Collaborative College / University:

London School of Business and Finance, Singapore

Course Title:
Bachelor of Arts (Honors) in Accounting & Finance (Top-up)

Course Code:
BAHAF

Advanced Management Accounting

Advanced Financial Accounting Joint Essay
Module Name: __________________________________
ACCO-1115 & ACCO-1114
Module Code: ________________

A critical analysis of the extent to which management accounting

Assignment Title: __________________________
techniques are used by small and medium sized enterprises (SMEs)

Submission Due Date: 22 November 2022

_______________
Word Count: 1422
____________

Student Name: ______________________

ADBI MOHAMMAD FARHAN

University ID: _____________________

001260578

Local Tutor: _______________

Mr Nicholas Koh
 Management Accounting

A value chain analysis, economic value addition, shareholder value

addition, Kaizen method, and strategic costing are some examples of
these processes.

Introduction

Small industries have always been buzzing sensational source for hiring and income both at
national and local levels, high percentage of all the economic units produced in a country are
sources of small industries, giving employment to large scale of population. Cut-throat
competition between micro and small businesses makes it vital for the firms to use management
accounting techniques to understand the shortcomings faced by small business and help them
make informed financial decisions.

Analysis

Najera Ruiz, T. and Collazzo, P. (2021) states A Qualitative exploratory study has been carried
out, how small firms plans, what goals they pursue, how they determine the cost of the product
and services and how they measure the performance of the business. A total of 35 in-depth
interviews were conducted among SME`s and based on the analysis conclusion has been
drawn based on the Management accounting practices used by them.

One of the biggest problems of small business are they use no to limited application of
accounting and financial information used to make informed financial decision, the lack of
professionalism, necessary skills of their managers, lack of clear processes, operational
inefficiencies were identified. Mainly these businesses are run on common sense and personal
experience, that’s why they struggle to compete against the bigger, professionally managed
business.

Many of these small businesses have claimed to have a business plan but not all of them have
a detailed plan or plan in writing.

The significant objective of this business was related to sales, the main objective is to offer
products or services, increase the number of customers or to satisfy a need through offering
products of better quality / better price. The second objective mentioned by the firms is related
to social responsibility or to generate a benefit for society. Lastly generating profits is also an
important objective. SME short term objective vary from long term objective, in short term they
half of the business focused on growth. The second objective in short term objective were of

Greenwich University 1
 Management Accounting

meeting goals or performance indicator. Lastly, they focused on evolution and innovation in the
business model.

For the costing most small businesses determine cost of product based in raw material, indirect
cost and other imports while others determine by adding markup cost, or prices handled by
similar products.

Budgeting is not ideal practice, due to lack of time or because they have not necessarily given
their size. Most used budget was sales budget or operational budget

SME does use a variety of indicators to measure their performance, out of those, sales is
commonly used indicator followed by cash flow, portfolio of client and the balance in the bank
account. The majority of the firms interviewed use just one or two indicators. While some of the
firms choose to use combination of indicators.

After analysis Azudin and Mansor (2018) points out the data set of 102 surveys, it was found
that exposure of advanced Management accounting practices (MAP) in the developed countries
like Malaysia is still very low one the reason of this is lack of knowledge, proper training and the
information on the benefits of MAPs in the business.

Out of (organization DNA, business potential and operational technology) on the MAPs and
reveals that operation technology ( ie complexity of processing systems, advanced
manufacturing technology and total quality management) has a significant positive impact on
MAPs.

Implementing improved operational technology produced increased efficiency through an

improved costing system. And the research also shows that there is no significant relationship
between business potential (i.e., Customer power, technology advancement and market
competition) and the MmerekAPs. The predicted positive relationship between business
potential and MAPs is rejected and thus;

Research on use of management accounting practices has been conducted by E. Chukwuma,

Egbuhuzor Celestine (2017) in micro, Small medium enterprise of Nigeria. In the analysis it was
found most of the firms are not involved in any form of MAP. There is a high failure rate within
the subsector and most of the firms failed to survive beyond their fifth anniversary. The
determinants for the MAP in the context are Overhead cost management practices (OCMP),
Inventory management practices (IMP) and cash management practices (CMP), the
performance measure in (ROI).

During the test it was found there is strong positive association between joint influence of MAP
and performance of SME in Nigeria. In the hypothesis testing and experiments the strongest
and most significant practice comes to cash management practice, followed by inventory
management practices and insignificant in the case of overhead cost management practice.

Greenwich University 2
 Management Accounting

Despite the strong association between management accounting practices and performance of
SMEs in the country, the percentage means scores for OCMP, IMP and CMP are 70.4%,
56.61% and 68.3 in relation to their maximum score. and the performance mean of ROI is
28.61.

