Issues and Challenges of Adoption of IFRS for SMEs in Malaysia

Abstract

The purpose of this research is to look into issues and challenges associated with the adoption of International Financial Reporting Standards for Small and Medium Enterprises (IFRS for SMEs) or so-called MPERS (Malaysian Private Entity Reporting System). Using keywords like "IFRS for SMEs," "MPERS in Malaysia," and so on, this study examines existing literature in the form of articles in the Emerald database, as well as press releases and publications published by the Malaysian Institute of Accountants (MIA). The MPERS version of IFRS is a shortened version of the complete IFRS. It reduces the substance of the whole IFRS by about 85%. Certain topics are excluded because they are not normally relevant to SMEs. SMEs, on the other hand, still consider IFRS for SMEs to be excessively complicated. MPERS is a performance-based standard, not a cost-based one. Almost everything must be of reasonable value. As a result, businesses owning investment properties or biological assets will have to pay extra for the valuation of these assets at fair value. For preparers, there are two major obstacles to overcome. Constant changes in standards, as well as a scarcity of skilled accountants, are also issues. Some data suggests that the decision usefulness model is inappropriate for smaller businesses. SMEs have a small number of account users, lack accounting competence to deal with complexity, and are managed by their owners. Furthermore, for SMEs, a reporting approach focused on stewardship and employing simplified historical cost accounting would be more appropriate.

Exploring regional variations in the adoption of International Financial Reporting Standard for Small and Medium Sized Entities: A structured review

“…In this regard coercive isomorphism on the backdrop of institutional pressures by organisations such as the World Bank and IMF (Judge, et al, 2010). For example majority of SMEs in Ghana are aware of the IFRS for SMEs, however these SMEs do not fully comply to the requirements of the IFRS for SMEs because of lack of technical skills (Vendy & Sucahyati, 2022), the reason why these SMEs are aware and adopted this standard is because of coercive isomorphism and environmental factors (Sappor, et al, 2023). Additionally, mimetic isomorphism is another adoption approach which involves SMEs copying adoption models of other more efficient organisations/ countries, this approach is normally used when there is uncertain operational environment and objectives (Damak-Ayadi, et al, 2019), copying more efficient organisations/ countries is considered more efficient and cost effective (Meyer & Rowan, 1977).…”

“…However, jurisdictions with their own set of SMEs standards are less likely to adopt the IFRS for SMEs, this finding is similar to (Kaya & Koch, 2015) who notes that jurisdictions that have the capacity to craft their own set of SME standards are reluctant to adopt the IFRS for SMEs. This drives the point home especially for developing nations which are not well resourced in terms of finance and skilled personnel (Albu, et al, 2011;Vendy & Sucahyati, 2022) to undertake the task of crafting their own set of accounting standards for SMEs.…”

“…The IASB, always keep up to date with changes in the financial reporting fraternity and because of this current financial reporting standards are constantly updated to keep up with the times (Marina, 2020), this constant updating has proven to be an implementation hindrance for firms in Malaysia (Vendy & Sucahyati, 2022). In Nigeria, compliance costs and lack of technical skills have been found to be hindrances to IFRS for SMEs adoption (Odum & Cheche, 2023).…”