Global Adoption of IASB Standards
Some developed countries have been reluctant to apply the IFRS for SMEs because of the potential impact they would have on their tax laws (Brooks, 2017). Conversion to IFRS would require countries to review their tax laws and tax administrations, and they are not interested in what the amount of tax revenue governments will get from SMEs would be used. The IFRS require the redefinition of specific fiscal rules, so that they can be aligned to the adjustments. For example, the rule requires that countries with tax laws that restrict the relief of tax losses to a maximum of four years to revise them to accommodate transitional changes that are produced by huge losses that can hardly be recovered within a time period of four years.
The global adoption of the IASB standard has suffered considerably from the decision of the United States not to use them within its jurisdiction. Some jurisdictions argue that the failure of the US to apply the rules that participate in their development is a demonstration that they are not well-intentioned. Americans have continued to use US GAAPs even after many countries have abandoned their national accounting standards (Brooks, 2017). The two sets of rules have significant differences, but one day combination is expected so that the world can for the first time have a set of uniform accounting standards.
In countries like Egypt, Ethiopia, Kenya and Nigeria, it is highlighted as positive aspect in the application of IFRS access to the global market and the income of foreign capital. In the study of Klibi and Kossentini (2014) the authors found that the Adoption of IFRS affects positive and significantly the stock market, while in Bova and Pereira (2012) suggests that greater foreign participation leads to a greater compliance with IFRS and that companies listed on the stock exchange, present a greater compliance with international standards. In the study conducted by Bova and Pereira (2012), it was also found that compliance with IFRS allows to obtain a lower cost of capital and increase the volume shares sold, due to the perception of investors regarding the quality and transparency of financial information.
In the same sense, the study of Kang and Gray (2014), carried out in Egypt, highlights that companies with higher levels of institutional property and foreign representation on the board of directors are more likely to involve an audit company with international affiliation already comply with the recognition and disclosure requirements of IFRS. The results of this study, they emphasize the meaning development professional and the regulation of local auditing industries in emerging countries for the actual fulfillment of the IFRS requirements when they are adopted in these countries.
Effects of IFRS Adoption on Developing Countries
In the analysis of Mihret and Bobe (2014), it is revealed that IFRS are irrelevant in developing countries and are being adopted only by an expansion as “network effect”. It is important to highlight, that in 2001 the IASB (International Accounting Standards Board) started a project to develop adequate accounting standards for small and medium-sized enterprises and, in the year 2007, made the proposal of the draft standard, however, criticism has been found in this point where it is suggested that the different conditions and transactions that face different countries are not conducive to a global set of accounting standards for the SME sector.
the job of Schutte & Buys (2011) question the relevance of implementing IFRS in SMEs for four important reasons (1) SMEs prepare some financial reports by formality, but not for information or decision making; (2) SMEs do not invest in other businesses or product lines (subsidiaries), nor are their shares quoted on the stock exchange (they do not receive foreign investment); (3) in SMEs, no impairment or provisions are reported; (4) SMEs do not engage to the main economic activities of the country (Schutte & Buys, 2011)
Generally, studies on implementation of IFRS in Africa reveals that there are both positive effects of IFRS such as expansion of the stock market, greater foreign participation, greater compliance of those listed on the stock exchange, lower capital cost. They also found negative effects of the application of IFRS. For example, it has “imperial” connections, practices of coercion, and pressure from institutions financial foreign.
In the case of Central Asia, it is more evident, that the IFRS not have adopted by necessity of the organizations, but by imposition of the international organizations such as ADB, IMF and BM, with an accounting profession which is unwilling to adopt IFRS, as is the case in Nepal (Poudel, Hellmann, & Perera, 2014).
China, as the largest developing country in the world, is characterized by concentrated property structures, weak legal systems and agreements highly politicized institutions (He, Wong, and Young, 2012). In the case of the United Arab Emirates, IFRSs were implemented in response to coercive pressures, regulatory and mimetic pressures that include the regulatory regime of the World Bank and companies multinationals, with the goal of converting the country in a financial center (Irvine, 2008).
In short, from Asia, we can retake at least six contributions. (1) The region has a wide socio-cultural diversity, which has implications direct attempts to apply standards designed for environments more homogeneous and different to the reality of these countries.
Relevance of IFRS for SMEs
(2) Countries that have adopted IFRS have done so because of pressures external institutions and not, because they have been convinced internally of the benefits of standardization. (3) China did not make full adoption, nor is it applying local regulation as indicated by the international institutions national (4) Hong Kong is aligned with the West in IFRS for financial benefits and reasons (5) In some countries such as Bangladesh, the United Arab Emirates and Malaysia, the IFRS, exclusively, by external pressures, but compliance has been low. (6) In Pakistan, there has been less progress than in Colombia, but there are already works in Scopus that analyze in detail, the case of the country.
