Research Problem, Objectives, and Research Questions

Accounting also known as accountancy is where an accountant process, measure, and communicate the message about the financial data of a business to the intended people like the owners of business or the government (Ali, Ahmed & Henry, 2004, p. 185) . The government may need the information for the purposes of calculating taxes while the business owners may need the data for checking the progress of the business. Accounting process has various importance to the business owners, investors, creditors, and the regulators (Judge, Li, & Pinsker, 2010, p. 165).

Therefore like any other field, accounting also requires standards to guide the accountants and the beneficiary parties.  In that note the purpose of the study herein is to research on the impacts of accounting standards on small businesses and Nepal will be used as the case study of the research.

• Overview of client organization

Before going deep to the study itself, the paragraph herein has discussed a brief overview of the case study area. Nepal or also known as the Federal Democratic Republic of Nepal is an Asian landlocked state found in the south the continent of Asia with its capital known as Kathmandu. The small business that will be studying in Nepal is Kaspul Restaurant. Kaspul Restaurant is a small food stall in Nepal and it is owned Paul Kashmin. The company has the total of 50 employees and its net worth is $ 5000 (Zehri & Chouaibi (2013, p. 58).

The company mainly deals in food stuffs and mostly prepare the Indian foods.  The company has no departments and no management, Paul Kashmin is the leader, accountant, and the employer. According to Judge, Li, & Pinsker (2010, p. 165) a small business is the one that has low capital and not more than 50 employees. Our group chose Kaspul Restaurant as case study for this research. Accounting standards also affect small business like Kaspul Restaurant, therefore, the report has concentrated in studying the impact of accounting standards on small businesses like Kaspul Restaurant.

• Background of the Study

According to Poudel, Hellmann & Perera (2014, p. 210), the accounting standards are the policy documents in writing outlined by the accounting body of a given government or any other body that has mandate to regulate the accounting activities in a given state like Nepal in this case.

These documents govern and cover the aspects of treatment, recognition, measurement, communication and disclosing the statements of accounting process which are in the financial statements to the intended parties (Ball, 2006, p. 10). In Nepal the body that is mandated to produce the accounting standards is Nepal Financial Reporting Standards (NFRS). Accounting standards have a number of importance to any state that is engaged in businesses and these functions are the ones that made the researcher research on the impact of the accounting standards on small businesses in Nepal.

• Importance of Accounting Standards

Literature Review

Accounting standards are very vital to any business, they include one, compatibility-it is the ability to compare and contrast different financial statements of different businesses (Guthrie, J., (1998, p. 10). The compatibility function can help the investors to take a look at every financial statement of the businesses of their interest and choice to measure which of them they can invest their money on.  The compatibility function ensures that the businesses are conducting their accounting process using the same rules hence ensuring equality on accounting and also making the compatibility process easier.

The second importance of accounting standards is harmonisation (Adhikari, Kuruppu & Matilal, 2013, p. 230). Here the standards ensure that every business is playing the same cards during accounting process and that rules used are the same. Harmonisation is important when a country what to come up with a formula on how to calculate the amount of tax they can levy all the businesses in the country. Therefore, if every accountant is using his or her own law to perform the accounting process, then it will be very hard to for the government to determine the taxes. Harmonisation also helps prevents other business from exaggerating their statements.

The third function of accounting standards is to protect the investors. The accounting standards protect the interests of the investors in that the accounting documents they are reviewing are accurate and true. Some business owners may decide to tamper with the financial statements so that they can dupe the investors into investing money on sham business (Zehri & Abdelbaki, 2013, p. 10). Therefore, the accounting standards ensure that the investors are looking at the true information on the financial statements of the companies they have decided to venture into. The investors interests are that the money they are investing will eventually go back to them, hence the accounting standards increases their confidence in the businesses they are pursuing.

The fourth function or importance of accounting standards is regulatory compliance. All companies and businesses must and have to comply with the accounting standards and regulations set aside by the government agencies in which those businesses are originating from (Ali, 2005, p. 1).  The adherence to the accounting standards is both beneficial to the business owners, the investors and the customers who are enjoying the products from that business because it protects them from fraud business transactions.

The adherence also makes the business owners and investors to be transparent when transacting their businesses hence leading to improvement in efficiencies in the world of business. Acting as per the accounting standards set by the state the company is also prevent the company from spending a lot of money in court battle with the regulatory body.

