Professional Documents
Culture Documents
Revised-For Saturday P
Revised-For Saturday P
BY
MINAW BELAY -ID 11242
TINBIT MENGISTU-10093
MARCH, 2023
HAWASSA, ETHIOPIA
APPROVAL SHEET
BY
MINAW BELAY -ID 11242
TINBIT MENGISTU-10093
______________________ ______________________________
Department Head Signature and Date
______________________ _______________________________
Advisor Signature and Date
______________________ ______________________________
Examiner Signature and Date
i|Page
EXECUTIVE SUMMARY
This study will be conducted in Hawassa city as a case study of AMA Paper and Paper
Packaging Manufacturing PLC This research proposal comprises of three chapters, where the
first chapter introduction of the study. In chapter two covers literature review of the study and
chapter three covers research methodology.
In this research proposal specifically focussed on the objectives of the study that is to examine
whether the organization keeps proper accounting records, and assess the accounting and
reporting practices used by the organization for decision making and its impact to the
organization performance. In order to achieve the objective, a descriptive type of study using
qualitative and quantitative approaches will be conducted
Then, the students’ researcher team will use a descriptive research design and non probability
purposive sampling methods of data collection. A total number of eighteen (18) respondents will
be selected among employees of AMA PPPM PLC who are managements and staffs of finance
department. In order to get the reliable information from selected respondents’ data collection
tools is through structured questionnaires and semi-structured interviews.
Furthermore, since two of the students’ research team are the company’s employees they are
included in the sample of respondents so they are supposed making field observation and they
have undertaken some sort of preliminary survey which is often called pilot survey. Together
with the other three team members’ personal observation and interviews will be conducted in
collecting the information
After relevant primary data is collected the study will be summarized and analyzed by using
descriptive statistical method of analysis and statement type of presentation, in which table and
percentage will be the major tools for presentation.
Lastly, from the output of this study both good and bad accounting and reporting practices of the
company will be identified and a suggestion of best accounting practices will be outlined.
Regarding the poor accounting practices of the company, the major causes of problems will be
recognized and areas which need enhancement will be recommended in order to improve the
efficiency of organization performance.
ii | P a g e
LIST OF ACRONYMS
AABE: Accounting and Auditing Board of Ethiopia
FIFO: First-In-First-Out
LIFO: Last-In-First-Out
iii | P a g e
TABLE OF CONTENTS
APPROVAL SHEET........................................................................................................................i
EXECUTIVE SUMMARY.............................................................................................................ii
LIST OF ACRONYMS..................................................................................................................iii
TABLE OF CONTENTS...............................................................................................................iv
CHAPTER ONE............................................................................................................................1
1. INTRODUCTION....................................................................................................................1
1.1. BACKGROUND OF THE STUDY.............................................................................................1
1.2. BACKGROUND OF THE COMPANY......................................................................................2
1.3. BACK GROUND OF FINANCE DEPARTMENT.....................................................................4
1.4. STATEMENT OF THE PROBLEM...........................................................................................5
1.5. RESEARCH QUESTION............................................................................................................7
1.6. OBJECTIVE OF THE STUDY...................................................................................................7
1.6.1. GENERAL OBJECTIVES...................................................................................................7
1.6.2. SPECIFIC OBJECTIVES....................................................................................................7
1.7. SIGNIFICANCE OF THE STUDY.............................................................................................8
1.8. SCOPE OF THE STUDY............................................................................................................9
1.9. LIMITATION OF THE STUDY.................................................................................................9
1.10. ORGANIZATION OF THE FINAL RESEARCH REPORT......................................................9
CHAPTER TWO.........................................................................................................................10
2. LITERATURE REVIEW.......................................................................................................10
2.1. INTRODUCTION.....................................................................................................................10
2.2. MANUFACTURING COSTS...................................................................................................10
2.3. MANUFACTURING INVENTORY.........................................................................................10
2.4. COST TERMINOLOGIES........................................................................................................11
2.5. THEORETICAL LITERATURE...............................................................................................12
2.5.1. ACCOUNTING PRACTICES...................................................................................................12
2.5.2. PRIMARY FININCIAL STATEMENTS..........................................................................16
2.5.3. ACCOUNTING STANDARD IN ETHIOPIA...................................................................17
