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Small and Medium Enterprises in Mauritius

Basically companies are regarded as small predicated on cool features. Different countries define SME in different ways. Including the classification of SMEs in European Union (European union) is dependant on Turnover or balance sheet total and headcount.

The Small and Medium Companies Development Firm (SMIDO) that was set up under the SMIDO 1993 as a parastatal body, was the excellent support institution for Small and Medium Corporations (SMEs) in Mauritius. It aims was to foster expansion and development of SMEs". Small Medium Venture is defined as:

"Manufacturing companies which uses development equipment with an aggregate CIF value not exceeding ten million rupees. "Manufacturing means the transformation, conversion of recycleables, repair, packing and assembly of semi-finished parts into finished goods. Creation Equipment means machinery and equipment found in the procedure of making".

As per SMEDA function of 2009, the SME description comprises of enterprise of all financial sectors. There is absolutely no differentiation between services and developing industries. Therefore, turnover standards are being used across sectors.

"A Small Enterprise is thought as an enterprise which includes an twelve-monthly turnover of only 10 million MUR ".

"A Medium Business is thought as an enterprise which has an twelve-monthly turnover greater than 10 million MUR but not more than 50 million MUR".

No differences are made between service and developing sector. Based on the Corporation for Economic Cooperation and Development (OECD), some countries make reference to the number of employee as standards for SME's and some other use a combo of the number of employees, invested capital, sales and industry type. Fundamentally there is no universally agreed definition of Small & Medium Corporations as it is based on the amount of employees, on business or turnover and assets. However, in line with the vulnerability draft for SME'S of IASB, SMEs is an enterprise that not has public accountability and release general purpose financial statement for external users.

The bottom line mission of SMEDA is to aid Mauritius start, build and develop businesses. It also seeks to develop an entrepreneurial culture in Mauritius where a large proportion of the populace is willing to start out a business.

2. 1. 2 The need for SMES in Mauritius

According to Beyene (2002) Small and Medium Level Enterprises (SMEs) are universally known as effective equipment for employment technology and economic development. Padachi (xxx) who analyzed the importance attached to accounting services among small to Medium sized Mauritian Manufacturing firms states that: " SME'S are the backbone of your economy because they are the major contributor and plays an important role as reliable providers of intermediate goods and services to large firms".

Big businesses and smaller businesses have a major difference in the role played by the owner and supervisor. In small company, the owner and the administrator are often the same person (Vos E and Roulston C (2008)). In this esteem they are known as owner-manager. Basically most SMEs in Mauritius are private limited company. However there are some companies that are structured as exclusive proprietorship. It had been also found that majority of the companies are family-owned and the owner- managers takes all the duty of the business enterprise.

Lal K and Peedoly A S (2006) who carried a survey to find Mauritian SMEs in today's framework of global competition and also to identify the magnitude to which they have adopted ICTs as a tool to meet the challenges advised that:

"The general picture of Mauritian SMEs that emerges from the above findings would be that the overwhelming bulk are ill-equipped both actually and figuratively to handle the problems of globalization. The gradual demise of some of the monetary pillars of the united states in recent years brought about by contemporaneous ideological, economical and political realities of globalization and their accompanying results on the unemployment rates are delivering at the one same time both a challenge and a chance for the SME sector. "

2. 2 Accounting information System and its implication

2. 2. 1 What is an accounting information system?

Accounting information system gathers and processes transfer data and connect financial information to decision creators. Weygandt J (2010). Besides Moscove A Et al(1999), there are numerous ways where accounting itself can be an information system. It distributes information to those in need of it.

However Moscove A et al (1999) explain that lots of people think of computers when they hear the word information system. He shows that information system may not necessary be a computerized system. It could remain with or with out a computer. Nonetheless it may use computers to process a paper-based information. Furthermore, the info can also be captured in order to insight electronically, prepared by computer, and output to a screen.

Accounting information system performs a essential role in a business. In these contemporary times accounting information are almost refined by the computer rather than on paper. According to Smith (2008), most companies involved accountants to maintain their accounting system but today with the release of computers and many types of accounting software the amount of accountant to maintain accounts in Small Medium Enterprise has reduced. Owners of SME'S invest some sum of money for setting up computer technology and accounting software. As a result, expenses made on paper work and further staff is removed.

Son et al. (2006) conducted a prominent study in Vietnam on users' perceptions and uses of financial information of small and medium companies found that the user's accounting skills was one of the main factors affecting the information use of the owner or director. Due to insufficient accounting know-how they cannot use or understand the info. "There was a negative belief among users about the trustworthiness of financial information provided by small medium venture. Dependability and timeliness were found to be the most advisable characteristic affecting the utility of information.