Research Design and Methodology

The last importance of accounting standards in business transaction is assessing the performance of business. If a company use the accounting standards set by its governing body, it will be very easy to assess it performance (Tweedie & Seidenstein, 2004, p. 589). The companies can also compare the performance of other businesses with theirs to see where they are ranked. They can further assess their weaknesses and strengths and derive solutions for the weakness. Accounting standards also help the government to rank the best and the least performing business in the state basing their argument of the financial statements. Accounting has a lot of significance to small businesses, hence, the need to study the impact of accounting standards on small businesses.

• The structure of this Proposal

The study has been structured in the following ways; first is the executive summary which gives the summary of the whole study, second section gives the introduction of the study which has the background and the structure of the proposal. Third section talks about research problem, objectives and research questions. Fourth, literature review section which talks about the other studies done about the topic. Fifth section is the research design and methodology which explain the method used to conduct the research and its design. The second last section is the reference page. After the reference page is the appendixes. The appendixes have the questionnaires that will be used to conduct the study.

• Research Problem

  Accounting standards also known as the accounting principles are the rules that have been put in place by the governing bodies to oversee the accounting process (Ali, 2005, p. 1). In Nepal there are many small businesses that conduct the accounting process to know their financial statements. The statements help them to know how much money they can pay the government of Nepal as taxes.

The statements also help them to point out the weaknesses and strengths of their businesses hence they can know how to improve on the strengths and eradicate the weaknesses (Zehri & Abdelbaki, 2013, p. 10). The processes of accounting also help the businesses in Nepal to compare and see where they are in the Nepal market. The accounting processes cannot go well without the principle to govern how they should be conducted.

The small businesses should know all the accounting principles that Nepal government has put in place to regulate the process of accounting. The accounting standards are very essential to the small businesses in Nepal. Therefore, the small businesses in Nepal should know these standards and principles. They should also know how these regulations are impacting them and their businesses. To answer this question on how the accounting standards affect the small businesses in Nepal, the researcher has decided to conduct a research and see how the small businesses in Nepal are impacted by the accounting standards in that country.

• Research objectives

Significance of Accounting Standards to Small Businesses

The main aim of the study is to investigate the impact of accounting standards on small business owners in Nepal. The research objectives of the study are;

1. To examine the various effects of accounting standards on small businesses which include; crafting industries, cottage and many other small industries in Nepal.
2. To investigate the impacts of accounting standards when preparing the fair and true financial statements.
3. The find out the challenges the small businesses face when adopting the International Accounting Standards.
4. To investigate how the International Accounting Standards are implemented its roles and how the small businesses in Nepal are using the body.
   • Research Questions
5. What are the various effects of accounting standards on small businesses which include; crafting industries, cottage and many other small industries in Nepal?
6. What are the impacts of accounting standards when preparing the fair and true financial statements?
7. What are the challenges the small businesses face when adopting the International Accounting Standards?
8. How is the International Accounting Standards implemented? Its roles and how are the small businesses in Nepal using the body?

In this section, the previous studies that have been done by researchers on the topic “the Impacts of Accounting Standards on the small Business” are examined. Many scholars have come up with studies to try and solve the problem of accounting standards and the small businesses (Zehri & Abdelbaki, 2013, p. 10), therefore, the researches done by these scholars will be of help in solving the main problem of this study. The section has the main motive of looking and reviewing the literature of past researches to try and understand the topic in question and then come up with solutions that can answer the research questions above.

• The concept of Accounting Standards

As Sharma (2013, p. 1) has put it, the accounting principles aim at making the field of business uniform and make comparability easy when a business has come up with true and fair financial statements. Accounting standards protect the business, the investor who are willing to invest their money the business, creditors, and other regulatory bodies which have interest on the business. The business owner may use the financial statements which have been processed through the accounting standards when looking for investors and loans (Zehri & Abdelbaki, 2013, p. 10). The standards can also help the business owner to compare the progress of his or her business with those of his or her competitors so that he or she can outline the strengths and weakness of the business and make necessary recommendations and changes.

To come up with accounting standards a body must be created by the state in this case Nepal so that it can come up with the regulations and monitor the compliance of the businesses (Adhikari & Mellemvik, 2010, p. 198). Nepal has a body that is mandated to make accounting laws and follow up on how the intended people are reacting to the laws. The body that has the responsibility of setting and issuing accounting standards in Nepal is called the Accounting Standards Board.  The board is an in independent body formed under the Nepal constitution.

