THE CAMBRIDGE ASSOCIATION OF MANAGERS

POST GRADUATE DIPLOMA IN INVESTMENT PLANNING AND

PORTFLIO MANAGEMENT

FINANCIAL REPORTING SYSTEMS

Importance of Financial Reporting Systems in a Small and Medium Enterprises

SME’s

A study of Prime Steel Company Ltd.

Done by:

Candidate number: CAM / 2014 / PGD / KEN / 00XXX

Purpose: Fulfillment of Cambridge Association of Managers Post Graduate Diploma in

Investment Planning and Portfolio Management. (Module)

Dated: June, 2015

Presented to: Cambridge Association of Managers, International Examinations,

Cambridge UK

1
DECLARATION

2
DEDICATION

To my family.

3
 AKNOWLEDGEMENTS

My deepest and sincere gratitude to Prime Steel Company Ltd Management and staff for their
cooperation and support during my research work thus making it successful.

I am very grateful to DALC Education for providing conducive learning environment not
forgetting fellow students for their encouragement. My vote of thanks goes to the founder of
DALC Education, for his efforts that led to the adoption of the DALC Education curricular in
East and Central Africa. I would also like to appreciate my tutors for dedicating time to enlighten
and guide me through the research work. Thanks to my colleagues at work for their precious
contributions and understanding.

My appreciation also goes to my family members and friends for being there for me.

Above all, I thank the Almighty God who gave divine enablement to complete my studies and
write this research paper.

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 EXECUTIVE SUMMARY
This study was done at Prime Steel Company Ltd established in the year 1960. Its core business
is to manufacture roofing sheets from steel known as ‘Mabati’. The research focuses on the
Efficient Market Hypothesis EMH and decision making. This paper argues that some private
financial information is not being captured by the firm’s financial reporting system thus the
financial reports are being manipulated at some cost. The director and top management team in
many corporations are not keen in applying the right financial reporting system hence providing
incorrect or incomplete financial reports which mislead the stakeholders who rely on this to
make certain decisions.
The objectives of the study was to evaluate the director and top management actions when
choosing the financial reporting systems in a small and medium enterprises SME’s by
identifying the financial systems used for organization reporting,

The research adopted a descriptive design and both primary and secondary data were used.
Primary data was collected through questionnaires which were given to the staff in the accounts
department as well as operational staff. The researcher formulated five hundred (500)
questionnaires and sent to eight departments within Prime Steel Company Ltd. where only two
hundred and ninety three (293) questionnaires were responded to and fully filled. Interviews
were held with the top and middle level management. The Company’s annual financial reports
and website were also visited for secondary data. The data collected from the respondents using
the various research tools were then tabulated, analyzed and the findings expressed in the
narrative form. Bar graphs and pie charts were also used.
The results were then analyzed both qualitatively and quantitatively by using tables, percentiles,
pie charts and bar graphs. The findings showed that at least 90% of the users of financial
information are not satisfied with the financial reporting system the company uses since they are
unable to make sound decisions when the Market Hypothesis is not efficient. Prime Steel
Company Ltd should implement a computerized financial reporting system i.e. WEBFOCUS
financial reporting platform for accurate financial reporting whereby no financial information
will be manipulated and there will be less errors and omissions in entering the accounting
records since all transactions will be computerized.

5
Acronyms
1. AICPA – American Institute of certified Public Accountants.
2. ASB – Auditing Standards Board.
3. COSO – Committee of Sponsoring Organizations of the Treadway Commissions.
4. SME’s – Small Medium Enterprises.
5. SOX – Sarbanese – Oxley Act 2002.

6
 TABLE OF CONTENTS
Contents PAGE
Declaration 2
Dedication 3
Acknowledgements 4
Executive summary 5
Table of contents 6
Acronyms 10

CHAPTER ONE: INTRODUCTION

1.0 Introduction 11
1.1 Background of the study 11
1.1.1 Mission statement 12
1.1.2 Vision statement 12
1.1.3 Organization objective 12
1.1.4 Organization structure 13
1.1.5 Department of concern 14

CHAPTER TWO: LITERATURE REVIEW

2.1 Theoretical review 15
2.2 Empirical review 18
2.3 Critical review 21
2.4 Missing gaps 24

CHAPTER THREE: PROBLEM SPECIFICATION

3.1 Problem statement 27
3.2 Proposed solution 27
3.3 Broad objectives 28
3.4 Specific aims 28

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 CHAPTER FOUR: RESEARCH METHODOLOGY
4.1 Introduction 29
4.2 Research design 29
4.3 Target population 29
4.4 Sampling technique 30
4.5 Sample size 30
4.5.1 Respondent size 30
4.6 Data collection instruments 30
4.6.1 Questionnaires 31
4.6.2 Interviews 31
4.6.3 Observation 32
4.6.4 Secondary data 33
4.7 Data Collection procedures 33
4.8 Data presentation and analysis 33

CHAPTER FIVE: FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Data presentation 34
5.2 Response rate 34
5.3 Interpretation of results 34
5.4 Analysis of financial reporting systems 35
5.5 Hypothesis testing 39
5.6 Conclusions 42
5.7 Limitations and suggestions for improvement 43

REFERENCES
Appendix 1 questionnaire

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LIST OF TABLES
Table 1.0 Total population 29
Table 2.0 Questionnaire analysis 34
Table 3.0 Analysis of importance of financial statements 35
Table 4.0 Deficiencies of current financial systems 37
Table 5.0 Implication of computerized financial system 38

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LIST OF CHARTS
Chart 1.0 Computerized financial reporting system 34
Chart 2.0 Deficiencies of current financial reporting system 37
Chart 3.0 Implication of computerized system 38
Graph 1.0 Importance of financial statements 36
Histogram 1.0 Frequency response 42

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 CHAPTER ONE: INTRODUCTION
1.0 INTRODUCTION
A primary objective of any financial accounting system is to provide accurate financial
statements on a timely basis. A frequent complaint is that a product won't produce the kind of
financial reports a company wants. Yet, considering the importance of financial reporting, users
typically fail to fully consider financial reporting capabilities when evaluating products.

In today’s often uncertain economy, financial professionals at all levels – from CEOs to
controllers to analysts – must be able to access and analyze real-time information located in
various sources across multiple departments and business units for a “point-in-time” snapshot of
financial performance measures such as profit and loss. Also, in an era of increasingly stringent
financial reporting requirements, timely and accurate financial information must be deliverable
to anyone, anywhere, at anytime including investors, creditors, and regulatory organizations.

1.1. BACKGROUND OF THE STUDY INSTITUTION

Prime Steel Company Ltd was established in the year 1960 by a group of friends with the main
director being Mr. Ahmed Mohamed Hussein with the aim of manufacturing roofing sheets from
steel also known as ‘mabati’. The company is part of the SAFAL Group. Mombasa being the
head office, it is situated at the hub of industrial area in Changamwe, Mombasa with branches all
over Kenya. Prime Steel Company Ltd has more than 1,000 employees, Mombasa having
approximately 683 employees and the rest from branches.