2.6. EMPIRICAL REVIEW..............................................................................................................18
2.6.1. SIZE CLASSIFICATION OF MANUFACTURING COMPANY....................................18
iv | P a g e
2.6.2. ACCOUNTING PRACTICES...........................................................................................18
2.6.3. RECORD KEEPING.........................................................................................................20
2.6.4. FINANCIAL ACCOUNTING...........................................................................................21
2.6.5. FINANCIAL MANAGEMENT.........................................................................................22
2.6.6. COST AND MANAGEMENT ACCOUNTING...............................................................23
2.6.7. ACCOUNTING STANDARD IN ETHIOPIA...................................................................24
CHAPTER THREE.....................................................................................................................26
3. RESEARCH METHODOLOGY...........................................................................................26
3.1. DESCRIPITION OF STUDY AREA........................................................................................26
3.2. RESEARCH APPROACH.........................................................................................................26
3.3. RESEARCH DESIGN...............................................................................................................26
3.4. DATA TYPES AND SOURCES...............................................................................................26
3.5. POPULATION AND SAMPLING METHOD..........................................................................27
3.6. DATA COLLECTION METHODS..........................................................................................27
3.7. METHODE OF DATA ANALYSIS.........................................................................................28
APPENDIX....................................................................................................................................29
REFERENCES..............................................................................................................................30
v|Page
List of Tables
List Of Figures
Figure 1 Organizational Structure of the Company.....................................................................................10
Figure 2 Finance Department’s Hierarchical Structure:............................................................................11
vi | P a g e
CHAPTER ONE
1. INTRODUCTION
1.1. BACKGROUND OF THE STUDY
Today’s accounting and reporting practices provide more appropriate, consistent and suitable
financial information to stakeholders to make the effective financial decisions concerning their
business entities. The business dictionary (www.businessdictionary.com) defines accounting as
practice and body of knowledge concerned primarily with (1) methods for recording transaction,
(2) keeping financial records, (3) performing internal audit, (4) reporting and analyzing financial
information to management, and (5) advising on taxation matters. It is a systematic process of
identifying, recording, measuring, classifying, verifying, summarizing, interpreting and
communicating financial information.
Several researchers and organization have done a lot of work on the accounting practice adopted
by business organization in Ethiopia and abroad. For example, Gouws and Cronje (2008) state
that, the accounting practices generate accounting information and corporate annual reports
reflect these practices. It shows that an interdependent relationship between traditional
accounting practices and contextual accounting practices and therefore, the contextual
accounting practices have the potential to evolve into GAAP. Xun Wu (2004) states that,
corporate sector as the main source of corruption problems in Asia, with particular emphasis on
the impact that firm accounting practices have on the level of bribery. Wu suggest that better
accounting practices can help reduce both the incidence of corruption activities and the amount
of backhander payments, but conforming to high quality accounting standard alone will not
necessarily enhance the quality of accounting practices and thus will not automatically bring
down the level of bribery/corruption.
The importance of organizational performance measurement to any business organization, large
or small, can’t be over-emphasized. In any sense, profit can analogously be viewed as the life-
blood of a business and hence the accounting bases, concepts and principles adopted ought to
capture and report all the relevant accounting information to ensure reliability in its
measurement. Reported profits reflect changes in wealth of owners and this can explain why
major economic decisions in business are centered on financial performance as measured by
profitability (Cooley & Edwards, 1983). It has been recognized that appropriate accounting
information is important for a successful management of any business entity, whether large or
small (European Commission, 2008).
1|Page
It is fundamental therefore that accounting practices and appropriate financial information
needed to economic decisions made by entrepreneurs. The study therefore mainly focuses on
investigating the types of accounting practices followed by AMA PPPM PLC, their
completeness and the availability of accounting skills and knowledge to capture and process
accounting information which can be used to measure performance in the company. The
accounting practices such as the cost accounting practices, the financial accounting practices and
even the management accounting practices provide more information on the performance and
other useful material about the organization to the stakeholders. The purpose of financial
statements is to provide information about the financial position, financial status, performance
and changes in financial position of an organization that is valuable to various users in making
effective decisions.
Similarly, accounting practices are the procedures and controls that accounting departments use
for creating and recording business transactions. Accounting practice should ideally be
tremendously constant, since many business transactions must be dealt with in exactly the same
way in order to prepare consistently reliable financial statements.
