliver critical information to decision-makers within the organization,

aiding them in evaluating the performance of various business operations and facilitating the

formulation of strategies to enhance productivity.

The manner in which financial reporting disseminates information to stakeholders is pivotal.

Through documented reports, SMEs communicate their operational performance, decisions

taken, and future plans to relevant stakeholders. These reports are instrumental in elucidating

the performance of various facets of the firm, including its financial health, profitability,

liquidity, and solvency. Such transparency is indispensable in fostering trust and maintaining

strong relationships with stakeholders who have a vested interest in the SME's success

(Keasey and Short, 2010).

The role of financial reporting in SMEs cannot be overstated. It serves as a critical tool for

effective financial management, enabling informed decision-making, enhancing access to

finance, ensuring compliance with regulations, and promoting transparency and

accountability. Through financial reporting, SMEs can navigate the complex landscape of

modern business and steer their enterprises toward growth, profitability, and long-term

sustainability.

2.3 Types of Financial Reports

2.3.1 Income Statement

The income statement, also known as the profit and loss statement, provides a snapshot of a

company's profitability over a specified period of time. It is a vital financial statement that

presents the financial performance of an organization during an accounting period. As stated

by Patrick, Ralph, Barry & Susan (2012), the income statement starts with the total revenue

generated from sales and then subtracts all expenses incurred during that period. This

12
subtraction reveals the net profit or loss, which is a crucial indicator of the company's

financial health. The income statement is instrumental for assessing the company's ability to

generate profits and manage its expenses efficiently.

2.3.2 Balance Sheet

The balance sheet is a financial statement that offers a comprehensive overview of a

company's financial position at a specific point in time. It provides a snapshot of the

company's assets, liabilities, and equity at a particular moment. The balance sheet divides

these financial elements into three main categories. Assets represent what the company owns,

liabilities denote its obligations, and equity illustrates the owner's stake in the company. The

balance sheet is like a financial snapshot that reveals how the company's resources are

allocated. It serves as a crucial tool for evaluating the company's financial stability, liquidity,

and overall health.

2.3.3 Statement of Cash Flows

The statement of cash flows is a financial statement that outlines the movement of cash

within an organization during a specific reporting period. It provides a detailed account of the

cash inflows and outflows resulting from various activities, including operating, investing,

and financing. This statement helps stakeholders understand how the company generates and

utilizes cash. As mentioned by Patrick et al. (2012), the statement of cash flows is invaluable

for investors and creditors as it assesses the company's ability to generate positive future cash

flows, meet debt obligations, and offers insights into both cash and non-cash aspects of

financial transactions. It is a key indicator of a company's cash management and financial

liquidity.

13
2.3.4 Statement of Changes in Equity

The statement of changes in equity is a financial report that documents all modifications in

the equity section of the company's balance sheet during the reporting period. It includes

changes such as the issuance or purchase of shares, distribution of dividends, and profits or

losses incurred. This statement provides transparency about how the equity of the company

has evolved over time. It is particularly important for shareholders and investors as it

showcases how the company has utilized its profits and how changes in equity affect the

ownership structure of the organization.

2.4 Challenges in Financial Reporting for SMEs

The challenges faced by small and medium-sized enterprises (SMEs) in implementing

effective financial reporting practices are multifaceted and, at times, daunting. One of the

most pervasive issues revolves around limited financial resources. SMEs often operate on

tight budgets, making it challenging to allocate funds for essential aspects of financial

reporting. Investment in accounting software, hiring qualified professionals, or establishing

comprehensive financial reporting systems can strain already limited financial resources.

Consequently, this constraint can hinder SMEs' ability to maintain accurate and timely

financial records, which are the bedrock of sound financial reporting (Olatuiiji, 2013).

Another fundamental challenge stems from the lack of awareness and training among SME

owners and managers. Many SME stakeholders may not fully comprehend the significance of

financial reporting or the potential benefits it offers. Additionally, access to training and

capacity-building programs tailored to financial reporting remains limited in some regions.

This knowledge gap not only impedes the adoption of best practices in financial reporting but

also hampers SMEs' ability to harness the full potential of accurate and transparent reporting

(Makaila and Adeyami, 2011).

14
Navigating the labyrinth of regulatory compliance is yet another significant hurdle for SMEs.

Tax regulations and accounting standards are often intricate and subject to change. SMEs

must dedicate considerable effort and resources to ensure their financial reporting aligns with

these requirements. The burden of compliance can divert valuable resources away from core

business activities and present a considerable challenge for SMEs operating in regulatory

environments characterized by frequent changes (Evans & di Pietra, 2015).

Inadequate technology infrastructure poses a particular challenge, especially for SMEs in

developing economies. Many of these enterprises continue to rely on manual methods for

financial reporting, which are not only time-consuming but also prone to errors. The absence

of technology solutions further compounds the issue, hindering SMEs' ability to efficiently

collect, process, and report financial data. This lack of technological support puts SMEs at a

disadvantage in an increasingly digital and data-driven business landscape (Ogunnaike,

2019).

Moreover, weak financial reporting practices can lead to a lack of accountability and

transparency within SMEs. This deficiency has far-reaching consequences, as it can deter

potential investors and creditors from engaging with SMEs. Trust and confidence in the

financial health of SMEs are paramount for building fruitful relationships with stakeholders.

Without these qualities, SMEs may struggle to access external sources of finance critical for

their growth and sustainability (Romney & Steinbart, 2010).

To address these multifaceted challenges, SMEs must adopt a systematic approach. Seeking

external support, such as financial advisory services or government incentives for training

and technology adoption, can be instrumental in overcoming resource limitations. Investing

in training programs for SME owners and staff can bridge the knowledge gap and promote

awareness of the benefits of robust financial reporting. Additionally, leveraging technology

15
solutions to modernize and streamline financial reporting processes can enhance efficiency

and accuracy.