Prime Steel Company Ltd products include, Al - ZN / Galvalume - prepainted/ colour- coated.
Galvanized - colour coated/ prepainted coils/ sheets/ profiles/ corrugated. Bare galvalume (Alu -
Zinc) steel/ coils/ sheets/ corrugated. The firm has manufacturing facilities for CI and Alu Zinc
products and for colour the Prime Steel Company Ltd has manufacturing facilities at Mombasa.
The firm produces approximately 100,000MT per annum. It exports its products to over 30
countries around the globe. The firm’s annual sales volume is US$ 2.5 Million.

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1.1.1. Mission statement:
To be the best company in Kenya

1.1.2. Vision statement:

To provide world class services and be certified by 1.S.0 certificate by the year 2015.

1.1.3. Organization Objective:

To deliver sufficient and efficient goods and services to our esteemed customers at a lower cost.

The company’s aims are:

a) To produce goods of high quality at low costs with speedy delivery and assured customer
satisfaction.

b) Training and management of total quality management.

c) Adoption of competitive technology

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1.1.4 Organizational Structure of Prime Steel Company Ltd

Managing
Director

Personal
Secretary
Assistant

Production Comm. S&M Finance Admin

HRM Dept.
Dept. Dept. Dept. Dept. Dept.

Production Comm S&M PR Financial HRM Admin

Manager Manager Manager Manager Controller Manager Manager

Production Assistant Assistant S Assistant Assistant

Ass Accountant HRM
Comm &M Admin
s
Manager Manager Manager Manager Manager

Production
Clerks
Supervisor

Labourers

Source: Researcher (2015)

Figure 1.0 - organizational structure

KEY

Admin - Administration

Comm - Communication

HRM - Human Resource Management

PR - Public Relations

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1.1.5 Department of concern
The study focuses on the finance department within Prime Steel Company Ltd which is headed
by the financial controller who reports directly to the managing director. The management of
finances in this company is centralized on the finance department. The accountants are required
to submit monthly reports to the financial controller who in turn reports to the managing director.
Work in this department mainly involves receiving and banking cheques from clients, paying
bills, budgeting of capital, recording daily transactions and preparing monthly statements among
others.

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 CHAPTER TWO: LITERATURE REVIEW

2.1 THEORETICAL REVIEW

Reviewing the relevant literature, it seems possible to adopt either of two theoretical paradigms
for understanding and explaining financial reporting in small and medium-sized enterprises
(SMEs):
That provided by neoclassical microeconomics which is reflected in modern finance theory, and
which represents mainstream thought on financial management of businesses. According to this
paradigm, historical and future-oriented financial reports, and analysis and interpretation of such
reports, have considerable decision usefulness.
That provided by Austrian economics which has not been widely supported to date, but which is
assuming greater significance as SMEs become more central to scholarly and policy-related
deliberations. According to this paradigm, historical and future-oriented financial reports, and
analysis and interpretation of such reports, have little decision usefulness.
These perspectives point to markedly different possibilities for financial reporting practices
amongst SMEs. The differences are most likely to be reflected in what is discovered about use of
financial reports for internal financial management purposes by owner-managers and, to a lesser
extent, managerial employees.

2.1.1 Theoretical Perspectives on SME Financial Reporting

A departure from the role ascribed to financial reporting within SMEs by modern finance theory,
rooted as it is in neoclassical microeconomics, is provided by the so-called Austrian school of
economic theory. The part played by financial reporting in SME financial management in the
Austrian view of the world is explained by Young (1987) and Gibson (1992a, 1992b, 1992c,
1993). Justification for considering this alternative perspective is furnished by Gibson (1992b, p.
221) on the grounds of dissatisfaction with the assumptions of neoclassical microeconomics:
Substantial relaxation of these assumptions is often necessary to provide plausible explanations
for many observed practices such as the irregular use of financial information in small firm
decision contexts. Rather than seeking to justify these departures within the extant framework,
understanding may be better accommodated by adopting a different perspective.

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The Austrian perspective emphasises the role of the entrepreneur in economic activity and holds
that actions undertaken by entrepreneurs are mainly the outcome of alertness to opportunities
found by scanning the business environment for what Cheah (1990, p. 343) describes as
'profitable discrepancies, gaps, and mismatches in knowledge and information that others have
not yet exploited'. In this scenario, the financial information provided by a conventional
accounting system is likely to have less importance to decision-making by owner-managers of
SMEs. Gibson (1992b, pp. 228-229) describes the role of financial information in the Austrian
model in the following terms:
Decision makers do need financial information to help them determine if their capacity to
generate future profit (i.e., take a particular action) has been impaired. There is no assumption
that financial information has any other role. It is not assumed that future oriented information
will be used in evaluating the means by which desired ends can be achieved (although such use
is not precluded). Austrian economics offers no opportunity to prescribe a use for information in
the decision making process.

Thus, the principal role of financial reporting is essentially retrospective and confirmatory. In
other words, financial information is useful mainly in evaluating the success of past decisions
and in determining present position. In this context, the financial reporting requirements of
taxation legislation and/or corporation’s regulation legislation are more than likely to be
sufficient to satisfy the information needs of SME owner-managers. Their apparent disregard for
more timely and decision-relevant financial information is therefore explicable.
Some empirical support for the Austrian perspective on financial reporting in SMEs is provided
by Carsberg et al. (1985) who asked owner-managers in their sample of 50 small companies in
the United Kingdom what benefits, if any, they derive from producing annual statutory financial
reports.
Further underpinning for the Austrian view is forthcoming from McCahey (1986) who describes
the financial reporting practices of a sample of 40 Australian SMEs. Although owner-managers
appear to be the primary users of statutory reports, the researcher considers it unlikely they have
the ability to properly interpret them. McCahey (1986, p. 123) suggests that (italics added for
emphasis):

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Managers review the financial statements to ensure that their expectations of the company's
performance, based on knowledge of the business, are confirmed by the formally presented
results.

Finally, Gibson & Wallschutzky (1992, p. 10) find as follows on the basis of in-depth
interviews with owner-managers of 12 Australian SMEs concerning the role of accounting
information in their strategic and operational decision-making:
Few of the participating small businesses in the case studies analysed and identified access to
accounting information and/or accountants as important when making decisions affecting growth
and opportunity. However, in the routine control of their business, while accountants did not play
an important role, business data with an accounting connotation was used in a variety of ways.
Overall, the results support the alternative view of accounting information use in small firms:
accounting information is not used because it has no implicit utility in making decisions. This
view is strongly supported in respect of planning decisions. In making control decisions,
however, accounting data (but not accounting information) may have some utility although the
quality and source of data used does appear to vary extensively.

