Literacy level, perceived external user pressure and perceived accounting information quality: a case of SMEs in Kampala District

Abstract

The purpose of the study was to examine the relationship between literacy level of owner managers, external user pressure and the quality of accounting information among the SMEs. It has been suggested that the quality of accounting information in the SMEs is questionable with many external users doubting its reliability. Such quality has been attributed to low literacy level (basic and functional) and lack of external pressure from users. The specific objectives of the study included assessing the perceptions of URA and Financial Institutions about the quality of accounting information of SMEs and examining the relationship between the independent variables and dependent variable. Cross sectional research design combined with descriptive research design were used. The survey population majorly included Small Medium Enterprises. To answer objective one Financial Institutions and Uganda Revenue staff in Kampala District were included in the study. Purposive sampling was used to select the sample for the SMEs while stratified sampling was used for the financial institutions to ensure fair representation of both commercial and micro finance institutions. The questionnaires were administered by the researcher. The findings showed that accounting information was not reliable, but relevant and understandable to external users. Other findings showed that the higher the SME ownermanagers were basically literate and had training in as far as book keeping and accounting the better the quality of accounting information. External pressure from users also improved the quality of accounting information. It was recommended that associations like Enterprise Uganda, Kampala City Traders Association and Uganda Small Scale Industries Association train owners and book keepers how to prepare quality accounting information since literacy predicted more the quality of accounting information.