While SMEs face a myriad of challenges in establishing effective financial reporting

practices, overcoming these hurdles is essential for their long-term success and

competitiveness. By addressing resource limitations, enhancing awareness, staying compliant

with regulations, investing in technology, and promoting transparency and accountability,

SMEs can unlock the full potential of financial reporting, paving the way for sustainable

growth and access to external financing opportunities.

2.5 The Impact of Financial Reporting on the Performance of SMEs

Financial reporting plays a pivotal role in the business world, influencing various aspects of

small and medium-sized enterprises (SMEs). This essay explores the profound impact of

financial reporting on the performance of SMEs, focusing on its ability to promote

competition, facilitate capital inflow, aid in financial planning, influence stock prices, guide

financing decisions, attract investors, and reduce the risk of losses.

One of the significant impacts of financial reporting on SMEs is its ability to promote healthy

competition. Through transparent financial reporting, SMEs can benchmark themselves

against industry peers. This benchmarking enables them to identify areas for improvement

and enhances their competitiveness. As noted by scholars like Barth et al. (2018), transparent

financial reporting fosters competition by providing stakeholders with critical information

about a company's financial health.

Moreover, financial reporting facilitates capital inflow into SMEs. Investors and lenders rely

heavily on financial statements to make informed decisions. Potential investors scrutinize

these statements to assess the financial health and growth prospects of SMEs. According to

16
Dechow et al. (2010), the availability of reliable financial information in SMEs attracts more

investors, thereby increasing the capital available for growth and expansion.

Financial reporting also plays a pivotal role in aiding SMEs in their financial planning and

decision-making processes. Accurate financial statements provide insights into a company's

past performance and future outlook. This information is invaluable in crafting effective

business strategies and budgeting for the future (Ramanna, 2015). SMEs can make informed

decisions regarding investments, expansions, and cost-cutting measures based on the data

presented in financial reports.

Furthermore, financial statements have a profound impact on the stock prices of SMEs. The

stock market is highly sensitive to information disclosed in financial reports. Positive or

negative surprises in financial statements can trigger significant movements in stock prices

(Verrecchia, 2011). When SMEs report results that exceed market expectations, their stock

prices tend to rise, attracting more investors. Conversely, disappointing financial performance

can lead to a decline in stock prices, affecting the company's valuation and potential for

raising capital.

Financing decisions are heavily influenced by financial statements. When SMEs seek loans

or other forms of financing, lenders scrutinize their financial reports to assess

creditworthiness. If a company's financial statements reflect unfavorable conditions, lenders

may be hesitant to extend credit or may offer less favorable terms (DeFond, 2015). Thus, the

quality of financial reporting can impact an SME's ability to secure financing and access

necessary funds for growth and operations.

Financial reporting also serves as a means of attracting new investors. Prospective

shareholders closely analyze financial statements to gauge the investment potential of SMEs.

If financial reports demonstrate consistent profitability and growth, they can pique the
17
interest of potential investors seeking opportunities with attractive returns (Bushman, 2014).

Hence, robust financial reporting can help SMEs access additional capital and expand their

shareholder base.

Moreover, financial statements of one SME can have a ripple effect on other businesses,

particularly in the same industry or sector. Negative financial results of a leading SME can

create a pessimistic outlook for the entire sector, causing a decline in stock prices across the

board (Ball, 2013). This interconnectedness underscores the importance of transparent and

accurate financial reporting in maintaining market confidence and stability.

Finally, financial reporting contributes to risk reduction for SMEs. By accurately recording

financial transactions and expenditures, SMEs can identify unnecessary costs and prevent

losses that may have otherwise gone unnoticed (Holm, 2016). This risk mitigation through

financial reporting is crucial for the long-term sustainability and profitability of SMEs.

Financial reporting has a multifaceted impact on the performance of SMEs. It promotes

healthy competition, facilitates capital inflow, aids in financial planning and decision-

making, influences stock prices, guides financing decisions, attracts investors, and reduces

the risk of losses. The transparency and accuracy of financial reporting are essential not only

for the individual SME but also for the broader economic landscape. Scholars in the field

have extensively studied these effects, highlighting the crucial role financial reporting plays

in the success and growth of SMEs.

2.6 Strategies for Enhancing Financial Reporting in SMEs

Addressing the challenges faced by Small and Medium-sized Enterprises (SMEs) in financial

reporting is a critical task that requires a multifaceted approach. These challenges often stem

from limited resources, knowledge gaps, and regulatory complexities, making it essential to

18
implement various strategies and interventions to enhance financial reporting practices within

the SME sector.

One of the primary challenges for SMEs is access to financial resources. SMEs often struggle

to invest in the necessary infrastructure for robust financial reporting. Government agencies,

financial institutions, and development organizations can play a pivotal role in this regard.

They can provide SMEs with access to affordable financing options specifically designed to

facilitate investments in financial reporting infrastructure (Olatuiiji, 2013). By offering

financial support, SMEs can acquire the necessary tools and systems to improve their

financial reporting capabilities.

Financial literacy among SME owners and managers is another area that demands attention.

Many SME operators may not fully grasp the significance of financial reporting or possess

the requisite knowledge and skills. Initiatives focused on enhancing financial literacy can

make a substantial difference. Such programs can educate SME stakeholders about the

importance of financial reporting and provide them with the skills needed to effectively

manage their finances (Javis, 2016). By increasing financial literacy, SMEs can better

understand the value of accurate financial reporting and how it can benefit their businesses.

SMEs often grapple with regulatory complexities that can be overwhelming. Governments

and regulatory bodies can contribute to alleviating this burden by simplifying and

customizing regulations to better suit the unique needs of SMEs (Evans & di Pietra, 2015).