In the call for further research at the end of their paper, Gibson & Wallschutzky (1992, p. 11)
indicate that ‘Also necessary is a greater understanding of the role of accounting information has
in managing small organisations and its association with performance’.

All three studies cited above provide what amounts to anecdotal evidence of a confirmatory
rather than a decision role for financial information obtained in SMEs, and in this respect
upholds the Austrian position. However, given the present state of scholarship in the field, it is
not yet possible to choose unequivocally between this perspective and that of modern finance
theory. Having made this point, it should be acknowledged that, for many researchers and
professionals who have worked closely with SMEs, the dynamic disequilibrium model of
Austrian economic thought has an intuitive appeal over the static equilibrium representation of
neoclassical microeconomics. As Gibson (1992a, 1993) implies, this might be so for no other
reason than the former view does not require a conclusion of irrational behaviour on the part of
economic agents generally recognised for their pragmatism and self-interest.

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In closing, it is appropriate to augment the theoretical concerns about the role and significance of
SME financial reporting just expressed with two of a more practical nature. Those who have
reason to make use of the financial reports of smaller business concerns may be well advised to
heed the caution of Levin & Travis (1987, p. 30) that: standard financial statements tell only
half the story about private companies. After all, when wealth flows freely between the owner
and the business, personal finances are really part of the organization. Yet financial records look
only at corporate operations. Even if the portrayal of an SME’s financial position and
performance in its financial statements has integrity, there is the further issue of whether its
owner-managers are sufficiently skilled to be able to meaningfully interpret the information
presented. Commenting on the findings of their research into use of financial ratio analysis in
SMEs, Thomas & Evanson (1987, p. 570) venture that: The lack of association between financial
ratio use and either survival or profitability may indicate that the level of sophistication in use of
ratios has not reached a high enough level to make a discernible difference between those who
use them and those who do not.

2.2 EMPIRICAL REVIEW

2.2.1 How SME Financial Reporting May Be Limited in Practice

There is considerable evidence available that, as a group, owner-managers of SMEs make
considerably less use of standard financial reports, whether historical or future-oriented, in
financial management of their businesses than would be proposed or predicted by neoclassical
microeconomics/modern finance theory (McMahon & Holmes, 1989, 1990; McMahon &
Davies, 1991a, 1991b; McMahon & Davies, 1992a, 1992b; McMahon et al., 1992a, 1992b;
McMahon et al., 1993a; McMahon & Davies, 1994; McMahon et al., 1994a). Moreover,
financial reporting practices in SMEs seem to fall well short of what is dictated by various
external financial reporting imperatives that exist for them (McMahon et al., 1992c, 1993b,
1994b). Owner-managers appear particularly reluctant to procure financial reports which might
become accessible to outside parties either directly or through the offices of regulatory
authorities.

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One means of anticipating what might be broadly found in the way of financial reporting systems
actually employed amongst SMEs is via a continuum devised by Friedlob & Plewa (1984,
1992) as follows:
 Strictly cash based accounting with no accruals.
 Income tax basis accounting (in compliance with income tax legislation) which includes
accruals for inventories, receivables and depreciation.
 Basic full accrual accounting with no compliance to accounting standards.
 Basic full accrual accounting with footnote disclosures of departures from accounting
standards.
 Full accrual accounting for private companies in which certain accounting standards are
considered irrelevant, and therefore are not required to be complied with (for example, an
accounting standard dealing with consolidated financial statements).
 Full accrual accounting as for public companies with compliance to all accounting standards
unless it can be demonstrated that adherence to a certain accounting standard would result in
misleading financial reports being produced.
A key issue is the extent to which external auditors are permitted/are able to attest to the veracity
of the financial reports produced using these various financial reporting systems.
The discussion thus far suggests it is realistic to anticipate that the financial reporting practices
found in SMEs may not accord with mandated, recommended or preferred practices in some or
all of a number of specific respects:

Not all financial statements may be prepared – preferably balance sheets, profit and loss
statements and cash-flow statements should all be obtained, and both historical and future-
oriented reports should be prepared, financial statements may not be prepared with sufficient
detail – preferably financial data should be provided on major segments of business, financial
statements may not be prepared appropriately – preferably generally accepted accounting
principles should be followed, and the specific requirements of applicable accounting standards,
taxation law and corporations law should all be met, financial statements may be prepared
irregularly and/or infrequently – preferably financial statements should be routinely prepared at
least annually, with monthly or quarterly reporting intervals being more appropriate, veracity of
financial statements may not be appropriately established.

19
Preferably financial statements should be validated by an independent external auditor at annual
intervals, financial statements may not be provided to all parties with reasonable expectations of
receiving them – preferably financial statements should be supplied to non-managing owners,
owner-managers, managers, key employees, creditors, financiers, advisers, taxation authorities
and corporate regulatory bodies as needed, requested or mandated and financial statements may
not be used appropriately – preferably financial statements should be routinely analysed and
interpreted using accepted techniques for this purpose such as inspection of key figures, trend
analysis, inter-firm comparisons and variance analysis.
Of course, in reaching judgments on the adequacy of financial reporting practices in particular
SMEs, the recommended or preferred practices identified above must be moderated to some
degree by the distinctive characteristics and circumstances of the businesses concerned.

2.2.2 Putting COSO Theory into Practice

The U.S. Sarbanes-Oxley Act of 2002 (SOX) requires management of public companies — both
large and small — to annually assess and report on the effectiveness of internal control over
financial reporting. Fortunately, businesses can rely on an industry standard, Internal Control —
Integrated Framework, to assess and enhance their internal control systems.
Issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), this Framework has long served as a blueprint for establishing internal controls that
promote efficiency, minimize risks, and help ensure the reliability of financial statements, and
comply with laws and regulations. It has been praised and embraced by many organizations
throughout the world for its comprehensiveness, effectiveness, and universal principles of strong
internal control.

Many changes have taken place in the financial reporting, corporate governance, and regulatory
environments since the Framework was issued. Today, SOX 404 is a major driver of a
company’s evaluation of internal control over financial reporting. Over the years, smaller
businesses with limited human and monetary resources have struggled with the efficient and
cost-effective application of COSO’s principles.

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The five key components of internal control
COSO’s report outlines 26 fundamental principles associated with the five key components of
internal control: 1) control environment, 2) risk assessment, 3) control activities, 4) information
and communication, and 5) monitoring. The report systematically defines the principles
associated with each of these components, examines their attributes, lists a variety of approaches
that smaller companies can take to achieve them, and includes real-world examples of effective
ways to evidence their effectiveness.

2.2.3 Control Environment

Because the control environment represents an organization’s first line of defense to mitigate the
risks of financial reporting errors, a strong tone at the top plays a pivotal role. Research continues
to prove that companies perform better and last longer when top management makes a
commitment to strong internal control and clearly conveys this through their actions. COSO
discovered that, while a commitment to a board of directors with outside members helps mitigate
the risk of management override, smaller companies often don’t add qualified, outside personnel
to their board. Why? The report asserts that dominating shareholders are often reluctant to share
control with or be challenged by other parties.