Additionally, technological advancement and growing need of mankind has been the prime cause
for today’s dynamic business environment. So the need for consistent accounting practices and
reporting in business enterprises arose (firgomark.L, 1986).As discussed above, manufacturing
industry development is vital for any country, since this sector has great prospective to create
maximum social and economic advantages to the country with huge investment cost.
So, this is our profound reason to study the topic to assessment of accounting and reporting and
practices in selected manufacturing company AMA PPPM PLC.
Company History
AMA had actually existed since 2005 E.C
During the past 10 years of its life the company is in a process of transformation in its
overall business activities.
Company Location
AMA is located at Tabor K/K Hawassa City in Sidama Region at the South part of
Ethiopia.
Currently AMA has received 10 hectare (100,000 m 2 ) land at Industry Zone site for the
erection-installation of Edible Oil Refining Plant.
3|Page
Due to the company’s holistic transformational growth and Hawassa City Administration
gives its consideration: AMA is expanding its business scope and constructing of factory
shades for Edible Oil Refining Plant- a capacity of 200 Ton Per Day that will be fully
completed and operational within the next 3years.
Maneging Director
The Finance Department was first established since the existence of the company as a division
with three employees. In 2007EC the organization restructured the division as Finance &
Administration Department. Since 2010EC the Finance department established with one
Department Manager, two Division Heads (General Finance & Cost and Budget) and with a total
of 9 employees.
4|Page
Figure 2 Finance Department’s Hierarchical Structure:
Finance Department
Manager
General
Accountant Cost Accountant
Junior
Accountant
Clerk-Casher
The enormous potentials of the large and medium scale enterprises, the accounting and reporting
practices are limited to some yearly taxation report and some profit and loss statements. In this
regard the accounting information have inadequate impact in the decision making process.
Accounting information signals that decisions are needed, and provide information useful to
making decisions (Gibson 1963 quoted in Thomas & Evanson 1987;The accounting information
is used to assess the profitability of alternative course of action, measures performance and
evaluate the position of enterprises in terms of profitability, liquidity, activity and leverage. It
can be used to improve the performance of the large and medium scale enterprise performance
especially financial decisions.
5|Page
Thus proper accounting and reporting practice is a key to the success for every enterprise. The
information generated from accounting is inefficiently used by the users which are not giving the
intended purpose by looking through the practice of accounting. Because of various reasons the
information produced by the accounting practitioners has both quality and timing problem. The
quality of the accounting information limits the reliability of financial data by the users.
In general, in Ethiopia we don't have defined accounting standard, this make the practice to be
evaluated and performed in different standards which created confusion to the users of this
information and even taxation depends upon individual negotiation Zubaidur, et al., (2007)
Says that the Government of Ethiopia is committed to increasing private investment in its
economy towards reaching its development and growth objectives. Strengthening the country’s
financial architecture will make available quality financial information to facilitate investment
decisions and to help reduce the risk of financial crises and corporate failures together with their
associated negative economic impacts that have been witnessed in many industrialized and
developing countries It means, the accounting and reporting practices in Ethiopia vary among
institutions and differ from the IFRS. The above studies shows that there are no accounting
standards as well as there are no general studies at macro-level to bring to the fore the most
important problems of business organizations carrying out commercial activities with regard to
accounting practices
On the other hand, large and medium scale enterprises often face a problem with regard to their
accounting practice. The problems the enterprise face associated with accounting practice are
very difficult to give on time information on their income and expense (they do not know
whether they have lost or profited from their business activity), in presenting their financial
position managements decisions will leads to a problem which is their accounting practice is
limited to some income and loss statement and some tax reporting on the other hand the quality
of the report is also another problem in general the reports are specific user oriented.
These problems evidence the need to undertake extensive research on accounting and reporting
practices of manufacturing company like AMA PPPM PLC That means, it is important to study
the accounting and reporting practices of business organizations in particular engaged in
manufacturing company in order to not only to improve the efficiency and effectiveness of
6|Page
decision making process but also improve the efficient utilization of its resource, helps in
measuring overall operational efficiency and financial performance of the entity
Therefore, the study felt it appropriate to take up the present study entitled “Assessment of the
Accounting and Reporting Practices in the case of AMA PPPM PLC,in Hawassa City” to
investigate whether the current practices are in line with the regulatory requirements as well as
based on Modern Financial, Cost & Management, and Budgetary Accounting Principles so as to
recommend best courses of actions for the identified problems and accounting failures
The main objective of the study is to examine and evaluate the existence of accounting and
reporting practices in the case of manufacturing company- in Hawassa City.