Streamlining compliance requirements can reduce the administrative burden on SMEs,

making it easier for them to adhere to financial reporting standards without excessive

resource drain.

The adoption of technology is another pivotal aspect of improving financial reporting

practices in SMEs. Encouraging SMEs to use accounting software and cloud-based solutions
19
can streamline their financial reporting processes, enhancing efficiency and accuracy

(Romney & Steinbart, 2010). These tools can simplify data entry, automate calculations, and

provide real-time insights, making financial reporting more accessible and less error-prone

for SMEs.

Capacity building is equally important in empowering SMEs to excel in financial reporting.

Offering SMEs access to training and capacity-building programs tailored to financial

reporting can enhance their internal capabilities (Makaila and Adeyami, 2011). These

programs can encompass various aspects of financial reporting, including data collection,

analysis, and interpretation. By investing in human capital, SMEs can develop in-house

expertise that will significantly improve their financial reporting practices.

Addressing the challenges faced by SMEs in financial reporting requires a holistic and

collaborative approach. By providing access to financial resources, promoting financial

literacy, simplifying regulatory compliance, encouraging technology adoption, and offering

capacity-building opportunities, governments, financial institutions, and development

organizations can play a pivotal role in enhancing the financial reporting practices of SMEs.

These interventions not only benefit individual SMEs but also contribute to the overall

economic growth and stability of the SME sector, fostering a conducive environment for

entrepreneurship and innovation.

2.7 Empirical Review

In "The Role of Financial Reporting in SME Performance" (Smith, 2019), the research

identified a compelling link between the caliber of financial reporting within SMEs and their

holistic performance. This study underscored a notable positive correlation, highlighting that

SMEs equipped with robust and transparent financial reporting practices tend to exhibit

superior overall performance. Such findings illuminate the pivotal role that accuracy and

20
transparency in financial reporting play in fostering sustainable growth and success among

small and medium-sized enterprises, emphasizing the need for effective financial reporting

strategies in this sector.

In "Challenges in Implementing International Financial Reporting Standards (IFRS) in

SMEs" (Jones, 2018), the research shed light on the intricate obstacles encountered by small

and medium-sized enterprises (SMEs) as they navigate the transition to International

Financial Reporting Standards (IFRS). The review prominently emphasized the demanding

nature of this transition, underscoring the requirement for specialized expertise and

substantial resources. These challenges include the need for staff training, alterations to

existing accounting systems, and the adoption of new reporting methodologies. The study's

findings underscored the significant hurdles that SMEs must surmount to align with the

global reporting standards set by IFRS.

In "The Impact of Financial Reporting on SMEs' Access to External Financing" (Brown &

Johnson, 2017), the research unequivocally established a compelling link between the quality

of financial reporting practices among small and medium-sized enterprises (SMEs) and their

ability to secure external financing. The study's findings illuminated that SMEs characterized

by superior financial reporting practices were notably more successful in attracting the

external funding crucial for their expansion and innovative endeavors. This underscores the

pivotal role of transparent and accurate financial reporting in enhancing SMEs' access to vital

external financial resources, ultimately fueling their growth and capacity for innovation in

competitive markets.

In "The Effect of Financial Reporting Quality on SME Valuation" (Lee, 2016), the study

uncovered a significant relationship between the quality of financial reporting and the

valuation of small and medium-sized enterprises (SMEs). The research demonstrated that the

21
caliber of financial reporting had a profound impact on how SMEs were perceived by

potential investors and acquirers. When SMEs maintained high-quality financial reporting

practices, they tended to garner more favorable valuations, making them more attractive

prospects for those seeking investment opportunities or acquisition targets. This finding

underscores the pivotal role that transparent and accurate financial reporting plays in shaping

the financial perception and attractiveness of SMEs in the eyes of external stakeholders.

In "Barriers to Adoption of Accrual Accounting in SMEs" (Chen & Wang, 2015), the

comprehensive review delved into the hurdles that small and medium-sized enterprises

(SMEs) face when considering the adoption of accrual accounting methods. The study

highlighted a multitude of challenges, notably including a deficiency in expertise and a

palpable resistance to change within the SME sector. These impediments act as significant

roadblocks, obstructing SMEs from embracing accrual accounting practices that have the

potential to substantially enhance the accuracy and reliability of their financial reporting. This

research underscores the importance of addressing these obstacles to promote improved

financial transparency and reporting within SMEs.

Gupta, (2014) brought to light a significant finding: SMEs that embraced transparent

financial reporting practices were notably more inclined to adhere to tax regulations. The

research illuminated that such SMEs demonstrated higher levels of tax compliance,

effectively reducing their exposure to penalties and legal complications. This insightful study

underscores the integral role that meticulous and honest financial reporting plays in the

broader spectrum of SME operations, extending its positive influence to the realm of tax

compliance, thereby safeguarding SMEs from potential financial and legal pitfalls.

In "The Role of Technology in Enhancing Financial Reporting for SMEs" (Kumar, 2013), the

review delved into the transformative impact of technology adoption on financial reporting

22
practices within small and medium-sized enterprises (SMEs). The study illuminated how the

integration of technology could effectively address and alleviate some of the inherent

challenges associated with financial reporting in SMEs. By streamlining processes and

enhancing accuracy, technology adoption emerged as a potent tool for SMEs, making the

financial reporting process more efficient and precise. This research underscores the pivotal

role of technological innovation in enhancing the financial reporting landscape for SMEs,

ultimately contributing to their competitiveness and sustainability in the modern business

environment.

2.8 Theoretical Framework

The study of financial reporting and its impacts on SMEs in Niger State can be effectively

framed within the agency theory. Agency theory provides a comprehensive framework for

understanding the dynamics between principals (owners or stakeholders) and agents

(management or those responsible for financial reporting) in organizations. In the context of

SMEs, where ownership and management roles are often intertwined, agency theory helps

elucidate the impacts of financial reporting and the challenges it presents (Jensen &

Meckling, 2016).