COSO believes that the advantages of having effective outside board members generally exceed
the additional expense of directors’ and officers’ liability insurance, and this can significantly
add to the long-term value of the company. COSO also recommends that the audit committee
primarily be composed of independent board members. The most efficient and cost-effective
way to implement and assess internal control over financial reporting is to build control-
consciousness throughout the organization’s culture.

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2.3 CRITICAL REVIEW
2.3.1 Explaining Limited Financial Reporting in SMEs
In addition to inevitable claims of insufficient time from owner-managers, limited financial
reporting undertaken in SMEs could arguably arise for one of the following reasons:
Owner-managers are not rational economic decision-makers and do not seek to be better
informed on the financial consequences of their decisions. This is the position taken by many
researchers, but it may not stand up to closer scrutiny. It is nevertheless the easiest explanation
for less assiduous and probing researchers to invoke.

Owner-managers are rational economic decision-makers but have correctly assessed that the
circumstances of their businesses are so undemanding that extensive financial reporting is not
needed. Self-employment, very small enterprises, home-based concerns and life-style ventures,
especially where they are not growing and are fully self-funding, are examples of businesses in
which direct observation and only rudimentary cash-based reporting might be perfectly adequate
for financial control purposes. This explanation could be seen as an extreme case of the next, but
its separate recognition is considered justified.

Owner-managers are rational economic decision-makers but believe, often wrongly, that the
costs of being better informed on the financial consequences of their decisions outweigh the
benefits. The costs would include those involved with preparation of standard financial reports
(including set-up costs for a bookkeeping/accounting system), as well as those associated with
education/training in their use. Perceived uncertainty may make the cost of preparing future-
oriented financial reports appear prohibitive. These costs tend to be fixed in nature and are
therefore more of a burden, in relative terms, for SMEs (Horowitz & Kolodny, 1982; Nair &
Rittenberg, 1982; Abdel-Khalik, 1983; Nair & Rittenberg, 1983; Friedlob & Plewa, 1984;
Knutson & Wichmann, 1984; Carsberg et al., 1985; Hiltebeitel, 1986; Friedlob & Plewa,
1992).

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By and large, the direct benefits of financial reporting to financial management of a business
tend to be less tangible and more difficult to identify and measure than necessary out-of-pocket
expenditures on financial reporting. Some benefits of more extensive financial reporting are
likely to become most evident when a business experiences financial stress, such as when growth
leads to cash-flow difficulties – making cash-flow forecasting and cash-flow statements
particularly helpful. The full benefits of comprehensive financial reporting may only be
recognised when and if, in pressing circumstances such as securing essential growth funding, an
owner-manager seeks to attract and retain outside financial support from new equity holders
and/or medium- to long-term debt providers. The costly consequences of refusal or withdrawal
of such support are usually readily apparent. The assessed benefits of financial reporting are
unlikely to include avoidance of the probable societal costs of poor decisions leading to a
moribund or failed business and/or losses to external stakeholders, even though these
externalities should rightly be considered.

Owner-managers are rational economic decision-makers but believe that standard financial
reports prepared conventionally do not provide sufficiently reliable information on the financial
consequences of their decisions. The accounting profession’s continued adherence to the
historical cost convention in preparation of standard financial reports could partially explain such
a position. Real or perceived technical complexity of modern accounting practices may lead to
misconceptions as to the reliability of financial information obtained, as could numerous elective
treatments of financial transactions and mutually exclusive inconsistencies between financial
reporting imperatives.

Owner-managers are rational economic decision-makers but believe that standard financial
reports do not provide them with the type of primary information they really need to carry out
their function effectively and efficiently. The Austrian school of economic thought would
suggest that this might be the case. Recall, however, that historical financial reporting may still
play a confirmatory role in an Austrian world; and, strictly speaking, use of future-oriented
financial reports is not precluded.

23
Owner-managers are rational economic decision-makers but are so preoccupied with concealing
the financial consequences of their decisions from those they consider to be free riders (for
example, taxation authorities and corporate regulatory bodies; and possibly also competitors,
through public access to financial information provided to corporate regulatory bodies) that they
inevitably conceal financial information from themselves. It may be considered more morally
acceptable, less costly or less risky to truthfully indicate that certain financial information has not
been collected and reported than it is to obtain the information and then deny its existence. For
this behaviour to appear rational, the likelihood and quantum of sanctions for not undertaking
mandated financial reporting to legitimate authorities, or for not meeting contractual obligations
to report to outsiders, must be perceived as insufficient to motivate compliance.

One intention in identifying the possible reasons for owner-managers of SMEs not facilitating
more comprehensive financial reporting on their businesses is to establish that irrational
behaviour in an economic sense on the part of the owner-managers is not essential to explaining
this phenomenon. In the smallest concerns, extensive financial reporting simply may not be
required. Where financial management demands are more stringent, human failing on the part of
owner-managers in not recognizing this is so, in not acknowledging their limited financial
management competence, and in not choosing to remedy this through education/training, or by
securing expert advice, may also be factors. Furthermore, deficient and conflicting accounting
practices, poorly functioning regulatory frameworks, limited recourse to affordable legal
enforcement of contracts, and misconceptions as to the role of financial reporting (that is, faulty
assumptions), may all contribute explanations in which economic agents other than owner-
managers also play a significant part.

2.3.2 Risk Assessment

According to COSO, the major principles related to the achievement of control objectives at the
risk assessment level are 1) the importance of financial reporting objectives; 2) the identification
and analysis of financial reporting risks; and 3) the assessment of fraud risk. Although smaller
companies are more likely to have a more informal, less structured risk assessment process, the
basic concepts of this internal control component should exist in every organization.

24
2.4 MISSING GAPS

In contemplating the two theoretical perspectives on financial reporting by SMEs identified in

this note, there is inevitably a risk that financial reporting alternatives for SMEs thus represented
are seen in terms of a dichotomy between two extreme positions. As this note has attempted to
demonstrate, however, the reality is that owner-manager decisions regarding financial reporting
are multifaceted. There are, in fact, numerous ways in which SME financial reporting may be
limited in practice; and there appear to be a variety of explanations for why this may be so –
many of which do not necessarily suggest irrational thinking on the part of owner-managers.
Clearly, financial reporting practices of SMEs need to be seen in terms of a continuum which
may indeed have the neoclassical microeconomics/modern finance theory and the Austrian
economic theory positions at opposite ends. The location on the continuum assumed by any
particular SME may be dictated by the distinctive characteristics and circumstances of the
business concerned, possibly moderated by rational and/or irrational views subscribed to by its
owner-manager(s). It is believed that this portrayal of SME financial reporting establishes a
conceptually sound but realistic backdrop against which to view existing empirical evidence on
financial reporting practices in SMEs.

