Outsourcing Accounting Functions and the Quality of Financial Reporting for SMEs in Lagos State

Abstract

This study delves into the outsourcing of accounting functions and its impact on the quality of financial reporting of Small and Medium-sized Enterprises (SMEs) in Lagos State, Nigeria. The study used a survey research design, and a questionnaire was adopted as a research instrument to elicit information from SMEs located within the Lagos metropolis. The population of the study consisted of 300 registered SMEs in Lagos State as of December 2022. Among them, 268 were located within the Lagos metropolitan area, representing the core focus of the study, while the remaining 32 were situated outside the metro region. Simple percentages were adopted to analyse the respondents' responses, while linear regression statistics were used to test the hypotheses formulated. The study found that there is a significant effect of outsourcing bookkeeping services on the financial reporting quality of SMEs in Lagos State; there is a substantial effect of outsourcing internal audit services on the financial reporting quality of SMEs in Lagos State; and also that there is a significant effect of outsourcing tax reporting services on the financial reporting quality of SMEs in Lagos state. The study concludes businesses should focus on their core competencies and entrust accounting preparation to professional accountants. As companies expand, outsourcing should be viewed as optimising productivity and business performance. The study recommended establishing a regulatory framework by the Financial Reporting Council of Nigeria (FRCN) to facilitate professional accountants' outsourcing of accounting functions and financial services, thus enhancing public confidence. SMEs are encouraged to embrace outsourcing of accounting functions to mitigate excessive costs and streamline operations, ultimately contributing to cost savings and efficiency improvements.