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Small Medium Enterprise: Demand For Auditing

3761 words - 16 pages

BACKGROUND OF STUDY
To be a developed nation, it is important for industries, and the country, as a whole, to achieve global competitiveness. In this respect, the IMP3 has adopted the overall theme ‘Malaysia - Towards Global Competitiveness’ and other countries also working towards on that. Industries must strive for global competitiveness through the transformation and innovation of the manufacturing and services sectors. According to The Small and Medium Industries Development Corporation (SMIDEC) SMEs account for close to 99 % of all the establishments in the manufacturing, services and agricultural sector, provide around 65% of total employment and it is expected that the value ...view middle of the document...

Besides that, SME’s also playing a vital role in the economy growth so it is important to have an up to date bookkeeping wit audited unqualified report.

PROBLEM STATEMENT
According to (Izedonmi et al., 2003), small medium enterprises are the primary economic units and facilitate the rapid economic growth and development. It is necessary for small medium enterprises (SMEs) to conduct accounting and auditing services as financial and human resources are equally involved in SMEs. This enables the owner of these enterprises have control over their business in terms of financial and non-financial. To achieve control over the business operation, it is essential for the owners to have a good understanding of financial statements and the basic knowledge of accounting record keeping.

Nevertheless, there are few issues on conducting the accounting and auditing in Small Medium Enterprises (SMEs). First and foremost, accounting and auditing standards are becoming more complex recently because of issues involving harmonization and convergence of the standards. In July 2009, the International Accounting Standards Board (IASB) has published the International Financial Reporting Standard (IFRS) for SMEs. This standard is to be applied by the entities which are not publicly accountable and publish financial statements with the general purpose for its external users. However, the IFRS introduced for SMEs are way too complex that requires complicated accounting and reporting regulations, and comprehensive disclosures. Some SMEs companies are not ready to adopt these standards.

It is indeed not an easy task to audit a business enterprise. The audit procedures involved can be difficult and lengthy if a thorough audit is needed to be achieved. For instance, there might be absence of financial records in most small business enterprises. Where there are no proper books of account or records of business assets, thus the auditor cannot manipulate financial records or figures. Therefore the audits of small entities can be very challenging to auditors.

Apart from that, there may be complications may arise in auditing a small medium business due to the inexperience of small business owners or management. According Todd (1990), one of the problems associated with auditing small scale business is the “lack of experience of small-business managers”. This may lead the managers to believe that fees of external auditors are too high or that the management letter is not helpful. Furthermore, it is the mind-set of SMEs owner that the external auditing services will cost them a lot and with the little revenue that they earn might not able to pay for this service.

Naturally, some SMEs owners or operators fear audits. An example of this is in an engagement where a bookkeeper strips every ledger and supporting document before the auditor arrives. When questioned, the bookkeeper says he does not want the auditors to find anything wrong and think that errors were...

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