7|Page
3. To assess recordings of assets, liabilities, and capital are reported in the balance sheet of
company. And, revenue and expenses are recognized and recorded in the Income
Statement of the company.
4. To investigate the methods and techniques of determining costs and price of the
company.
5. To examine the timing, style and parameter of financial reporting systems implemented
against to regulatory and statutory requirements, also assessing the extent of financial
management is performed for the monitor of business performance of the company.
8|Page
The study focuses only on assessing the accounting and reporting practices in the case of AMA
PPPM PLC, in Hawassa City. The analysis is made by using primary source of data which will
be obtained from employees by using questioner and interview.
CHAPTER TWO
2. LITERATURE REVIEW
2.1. INTRODUCTION
The paper is intended to assess the accounting and reporting practices in the case study of –AMA
PPPM PLC and its effect in the performance of the company.
9|Page
This chapter presents the definition of terms, theoretical literature and also the empirical
evidence on related research materials in respect to the accounting and reporting practices of
manufacturing company.
The First-In-First-Out (FIFO) inventory valuation method assumes that the first unit you
manufacture is the first one you sell. FIFO is generally the most popular approach, especially for
manufacturers of products with limited shelf lives.
The Last-In-First-Out (LIFO) inventory valuation method is the opposite of the FIFO
approach. It assumes that the last unit you produce is the first one you sell. However, LIFO is
10 | P a g e
controversial among regulators. The International Financial Reporting Standards (IFRS)
prohibits it, and businesses in the United States may not be able to use it forever.
The weighted average cost flow assumption is between FIFO and LIFO. It involves calculating
the weighted average cost of all units available for sale during a given period. You then assign
that cost to your goods sold and ending inventory. The weighted average is generally the least
common cost flow assumption for manufacturers.
In addition, a manufacturing business must use either a perpetual inventory or periodic inventory
system to track the number of units of inventory that it has on hand; for determining the
valuation of inventory. Though the periodic inventory system is easier to maintain, it only yields
an accurate value when a physical inventory count is made, and so is not recommended. The
perpetual system should yield accurate inventory unit quantities at all times, though rigorous
record keeping and cycle counting are required to ensure that a high level of accuracy is
maintained
Cost may be classified in different ways from different point of view and types of costs will be
described as below:
Fixed Cost: is cost that does not always change with activity level.
Variable Cost: is cost that varies with the level of activity.
Direct Cost: is be traced to a product or service unit, that cost is direct to that product or service
unit. Such a cost should be allocated to that product or service unit. (Betts, 1994)
Indirect Cost: is a cost that cannot be traced to a product or services unit. All indirect cost
added together make overhead.(Akeem, 2017)
Marginal Cost: is the additional cost to be incurred in order to get additional work done. All
additional fixed costs are added to make incremental cost. (Akeem, 2017)
Opportunity costs/Cost of Capital is defined as the benefit that is sacrificed when the choice of
one action precludes taking an alternative course of action.
Average costs/The average cost per unit: is the total cost for whatever quantity is
manufactured, divided by the number of units manufactured
Prime costs are all direct manufacturing costs i.e. the combination of direct material and direct
manufacturing labor costs.
11 | P a g e
Conversion costs are all manufacturing costs other than direct material costs. It is the
combination of manufacturing labor costs and manufacturing overhead costs.
Cost of Goods Manufactured: refers to the cost of goods brought to completion, whether they
were started before or during the current accounting period. It generally refers to direct materials,
direct labor, and manufacturing overhead.
Cost of Goods Sold: is the cost of finished goods inventory sold to customers during the current
accounting period .The cost of goods sold includes all direct and indirect costs associated with
the products you sell during a given period. It typically refers to direct materials, direct labor,
and manufacturing overhead
Activity-based costing (ABC) the system attempts to reveal costs through direct tracing instead
of allocation. This creates a more accurate pictures of the total costs associated with a product.
Job order costing system Job order costing system is a type of cost system that provides for a
separate record of the cost of each particular quantity of product that passes through the factory
Process costing system That produce lower numbers of unique products, process costing is for
those that create a high volume of homogenous units. Process costing involves tracking the cost
of each stage of production.
Standard Costing It refers to the preparation of standard costs and applying them to measure the
variations from actual costs and analyzing the variations with a view to maintain maximum
efficiency in production.
