The role of corporate governance towards the reliability of financial reports in small and medium enterprises in Durban, KwaZulu-Natal

Abstract

Small and medium enterprises (SME) play a vital role in the global economy, but their financial reporting reliability is a concern due to limited resources. Corporate governance is crucial for directing businesses, fostering participation, and ensuring long-term sustainability. This research investigates SMEs' compliance, challenges, and the role of corporate governance in the reliability of their financial reports. The research employed quantitative research design as a technique of collecting data and analysing data, collected from a sample of 248 SMEs via non-probability, purposive sampling method. The findings were presented and analysed by SPSS 28.0. The study found that SMEs in Durban lack a board structure, which is crucial for strategic decision-making and sustainability. The absence of effective corporate governance has a detrimental impact on the transparency and reliability of financial reporting, ultimately jeopardising the viability of these enterprises. Conversely, when governance is properly implemented, it can mitigate potential risks and improve compliance, thereby supporting the long-term growth and success of SMEs. Furthermore, corporate governance and financial reporting help address internal difficulties encountered by SMEs. The dependability of financial reports is dependent on excellent governance, effective risk management, and ethical compliance. This assurance is achieved through the process of auditing. The study revealed that SMEs require greater focus on strategic policies, governance, and access to platforms that facilitate the development of professional networks. These networks provide businesses with access to skilled individuals who can potentially serve as non-executive board members.