The Political Economy of Convergence: The Case of IFRS for SMEs

Abstract

This paper contributes to the discussion on the International Financial Reporting Standard for Small and Medium-sized Enterprises (IFRS for SMEs) in the academic literature by examining the political economy of convergence, and illuminating the processes used by the International Accounting Standards Board (IASB) to achieve convergence and participation by developing economies. The IFRS for SMEs was developed to facilitate implementation of a two-tier reporting regime in the developing economies. Since 2000, progress towards issuance of the IFRS for SMEs has been hindered by a lack of active engagement by SMEs and academics from developing economies. It is found that (1) a lack of grounded studies and empirical knowledge on SME users' needs impeded the development of the IFRS for SMEs; (2) the capital market assumption adopted for the IFRS is clearly inappropriate; and (3) the under-representation of developing economies in international standard setting remains an issue. It is recommended that the IASB ascertains the users of SME reports and their needs and then develops a coherent conceptual framework for SMEs (particularly those from developing economies).The IASB needs to take into consideration the needs, culture and regulatory infrastructures of the developing economies, the political agendas of the standard-setting stakeholders, and barriers to implementation.

Adopting the international financial reporting standard for small and medium-sized entities in Saudi Arabia

“…This document represented a shift in focus on the part of the IASB, which had originally seen its scope as limited to publicly accountable entities. To some extent, the IFRS for SMEs addressed criticism that the full set of IFRS standards imposed an unreasonable burden on the majority of companies in countries whose regulators had mandated full IFRS for all entities, and was an unrealistic guide for preparing the financial statements of such companies in countries where full IFRS was not required (Ram and Newberry, 2013; Devi and Samujh, 2015). The IFRS for SMEs is considerably shorter than full IFRS (about 240 pages against over 3,000 for full IFRS, including basis of conclusions and guidance notes).…”

Perspectives of accounting professionals about the adoption of IFRS for SMEs: the case of Romania

“…The necessity of accounting convergence has arisen due to the requirements of financial statement users. The need for accounting convergence arises from the globalization of the capital market and the demand for the financial statements of the economy to be comparable, enabling easier access to funding sources across international borders (Devi and Samujh, 2015; Ferrer, 2016; Oliva, 2018).…”

SME owners and accountants' perceptions of financial information in small- and medium-sized entities: a Sri Lanka case study

“…The donor agencies such as Asian Development Bank (ADB), and World Bank play an important role in granting loans and promoting SME sector activities in the economy (Ministry of Enterprise Development, 2012). The lack of developed accounting infrastructure has been identified by these aid agencies as a major obstacle to economic development in developing nations (Devi and Samujh, 2015;Kurtzman et al, 2004). To this end, agencies such as the World Bank and the Asian Development Bank require certain standards of financial accountability from their aid recipients (Mir and Rahaman, 2005;Singh and Newberry, 2009).…”

“…The donor agencies such as Asian Development Bank (ADB), and World Bank play an important role in granting loans and promoting SME sector activities in the economy (Ministry of Enterprise Development, 2012). The lack of developed accounting infrastructure has been identified by these aid agencies as a major obstacle to economic development in developing nations (Devi and Samujh, 2015; Kurtzman et al. , 2004).…”