Perceived quality of accounting information and performance of Small and Medium Enterprises (SMEs)

Abstract

Quality information is critical to organizations’ success in today’s highly competitive environment. The Statement of Accounting Concepts 3, International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB, 1980) developed a conceptual framework for financial reporting where relevance, reliability, understandability and comparability are the qualitative characteristics that financial accounting information should possess. Empirical studies found accuracy as a distinct dimension of accounting information quality from reliability. Basing on this background, the study covered relevance, reliability, understandability and accuracy.

There is a belief that there is a relationship between these qualities and performance of small and medium size enterprises. However, very little empirical investigation has tested the presence of this relationship. This dissertation investigates the correlation between quality of accounting information and performance of small and medium enterprises. 160 participants from different categories of selected small and medium enterprises (SMEs); with 103 (64%) usable responses received.

With the belief that there is a relationship between quality of accounting information and the performance of small and medium enterprises, individual qualitative characteristics (relevance, accuracy, understandability, reliability) were tested with the performance. A significant positive linear relationship was found between quality of accounting information and performance of SMEs. The findings on the correlation relationship indicate that quality of accounting information in terms of relevance, accuracy, understandability and reliability enhanced on the performance of small and medium enterprises.

From the findings of the study, it is recommended that for better decision making and improved performance of small and medium enterprises, accounting information should be relevant, accurate, understandable and reliable.