AN ASSESSMENT OF THE ROLE OF AUDIT IN SMALL AND MEDIUM ENTERPRISES IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the Study

Small-scale businesses play a vital role in maintaining the economic stability of a nation. They frequently function as indices of progress and the state of the population's welfare. Efficient administrative management is crucial for the viability of any firm, especially for small-scale enterprises that may have less defined formal organisational structures. For small-scale firms to be effectively managed and sustained, it is crucial to give careful attention to key areas such as staff management, accounting information, and finance alternatives (Akabueze, 2022). 

In Cameroon, the effective administration of these firms is frequently impeded by a deficiency in accounting and audit expertise among individuals involved. There is ongoing debate over the impact of audit services on the success of small-scale firms. Audit services have a crucial role in determining the success of these firms, as stated by Arens et al. (2020). Auditing plays a crucial role for SMEs by performing essential activities that impact both the operational and financial aspects of the firm. One of the primary responsibilities is to provide assurance regarding the reliability and accuracy of financial statements. Furthermore, an independent audit enhances the credibility of financial reporting for small and medium-sized enterprises (SMEs), which often have less resources and less structured accounting processes. This enhances stakeholder confidence and facilitates the acquisition of capital for small and medium-sized enterprises (Cameran, Prencipe, & Trombetta, 2019). Similarly, for small and medium-sized enterprises (SMEs) seeking to attract investors, secure loans, or establish commercial partnerships, this reputation is particularly vital. 

Auditing improves the efficiency and internal controls of small and medium-sized enterprises (SMEs). Auditors assess the effectiveness of internal controls and identify inefficiencies or vulnerabilities during the audit procedure. The outcomes of this evaluation frequently lead to recommendations for improvements in systems and processes that will increase the overall performance of the firm (Knechel, 2018). Nonetheless, small-scale business entrepreneurs encounter notable obstacles such as limited financial resources and a dearth of managerial acumen. In order to tackle these problems, the Federal and State Governments of Cameroon have taken steps to assist small-scale entrepreneurs by offering them low-interest loans and providing consultation services on multiple occasions. Notwithstanding these endeavours, there continues to be a high occurrence of business failures among small-scale firms in Cameroon. An insufficient level of administrative management skills is a significant factor contributing to these failures. A significant number of small-scale firms do not possess the requisite accounting standards that are essential for providing vital information for decision-making and the overall functioning of the business. Lacking a firm grasp of accounting principles poses a challenge to good administrative administration, which in turn affects the viability of enterprises in Cameroon. 

Furthermore, Okoh and Uzoka (2022) noted that a significant factor contributing to the failure of most small-scale firms in Cameroon is the lack of sufficient administrative management experience. Certain businesses may not possess the requisite accounting standards required to furnish information regarding their activities and decision-making procedures. Nevertheless, auditing small and medium-sized firms is a significant challenge for professional accountants and auditors due to the presence of inadequate internal controls. These firms frequently disregard proper accounting processes, resulting in premature business collapse (Mukaila and Adeyemi, 2021). Given the importance of this function, this study aims to assess the role of audit in small and medium enterprises in Cameroon.

Statement of the Problem

The small and medium-sized enterprise (SME) sector has a vital impact on the economy of Cameroon since it employs a substantial number of workers from the lower middle class and helps to decrease the unemployment rate. Due to their significance, the government places great emphasis on the growth and improvement of small and medium-sized enterprises (SMEs). SMEs commonly encounter limitations in terms of both financial and non-financial resources, as stated by Suyono, Eko Farooque, Omar Al Riswan, and Riswan (2018). Insufficient capital and difficulty in acquiring funds give rise to financial hurdles, while non-financial issues such as inadequate managerial qualities, limited business networks, and other factors reduce their competitiveness in comparison to larger enterprises. 

In addition, small and medium-sized enterprises (SMEs) frequently face difficulties in producing financial statements that adhere to the accounting standards mandated by banks, which diminishes their creditworthiness. The participation of independent auditors is essential to tackle this problem. Having dependable financial statements enhances the likelihood of securing bank loans for small and medium-sized enterprises (SMEs). Nevertheless, numerous small and medium-sized enterprises (SMEs) exhibit hesitancy about subjecting their financial statements to an audit, in contrast to larger and more contemporary organisations. SMEs commonly engage audit services primarily while seeking bank financing, as banks want impartial verification of financial information to establish trust in the data offered by SMEs. 

In order for small and medium-sized enterprises (SMEs) to obtain a positive audit opinion, they must satisfy a range of criteria established by accounting and auditing standards. One of the main obstacles to the development of small and medium-sized enterprises (SMEs), apart from financial constraints, is their inadequate financial management. This is because many SMEs depend on rudimentary bookkeeping techniques and overlook established accounting principles. Hence, it is in the light of these that the study seeks to assess the role of audit in small and medium enterprises in Cameroon.

 1.3  Objectives of the Study

The main purpose of this study is to assess the role of audit in small and medium enterprises in Cameroon. Specifically, the study will;

Assess the level of adoption of auditing practices among SMEs in Cameroon.

Examine how audit practices contribute to financial stability and decision-making in SMEs.

Determine whether auditing enhances the preformance of SMEs in Cameroon.

Investigate the challenges associated with auditing in SMEs.

1.4  Research Questions

The following questions have been prepared for the study:

What is the level of adoption of auditing practices among SMEs in Cameroon?

How do audit practices contribute to financial stability and decision-making in SMEs?

Does auditing enhance the preformance of SMEs in Cameroon?

What are the challenges associated with auditing in SMEs?

1.5 Research Hypotheses

H0: Audits do not play a significant role in the performance and operation of small and medium enterprises in Cameroon.

Ha: Audits play a significant role in the performance and operation of small and medium enterprises in Cameroon.

1.6 Significance of the Study

The study findings will assist managers and owners of SMEs in realising the value of routine audits in preserving correct financial records, guaranteeing adherence to tax laws, and improving transparency. As a result, the company will develop a culture of trust and accountability, which will attract more partners and investors.Additionally, the study will offer practical guidance to auditors and audit firms on the unique challenges and opportunities associated with auditing SMEs in Cameroon. It will highlight the specific needs and characteristics of SMEs, such as limited financial resources and less formalized processes, which may require tailored audit approaches. Nevertheless, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review.

1.7 Scope of the study   

The scope of this study is boarded on the role of audit in small and medium enterprises in Cameroon. Empirically, the study will assess the level of adoption of auditing practices among SMEs, examine how audit practices contribute to financial stability and decision-making in SMEs, determine whether auditing enhances the preformance of SMEs in Cameroon and investigate the challenges associated with auditing in SMEs.

Geographically, the study will be delimited to some selected SMEs in Cameroon.

1.8 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.9 Definition of Terms

Auditing: The systematic examination and evaluation of financial records and transactions of an organization to ensure accuracy, reliability, and compliance with established accounting standards and regulations.

SMEs: Also known as small and medium enterprise, defined as businesses with a limited number of employees and annual revenues, often operate with less formalized structures compared to larger corporations (OECD, 2020).

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