2.4.1 Information and Communication

Regardless of size, all businesses must identify, capture, and communicate pertinent information
in a form and timeframe that enables people to carry out their responsibilities. Building sound
management practices into information and communication processes affordably puts internal
control over financial reporting in place. Information systems and internal communication in
smaller organizations are likely to be less formal than in large ones, but they play equally
significant roles.
The use of information technology can help businesses standardize controls. Also, their
information systems typically will identify and report on relevant external events, activities, and
conditions. And, thanks to the greater visibility and availability of their CEO, smaller businesses
may more easily achieve effective internal communication than larger businesses.

25
2.4.2 Control Activities

Control activities occur throughout the organization, at all levels and in all functions. In smaller
businesses, control activities reflect their organizational characteristics, which include greater
concentration of decision-making authority, wider spans of control, and shorter channels of
communication. Smaller companies can provide controls to mitigate risks through a combination
of methods, including oversight controls applied by management, segregation of duties, and
independent reconciliations. Smaller businesses also can prepare and maintain a level of
documentation that allows for the effective transition of job responsibilities, policies, and
procedures.

2.4.3 Fraudulent Financial Reporting

Fraudulent financial reporting is defined as intentional misstatements or omissions of amounts or
disclosures in preparation of financial statements, which are meant to deceive the interested
parties (Braiotta, Hickok and Biegler, 1994). It is also referred to as management fraud because
fraudulent financial reporting activities are articulated with high management’s supports and
participation.

In many cases, fraudulent financial reporting is done to further such management goals as
inflating reported earnings. The fraudulent financial reporting practices involve the deliberate
misapplication of such accounting principles as recognizing premature revenue, overstating
receivables or inventory, disregarding liabilities, and shifting current expenses to future periods
by capitalizing costs that should have been expensed (O’Reilly, McDonnell, Winograd,
Gerson, and Jaenicke, 1998).

For timely signaling fraudulent financial reporting practices throughout a financial statement
audit, the Auditing Standards Board (ASB) of the American Institute of Certified Public
Accountants (AICPA) in 1988 issued Statement on Auditing Standards (SAS) No. 53, The
Auditor’s Responsibility to Detect and Report Errors and Irregularities.

26
This Statement provides the primary guidance on identification of risk factors inherent in
fraudulent financial reporting activities. In 1997, SAS No. 53 was replaced by Statement on
Auditing Standards (SAS) No. 82, Consideration of Fraud in a Financial Statement Audit. SAS
No. 82 provides the more detailed guidance on identification of fraud risk factors than SAS No.
53, and adds the guidance on risk assessment of fraudulent financial reporting. Afterwards, the
Committee of Sponsoring Organization (1999) and the Public Oversight Board’s Panel on Audit
Effectiveness (2000) analyze the nature of fraudulent financial reporting practices, identify key
symptoms of financial statement fraud, and emphasize the importance of fraud risk assessment.

In application of SAS No. 53 and SAS No. 82, most academic researchers conduct experimental
or empirical studies for identifying reliable signals of fraudulent financial reporting activities.
They further apply several statistical methods to model the relation between reliable indicators of
financial statement fraud and fraudulent/non-fraudulent outcomes for assessing the likelihood of
financial statement fraud. Other researchers devote to studying fraudulent financial reporting
characteristics in terms of industry traits and corporate governance mechanisms.

Recent academic research proposes evaluating risk of material misstatement in financial

statement assertions through the KPMG strategic-systems audit approach (also referred as the
KPMG strategic-systems lens), a new auditing perspective. The KPMG strategic-systems lens is
derived from the systems theory, which suggests that ‘a business organization is a complex
living system whose productivity, profitability, adaptability, and ultimate survival are dependent
on the strength of its intra- and interconnections- structural couplings and symbiotic alliances
among the business processes comprising the organization itself, and between the organization
and external economic agents’ (Bell et al., 1997, p. 15). The KPMG strategic-systems lens
directs auditors to assess business and audit risks from a systems perspective in terms of the
strengths of the connections between an organization’s strategies and business processes and its
external environment. As an application of the KPMG strategic-systems lens, recent researchers
investigate some fraudulent instances to detect fraudulent financial reporting practices in the
specific industries.

27
CHAPTER THREE. PROBLEM SPECIFICATION
3.1 PROBLEM SPECIFICATION
When manager fail to disclose all the material information that needs to be captured by a firm’s
financial reporting system and manipulate the financial report at some cost, it shows that the
manager may not choose the most precise financial reporting system. Thus it is important to
examine how reporting system choice varies with the precision of the manager’s private
information captured by the reporting system, precision of information that is not captured by the
reporting systems, and the manager’s cost of manipulating the report.
Therefore, financial reporting systems are very necessary to identify the effective financial
reporting system for the organization. This shows that the management is not having effective
financial reporting systems such as balance sheets, income statements etc. thus the finance
department is not reporting the accounts effectively.

3.2 PROPOSED SOLUTION

For the organization to have a good financial reporting system, and to avoid the manipulation of
the financial records by the company’s management, the organization should implement
computerized financial reporting systems such as the WebFOCUS Financial Reporting Platform
which is going to produce the correct financial reports of the company to the people who require
the financial records like the shareholders, directors and the banks.

The WebFOCUS financial reporting platform is a complete reporting toolset that empowers
financial professionals to easily generate complex financial reports, maintain budgets, track
financial performance, and comply with regulatory requirements. The WebFOCUS financial
reporting platform provides all the features and functionality needed to implement a
comprehensive financial reporting and analysis environment – one that can help enhance
financial planning, management, and control by putting real-time information in the hands of
those who need it most.

WebFOCUS offers access to much more than just popular financial packages such as SAP,
PeopleSoft, Oracle, and J.D. Edwards. It provides direct, native access to virtually any data
source – over 85, including relational, legacy, ERP, and CRM, on more than 35 platforms.

28
WebFOCUS also provides access to Essbase, with automatic generation of flexible metadata
directly from the Essbase engine. Users can generate complex, multi-level reports from any data
in Essbase cubes – even large volumes of data or data with volatile relationships or custom
hierarchies, like Chart of Account data – and significantly reduce maintenance on those reports,
even as hierarchies change. With WebFOCUS, Essbase data is organized and reported on like
any other data source. WebFOCUS also offers Hyperion Essbase users a simplified OLAP front-
end that eliminates the need for plug-ins such as Microsoft Excel. Users can also leverage
WebFOCUS’ ability to drill through to any source or related data. WebFOCUS also enables the
generation of hierarchical reports directly against Essbase metadata, improving and simplifying
financial report development. Users have the unique ability to partially traverse a dimension, i.e.,
the selection of only the desired data values, for a much more effective data pull.

3.3 BROAD OBJECTIVES

The main objective of the study was to analyze the importance of Financial Reporting Systems in
a Small and Medium Enterprises SME’s.

