Challenges in accounting practices of Bangladeshi SMEs

Abstract

Small and Medium Enterprises (SMEs) also feature prominently in the economic development of Bangladesh as they give back to the economy through employment creation, distribution of income, and the creation of entrepreneurs. Nevertheless, most SMEs, in spite of their significance, face long-term challenges of ensuring that their accounting practices are upheld, a factor that has adverse impacts on financial management, compliance, and sustainability. The research will undertake the investigation of the main problems related to accounting activities of the Bangladeshi SMEs and their effects on the business performance. A qualitative research design was applied in the study, where semi-structured interviews were used to collect data with 15 SME owners, managers, and accounting staff, and secondary data was used to obtain data on SME development and accounting practices using academic literature, reports and regulatory documents. The results show that most of the SME is using manual and informal accounting systems,which means handwritten records and simple spreadsheets, which is usually kept by a few people who have little information in accounting. Monetary limitations hinder the outsourcing of professional accountants and the use of accounting software, and the complicated tax laws, constant changes in compliance requirement and low accounting literacy further dilute sound financial reporting practices. As a result, poor accounting strategies cause poor financial decision-making, poor cash-flow management, poor evaluation of profitability, and restricted access to formal financing. The paper concludes that the increase in accounting literacy, the affordability of the digital accounting tool, and the creation of supportive regulatory frameworks are key strategies that could help to improve financial transparency, which would in turn result in the sustainability of the SMEs in Bangladesh.