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This introductory chapter provides a general background to the research. It also presents the general objectives of the study and the research questions are also formulated under this chapter with the view to make the research focused on specific relevant issues. In what follows, definitions are given for major concepts frequently used in the study. The significance and delimitation of the research is also discussed and finally, a highlight on the organization of the research paper is provided.

  • Background information

Small enterprises and medium-sized enterprises are defined by their size, turnover or balance sheet total. In the European Union, small enterprises have between 10 and 49 employees and an annual turnover not exceeding EUR 7 million or an annual balance-sheet total not exceeding EUR 5 million. Medium-sized enterprises have fewer than 250 employees. Their annual turnover does not exceed EUR 40 million or their annual balance- sheet total should be less than EUR 27 million. In the case of Sweden, all enterprises with fewer than 250 employees are categorized as medium size enterprises and those with fewer than 50 employees are categorized as small (European Commission, 2003, p. 1).

SMEs constitute currently the major part of economic activities in the Sweden. Nowadays, they represent about 99% of all types of enterprises in Sweden and provide high job opportunities to its labour force (Nutek, 2004, p. 15). This business structure is not different from the EU business structure.

Internal control is a means by which resources of these SMEs are directed, monitored, and measured. It plays an important role in preventing and detecting fraud and protecting the physical and intangible resources; moreover it leads to high efficiency of the business operation. Therefore unless they have strong internal control system to monitor and run their businesses, the prospect of bankruptcy threatens each and every Swedish SME (Sampson, 1999, p. 4).

The focus of this research is to examine the effectiveness of internal control systems in small and medium size enterprises in Sweden. Therefore, focusing on this business area is a timely issue and a rewarding one since it contributes a lot for the majority of business enterprises involved in SMEs.

  • Research objective

The general objective of this research is to examine the effectiveness of internal control systems in small and medium size enterprises in Sweden. In so doing, the research create a better understanding of effective internal control that may be applicable to the context of SMEs and establish empirically the features of effective internal control for SMEs in Sweden .

  • Research question

Since our research objective is set to study the effectiveness of internal control in Swedish SMEs, the main problem that this research paper intends to address can be formulated in the form of the following research question: To what extent does the internal control system of SMEs comply with the principles of effective internal control?

This question is believed to be central to the research as it guides all the way forward to the conclusion. Indeed, for a system of internal control to be effective, it needs to abide by certain standards of effective internal control. The research question intends to look into how closely SMEs follow the virtues of effective internal control in their business operations.

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