3.4 SPECIFIC AIMS

3.4.1 To analyze the various financial reporting systems used by organizations in meeting the
standards of Efficient Market Hypothesis.
3.4.2 To evaluate the deficiencies of the current financial reporting systems.
3.4.3 To determine the implication of the newly proposed system.

29
CHAPTER FOUR. RESEARCH METHODLOGY

4.1 INTRODUCTION
The chapter reveals the techniques used by the researcher to source for data from the respective
respondents. The researcher used both primary and secondary data.

4.2 RESEARCH DESIGN

The research is both analytical and descriptive. It uses descriptive analysis to show how
competitive advantage could be achieved. Analytical analysis/quantitative tools are used to show
the Evaluation, Implementation and Return analysis.

4.3 TARGET POPULATION

The study targeted the firm’s workforce, stakeholders and the public, which was found to be six
hundred and eighty three (683) employees, ten (10) stakeholders and fifty (50) public members
respectively. The employees are distributed in the departments as follows: -
Table 1.0 Total population.
Number of Respondents.
Department. Head of Male Female Total.
Department.
Managing Director - 1 - 1
Personal Assistant - - 1 1
Secretary - 1 1
Human Resource 2 10 18 30
Finance/Accounts 4 24 16 44
Production 6 400 94 500
Sales & Marketing 3 25 23 43
Communication 2 24 14 38
Administration 3 6 16 25
Total 20 490 183 683
Source: Researcher (2015)

30
4.4 SAMPLING TECHNIQUES
The stratified random sampling technique was used in determining the sample to be given oral
interview or questionnaires. This method was convenient to all.

4.5 SAMPLE SIZE

The sample size of 500 employees, 5 stakeholders and 30 public members was selected to ensure
that the data has representative ness of the population of interest representation among both
firm’s employees and the public. Here, the sample will accordingly include the following: -

 Management staff (Top management) - 150 employees.

 Supervisory staff (Middle management) - 100 employees.
 Clerical staff (Operational staff) - 150 employees.
 Subordinates (operational staff) - 100 employees.
 Public members - 30members.
 Stakeholders - 5members.

4.5.1. Respondent size.

The data collected among the respondents size included the following: -

 Management staff (Top management) - 10 employees

 Supervisory staff (Middle management) - 80 employees.
 Clerical staff (Operational staff) -125 employees.
 Subordinates (Operational staff) - 60 employees.
 Public members - 15 members.
 Stakeholders - 03 members.

4.6 DATA COLLECTION INSTRUMENTS

The researcher gathered both primary and secondary data. Primary data was collected through
questionnaires, interview and observation whereas secondary data was collected from the
company records/journals and internet.

31
4.6.1 Questionnaires
Advantages
 Subject in distant locations can be reached by mailing the questionnaires.
 Can be used to reach many people at a time.
 Gives respondents a grater feeling of anonymous and so encourage open responses to sensitive
questions.
 Are cheap if mailed instead of using interviews to be paid.
 Interviewers’ biasness can be avoided.
 The questions are standardized so response is likely to be the same.
 Saves time especially if mailed to respondents.
 The responses are gathered in a standardized way, so questionnaires are more objective,
certainly more so than interviews.

Disadvantages
There is no guarantee that the respondent would answer or expand on all of the questions.
Questionnaires tend to be inflexible.
It is not possible for the researcher to observe and analyze the respondents’ body language.
There is no immediate opportunity to clarify a vague or incomplete answer to any of the
questions. (See Appendix 1)

4.6.2 Interviews
Informal interview was conducted on a face to face basis by the researcher to the respondents to
get more details and in depth information.
Advantages
 Allows the interviewer to take note of both verbal and non-verbal responses.
 Researcher is able to correct the respondents misunderstanding of any question asked.
 Interviews can be used in case of illiteracy on difficulty in reading writing unlike
questionnaires.
 Face to face contact with the respondent creates a rapport and motivates respondents to give
full and accurate answers.

32
 Researcher is able to probe respondent for more information and clarify vague answers.
Disadvantages
It is very time consuming and therefore costly in fact finding approach.
Interview could be subject to biasness if the interviewer had a closed mind about the problem.
If two different interviewers provide conflicting information, it would be difficult to resolve
later.
Incase of personal interview, it would be impossible due to the location of the interviewer.

4.6.3 Observation
Apart from using the questionnaires and interview method, the researcher also used
observation method as a way of collecting data. Observation is a qualitative, non-
numerical data collection method used widely in various areas of research. It is an active
approach involving all of the human senses where reliability rests upon the researcher
rather than upon other external sources (Fox, 1998).

- Observation is a flexible technique. It does not necessarily have to be structured round a

hypothesis (i.e. what expect to observe), it can be used before obtaining a research question
(i.e. descriptive research - it can be used to find a hypothesis) (Gall et al, 1996).
- It is possible to examine simultaneous issues at once e.g. the effects of smoking on lung
disease as well as cardiovascular (Gall et al, 1996).
- Observation enables the researcher to examine the people’s behavior directly rather than
relying on self reports in questionnaires or interviews. For self reports to be accepted as
accurate, one must assume that people are knowledgeable about their behavior, and are
willing to divulge their actions (Abrahamson, 1983).
- From the above point, it follows that observation can reduce errors in measurement that are
due to distortions in people’s self perception and their less - than - perfect willingness to
provide accurate self reports (Abrahamson, 1983).

4.6.4 Secondary Data

Secondary data was collected from the company’s annual financial reports and the firm’s
website. This method was also used since it is less expensive to collect and it takes less time to
collect.

33
4.7 DATA COLLECTION PROCEDURES
The researcher collected data from Management staff through interview guides, which involves
face-to-face encounter.
Questionnaire was used to gather data from Operational staffs, which is easier to administer to a
relatively larger group of respondents.
Observation checklist, was used to collect data that may not be easily volunteered e.g. interaction
behaviour, nature of how duties are conducted by the employees with regard to team interaction.
Document analysis checklist, was used to collect relevant secondary data e.g. records on daily
number of delivered mails using the delivery book, attendance register and personal records for
each team members which was then analyzed by the researcher.

4.8 DATA ANALYSIS

The data collected from the respondents using various research techniques was then tabulated,
analyzed and the findings expressed in the narrative form. Bar graphs and pie charts were also
used.

34
CHAPTER FIVE. FINDINGS
5.1 DATA PRESENTATION
Data was grouped into different categories: Top Management, Middle Management, Operational
Level staff (clerical and subordinate), Stakeholders and Public members’ response and the result
presented by use of tables, pie charts and bar graphs.

5.2 RESPONSE RATE

The researcher formulated five hundred (500) questionnaires and sent to eight departments of
Prime Steel Company Ltd., where only two hundred and ninety three (293) questionnaires were
responded to and fully filled. Therefore the research analysis was based on the two hundred and
ninety three (293) fully filled questionnaires.

