Abstract:
Financial performance analysis is crucial for small-scale enterprises (SMEs) as they face unique challenges and opportunities in managing their financial resources and maximizing profitability. SMEs play a vital role in driving economic growth, job creation, and innovation. The purpose of this study was to investigate the effect of adopting effective accounting policies and ensuring financial reporting accuracy on the financial performance of small-scale enterprises in the specific context of Kikuubo, Kampala, Uganda. The study aimed to achieve the following objectives: i) to assess the extent to which SMEs in Kikuubo adopt effective accounting policies, ii) to evaluate the level of financial reporting accuracy among SMEs in Kikuubo, and iii) to analyze the relationship between effective accounting policies, financial reporting accuracy, and financial performance of SMEs in Kikuubo. An explanatory research design was adopted for this study, and a sample of 132 SME traders from Kikuubo was selected using both simple random and purposive sampling techniques. The study also included the Kikuubo business community's leadership team of 5 people and KACITA's top leadership consisting of 4 individuals as key informants. The findings revealed a moderate level of effectiveness in the adoption of accounting policies among SMEs in Kikuubo, indicating a basis for further improvement to enhance financial management practices. The financial reporting accuracy among SMEs in Kikuubo was also found to be satisfactory, with opportunities for improvement in certain areas. The study established a positive correlation between financial reporting accuracy, accounting policies, and financial performance, emphasizing the significance of adopting sound financial management practices. Adopting effective accounting policies, enhancing financial reporting accuracy, strengthening internal control systems, providing training and capacity building for finance personnel, and embracing a culture of continuous improvement were recommended to enhance financial performance and credibility of SMEs in the region.