The body was established in the year 2003 to curb the problem of misinformation in accounting (Adhikari, Timoshenko & Gårseth-Nesbakk, 2012, p. 47). The body also gives the standards the accountants and business people of Nepal should follow when coming up with the financial statement.

• The International Accounting Standards Body

To understand the challenges the small businesses in Nepal face when adopting the accounting standards set by the international accounting body, the researcher must first know the brief literature about the body. The body that comes up with the international standards for accounting is called the International Accounting Standards Board (IASB). International Accounting Standards Board was established in 1^st April 2001 to take after the former International Accounting Standards Committee (Wynne, 2008, p. 117). The body is responsible of setting and coming up with laws that govern accounting process worldwide. Every accounting governing body in every state including Nepal if they are under United Nations must generate rules that comply with the International Accounting Standards Board (IASB) (Wynne, 2008, p. 117).

• Size of Business

The size of a business can be estimated by looking at the number of employees that business has and the capital the owner has invested in the business. The size of a business matters when it comes to accounting standards. Hellmann (2016, p. 40) argues that a small business is the business that has no definite structure in terms of departments, rank according to management. The small businesses at most times have one person as the owner of the business.

McGee (2009, p. 87) defines a small business as a firm of a business activity that is not listed in the stock exchange and is not known by the public. According to Elena et al. (2009, p. 275), small business find it rough when it comes to accounting standards because the process is very hard and hectic. The process also requires money and manpower which most of the small businesses do not have. The concept of the business size is important to this study because the researcher needs to understand who the small business owners are.

• Compliance with Accounting Standards by Small Businesses

Small businesses find it very hard to comply with the accounting standards. A research done by Zeghal & Mhedhbi (2006, pp. 373-375) show that accounting standards are very expensive to meet hence small businesses have a financial challenge to comply with them. In situation were a small business has not complied with the requirements of the accounting standards body they will pay heavily therefore, affecting the financial state. Major companies and business do not fine it very hard to comply with the accounting standards because they have the manpower and mechanisms to ensure that they are within the law. The major business players have accounting departments and law professionals to show them on how to comply with the accounting standards.

• Effects of Accounting Standards on small businesses

When a person is starting a small business in Nepal he or she may not necessarily chose the accounting method as long as they are not going to ask for loans outside (Adhikari & Mellemvik, 2010, p. 198). Any method they use at that point is just fine because it does not interest the third party. However, if the business owner wants to expand the company by asking for loan, or requesting the investors to come in, the person must have proper accounting records in terms of financial statements to show how his/her business is fairing.

The first effect of accounting standards on small businesses in Nepal is comparability of business statements (Abdolmohammadi & Tucker, 2002, p. 50).  Accounting standards helps the small business owners to compare their business activities with that of their competitors. They can do this if any only if they have used the same rules that govern the accounting in that state which in this case is Nepal.

Comparability of financial statements has several benefits to business owners. First, if the creditors and investors are interested on the company, they can easily make judgement on the credibility and the validity of the company or business. The creditors and investors use the financial records and statements to judge the company’s progress (Nurunnabi, 2014, p. 230). Therefore it is easy for the firm to expand its business. Second it can be easy to benchmark by comparing the progress of one small business with another.

The second effect is ease of expansion. When a small business is following the accounting standards set by Nepal government, it can easily expand its business through advertisement, loans and investors. If a business person wants to publisise his or her business, he or she must be ready to face the government because of taxes. Investors also look for financial statements before they invest on a business (Adhikari & Mellemvik, 2011, p. 125).

They want to know how the business is running, its place in the society, and the profits it is making. The third effect of accounting standards on the small businesses is the cost of implementing the rules. The cost of recording financial statements according to accounting standards is high because it needs an accounting professional who is expensive and the people to oversee the process. The negative impact is that the standards cost does not care the nature of the business because the process is the same.

Third, the purpose of the accounting standards does not favour the small business in Nepal. The main function of accounting standards is to people from outside who are interested in a certain company mainly the security analyst, investors, creditors, bondholders, and government regulators, can have the correct data about the business (McGee, 2008, p. 5). However, the small business owners do not benefit because they do not issue bonds, they are not in the stock exchange, and are not in many business rules that accounting standards address.