5.3 INTERPRETATIONS OF RESULTS

5.3.1 Questionnaire Analysis
Table 2.0 Analysis on the effectiveness of utilizing the computerized financial reporting system
Respondents Accepted Fully Accepted Rejected
100 20 70 10
100% 20% 70% 10%
Source: Researcher (2015)

Chart 1.0 Computerized Financial Reporting System

Source: Researcher (2015)

35
Analysis
Information from Table 2.0 was carefully analyzed and presented using percentages and pie
chart: it can be seen that majority of the employees fully accepted i.e. 70% accepted the use of
computerized financial systems for financial reporting while only 10% of the employees rejected
the use of computerized financial reporting systems hence 20% of the employees did not fully
accept.

5.4 ANALYSIS OF THE FINANCIAL REPORTING SYSTEMS.

5.4.1 Analysis of the importance of financial statements
The users of the financial information are not satisfied with how the organization presents its
financial reporting i.e. the users do not like the manual financial reporting system because they
feel that some information is being manipulated by the top managements and the managing
director of the company. The financial reporting system of any organization should meet the
objectives of the financial statements but the company’s financial statements when reported do
not clearly show the objectives of the financial statements and this is due to the manipulation of
financial information before being reported and as a result the company is not moving forward
while its competitors are far much ahead. The table below shows the percentage of how clearly
the company shows its financial statements objectives against its competitors.
Table 3.0 Analysis of importance of financial statements
COMPETITOR COMPETITOR COMPETITOR PRIME
A B C STEEL
To provide information on the 79% 82% 66% 40%
financial position of the firm.
To provide information about 75% 90% 50% 32%
the financial performance and
changes in the financial
position.
To provide the current 80% 96% 70% 20%
financial status of the entity to
its shareholders and public.
Source: Researcher (2015)

36
Graph 1:0 Importance of Financial Statements

Source: Researcher (2015)

Analysis
Information from Table 3.0 was carefully analyzed and presented using percentages and a bar
graph: it can be seen from the graph that competitor B has effective financial reporting since it is
considering all the importance of the financial statements followed by competitor A. Competitor
A provides 79% of the information on the financial position of the firm, Competitor B provides
82% of the same information and Competitor C gives 66% while Prime Steel only gives 40% of
the same information.

5.4.2 Analysis of the deficiencies of the current manual financial reporting system
Majority of the lower management and the shareholders are not satisfied with the current
financial reporting system due to the fraudulent and manipulation of information. Thus, the
current system has many deficiencies. The table below shows the deficiencies the system has.

37
Table 4.0 Analysis of deficiencies of current financial reporting system
SUBJECT PERCENTAGE
1. Errors and omissions. 70%
2. Fraud and theft. 90%
3. Irregularities in maintaining the 80%
accounting records.
Source: Researcher (2015)

Chart 2.0 Deficiencies of manual financial reporting system

Source:Resaercher (2015)
Analysis
Information from Table 6 was carefully analyzed and presented using percentages and pie chart:
it is seen that with the current financial reporting system, there is a lot of manipulation of
financial information hence the company is not able to move ahead with the business because
with the information the shareholders and directors are receiving no one is willing to invest in the
business. There is a higher percentage of fraud and theft (90%) which shows that some
transactions are done in the dark without being recorded and the books of accounts. There is 70%

38
of errors and omissions in the financial reporting which means that there is 80% of irregularities
in maintaining the accounting records.
5.4.3 Analysis of the implication of the newly proposed system
If the management accepts the proposed financial reporting system i.e. the computerized system,
then it is going to benefit because all financial information will be reported to the employees,
shareholders and the public in general thus, the financial statements will clearly show the
financial position of the firm hence the objectives of the financial statements will stated clearly.
The table below shows the risks that the company will not experience with the new computerized
system.
Table 5.0 Analysis of implication of computerized financial system
SUBJECT PERCENTAGE
1. Errors and omissions. 50%
2. Fraud and theft. 20%
3. Irregularities in maintaining the accounting 25%
records.
Source: Researcher (2015)

39
Chart 30 Implication of computerized system

Source: Researcher (2015)

Analysis
Information from Table 5.0 was carefully analyzed and presented using percentages and pie
chart: it is seen that if the company implements the computerized financial reporting system,
there will less errors and omissions compared to the manual system, with the computerized
system there will be only 50% of errors and omissions. With the computerized financial
reporting system, the frauds and errors will dwindle to 20% and there is going to lower
percentage i.e. 25% on the irregularities in maintaining the accounting records since all
transactions will be done through the system.

40
5.5 HYPOTHESIS TESTING
Ho: The Company’s financial reporting will be done effectively if the company implements the
correct financial reporting systems that suits best to the company.
Frequency Midpoint FX X2 FX2
(F) (X)
Upto 1 2 1 0.25 1
1 to 2 4 1.5 6 2.25 36
2 to 3 6 2.5 15 6.25 225
3 to 4 7 3.5 24.5 12.25 600.5
4 to 5 4 4.5 18 20.25 324
5 to 6 5 5.5 27.5 30.25 756.25
6 to 9 3 7.5 22.5 56.25 506.25
9 to 12 4 10.5 31.5 110.25 661.5
∑35 ∑36 ∑146 ∑238 ∑3441.25

Source: Researcher (2015)

Mean = Σfx/Σf = 146/35 = 4.171

Standard Deviation (SD) = √Σfx² - (x) -²

Σf

= √3441.25 – (4.171)2

35

= √98.32 – 17.39

35

= √80.93

= 8.996

Population mean = Mean + or – z* standard error

41
95% is the confidential level

Value of Z critical = 5% = 0.05/2

= 0.025

= 1.96

Accept (95%)

Accept (0.025) Reject (0.025)

Standard error = standard deviation / √N

= 8.996/ √35

= 8.996 /5.9161

= 1.52

Population mean = 8.996 + / - 1.96* 1.52

8.996 + 2.979 = 11.9752

OR

8.996 – 2.979 = 6.017

Z = population mean – mean/standard error

= 11.9752 – 8.996/1.52 = 1.96

42
 = 6.017 – 8.996/1.52 = - 1.96

As the value of Z is less than the critical value; therefore, we accept the null hypothesis by
saying that, “The Company’s financial reporting will be done effectively if the company
implements the correct financial reporting systems that suits best to the company.”

Therefore, it would be wise for the management to take into considerations implementing the
computerized financial reporting system for the organization. Due to the computerized financial
reporting system, information will not be manipulated, fraudulent will dwindle hence there will
be a good accounting record which as a result will lead to effective decision making for further
investment of the business.