2. 2. 2 Implication of accounting information systems for SME'S

The Accounting information has two main informational components: financial accounting and managerial (management) accounting

Management accounting can be involved with providing information about an organization to professionals to help them in handling the business. Basically the activities that are participating are decision-making, planning and control. It is therefore the collection, research, dissemination and interpretation of information for managers of a business that will assist in the making of decision and planning based on those decision and finally to control in order to ensure the achievement of planning. (Atrill and Mclaney). It creates monthly or regular reports for the internal users of the company. It tends to give attention to products, department and activities. Furthermore it helps management with the organization's acquisition, processing, distribution and reselling activities.

Financial accounting gathers and summarizes financial data to get ready financial statement for the firm's management, shareholders, lenders, suppliers, taxes specialists and other stakeholders. These external users rarely have access to the inner information of the business. Therefore they have to count only on the general report provided by the business. Though it is prepare for external use, professionals also put it to use for assessing organization's performance. Furthermore, financial assertions are ready to comply with taxes rules and are also great for loan discussions.

Isa et al. (2007) examine financial and management accounting routines in small and medium enterprise in Malaysia. The results showed that majorities of company prepare financial and management accounting reports such as earnings and reduction, balance sheet and cashflow statement frequently. The usage of computerized system was predominant among the list of organization. The management accounting accounts include budget and different types of budget such as variance evaluation, production cost declaration, cost volume earnings examination and benchmarking report.

2. 3 Standard resources of accounting information for SMEs

The financial record of SMEs comprises of income assertion, balance sheet, the directors record and disclosure of accounting insurance policies. There are just some SMEs whose financial assertions are audited presenting surge to the audit article. In Mauritius, financial reporting which is governed by company action 2001 will not require smaller integrated company to get statutory audit. Therefore when preparing financial statement, international financial reporting are followed. Matching to company action 2001 small companies (turnover

Palmer Kristine N (1994) taken a survey on the financial information used by small independent Shop owner-manager. She discovered that daily files of sales and other deals were largely kept which little of these uses computerized accounting system. Cash approach to record keeping was used. A checkbook and a revenue and loss statement were to be their financial statement. The financial information that was well prepared did not provide them with the appropriate information. It was simply well prepared for tax purposes. She further stipulated that information that was obtained was not written down in some recoverable format or recorded in virtually any accounting system. It was found to be only in their minds. In this esteem, financial guidance is needed by the owner-manager to recognize the information they need to make a good decision by changing their methods of gathering information to a superior accounting system.

Basically the owners of small organization used external accountant or bookkeepers mainly to produce financial statement, to provide tax or VAT information or even to run the accounting system (Sian S and Robert C (2009)). Accountant additionally provides services such as creation of annual statement and routine tax work and management accounts. (Chittenden et al. 1990). Garvin C Reid (xxx) suggests that annual account contained historical data that not promote monitoring and control in the company although it is important for statutory requirement of tax purposes. Collis and Jarvis (2002) who conducted a study in UK on financial information and management of small private company where resources and tool of financial information used were indentified, advised that the most readily useful general resources of information were regular management accounts, cashflow information and loan company statement which are also form of cash flow information. It had been also discovered that the hottest information is regular monthly/quarterly management accounts and cash flow information in various forms. This implies that much attention are located on managing cash as prior research (Jarvis et al. 1996) signifies that cash flow management is important to help small firm for their survival.

John and Healeas (2000) stipulated that the statutory consideration was not helpful for decision-making and management accounts and cash flow forecast were preferably used. Collis and Jarvis (2002) found when the business received statutory accounts, at exactly the same time they get more information such as verbal justification or research of accounts. Furthermore, detailed profit and damage and some management advice were also provided to a lesser extent. Sian S and Robert C (2009) and John and Healeas (2000) also discovered that few SME'S owners-manager has difficulty do understand the items of statutory accounts. Besides, as accountant often put together financial statement, they suggest small businesses on internal, management planning, decision making control and future strategy. (Chittenden et al. 1990, Deakins et al. 2001. )

According to the final survey of Expert Group conducted by the European Percentage and expert also suggest that

"Normally statutory accounts of small corporations are not considered to be particularly useful for managing the organization, but the most directors obtain management advice or further evaluation at the same time".

Recently, Isa et al. (2007) conducted a study on financial and management accounting routines among small and medium organization in Malaysia. The studies revealed that all owners- managers of the sample well prepared balance sheet and profit and loss. Furthermore to the main financial statement; cash flow statement, fixed investments records, taxation statements and inventory examination were prepared. So far as the frequency of report generation is concerned, it was discovered that a greater amount of the owner-managers well prepared this report monthly. Furthermore owner- manager prepare management accounting reviews which comprised of budget, development cost and cost quantity profit analysis.