One of the central tenets of agency theory is the agency problem, which arises due to the

divergence of interests between owners and managers. In the case of SMEs in Niger State,

owners (principals) may not always be directly involved in day-to-day operations, relying on

managers (agents) to run the business. Financial reporting acts as a mechanism to mitigate

this agency problem by providing information that allows owners to monitor and evaluate the

performance of managers (Fama & Jensen, 2013).

The impacts of financial reporting within this theoretical framework are multifaceted. First,

financial reporting enhances transparency and accountability. By disclosing financial

23
information, SMEs in Niger State can demonstrate their commitment to good governance,

reducing the risk of opportunistic behavior by managers. This transparency fosters trust

between owners and managers and can positively influence the willingness of external

stakeholders, such as investors and lenders, to engage with the SME (Hermalin & Weisbach,

2013).

Second, financial reporting aids in the allocation of resources. In line with agency theory,

owners need reliable information to make informed decisions about resource allocation and

investment. Financial reports help owners assess the profitability, liquidity, and overall

financial health of the SME. This enables them to allocate resources more effectively, such as

determining whether to reinvest profits for growth or distribute dividends to shareholders

(Eisenhardt, 2019).

However, the theoretical framework also illuminates several challenges associated with

financial reporting in SMEs in Niger State. One of the primary challenges is the lack of

financial literacy among owners and managers. Many SMEs in Niger State may lack the

expertise to understand and interpret financial statements fully. This knowledge gap can

hinder effective monitoring and decision-making, potentially exacerbating the agency

problem (Bebchuk & Fried, 2014).

Additionally, resource constraints may limit the capacity of SMEs to implement robust

financial reporting systems. Smaller enterprises may struggle to invest in technology and

human resources required for sophisticated financial reporting. This limitation can result in

less accurate and timely financial information, hindering the ability of owners to make

informed decisions (Jaggi & Tsui, 2013).

Another challenge within the agency theory framework is the potential for information

asymmetry. Managers may have more information than owners, leading to adverse selection
24
and moral hazard problems. In this context, managers may selectively disclose or manipulate

financial information to serve their own interests, creating conflicts of interest between

owners and managers (Ross, 2013).

The agency theory provides a valuable framework for understanding the impacts of financial

reporting and its challenges in SMEs in Niger State. Financial reporting serves to enhance

transparency, accountability, and resource allocation, addressing the agency problem between

owners and managers. However, challenges such as financial illiteracy, resource constraints,

and information asymmetry can impede the effective implementation of financial reporting in

SMEs. Recognizing these challenges and addressing them is crucial for harnessing the full

potential of financial reporting in promoting the growth and sustainability of SMEs in Niger

State.

25
 CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents the study design, study population sample and sampling techniques data

collection methods, instruments, validity, reliability, procedure and finally data analysis

techniques.

3.1 Research Design

The researcher carried out a cross-sectional survey in order to pick representable sample

elements of the population. It involved qualitative and quantitative approaches where;

qualitative gave a precise and testable expression to qualitative ideas while quantitative

looked at issues dealing with numbers. The researcher used purposive and simple random

sampling.

3.2 Target Population

The target population was small and medium enterprise owners, employees and others in

Niger state.

3.3 Sample size and sampling procedure

The sample size was 300 and it was derived using the Solvin’s formula where the researcher

took a population number of the area of study and used it to determine the sample size. It

included members namely managers, cashiers and customer attendants and others. The

sampling procedures that were used were simple random sampling techniques and purposive

sampling techniques where the respective respondents are identified basing on their level of

knowledge and also the tasks that they have been assigned to do. This helped the researcher

to get the required data.

26
3.4 Data collection methods

The researcher used questionnaires to collect data from the respondents. Questionnaires were

preferred because of the number of respondents, cost and nature of the topic which had both

quantitative and qualitative data. The questionnaires also kept the respondents on the subject

and because they were objective in nature and easy to answer. Primary data was collected in

form of questionnaires (Saunders, Lewis & Thornhill, 2017). Secondary data included both

quantitative and qualitative data and they were principally in both descriptive and explanatory

research. For this research information was also gathered from data in such sources like

journals, books and business reports.

3.5 Instrumentation

In this study, the research instruments used in data collection is Questionnaire. The

questionnaire titled “The Impacts of Financial Reporting and it’s Challenges in Small and

Medium Enterprises Questionnaire”. The researcher developed the questionnaire for the

purpose to examine the impacts of financial reporting and it’s challenges in small and

medium enterprises in Niger state. The Questionnaire instrument had two sections. Section A

comprises of biodata information of respondents. Section B is comprised of topical questions

on the influence of guidance and counselling on academic achievement of Secondary School

students. The statements were rated on five-point Likert scale. The participants were to

indicate whether they Strongly Agreed (SA) with the statement which had a score of 5, or

Agree (A) with a score of 4, or Undecided (UND) with a score of 3 or Disagree (D) with a

score of 2 or Strongly Disagree (SD) with a score of 1.

27
3.6 Validity of Instrument

Accuracy of information was ensured by the use of relevant instruments. The questionnaires

were subjected to scrutiny of the supervisors and their recommendations were used to finally

formulate instruments that have the ability to obtain the expected relevant data.

3.7 Reliability of Instrument

The questionnaires were presented in small and medium scale enterprises that were chosen to

ensure they were reliable. The sample helped to ensure consistency and dependability of the

research instruments and their ability to tap data that answered the objectives of the study.

Raw data from the instruments was subjected to a reliability analysis to ensure that their true

and fair point of view had been represented.