Even as not complicated as today, accounting has been part of human life since the first
beginning. It is a well-known fact that there were accounting records in Ancient Greeks &
Roman Empire in 3600 BC within context of accounting principles. According to the accounting
historians, the first book concerning accounting was Luca Pacioli’s Summa de Arithmetica,
Geometria, Proportioni et Proportionalita written in 1494. Accounting is kind of a system in
which there is an ongoing knowledge flow (CNC (Counseil National de Comptabilities), Plan
Compatible General, Imprimerie Nationale 3e Edition, Paris, 1983, p.VII) (Orten, 2007, P.2).
Accounting can be defined as "the process of identifying, measuring and communicating
economic information to permit informed judgments and decisions by users of the information"
(John and Edwards, 1987, P.5). The purpose of accounting is to provide financial information
12 | P a g e
about an economic entity. This accounting information, which is called financial statement
provided by the accounting system, is required by the activity of the organization. Accounting
information has many users including customers, employees, stockholders, creditors, suppliers,
government, local community and the general public.
In other word, the information in accounting systems relates mainly to financial data about
business transactions, which is represented in monetary terms. In addition to collecting data
about past transactions the accounting system may be required to generate, forecasts and
predictions about likely future circumstances as an aid to decision making. It reveals profit or
loss for a given period, and the value and nature of a firm's assets, liabilities and owners' equity.
Accounting provides information on the: Resources available to a firm,
The means employed to finance those resources, and
The results achieved through their use (http://www.businessdictionary.com).
From the context of manufacturing businesses, the accounting literature identifies the most
important specialized fields of accounting as follow:
1-Financial Accounting is concerned with the record and categorizing transactions for
businesses. This data is generally historical, meaning it’s from the past transaction in monetary
terms for economic entity so that to prepare various periodic reports. The reports, which may be
for general/special purpose, provide useful information for managers, owners, creditors,
governmental agencies and other users outside the company.
All financial statements, such as a balance sheet and an income statement, must be prepared is
performed to conform to external regulations. It is not for internal employees to analyze and
make financial decisions— managerial accounting is used for this purpose
The importance of accounting can be discovered from the fact that accounting principles such as
double entry bookkeeping are compulsorily to be followed by all companies to avoid any future
catastrophes and this is clear when you look back at larger company crisis, small businesses can
suffer more than larger companies through accounting ledger errors as they are less likely to
have the assets available for sale should finances go wrong.
13 | P a g e
In fact, the focus of cost accounting is shifting from inventory valuation for financial reporting to
supplying cost information for decision making (APO-ILO, 1997, P.828).
14 | P a g e
Budgeting Process and Control: Master Budget and/or Flexible Budgets
5-Accounting Information System AIS concerns itself with everything to do with accounting
systems and processes. The accounting system is concerned with design and implement of
procedures for the accumulation and reporting of financial data. This can include accounting data
processing methods and software & hardware management.
From the point of view from Formal Accounting System: - A large number of business failures
have been attributed to inability of financial managers to plan and control properly the current
assets and the current liabilities of their respective firms.
The main factors that contribute to success or failure of business are categorized as internal and
external factors. The external factors include financing (such as the availability of attractive
financing), economic conditions, competition, government regulations, technology and
environmental factors. The internal factors are managerial skills, workforce, accounting systems
and financial management practices. The accounting department is generally viewed as a service
unit to support the firms‟ operations by providing information on costs and performance
indicators. The needs for formal accounting system contradict the need to maintain proper
accounting records. The lack of financial management skills, (education level, experience and
managerial preferences), is viewed as a major constraint in having proper accounting systems
and controlling system.
6-Auditing is “Spicer and Pegler” "Auditing is such an examination of books of accounts and
vouchers of business, as will enable the auditors to satisfy himself that the balance sheet is
properly drawn up, so as to give a true and fair view of the state of affairs of the business and
that the profit and loss account gives true and fair view of the profit/loss for the financial period,
according to the best of information and explanation given to him and as shown by the books;
and if not, in what respect he is not satisfied."
It involves an independent review of the accounting records. In conducting an Audit, Public
accountant examine the records supporting the financial report of an enterprise and give an
opinion regarding their fairness and reliability: whether the financial statements have been
prepared in conformity with generally accepted accounting principles(GAAPs In addition to
public accountants for periodic audit companies may have their own permanent staff of Internal
Auditor, his/her responsibility is determining if various operating division are following
managements policies and procedures.