The IFRS for SMEs has improved the international comparability of the financial statements of small and medium enterprises. It has become easy for SMEs to attract foreign investors, because the financial statements prepared by these entities can be compared with entities in other jurisdictions. When this benefit of the norm is examined with the high cost of adoption, a complex and paradoxical scenario is generated (El-Fakki & Khalifa, 2013). The high cost of adoption erodes the profitability of business entities and this may make them unattractive to foreign investors, even if they are able to compare the financial statements of the entities in their countries. However, there seems to be a consensus that it is important to have an international accounting standard for SMEs in order that these entities can streamline their financial reports to be in tandem with the dynamics of global finance and the business sphere (Serwanja, 2017). It is expected that the cost of reporting will decrease as common reporting systems are developed, and consistency in reporting is fully legal.
Secondly, it is essential to have a universal set of accounting standards that apply to all organizations, regardless of where they are in the world. It will improve ethics in the global accounting profession. There is no doubt that there are cultural differences between countries that often affect the way of doing business. For example, bribery is perceived differently in different cultures and is even included in the financial statements as facilitation fees, or any other name (Ingram, 2017). However, with international accounting standards, countries will have a unified code of ethics to comply and this will simplify the process of dispute resolution between companies from different parts of the world.
However, SMEs in many countries already face a multitude of challenges, such as lack of access to finance and the market. Most of the owners of these companies are concerned about these critical issues and are not willing to adopt the IFRS for SMEs, because they fear that another regulatory problem arises. Subsequently, knowledge, acceptance and application of standards have been very low in many jurisdictions, even when governments have fully adopted them. Many owners and managers of SMEs do not know the options they have in the preparation of their financial statements and how the new IFRS for SMEs supports to improve the presentation of their financial reports. For example, The application of IFRS can be very important for SMEs that plan to attract investors to provide them with capital financing or to obtain loans from banks. It has been established that many SMEs do not have access to finance, due to poor financial management and accounting practices (Eneh & Anyahara, 2016). However, with the IFRS for SMEs, companies can prepare timely and quality financial statements and use them to obtain funds from investors and lenders.
List of References
Bova, F, & Pereira, R (2012) The determinants and consequences of heterogeneous IFRS compliance levels following mandatory IFRS adoption: Evidence from a developing country. Journal of International Accounting Research, 11 (1),83-111
Brooks, J (2017) Why international accounting standards are important. Available from: https://www.crownagents.com/news-and-know-how/article/training-and-professional-development/2017/08/10/why-international-accounting-standards-are- important (Accessed on 9/28/18).
El-Fakki, A, & Khalifa, H (2013) The consolidated financial statements in the light of the International Financial Standards 10: A comparative study with the International Accounting Standard 27. American International Journal of Social Science, 2(7), 58-69.
He, X, Wong, TJ and Young, D (2012) Challenges for Implementation of Fair Value Accounting in Emerging Markets: Evidence from China. Contemporary Accounting Research 29 (2):538-562.
Ingram, D (2017) What are the benefits of international accounting standards? Available from: https: //bizfluent.com/info-7975847-benefits-international-accounting-standards.html (Accessed on 9/28/18).
Irvine, H (2008) The global institutionalization of financial reporting: The case of the United Arab Emirates. Accounting Forum 32 (2):125-142.
Kang, H., &Gray, S. (2014). Corporate financial reporting in the bric economies: A comparative international analysis of segment disclosure practices. International Finance Review, 15 , 233-254
Klibi, M. F., & Kossentini, A. (2014). Does the adoption of IFRS promote emerging stock markets development? Evidence from MENA countries. International Journal of Accounting, Auditing and Performance Evaluation, 10 (3), 279-298
Mihret, D G, &Bobe, B J (2014) Multiple informal imperial connections and the transfer of accountancy to Ethiopia (1905) to 2011). Accounting History, 19 (3), 309-331.
Poudel, G., Hellmann, A., & Perera, H. (2014). The adoption of International Financial Reporting Standards in a non-colonized developing country: The case of Nepal. Advances in Accounting, 30 (1), 209-216.
Schutte, D, & Buys, P (2011) TO critical analysis of the contents of the IFRS for SMEs – A South African perspective. South African Journal of Economic and Management Sciences, 14 (2), 188-209
Serwanja, R (2017) The effects of International Financial Reporting Standards (IFRS) on profitability performance of SMEs in developing countries: A case of Uganda. International Journal of Technology and Management, 2 (1), 1-12.
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