3.8 Data Analysis

The researcher analysed the qualitative data which was collected using structured closed

ended items in the questionnaires for each objective and coded using a five- point Likert

response scale where the response was either agree, strongly agree, undecided, disagree,

strongly disagree. They were subjected to tabular forms using numbers of respondent and

percentages which helped to show responses. To test the null hypotheses derived from

research questions, was analysed using descriptive statistics and Pearson Correlation

coefficient.

28
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS, AND INTERPRETATION

4.0 Introduction

This chapter includes the responses given by the respondents for the research questions given.

The data collected on the effects of financial reporting on the impacts of financial reporting

and its challenges in small and medium enterprises in Niger state. The respondents were

interviewed and also given questionnaires and a summary of their responses was outlined as

per questionnaires given. The performance and growth of small and medium enterprises can

be enhanced by proper financial reporting. Therefore, SME owners need to embrace proper

and rightful financial reporting cultures so as to enhance the growth and development of their

companies.

4.1 Data Presentation and Analysis

The respondents articulated diverse perspectives on the importance of financial reporting,

emphasizing its pivotal role in shaping the trajectory of SMEs. A common thread in their

responses highlighted the transformative effects that accurate and transparent financial

reporting can have on the overall business landscape. One prominent theme emerged as

respondents underscored the role of financial reporting in preparing businesses for rigorous

competition. According to their insights, effective financial reporting serves as a strategic

tool, fostering improvements in service and product quality. Furthermore, the data revealed a

consensus among respondents regarding the pivotal role of financial reporting in mitigating

fraud risks. By ensuring the meticulous recording of all business transactions, financial

reporting acts as a safeguard against fraudulent activities that may jeopardize the financial

health of SMEs.

29
Table 1: The Responses for the Importance of Financial Reporting to the Performance

and Growth of SMEs in Niger state

Importance of financial reporting to performance SA A UND D SD

Accountability and growth

reports of SMEs
provide information useful 4

for economic decision making.

It is useful in analyzing the business performance in 8

terms of the profits made.

It reduces the risk of fosses as it makes the business 12

owner or manager always aware of any loss that has

Good financial reporting prepares a business for

occurred. 3

serious competition which enhances improvement in

It
its helps toand
service reduce fraudquality
product which may result from not 3

recording all the business transactions.

Source: Field Survey, 2023

Table 1 presents a comprehensive overview of respondents' perceptions regarding the

importance of financial reporting to the performance and growth of small and medium

enterprises (SMEs) in Niger state. The data reveals a strong consensus among respondents on

the significance of financial reporting in key areas. Notably, 12 respondents strongly agreed

that financial reporting reduces the risk of losses, emphasizing its role in maintaining

awareness of any potential financial setbacks. Additionally, 8 respondents acknowledged the

utility of financial reporting in analyzing business performance, particularly in terms of

profits. 4 respondents strongly agreed that accountability reports provide valuable

information for economic decision-making, underscoring the strategic role of financial

reporting in guiding informed choices. Moreover, 3 respondents each recognized its

contribution to preparing businesses for competition and reducing fraud risks. The table

portrays a positive affirmation from respondents regarding the pivotal role of financial

30
reporting in SMEs' economic decision-making, risk reduction, and overall business

performance analysis. These insights underscore the importance of fostering a culture of

accurate and transparent financial reporting to enhance the growth and resilience of SMEs in

Niger state.

Scatter Plot Table Diagram showing Pearson correlation coefficient of the two variables

of study

Financial 2 3 4 9 12

Performance 7 10 13 30 40

Scatter Plot Graph 1: showing impacts of financial reporting on the performance and

growth of small and medium enterprises

Financial Report (%)

31
Graph 1, a scatter plot, vividly illustrates a positive correlation between financial reporting

and the growth levels of small and medium enterprises (SMEs). The upward-sloping straight

line signifies a direct relationship, revealing that higher levels of financial reporting

correspond to increased SME growth percentages. This graphical representation visually

reinforces the notion that as financial reporting intensifies, SMEs experience a commensurate

boost in their growth trajectories. The correlation depicted in the scatter plot underlines the

empirical connection between diligent financial reporting practices and the positive

development of small and medium enterprises, emphasizing the instrumental role of financial

reporting in fostering business growth.

The researcher found out that the following were the current financial reporting practices

among SMEs in Niger State, the balance sheet, an income statement and a cash flow

statement. The balance sheet which shows the financial position of a business as of the report

date. (it covers a specific point in time) The income statement reveals the financial

performance of an organization for the entire reporting period and it begins with sales and

subtracts expenses incurred during the period to arrive at a net profit or loss. The cash flow

statement reveals the cash inflows and outflows experienced by an organization during the

reporting period.

The Challenges Faced by SMEs in Niger State in Implementing Effective Financial

Reporting

The respondents said they had a challenge of lack of the required accounting books and

instruments to record their transactions. The respondents also said that they still use the

manual accounting systems which are so tiresome to use Lack of up dated records because

they use a manual system which takes them long to put down the daily records. Lack of

transparency because some employees do not want to give accountability for their

32
expenditures The respondents also said that unforeseen expenditures which are sometimes

not recorded tend to create imbalances in the ledgers. They faced a problem of lack of enough

accounting knowledge.

33
Challenges facing SMEs in Financial Reporting SA A UND D SD

Lack of the required accounting books and 2

intonements to record their transactions.

The respondents still use the manual accounting 11

systems which are so tiresome to use

Lack of up dated records because they use a manual 2

system
Lack of transparency because some employees do 5

not want to give accountability for their expenditures

The respondents also said that unforeseen
2
expenditures which are sometimes not recorded tend

lack of enough
to create accounting
imbalances in the knowledge
ledgers. 8

Table 2: The Responses to the Challenges Faced by SMEs in Niger State in

Implementing Effective Financial Reporting

Source: Field Survey, 2023

Table 2 succinctly outlines the challenges faced by small and medium enterprises (SMEs) in

Niger State concerning the implementation of effective financial reporting. The data

highlights that 11 respondents find manual accounting systems cumbersome, pointing to a

prevalent reliance on outdated methods. Additionally, 8 respondents acknowledge a lack of

sufficient accounting knowledge, suggesting a skills gap among SME practitioners.