Pinson L (2007) points out all of the general information in small business that can be used to track the day to day business deal. Some of them are:

Cash in Bank

Revenue and price Journal

Invoices and sales receipt

Petty cash record

Inventory records

Fixed property log

Accounts receivable and payable

Payroll record

Customer records

Business checkbook

2. 4 External users of financial statement

The International Accounting standard plank (IASB) recognizes seven main users of financial record. They are








The intergovernmental working band of expert on International Criteria of Accounting and Reporting (ISAR) given a publication on Accounting and financial reporting Suggestions for SMEs where they determined six main users of financial record specifically: management, lenders as well as others creditors, Federal, Taxation expert, their agencies and credit reporting agencies.

According to the Final survey of the Expert group 2008, the primary users of financial statement is business owners/shareholders, management, government and its own agencies, Lenders and their lenders, customer or suppliers and employees

"The aim of financial assertions of a tiny or medium-sized entity is to provide information about the budget, performance and cash flows of the entity that is useful for financial decision-making by a wide range of users who are not able to demand reports designed to meet their unique information needs. Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating organizations. " (Exposure draft of any proposed IFRS for Small and Medium-sized Entities, February 2007).

Amir and farooq (2010) conduct a prominent study in Sweden on whether SMEs in Sweden are inclined to the adoption of IFRS for SMEs and just how do they plan its implementation. They interviewed (Henrik) the chief financial controller about the users of financial statement:

"When asked if taxes regulators need financial statements for the computation of fees, Henry said that tax regulators surely need financial assertions to be able to calculate the fees. He added that there surely is a possibility that by the finish of this calendar year a threshold will be identified for the firms that will not require employing the services of an auditor. Following the implementation of this threshold, the tax authorities would need to take extra consideration of the financial assertions of such companies which land below this defined threshold. Matching to Anonym, there's been much discussions regarding this matter that whether duty studies can be predicated on the financial assertions. There should be complete information symmetry because the accountants and auditors might know a lot more than workers in tax section. In this manner, the tax department does not want to rely on financial claims which are created relating to specific accounting criteria, and they want to use their own rules for the computation of tax purposes. "

Banks is recognized as one of the crucial source for small business (Chittenden et al. 1990; Storey 1994). Collis and Jarvis (2000) identified that the key non-statutory recipients of the statutory financial statements as major lenders, the Inland Revenue and management. A lot of the company used it to provide information to the lender. Berry and Warring (1995) stipulated that a set of expanded financial statement are demanded for just about any loan application by the lender. This findings is similar to that of Collis and Jarvis (2000) where it was suggest that majority of the company use statutory accounts to provide information to the bank

The degree to which managers use financial information

A financial article is a written report which is posted by an venture to provide accounting information to echo the budget on a particular date and its own operating results and cashflow for an accounting period to the users of financial article. It includes accounting assertions and notes and other information that will be disclosed in the financial studies. Sian S and Robert C (2009) state that, the bank assertion and annual studies were the most essential information resources for the owner- professionals. It was further stipulated that a lot of owner-manager rarely use financial statement in case so only to compare income with past intervals. Collis and Jarvis (2000) also suggest that the most useful reason for the annual consideration that owner-manager consider is the fact that, it helps to ascertain directors remuneration and dividend. It was also ideal for evaluating performance with past period and also for loan and fund purposes. Directors, who dispatched their accounts to the bank, consider the statutory accounts are advantageous for management purposes and would decide on a voluntary audit.

In comparison, Barker and Noonan (1996) high light that financial statement was primarily helpful for owners or directors. However, the planning of financial statement in high criteria is not good for the owners or directors but to the bank instead. The financial statement was of great importance in cash management decision if the information is unavailable until at least three or half a year after the calendar year end. Abdel K. Halabi et al. (2010) carry out a survey of owners to examine what financial information small company owner's record and the system they use to get, process and survey that information. It affirms that accounting record weren't produce for use available since it was beyond the understandability of the owner- director but rather for taxation purposes. Taxation profits and accounting report utilized similar information but look different. Some owners use these accounting records only for examining information for decision-making.