 Fourth, the forth effect is the standard overload. The accounting standards do not affect the day to day operations of the business (Timoshenko & Adhikari, 2010, p. 450). Almost all the business operations use the same standards to tackle issues like recording expenses and revenue, calculating the tax to be paid, accounting for inventory, and depreciating and capitalising assets. The problem therefore, is standard overload. It is not hard for the major business to comply with the accounting standards in Nepal because they have accounting department. However, for the small business, it is hard and looks like burden to them because they have to pay other people for the work or do it themselves which is very hectic.

The fifth effect of accounting standards on small business owners is compliance issues (Bohušová & Blašková, 2013, p. 39). Most of the accounting standards do not apply to the small businesses. In other words, the small businesses do not benefit much form the accounting standards set by the responsible governing bodies. One requirement by Nepal the Accounting Standards Board is that the businesses must create a financial statement that shows the earnings per share or the profit that each share has contributed.

The requirement is a very big challenge to small business because most of them do not even involve in stock exchange or they do not offer shares to investors, therefore, they do not have anything to report. The rules on the other hand to do not care even if the business in not on share, if it does not complete with the accounting standards body, it will be penalised (Birrell, 2006, p. 53). 

Research Design and Methodology

The research design and methodology are specific techniques and processes or procedures used by the researcher to process, select, analyse data about the research problem. Therefore, this section has described the research design and methodology that will be used to collect and analyse data for the study.

3.1. Research Design

Cook (2013, p. 1039) argues that a good researcher must identify the type of research design he or she is going to use when looking for answers to the research problem. The researcher must understand the research design so that he or she can get the correct answers. Therefore, the research herein will use the descriptive research design. Dalal, Doherty & Taylor (2015, p. 12) define descriptive research as the type of study conducted through surveys and it main objectives is to identify and record a processor system and phenomenon. Another goal of descriptive research design is to give a description of the current state of affairs the topic studied; it involves finding facts and survey. The research problem herein is very deep and needs descriptive research design so that the researcher can meet the objectives and that is why the researcher has chosen the descriptive design.

3.2. Research Approach

In this study, both quantitative and qualitative research approaches will be used so that the researcher comes up with most appropriate results (Adhikari & Mellemvik, 2010, p. 198). Quantitative research approach is an approach where the researcher expresses data in terms of quantities and numbers. Quantitative approach will help the researcher be able to express the number of people who took part in the study. The data in quantitative research will also help the researcher to construct tables and graphs of raw data during analysis. Qualitative research is where numbers are not used; it is where the researcher tries to understand the behaviour of the population through participation. Qualitative approach will help the researcher get the empirical incites of the population about the study.

3.3. Population of the Study

According to Chen, Xiao & De Bellis (2016, p.74), population are those units that are found in the area where the problem is studied. In other words population is the set of things found in the problem area. In this study, the population of the study is the small businesses in Nepal, the accountant standards board, the accounting experts, and the other regulatory authorities.

3.4. Sampling Method and Sample Size

The sampling method that will be used in the study is known as the probability sampling method. Here each sample has the non-zero probability of being sampled. The random and stratified method will be used. According to Davis (2012, p. 206), random sampling is where each sample has an equal chance of being selected to participate in the study. The population that will undergo random sampling is the small businesses. Stratified sampling on the other will affect the regulatory body and the experts. Stratified sampling is where the researcher knows who he or she will involve in the research process.

3.5. Data Collection Methods

In the research, the researcher will use both primary and secondary data collection method. The primary data is the information that the researcher himself or herself has gone to the field and collected while the secondary data is the information that the researcher has found relevant to the study, but it was collected by another scholar for a different purpose. The secondary data will be used in writing the literature review for the study. The primary data collection methods that will be used in the study include surveys, observations, open-ended questionnaires, interview, focus groups, and experiments. 

3.6. Data Analysis

Data analysis according to Dobkin & Dorsch (2013, p. 331) is the process where by a researcher inspects, cleanse, transforms, and models the data collected with the aim of getting the useful information to the study. The information that will be collected in this study will be analysed using inferential and descriptive statistics. In descriptive statistics involves using the mean, median, and standard deviation to get the finding and come up with conclusions ad recommendations.

3.7. Ethical Implications

There are a number of ethical implications that will drive this study. First, the researcher will not use force to find information form the participants, the researcher will ask for permission form the participants before conducting research on them (Fazio & Villari, 2016, p. 7). Confidentiality will also be considered by the researcher, he will keep the information about the participants confidential. Lastly, the researcher will not invade the privacy of the participants.

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