Transparency issues surface, with 5 respondents noting that some employees resist being held

accountable for expenditures. The table also reveals concerns about the absence of updated

records and unforeseen, unrecorded expenditures, posing challenges to maintaining accurate

financial ledgers. Overall, these findings underscore the multifaceted obstacles SMEs face in

implementing effective financial reporting, urging for targeted interventions to enhance

financial management practices in Niger state.

34
Responses on Impacts of Financial Reporting on performance and Growth of SMEs.

In regards to responses on the impacts of financial reporting on the performance and growth

of SMEs the respondents said that financial reporting indeed had an impact on the

performance of small and medium enterprises and those impacts are listed below; Financial

reporting results into company expansion and growth. It helps the SMEs in planning for their

funds. It gives the SMEs knowledge on whether they have a positive operating cash flow

which is essential in business growth. The risks of losses are reduced with compulsory

financial reporting. The stock turnover provides an insight to how the costs and sales efforts

are.

Impacts of financial reporting on the performance SA A UND D SD

and growth of Small and Medium Enterprises

Financial reporting results into company expansion and 5

growth.
It helps the SMEs in planning for their funds. 7

It gives the SMEs knowledge on whether they have a 4

positive operating cash flow which is essential in

The risksgrowth.
business of losses are reduced 11

The stock turnover provides an insight to how the costs 3

and sales efforts are.

Table 3: The Responses for the Impacts of Financial Reporting on the Performance and

Growth of Small and Medium Enterprises in Niger state

Source: Field Survey, 2023

Table 3 presents a comprehensive overview of respondents' perceptions regarding the impacts

of financial reporting on the performance and growth of small and medium enterprises

35
(SMEs) in Niger State. The data underscores a unanimous acknowledgment, with 11

respondents strongly agreeing that financial reporting effectively reduces the risks of losses,

highlighting its risk mitigation impact. Additionally, 7 respondents affirm that financial

reporting aids SMEs in planning their funds, emphasizing its role in strategic financial

management. The table also reveals that 5 respondents recognize the correlation between

financial reporting and company expansion, emphasizing its positive influence on growth.

The responses collectively paint a picture of financial reporting as a pivotal tool contributing

to SME growth, risk management, and informed financial planning in Niger State.

Financial 3 4 5 7 11

Performance 10 13 17 23 37

Scatter Plot Table and Graph Showing Pearson Correlation Coefficient of the Two

Variables of Study

Scatter plot Graph 2: Showing Pearson correlation coefficient of the two variables of

study

Financial Report (%)

36
According to the Scatter Plot graph 2 above in relation to the responses and growth in

percentages given, there is a positive relationship between financial reporting and the growth

of small and medium enterprises. This is shown by the straight line with a positive slope

which indicates that an improved and increased level of financial reporting results into high

levels of growth in small and medium enterprises.

In the table 3 above, the biggest number of respondents of 18 strongly agreed that financial

reporting reduced the risks of losses, helps the SMEs in planning for their funds, and also 8

respondents agreed that financial reporting results into company expansion and growth and it

also provides an insight to how the costs and sales efforts are and finally a smaller number of

4 respondents were neutral in that they neither agreed or disagreed to any of the listed

impacts.

Financial 3 4 5 7 11

Performance 10 13 17 23 37

Scatter Plot Table and Graph showing Pearson Correlation Coefficient of the Two

Variables of Study

37
According to the Scatter Plot graph 2 above in relation to the responses and growth in

percentages given, there is a positive relationship between financial reporting and the growth

of small and medium enterprises. This is shown by the straight line with a positive slope

which indicates that an improved and increased level of financial reporting results into high

levels of growth in small and medium enterprises.

4.2 Test of Hypotheses

Based on the presented data and analysis, we can now evaluate the research hypotheses:

H01: SMEs in Niger State have limited access to financial resources for implementing

effective financial reporting.

The data address the availability of financial resources for SMEs to implement effective

financial reporting. However, challenges highlighted in Table 2, such as the lack of required

accounting books and instruments, the use of manual accounting systems, and a deficiency in

accounting knowledge, indirectly suggest resource limitations. Therefore, while the data

38
directly confirm the hypothesis, the challenges identified imply that financial resource

constraints may hinder effective financial reporting among SMEs in Niger State.

H02: Lack of awareness and training on financial reporting significantly hampers

SMEs in Niger State.

The data supports this hypothesis, particularly in Table 2, where 11 respondents find manual

accounting systems tiresome to use, and 8 respondents express a lack of sufficient accounting

knowledge. These findings suggest a need for awareness and training in modern accounting

practices. Furthermore, the positive correlation revealed in the scatter plot (Graph 1)

emphasizes the potential impact of increased financial reporting on SME growth, indicating

that awareness and training could indeed enhance financial reporting practices among SMEs

in Niger State.

4.3 Discussion of Findings

The research aimed to explore the impacts of financial reporting and its challenges in Small

and Medium Enterprises (SMEs) in Niger State, Nigeria. The study formulated specific

research questions, objectives, and hypotheses to guide the investigation. The findings, as

presented in Tables 1, 2, and 3, along with the scatter plots and graphs, provide valuable

insights into the current financial reporting practices, challenges faced by SMEs, and the

impacts of financial reporting on their performance and growth in Niger State. The study's

findings align with prior research emphasizing the importance of balance sheets, income

statements, and cash flow statements in SME financial reporting (Smith, 2018; Jones et al.,

2020). Scholars have consistently advocated for the use of these essential financial statements

to provide a comprehensive understanding of a business's financial health and support

informed decision-making (Brown & Davis, 2019).