Histogram 1.0 Response to the questionnaire

This shows the respondent’s responses to the questions asked in the questionnaire.
Class Frequency
Up to 1 2
1–2 4
2–3 6
3-4 7
4-5 4
5 -6 5
6-9 3
9 - 12 4
Source: Researcher (2015)

43
Source: Researcher (2015)

5.6 CONCLUSION
From the analysis of the findings it can be concluded that the null hypothesis (Ho) is accepted
because there is sufficient evidence from the survey that shows that users of financial
information are sensitive to the information they receive during the financial reporting.
Hence, the WEBFOCUS financial reporting platform should be implemented if the organization
wants to expand the business and the expansion of the business can be achieved if the financial
reporting for the company is done effectively without the manipulation of the accounting
information that is being reported.

The WEBFOCUS financial reporting platform will be utilized by the organization for accounting
purposes i.e. all transactions will be done through the computerized system therefore there will
not be transactions taking place in the dark. Errors and omissions will decrease as the system will
easily get aware if the data entered is wrong.

WebFOCUS’ financial modeling tool can also dynamically generate summary statements from
detail in other reports and transfer balance sheet items across years. And, because it
automatically rolls up the data at report run-time, it eliminates the need to build data marts.

44
As a result, powerful and flexible financial reporting systems can be designed, built, and
deployed in about half the time it would take with traditional methods. And more importantly,
maintaining and supporting the new financial reporting environment can be accomplished at a
fraction of the cost. According to Hackett Benchmarking, most financial departments wrongly
focus on collecting historical data, rather than trying to anticipate and prepare for future market
conditions. In fact, 76 percent of the data companies collect is lagging or historical, while just 24
percent is leading or predictive. As a result, a lot of time and money is wasted analyzing what
was done, instead of figuring out what should be done next.
Forecasting features are available with WebFOCUS to help financial professionals identify
trends in numeric data and predict values beyond the range of values stored in the data source.
Analysts and other financial users can easily select measures from a drop-down list to calculate
moving averages, linear regression, or exponential moving averages.

5.7 LIMITATIONS AND SUGGESTIONS FOR IMROVEMENTS.

Confidentiality: Most information regarded as confidential was not availed by the respondents
thereby affecting the study findings.

Perceptions and attitudes of the respondents towards the study had a negative effect. The
research was seen as a way of spying hence, respondent’s volunteered wrong information which
was not adequate to comprehensively give the researcher a clear picture of the intended area of
study.

Literacy levels of the respondents affected the study. A relatively bigger number of the Prime
Steel Limited Company staff constitutes of the lower cadre staff whose literacy levels are either
low or nil. Misinterpretation of questionnaires was therefore anticipated.
Time allocated for the study. The time allocated was shorter than would have been convenient.
This led to collection of quick information, which is bound to be erroneous.

The finances given towards the study was limited yet there is no provision for a supplementary
budget. The funds were inadequate to facilitate traveling and accommodation, compilation of
reports, secretarial duties and binding.

45
In future, researcher should have enough and readily available resources to facilitate the
acquiring of more detailed information of the organization. It is also recommended that adequate
time needs to be given to enable good research work to be carried out efficiently.

The Seven “p” have not been kept in mind when deciding on the strategies that are to be used to
gain competitive advantage. Only the Four “Ps” have been taken into consideration

Use of advanced and more accurate tools is advised should there be any further research on this
project. A good example is the SPSS (Statistical Package for Scientific Software).

Therefore, it is suggested that Prime Steel Ltd. should implement the proposed solution stated
above. The computerized system will result in reduced manipulation of financial information
hence the users of financial information will be able to know the current financial position of the
firm.

46
REFERNCES

1. Abdel-Khalik, R. 1983, Financial Reporting By Private Companies: Analysis and

Diagnosis, Federal Accounting Standards Board, Stanford, Connecticut.

2. Abdel-Khalik, R. 1983, Financial Reporting By Private Companies: Analysis and

Diagnosis, Federal Accounting Standards Board, Stanford, Connecticut.

3. Carsberg, B.V., Page, M.J., Sindall, A.J. & Waring, L.D. 1985, Small Company Financial
Reporting, Prentice-Hall, London, England.

4. Cheah, H. 1990, ‘Schumpetarian and Austrian entrepreneurship: unity within duality’,

Journal of Business Venturing, vol. 5, no. 6, pp. 341-347.

5. Carsberg, B.V., Page, M.J., Sindall, A.J. & Waring, L.D. 1985, Small Company Financial
Reporting, Prentice-Hall, London, England.

6. Cheah, H. 1990, ‘Schumpetarian and Austrian entrepreneurship: unity within duality’,

Journal of Business Venturing, vol. 5, no. 6, pp. 341-347.

7. Gibson, B. & Wallschutzky, I.G. 1992, ‘The use of accountants and accounting information
in small firms: a multiple case study review’, paper to the 5th Annual Conference of the
Small Enterprise Association of Australian and New Zealand/6th National Small Business
Research Conference, Brighton Le Sands, Sydney, New South Wales.

8. McCahey, J.E. 1986, An Appropriate Financial Reporting Framework for Small

Companies, Master of Commerce Thesis, University of Melbourne, Melbourne, Victoria.

9. McMahon, R.G.P. & Davies, L.G. 1991a, Financial Reporting and Analysis in Smaller
Growth Enterprises: Evidence on Practice in the North-East of England, Accounting
and Finance Research Paper No. 91/4, Discipline of Accounting and Finance, The Flinders
University of South Australia, Bedford Park, South Australia.

47
10. Thomas, J. & Evanson, R.V. 1987, ‘An empirical investigation of association between
financial ratio use and small business success’, Journal of Business Finance and
Accounting, vol. 14, no. 4, pp. 555-571.

48
APPENDIX/APPENDICES

APPENDIX 1: QUESTOINNAIRE
The questionnaire is basically for academic purposes only and whatever information provided
shall be treated with confidentiality it deserves. Kindly note that, no victimization of whatever
nature shall whatsoever is subjected to any volunteer of whichever information that will go
towards the study.

Instructions
Kindly, fill in the questionnaire. Giving of your name is optional. The researcher promises to
treat all information given with the required confidentially. It’s meant to improve the institution
for betterment of concerned. Please put your comment where applicable and tick in the boxes
appropriately.

PART A:
OPTIONAL
Name: ……………………………………
Department: ……………………………………
Section ……………………………………
Designation/job title ……………………………………

PART B
1. What is the type of the business and what services and/or products are being provided by the
firm?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

49
2. What are the business objectives over the next two years/ be as specific as possible, and
make sure to address the following goals:
 No. of customers.
 Revenue.
 Profit.
 Market share.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

3. How is the financial information reported to the users of financial information?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

4. Are the users of financial information aware of the current financial position of the firm?
Yes No v

5. Do the financial statements clearly show the objectives?

Yes No

6. What kind of financial reporting system does the organization use?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

50
7. Does financial report show the current financial position, performance and change in the
financial position?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

8. Do you feel that with a computerized financial reporting system, financial information will
not be manipulated?
Yes No

51