Furthermore, Abdel K. Halabi et al. (2010) also researched whether financial information was used in the evaluations of the firm's performance. It had been discovered that that there have been both negative and positive responses. The positive one shows that the information were recorded up to date and each 1 / 4 they have a good idea of the firm's performance. It had been argued that the worthiness achieve from the tracking of financial information is based on the financial skill and their romantic relationship with the accountant. Moreover, some owners used a computerized system such as an "off-the-shelf accounting plans to record financial information. With such system, comparability across time period was advantageous. Basically, the owners respected everything that were generated from a computer thus allowing the creation of timely reports. This study (2010) states

"Financial management skills are critical to the success of small organizations. Despite this the majority of owners of small companies do not (as yet) need to comply with any specific accounting expectations and must only survey financial information for taxation purposes. Financial information and accounting accounts can inform owners of the consequences of their firm's functions and the impacts of their earlier decision making. It could be used to help owners develop and develop their organization and thus, strengthen the financial and sociable contribution small organizations can make. "

Longenecker etal. (2006) state that managers will need to have accurate, important and timely information to make great decision. This is particularly true of financial information about companies businesses. Sometimes owner-manager will believe that they have got less need of financial record because they're involved with personal participation in daily operation.

"An accounting system set ups the move of financial information to give a complete picture of a firm's financial activities. Conceivably a few very small firms may not require formal financial record. Most however, need at least monthly financial statement that ought to be computer generated. The great things about by using a computer in developing financial information are so great and the costs so low that it creates zero sense to do normally. An accounting system for small business should offer financial statement for use by management, bankers and potential creditors. "

Amir and farooq (2010) questioned X (main financial controller) and Y( chartered accountant of company z) pertaining to their opinion about the view that small business professionals are less reliant after formal financial statements.

X states:"In one-man possessed firm the owner understands what his business is approximately, what he makes and sells, so he doesn't have to count on any sort of formal financial claims. In ways, it can be from the size of the firm, the more employees a company has got the more management it requires, and the financial assertions is required to keep the and balance. According to Y, small business professionals are less reliant on financial claims because in these lenders there are entrepreneurs who have no idea much about book-keeping and financial information. The thing they know is how to make money, and they can do it without the utilization of almost any financial information. Thus, participation can make the managers understand much more than just getting the idea from financial statements. "

Owners or Professionals believed that financial record are very very important to capital making decision. (Holmes s (1988)). Nandan R (2010) explained since SME's have unbiased ownership where owners or managers provide majority of capital required for the procedure of the business. Holmes and Nicholls (1989)point out that small business operator or manager almost never does have usage of all information that is known as important for all aspects of the business enterprise. This were due to the four external factors such as business size, the amount of time under current management, the professional sector and the training level of the owner or administrator.

2. 6 Financial consciousness among managers

Sian S and Robert C (2009) highlights that lots of owner-managers turned to accountants to provide accounting service, including the prep of accounts or the provision of duty or vat information because of lack of financial awareness among them. Deakins et al (2001) discovered that owners-managers have different methods pertaining to business planning. Quite simply planning was important to the people firms under growing progress and durations of fast changes.

However, Collis and Jarvis (2002), argued that due to the fact that the accountant, employees or director are experienced, the business have substantial financial know-how which can be obtained internally to assist in the examination of financial information. It had been also found that some firms got a computerized or partly computerized system. There it is used for his or her assistance.

Son et al. (2006) also argued that accounting experience was viewed as the biggest hazards to the use of financial information by the directors. In fact the directors do not understand the information due to its poor. This cause low awareness of cost-benefit factor of reporting job. The external users were concerned with the reliability of financial information provided by the small enterprise fundamentally an owner-manager should be totally aware about the product or services which their business is based. The owner-manager may well not be skillful in business management skills particularly when starting the business enterprise. The financial management may be expected to be simple and cash flow-based. As the owners focus in the working of the business enterprise, this may leave hardly any time for the owner-manager to learn about the worth of using more financial management tools for the fulfillment with their goal as opposed to the basic itself. Padachi claims that:

"Actually, when profile is taken of the limited resources that are usually open to SMEs, the normal lack of know-how in financial management with their owner-managers, and the likely outcomes of earning poor decisions, the necessity for government support is undeniable. "

Abdelrahim R and Alsaddie A (2008) who examined small business performance in Syria, affirmed in a wide ranging questionnaire that professionals training are positively related to successful business performance. When small firm's managers has adequate training, it offers a huge impact on business performance and as a result are likely to grow successfully. It had been further found that professionals who received trained in marketing's skills got better business performance in conditions of turnover and profitability than that received in other business fields such as accounting. However, it was stipulated that there is too little awareness among small business professionals in training of marketing.

The study says:

"Insufficient awareness among small business managers of the great things about training generally and marketing specifically on the business performance. Insufficient managerial training will not always lead to failing, but with a higher degree of certainty, as evidenced by the results, overall business performance will improve. "

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