Abstract:
This study examines the formality of accounting practices within Pakistan's micro, small
and medium enterprises (MSMEs). Data was gathered from 110 MSMEs located in Karachi, Pakistan. The research focused on eight dimensions of accounting systems: chart of accounts, payroll records, receipt and payment records, party ledgers, employee time records, segregation of duties, documentary support, and budgetary control. These dimensions were analyzed in relation to four firm-level attributes: organization type, firm size, firm age, and type of business. The results indicate that most firms do not utilize these accounting dimensions, a finding that is consistent across various
firm ages and business types. However, firm size shows some association with the utilization of four of the eight dimensions. The implications of these findings are discussed in the context of agency and institutional theories, and some policy recommendations are provided. Future research could use this exploratory study to investigate the motivations and structural barriers that influence the adoption or avoidance of formal accounting practices by MSMEs, as well as how these enterprises use accounting information and the challenges they encounter.