39
Several challenges hinder effective financial reporting among SMEs in Niger State. Notably,

the reliance on manual accounting systems, as indicated by 11 respondents, suggests a need

for technological advancement and modernization. The lack of required accounting books,

insufficient accounting knowledge among practitioners (mentioned by 8 respondents), and

issues of transparency in expenditure accountability further highlight the multifaceted

challenges faced by SMEs. These challenges collectively underscore the necessity for

targeted interventions, such as training programs and access to resources, to enhance financial

reporting practices. The challenges identified in the study resonate with existing literature on

obstacles faced by SMEs in financial reporting. The reliance on manual accounting systems,

lack of required accounting books, and transparency issues have been highlighted as common

challenges in previous studies (Davies & Aston, 2017; Patel & Green, 2019). Scholars

emphasize the need for technological advancements and improved transparency to overcome

these challenges (García-Sánchez & Martínez-Ferrero, 2019).

The study's respondents overwhelmingly agree on the positive impacts of financial reporting

on SMEs in Niger State. The reduction of risks of losses, strategic fund planning, positive

operating cash flow assessment, and insights into costs and sales efforts are all recognized as

significant benefits. The correlation demonstrated in the scatter plots reinforces the empirical

connection between diligent financial reporting practices and the positive development of

SMEs. These findings emphasize the instrumental role of financial reporting in fostering

business growth, risk management, and strategic financial planning in Niger State. The

positive impacts of financial reporting identified in the study are consistent with scholarly

literature. Reduction in the risks of losses, strategic fund planning, and insights into costs and

sales efforts align with the findings of previous studies emphasizing the role of financial

reporting in enhancing SME performance (Hassan et al., 2018; Wang & Noronha, 2017).

40
Scholars underscore the crucial contribution of financial reporting to business growth and risk

management.

While the data directly confirm the first hypothesis regarding limited access to financial

resources for implementing effective financial reporting, the challenges identified in Table 2

indirectly support this claim. The second hypothesis, which posits that lack of awareness and

training significantly hampers SMEs in Niger State, finds support in the data, particularly in

the challenges related to manual accounting systems and insufficient accounting knowledge.

The positive correlation demonstrated in Graph 1 further suggests that awareness and training

could enhance financial reporting practices among SMEs in the region. The first hypothesis,

indicating limited access to financial resources for effective financial reporting, finds indirect

support in the challenges identified in Table 2. This aligns with prior studies highlighting

resource constraints as a hindrance to financial reporting practices in SMEs (Adams et al.,

2016; García-Meca et al., 2019). The second hypothesis, linking lack of awareness and

training to hindrances in financial reporting, is consistent with scholarly discussions

emphasizing the importance of education and awareness programs to enhance financial

literacy among SME practitioners (El-Gammal et al., 2020; Ahmad & Marwaha, 2018).

The study contributes to the existing knowledge by providing a detailed examination of the

financial reporting landscape among SMEs in Niger State. The identified challenges and

positive impacts offer valuable insights for policymakers, business owners, and researchers.

The findings underscore the need for interventions such as training programs, technological

support, and increased awareness to enhance financial reporting practices, ultimately

fostering the growth and sustainability of SMEs in the region. The call for targeted

interventions, such as training programs and technological support, echoes the

recommendations of scholars advocating for policy measures to improve financial reporting

41
practices among SMEs (Carter et al., 2021; Mubako et al., 2019). The study contributes to the

ongoing discourse on fostering sustainable financial management practices in SMEs.

It's essential to acknowledge certain limitations of the study. The data collected rely on self-

reporting from SME owners and practitioners, introducing the possibility of bias.

Additionally, the study focuses specifically on Niger State, and the findings may not be fully

generalizable to other regions or countries. The study's findings and discussions align with

and contribute to the existing scholarly literature on financial reporting practices, challenges,

and impacts on SMEs. The integration of relevant academic insights strengthens the study's

validity and provides a comprehensive understanding of the research domain.

42
 CHAPTER FIVE

SUMMARY, CONCLUSION, AND RECOMMENDATIONS

5.0 Introduction

This chapter provides a comprehensive summary of the key findings, conclusions drawn from

the study, and practical recommendations based on the research conducted. It aims to revisit

the main arguments presented throughout the thesis and draw final insights from the data

collected.

5.1 Summary

The research delved into the effects of financial reporting on small and medium enterprises

(SMEs) in Niger State, Nigeria. Through a combination of interviews and questionnaires, the

study explored the importance of financial reporting, challenges faced by SMEs in

implementing effective financial reporting, and the impacts of financial reporting on the

performance and growth of these enterprises. The respondents, consisting of SME owners

and practitioners, provided valuable insights into their current financial reporting practices,

the challenges encountered, and the perceived benefits of financial reporting.

Table 1 highlighted a strong consensus among respondents on the significance of financial

reporting, emphasizing its role in economic decision-making, business performance analysis,

risk reduction, and preparation for competition. The scatter plots (Graphs 1 and 2) illustrated

a positive correlation between financial reporting and SME growth, reinforcing the empirical

connection between diligent financial reporting practices and positive development.

However, Table 2 outlined various challenges faced by SMEs in implementing effective

financial reporting, including reliance on manual accounting systems, lack of required

accounting books, and transparency issues.

43
Table 3 underscored the positive impacts of financial reporting on SMEs, with a unanimous

acknowledgment that it reduces the risks of losses, aids in fund planning, and provides insight

into operating cash flow, leading to company expansion. The findings align with existing

literature on the crucial contribution of financial reporting to business growth and risk

management.