15 | P a g e
To sum up, Accounting Profession has attempted to develop a set of standards that are generally
accepted and universally practiced. Otherwise, each company would have to develop its own
standards. Further, readers of financial statements would have to familiarize themselves with
every company’s peculiar accounting and reporting practices. It would be almost impossible to
prepare statements that could be compared. For many years, many nations have relied on their
own standard-setting organizations. For example, Canada has the Accounting Standards Board,
Japan has the Accounting Standards Board of Japan, Germany has the German Accounting
Standards Committee, and the United States has the Financial Accounting Standards Board
(FASB). The standards issued by these organizations are sometimes principles-based, rules-
based, tax oriented, or business-based. In other words, they often differ in concept and objective.
Starting in 2000, two major standard-setting bodies have emerged as the primary standard-setting
bodies in the world. One organization is based in London, United Kingdom, and is called the
International Accounting Standards Board (IASB). The IASB issues International Financial
Reporting Standards (IFRS), which are used on most foreign exchanges. Currently, IFRS is used
in 120 countries and is rapidly gaining acceptance in other countries as well. It is generally
believed that IFRS has the best potential to provide a common platform on which companies can
report and investors can compare financial information.
16 | P a g e
In order to meet their objectives, financial statements are prepared on the accrual basis of
accounting. Accrual accounting depicts the effects of transactions and other events and
circumstances on a reporting entity’s economic resources and claims in the periods in which
those effects occur, even if the resulting cash receipts and payments occur in a different period.
This is important because information about a reporting entity’s economic resources and claims
and changes in its economic resources and claims during a period provides a better basis for
assessing the entity’s past and future performance than information solely about cash receipts
and payments during that period. The financial statements are normally prepared on the
assumption that an entity is a going concern and will continue in operation for the foreseeable
future.
17 | P a g e
2.6. EMPIRICAL REVIEW
2.6.1. SIZE CLASSIFICATION OF MANUFACTURING COMPANY
In Ethiopia the classification of manufacturing company size categorized into small, medium and
large scale depending on a number of variables such as level of employment, turnover, capital
investment, production capacity, level of technology and subsector. According to Central
Statistics Agency (CSA) and Federal Enterprise Development Agency (FeMSE) context the
number of employees on those enterprises are 9,49 and above 50 respectively.
Additionally, in Ethiopia according to ERCA (Ethiopian Revenue and Costumes Authority)
taxonomy, large taxpayers companies include all bank and insurance companies, and others
firms like manufacturing companies their annual turnover should be more than Birr 28 million
for continues three years to be considered us large tax payer. And according to European
Commission Classification of Enterprise structure of small and medium scale enterprises number
of employee is 10-49 and 50-249 respectively. Their annual turnover is 2-10 and 50 million Euro
respectively
So, from the context of Ethiopian company structure and as discussed in the background of the
company the total number of AMA’s employees is 156: this implies that AMA PPPM PLC is
categorized under large scale enterprise
18 | P a g e
purchase and sales, determine break-even point, and make a wide range of other financial analyses
based on accounting information. The study contends that, lack of proper accounting records has
seen the closure of some businesses, and thus makes it a significant issue for business success. Other
studies assert that the high incidence of failure among LMEs could be attributed to the poor
accounting systems used by these enterprises (Ofonagoro, 1983). Those studies recount that
since accounting systems play a key role in determining business growth and profitability, there
is a need to evaluate the accounting systems used by LMEs. This is important because for
optimum business growth, LMEs must make use of a system of accounting which will enable
them determine the volume of sales, profits (or loss), assets and liabilities at any given time.
According to Lybaert (1998), the quality of accounting information utilized within the LME has
a positive relationship with an entity’s performance and survival.
Kinney (2001) suggests that accounting is one of the important types of information for decision
making both within and outside the organization. He further states that the quality of this
information gauged by its relevance and its reliability for a particular decision is equally
important. In the words of Osuala (1993), many enterprises record their transactions randomly
without adherence to any established systems of accounting; hence making it difficult in keeping
track of the cash flows in the enterprises.
