The Impact of Financial Reporting Practices on Performance: A Study of Small and Medium Enterprises in Rathnapura District, Sri Lanka

Abstract

The objective of the study is to examine the impact of financial reporting practices on the financial performance of small and medium enterprises (SMEs) in Rathnapura District, Sri Lanka. This empirical study is based on the primary data through face to face interviews and administered questionnaires and secondary data through examining subject related books, published research papers, websites, statistical reports of the Central Bank of Sri Lanka and other institutions, and their specific regulatory factsheets. Data were collected from the total selected sample of 60 SMEs Statistical tools; hypothesis testing, descriptive statistics, and Multiple Regression Analysis are used to analyze and find the result of the study. The designated measures of financial reporting practices are financial reporting practices, investment analysis practices, Inventory management practices, cash management practices, and fixed assets management practices. The findings revealed that among the five selected independent variables, there was a variation of 93% (Approx.) of the financial performance of SMEs due to changes in financial reporting practices, investment analysis practices, inventory analysis practices, cash management practices and fixed assets management practices that have been depicted in the model. Out of five variables, FR, IA, and FA management practices are highly supported to better financial performance than that of the INA and CM practices. This paper provides useful information to the Government Ministries, Central Bank of Sri Lanka, Professional Bodies SME owners, researchers, accounting practitioners and other stakeholders in Sri Lanka for their involvement in making efforts to the future development of SMEs.