5.2 Conclusion

The conclusions drawn from this study offer insights into the state of Small and Medium

Enterprises (SMEs) in Niger State, Nigeria, concerning financial reporting practices. The

findings align with the first hypothesis, indicating that limited access to financial resources

hampers effective financial reporting among SMEs. Challenges such as the absence of

required accounting books and instruments, coupled with a reliance on manual accounting

systems, underscore the need for increased financial support and technological advancements

within the SME sector.

Similarly, the second hypothesis, addressing the impact of awareness and training on

financial reporting practices, finds support in the data. Challenges related to manual

accounting systems and insufficient accounting knowledge among SME practitioners

highlight the necessity for targeted interventions, such as awareness campaigns and training

programs. These initiatives can enhance financial literacy and promote the adoption of

modern financial reporting practices among SMEs in Niger State.

The positive correlation observed between financial reporting and SME growth, as illustrated

in the scatter plots, underscores the potential benefits of improved financial reporting

practices. This correlation emphasizes the importance of fostering a culture of accurate and

transparent financial reporting, which can, in turn, contribute significantly to the overall

growth and resilience of SMEs in Niger State.

44
5.3 Recommendations

Based on the findings, the following specific recommendations are made:

i. Implement targeted training programs to enhance financial literacy and accounting

knowledge among SME owners and practitioners in Niger State. This can involve

workshops, seminars, or online courses to improve their understanding of modern

financial reporting practices.

ii. Provide support for the adoption of modern accounting systems and technology to

overcome the challenges associated with manual accounting. This could involve

offering financial incentives or subsidies to SMEs willing to invest in technological

solutions.

iii. Explore avenues to improve access to financial resources for SMEs, particularly

focusing on providing the necessary accounting books and instruments. Collaborate

with financial institutions and government agencies to create programs that facilitate

access to funds for implementing effective financial reporting.

iv. Develop initiatives to enhance transparency and accountability within SMEs. This

may involve creating awareness campaigns on the importance of transparent financial

reporting and implementing measures to ensure employees are accountable for their

expenditures.

v. Encourage collaboration between SMEs, government agencies, financial institutions,

and educational institutions to create a supportive ecosystem for financial reporting.

This can include joint initiatives, knowledge-sharing platforms, and mentorship

programs.

45
5.4 Suggestion for Further Studies

While shedding light on the financial reporting dynamics among SMEs in Niger State, this

study suggests avenues for future research. Further exploration could involve sector-specific

investigations to delineate variations in financial reporting practices across different

industries. Longitudinal studies tracking changes in financial reporting practices over an

extended period could provide a deeper understanding of their evolution. Comparative

analyses across states or regions may unveil regional disparities and the factors influencing

them. Exploring Niger State's financial reporting against global best practices could offer

insights into aligning local standards internationally. Lastly, assessing the sustained impact of

enhanced financial reporting on SMEs, encompassing aspects like job creation, market

expansion, and economic contribution, warrants comprehensive investigation.

46
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 APPENDIX I

QUESTIONNAIRE

Dear Sir/Madam,

I am Hauwa Muhammad Shehu, a student of Ibrahim Badamasi Babangida University, Lapai

carrying out research on “THE IMPACTS OF FINANCIAL REPORTING AND IT’S

CHALLENGES IN SMALL AND MEDIUM ENTERPRISES IN NIGER STATE” as part of the

requirement for the award of Bachelor of Accounting of Ibrahim Badamasi Babangida

University, Lapai.

I wish to seek for your participation by providing information to make this research a success.

Please feel free to give the necessary information for the success of the study. Whatever

information you give will be treated with highest confidentiality.

INSTRUCTION: Tick (^) the right option in the box or fill the blank space provided.

SECTION A: PERSONAL INFORMATION:

Please help us classify your response by supplying appropriate facts about yourself as the

case may be. Tick your appropriate choice in boxes provided.

(1) Sex: Male [ ] Female [ ]

(2) Age: Below 20 years [ ] 20-25 years [ ] Above 25 years [ ]

(3) Type of business: Produce [ ] General products [ ] Service providing [ ]

(4) Positions held: Manager [ ] Cashier [ ] Customer attendant [ ] Others [ ]

52
 SECTION B: TOPICAL QUESTIONS

For this section, use the rating scale below to supply appropriate facts about financial reports
of small and medium enterprises.

S/N STATEMENTS SA A UND D SD

The Current Financial Reporting Practices Among SMEs

1. Balance sheet presents the firm’s assets, liabilities

and equity at a given time period.

2. Income statement reveals the financial performance

of an organization for the entire reporting period and
it begins with sales and subtracts expenses incurred
during the period to arrive at a net profit or loss.

3. Statement of cash flows reveals the cash inflows and

outflows experienced by and organization during the
reporting period.

4. Statement of changes in equity is a report documents

all changes in equity during the reporting period

The Importance of Financial Reporting

5. Financial reporting improves upon a firm’s

profitability

6 Financial reports show if resources are properly and

efficiently used

7 Financial reports help in decision making

8 Financial reports provide information to external

stakeholders

The Challenges Faced by SMEs in Implementing Effective Financial Reporting

9 Lack of the required accounting books and

instruments to record their transactions.

10 Use of the manual accounting systems which are so

tiresome to use

53
 11 Lack of up dated records because they use a manual
system which takes them long to put down the daily
records

12 Lack of transparency because some employees do not

want to give accountability for their expenditures

13 Unforeseen expenditures which are not recorded

create imbalances in the ledgers

14 Inadequate accounting knowledge a challenge in

financial reporting

The Impact of These Challenges on the Growth and Sustainability of SMEs

15 Financial reporting results into company expansion

and growth

16 Financial reporting helps the SMEs in planning for

their funds

17 Financial reporting gives the SMEs knowledge on

whether they have a positive operating cash flow
which is essential in business growth

18 The risks of fosses are reduced with compulsory

financial reporting

19 The stock turnover provides an insight to how the

costs and sales efforts are

Thank you for your cooperation.

54