Knowledge of cash-flows according to Pandy (1991) is very important because cash-flows are
inseparable parts of the business operations of firms. Furthermore, there is some evidence to
suggest that firms are aware of the importance of accounting information (International
Federation of Accountants, 2006). The high rate of failure of small scale enterprises in
developing countries like Ghana, has generally been traced to poor management and accounting
systems employed by these enterprises (Ofonagoro, 1983).
19 | P a g e
of the standards recommended by various external financial information users imperatives that
exist for them, and further claim that LME managers/owners appear mostly reluctant to produce
financial reports which might become accessible to outside parties either through the regulatory
authorities or directly.
20 | P a g e
(2011) links proper record keeping and profitability of small scale enterprises and assert that due
to inadequate record keeping, the small scale operators could not assess their performances
effectively. He argues that in order to enhance the profitability of small scale enterprises and
their continuity, there is need for adequate record keeping which will help the proprietors to keep
track of the performance of these enterprises.
One reason for that is because for almost all enterprises the owners keep all the records in
memory and hence the lack of records of all kinds sales, marketing, accounting, credit borrowing
from lending institutions, staff costs, owners emoluments, etc. Owners of SMEs do not keep
proper records and thus, they are not able to provide data about their entities.
21 | P a g e
SME, for financial accounting reports all respondents (100%) prepare balance sheet and profit
and loss account, cash flow statements, fixed asset record, tax returns and inventory analysis.
22 | P a g e
2.6.6. COST AND MANAGEMENT ACCOUNTING
A study found similarities between costing systems used by SMEs and larger companies (Hopper
et al. 1999). The costing systems and cost management practices used by the SMEs were mainly
for product costing and budget and less emphasis for decision making or performance evaluation.
They also found that sophisticated detailed process of cost management was commonly used for
engineering and quality control.
The management accounting reports studied include budgets and different types of budget
variance analysis, production cost statement, cost volume profit (CVP) analysis and
benchmarking report. The findings show that among the management accounting reports,
majority of the respondents (92.1%) prepared budget, followed by production cost statement
(82.9%), variance analysis (80.3%), CVP analysis (73.7%) and benchmarking reporting (57.9%).
The findings might indicate that most of the SMEs are mainly utilizing a traditional management
accounting techniques as compared to the more contemporary management techniques such as
activity based costing or total quality management. Among the different types of budgets, cash
budget is the most frequently prepared (93.4%), followed by sales budget (92.1%), expenses
budget (86.8%) and lastly production budget (85.5%). The least prepared management
accounting report is benchmarking report (Che Ruhana Isa, Zakiah Saleh, Noor Sharoja Sapiei
2007).
To summarize others study, in spite of the importance of financial reporting, management
accounting and control practices, it is unfortunate to find that these practices are often inadequate
and lacking among SMEs. Except for yearly taxation returns and some form of profit and loss
statements, other statements such as balance sheet, cash flow statement, fund statement,
production report and variance report are infrequently used. These rather limited usage of
financial and management accounting reports could be attributed to SMEs‟ inability to employ
professional managers with functional specialization especially in the financial area due to their
limited financial resources. Without adequate, effective and timely financial reports and analysis,
the SMEs are losing out on the benefits from those practices such as improved monitoring of
financial health and progress, improved ability to anticipate fortunes or failures, better
assessments of financial risks and greater ease in financial planning and control. Most
importantly, in the context of SMEs requiring extra capital to grow, regular financial reports can
provide indications on their ability to produce steady cash flows and to service debt. It has been
established that the use of appropriate financial reporting and management accounting practices
23 | P a g e
could be one of the determinants of company survival particularly SMEs (Gorton, 1999;
McMahon & Holmes, 1991).
Management Accounting Practices of (UK) Small and medium sized enterprises (SMEs) the
emphasis on management accounting in SMEs tends to be on control information rather than
aiding decision-making; there is a tendency to make decisions without adequate, or indeed any,
financial information or analysis;
In smaller enterprises, the management accounting is often undertaken by the
owner-manager/entrepreneur, resulting in significant opportunity costs. Where more structured
use of management accounting techniques could add value, it might be appropriate to employ a
management accountant business partner to address this problem; there is considerable variation
in the amount and type of management accounting undertaken, seemingly conditioned by a
number of factors:
1. Size (larger organizations do more management accounting than smaller ones);
2. Financial constraint in terms of profitability, cash flow and credit availability (severely
constrained organizations do more management accounting than less constrained ones);
3. External stakeholder requirements;
4. Background and experience of senior management team (senior managers with non-
financial backgrounds being less likely to employ management accounting);
5. Nature of the operations and the environment in which the enterprise is operating
24 | P a g e
The recommendations of the review included: revising the country’s 1960 Commercial Code and
other relevant laws and regulations; enacting a financial reporting law; establishing a national
accountants and auditors board; mandating ISA for all auditors; establishing a strong
professional accountancy body, with membership of the International Federation of Accountants
(IFAC); establishing a local professional and technician accountancy qualification; enhancing the
capacity of all regulators, to enable them to effectively discharge their responsibilities; to handle
international financial reporting standards related issues in the regulation; and, to conduct
awareness campaigns and related programmers.
