Relationships between accounting practices and financial strengths of SMEs: reflections from financial and accounting experts

Abstract

      This research aimed to identify the accounting practices favoured by SMEs and the relationships between
accounting practices and financial strengths of SMEs. Four accounting practices: Inventory Valuation, Depreciation, Income Realization, and Report Processing; and 4 group of financial ratios, as the indicators of their financial strengths: Liquidity, Efficiency, Profitability, and Leverage were included in the framework. A Likert scale questionnaire was constructed upon the results of the literature reviews and mailed to the purposely selected 20 experts in accounting and finance to express their levels of agreement to the contents. All 20 experts responded to the questionnaire and all the responses were fit for the analysis. Findings mainly reflected accounting practices that were favoured by SMEs and the patterns of the relationships between the accounting practices and the financial ratios of SMEs mutually agreed between these experts. Measures to help promote the accuracy and usefulness of accounting for SMEs and further research with the entrepreneurs were suggested upon the findings.