IFRS for SMEs in South Africa: a giant leap for accounting, but too big for smaller entities in general

Abstract

According to generally accepted accounting practice, the objective of financial statements is to provide useful information to the primary user groups of such statements, regardless of the size of the entity. The primary users of the financial statements of SMEs are the owners, South African Revenue Services (SARS) and bankers. The recognition, measurement and disclosure requirements of full IFRSs do not result in cost‐effective and useful information being provided to the users of the financial statements of SMEs (non‐listed companies, close corporations and other small entities, irrespective of their legal form), because these users do not need the extensive and complex information provided in general purpose financial statements. Consequently, an accounting standard is required to differentiate between general and limited purpose financial statements. The International Accounting Standards Board (IASB) issued an exposure draft (ED 222) on IFRS for SMEs in February 2007. These stipulated modifications relating mainly to relaxed disclosure requirements and are more applicable to medium‐sized entities. According to a survey among preparers of financial statements in June 2007, these developments may not be adequate for the purposes of smaller entities, irrespective of their legal form. Accordingly, the study recommends that a formal, separate set of simplified differential reporting standards be developed for smaller entities.

Adoption process of IFRS for SMEs in Turkey: Insights from academics and accountants

“…This type of financial reporting deteriorates the quality of the information disclosed, and hence decreases the credibility of financial statements. The findings of this study are in compliance with prior research indicating that SMEs generally prepare financial statements for only tax purposes (Maingot & Zeghal, 2006;Van Wyk & Rossouw, 2009;Müllerová et al, 2010;Maseko & Manyani, 2011;Albu, 2013;Albu et al, 2013). For instance, Tudor & Mutiu, (2008) stated that financial statement users of SMEs focus on generally short-term cash flows, liquidity, and solvency of the company.…”

“…While the developed nations that have their own accounting bodies or local GAAP have generally ignored the IFRS for SMEs, a significant amount of developing nations have accepted and applied it. For instance, South Africa became the first country in the world which approved the IFRS for SMEs (Van Wyk & Rossouw, 2009). Furthermore, governments, especially in countries that have limited domestic financial resources, want their domestic businesses to expand internationally and to access foreign financial resources (Walton, 2011).…”

“…After the issuance of the IFRS for SMEs, a considerable number of studies have investigated the perceptions and views of the accounting practitioners about this standard, especially in emerging countries (see, for example, Van Wyk & Rossouw, 2009;Siam & Rahahleh, 2010;Albu et al, 2013;Uyar & Güngörmüş, 2013;Kılıç et al, 2014).…”

SMEs’ Financial and Differential Reporting- A Review of Publications

“…Studies shaping differential reporting were investigating/discussing matters which provide the framework for differential reporting, such as analyzing the size as criteria for SMEs, providing comments on the SMEs" exposure draft, investigating the dependency of "IFRS for SMEs" on full IFRS, how differential reporting should be, and how financial information can be, harmonized in SMEs (see, for example, Holmes et al, 1991, Eierle and Haller, 2009, Van Wyk and Rossouw, 2009, Albu, 2013b. These studies were the fewest and comprised only 11% of the total reviewed publications.…”

Differences between National Reporting Practices and IFRS for SMEs Presentation and Disclosure Requirements: Evidence from Italy

“…The debate around the new standard involves several factors, including: the comments on the IASB's Discussion Paper (Evans et al, 2005) and the Exposure Draft ‗IFRS for Small and Medium-Sized Entities' (Di Pietra et al, 2008); the different perspectives of acceptance among users, preparers and European Countries (Quagli & Paoloni, 2012); and the factors influencing countries' adoption of the IFRS for SMEs (Kaya & Koch, 2015). A number of contributions have referred to country-specific perspectives, such as those of the Czech Republic (Albu et al, 2013;Nerudova & Bohusova, 2008;Pàlka & Svitàkovà, 2011), Estonia (Alver et al, 2014), Germany (Eierle & Haller, 2009;Kreipl et al, 2014), Ghana (Aboagye-Otchere & Agbeibor, 2012), Greece (Mandilas et al, 2010) Italy (Baldarelli et al, 2007;Cisi, 2008), the Netherlands (Litjens et al, 2012), Romania (Albu et al, 2010;Gîrbină et al, 2012), South Africa (Schutte & Buys, 2011;Stainbank, 2008;van Wyk & Rossouw, 2009), Spain (Milanés Montero et al, 2011), Turkey (Arsoy et al, 2007;Atik, 2010;Kiliç et al, 2016;Turegun & Kaya, 2014), the United Arab Emirates (Kumar, 2014) and the USA (Jermakowicz & Epstein, 2010). Nevertheless, despite some prior studies having analysed similarities and differences between the IFRS for SMEs and certain accounting settings -namely, the EU Accounting Directives (EFRAG, 2010), local GAAP (Albu et al, 2010;Buculescu & Velicescu, 2014;Cisi, 2008;EFAA, 2010;Girbina et al, 2012), and full IFRS as well …”