Now that the government has enacted a financial reporting law, donors and all others concerned
in the advancement of the accountancy profession in Ethiopia should work towards making the
recommendations realities. These will lead to the education of professional accountants locally,
the improvement of the monitoring of private and public audits, the development of ethical
culture, and the production of quality and timely financial management information. It takes
more than a strong accountancy profession to fully deal with wastage and corruption, and
Ethiopia is not unique in this respect. However, a concerted effort by all concerned to put in
place the legal and institutional framework as soon as possible is starting on the right foot.
(http://addisfortune.net/)
25 | P a g e
CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1. DESCRIPITION OF STUDY AREA
The study will be conducted in the case of AMA Paper and Paper Packaging Manufacturing PLC
which is located at the South part of Ethiopia, Sidama Region, Hawassa City in Tabor K/K
The target population of the study will be 18 in number and focused on staffs of finance
department and different level of managements will be included as study population
This study is basically a descriptive study that is conducted for detailed description of specific
situation(s) using questionnaires, interviews, observations and document review. Accordingly,
the study deals with clearly defining the problem related with the Accounting and Reporting
Practices in case of the selected manufacturing company-AMA .
26 | P a g e
sources are top managements, staff of finance department, middle level managements/
departmental managers and operational level managements of the company-AMA PPPM PLC.
And the secondary data sources is obtained from the company’ s records, financial reporting
documents, sample financial formats, books, research thesis- materials, journals, related websites
in the internet, and other documents that are related to the topic under study. The semi-structured
interview will be conducted to enhance and support the information gain through the
questionnaires.
27 | P a g e
To avoid any basis for estimating the probability that each item in the population has of
being included in the sample
Because their response is depend up on their accounting practice and experience towards
the study.
28 | P a g e
Year-2022/23
Activities Ma
Nov Dec Jan Feb Mar Apr Jun
y
Topic formulation and analysis *
Research proposal writing. * * *
Submission of the research proposal-
.1st draft *
Revision of the research proposal.-
1st draft *
Final research report writing * *
Submission of the final research report-
THESIS *
S/ UNIT
PARTICULARS UOM QTY TOTAL COST
N0 COST
Lump
1 Coffee/Tea/ and Others 1 15,000 15,000
sump
2 Communication cost >> 1 1,000 1,000
Total-Birr 23,700
APPENDIX
29 | P a g e
30 | P a g e
REFERENCES
Aron H, 2014, Financial, Cost, and Budgetary Accounting Practices of Manufacturing Firm,
https://iiste.org/Journals/index.php/RJFA/article/view/12777
31 | P a g e
MM Hossain, 2020, Management Accounting Practices, https://archive.aessweb.com
Mohammed A.Bekana D., 2020, Adoption of Cost and Management Accounting Techniques
https://www.researchgate.net
Albertina M, 2011, Impact of the internal control and accounting systems on the financial
information usefulness, https://www.researchgate.net/publication/352856785
Creswell, J W, 2013, Research design: qualitative, quantitative and mixed methods approaches,
4th ed,Sage Publications, California
Charles T, Srikant M., Madhav V., 2015, Cost Accounting A Managerial Emphasis,15th Edition
Pearson Education Inc. ,in the United States of America.
CRONJE, C. H., (October 2007) Corporate Annual Reports and Accounting practices in
Transition, Accounting Review, Sage Publications, California
Drury, C. (2012). Management and Cost Accounting (8thed). Chariton House, North Way,
Andover, Hampshire, SP BE, United Kingdom.
Diewert, W., (2005) The Measurement of Business Capital, Income and Performance:
Accounting theory and alternative methods for Asset Valuation, The Accounting
Review, 1-25.
32 | P a g e