A study has been conducted in the UK on SME`s by M. Prowle (2013), it was found in the study
that there was no in house accountant as business partner, mostly owner/managers carry out
the activity, especially in the case of small business. The only time they are touch with
accountant is with small accounting practice (SAP) that provides them with Statutory
compliance and taxation services.

It will be beneficial for the small companies to use to integrated software, IT system rather than
just relying on excel spreadsheets, for instance, for doing cost benefit analysis will save time
and money.

There is a need to spread awareness among SME executives about the existence of
management accounting decision support tools. Including contribution, relevant cost analysis
and capital expenditure analysis and tools for dealing risk and uncertainty.

Next generation entrepreneurs should be taught about the basic survival toolkit, which is
considered fundamental for enterprises, for instance break-even analysis, product costing, and
working capital management.

Lastly, there is a need to educate MAP to the SME executives, especially when they are
growing and expanding their business scale.

When it comes to book recording in accounting, it is considered as a sound accounting practice

as it ensures proper financial in SMEs. According to the analysis by Amoako (2013) the
investigation done in Ghana, west Africa it was found that majority of SME don’t really care
about maintain complete accounting records, fearing of disclosing their financial position. Other
reasons why SME don’t consider bookkeeping practice are lack of necessary knowledge and
the cost of hiring an accountant.

There is a need for accounting training program by ministry responsible for trade and industry; it
will help to advance their accounting practices and improve their operations as well. Accounting
information needs to be disclosed in public, so it’s become very important that financials are
reliable and efficient to make decisions based on them

Maintaining bookkeeping will not only makes it easier for the SME to track their business, (for
instance sales record, cost associated, profitable activities, whether selling prices are helping in
suitable margin against the cost etc.) but also help the government by relying on the income
revenue of SME for countries tax revenue purpose calculations. There is a greater need for a
regulatory body to ensure SME keep proper books and prepare final accounts that will benefit
the business owners and the government.

Greenwich University 3
 Management Accounting

It was the primary objective of the analysis done by Albu and Albu (2012) was to examine how
Romanian SME’s use traditional and modern MAP’s. Surveys were conducted in this regard.
Budgeting systems are the most used in traditional MAPs for control of costs and cash flow
planning, while more modern ones incorporate financial and non-financial measures as well as
benchmarking. However, traditional management strategies, such as budgets for compensating
managers, divisional profit-based performance evaluation, and formal strategic planning, along
with separate budgets and strategic plans, as well as net present value capital budgeting
techniques and operations research techniques, were either not adopted or adopted to a lower
degree. A value chain analysis, economic value addition, shareholder value addition, Kaizen
method, and strategic costing are some examples of these processes.

Conclusion

Small Medium enterprises are backbone of Mexican economy; no doubt it has a positive impact
on poverty reduction, as they have a large share in the market and also there are not
necessarily a profit maximizes.

Greenwich University 4
 Management Accounting

References

Azudin, A. and Mansor, N. (2018). Management accounting practices of SMEs: The

impact of organizational DNA, business potential and operational technology. Asia
Pacific Management Review, 23(3), pp.222–226. doi:10.1016/j.apmrv.2017.07.014.

Management accounting practices of SMEs: The impact of organizational DNA,

business potential and operational technology. (2019). Asia Pacific Management
Review. [online] Available at: https://www.researcher-app.com/paper/1290313

riiopenjournals.com. (n.d.). View of Management Accounting Practices and the

Performance of Small and Medium-Sized Enterprises in Akwa Ibom State, Nigeria.
[online] Available at: https://riiopenjournals.com/index.php/business-perspective-
review/article/view/153/72

Lucas, M., Prowle, M., Mr, G. and Lowth (n.d.). Management Accounting Practices of
(UK) Small-Medium-Sized Enterprises (SMEs). Improving SME performance through
Management Accounting Education. [online] Available at:
https://www.cimaglobal.com/Documents/Thought_leadership_docs/Management%
20and%20financial%20accounting/ManagementAccountingPracticesOfSmall-
Medium-SizedEnterprises.pdf.

docplayer.net. (n.d.). Accounting Practices of SMEs: A Case Study of Kumasi

Metropolis in Ghana - PDF Free Download. [online] Available at:
https://docplayer.net/20081406-Accounting-practices-of-smes-a-case-study-of-
kumasi-metropolis-in-ghana.html [Accessed 20 Nov. 2022].

Cuzdriorean, D. (1970, January 1). [PDF] the use of management accounting practices
by Romanian small and medium-sized enterprises: A field study: Semantic
scholar. undefined. Retrieved November 22, 2022, from
https://www.semanticscholar.org/paper/The-Use-of-Management-Accounting-
Practices-by-Small-Cuzdriorean/0aeaa0d046b28c36804a2895c6fbcaa62fccd4e3

Greenwich University 5
 Management Accounting

Appendix

Word Count- 1422

Greenwich University 6