ABSTRACT
The general objective of this research work
is to investigate the likely challenges that SMEs will encounter in adopting
IFRs for SMEs within the Nigerian environment and those factors that could
hamper the adoption of the standard by SMEs. Understanding the vital role of
SMEs in every economy, ranging from positive developments to creation of
employments and their very key impact within the various sectors where they are
operational, it therefore becomes so operational to critically analyze, using
extant literature, the benefits and likely challenges of implementing IFRs for
SMEs in Nigeria. The study examines the issues and challenges faced by SMEs in
the adoption of IFRS for SMEs in Nigeria. To obtain answers to the research
questions, questionnaires were distributed seeking the opinion of respondents.
A total of 400 questionnaires was distributed to Accountants, Accounts clerks,
Analysts, Executives/Business owners, etc. out of which 318 was returned. The data
collected was analyzed using descriptive statistics and Multiple Regression
analysis. The results show the various relationships existing between the
factors that affect the adoption of IFRS for SMES and the standard itself. The
finding also reveals that despite the challenges bedeviling the SMEs, SMEs are
willing and ready to adopt the standard however, training and re-training has
to be enhanced. The study encourages the government to ensure a level playing
ground by drawing out a timetable, which the SMEs are to abide to while
adopting the standard and to also provide the necessary funding where the need
arises considering the cost involvement in adoption.
Keywords: IFRS, IFRS for SMEs, SMEs,
Financial Reporting, the Standard.
CHAPTER ONE
INTRODUCTION
BACKGROUND
OF THE STUDY
The process of businesses presenting
financial reports in a unified worldwide acceptable manner started witnessing a
sporadic revolution within the European Union in 2002 when it was made
mandatory that all publicly quoted companies or rather, companies with public
accountability must prepare their financial statements in accordance with the
requirement of the International Financial Reporting Standards (IFRS) with
effect from 2005 (Ball, 2006). Such revolution encompasses the adoption and
adaptation of local accounting practices and harmonizing it with that of the
International Financial Reporting Standards (IFRS) which formally was the
International Accounting Standards (IAS).
It is in recognition of the need to having
quality financial reports and other benefits such as ability to improve the
comparability among entities, having access to global capital markets and
reduced cost of capital, access to cross border acquisitions, that the adoption
of IFRS is becoming a trend among nations. Nigeria as a country therefore, set
out its roadmap to harmonization and accepting of the IFRS in 2010 with a
reporting date of 2012 (Ayuba, 2012). Although, there are significant benefits
of adopting IFRS, it is not without problems. Among such problems, include the
conversion challenges such as increased volatility of earning, high cost of
implementation, complex nature of IFRS and issues of implementation.
To cater for the needs of the Small and
Medium Enterprises (SMEs) and understanding their impact in the sustenance and
development of a nation and the need to make them present a quality financial
statement, the International Accounting Standard Board (IASB) in 2009 developed
the International Financial Reporting Standards for Small and Medium
Enterprises – IFRS for SMEs (Mazhindu and Mafuba, 2013), and also as a response
to a ‘strong international demand from both developed and emerging economies
for a rigorous and common set of accounting standard for smaller companies’
(Albu, 2013). With its stated benefits, Albu (2013) noticed that the adoption
of IFRS for SMEs is laden with various challenges such as high level of
expectation, the associated cost of implementation, lack of competencies of
local professions among others. According to Ayuba (2012), proper criteria for the
definition of SMEs may constitute a challenge as Nigeria adopts its roadmap of
the SMEs reporting date of 2014.
Understanding the vital role of SMEs in every
economy, ranging from positive developments to creation of employments and
their very key impact within the various sectors where they are operational, it
therefore becomes so operational to critically analyze, using extant
literature, the benefits and likely challenges of implementing IFRs for SMEs in
Nigeria.Various studies have been conducted to assess the adoption of IFRS for
SMEs in different countries of the world. A set of studies have been conducted
in relations to the importance or benefits (Neag, Masca and Pascan, 2009;
Mazhindu and Mafuba, 2013; Schutte and Buys, 2011a) and the challenges of
adopting IFRS from SMEs (Stainbank, 2008; Albu, 2013; Kordecki and Bullen,
2012). Most of these studies were conducted using member European Union for
data analysis. Comparatively, few researches have been conducted or carried out
on emerging economies. Therefore, with respect to the researcher’s knowledge,
few empirical research exits on the issues and challenges of adopting IFRS for
SMEs in Nigeria. This study therefore, will attempt to bridge the gap and
equally adopt the Nigerian data with particular reference to the adoption of
IFRS for SMEs, issues with IFRS for SMEs in Nigeria, challenges likely to be
faced by stakeholders in the adoption process and the factors affecting the
adoption.
By utilizing an analytical framework from the
extant literature, empirical evidence from other countries context, the
research elaborated in detail the benefits, challenges and factors/issues that
could affect the adoption of IFRS for SMEs in Nigeria. Through questionnaires
that were distributed to finance officers, CEOs and accountants of selected
companies, and review of some related documents, inferences were drawn
regarding the adoption of IFRS for SMEs in Nigeria.
Statement of the Problem
The development of IFRS for SMEs and its
subsequent adoption by industrialized and developed countries such as Britain,
Turkey, Sweden, Germany and other EU Members have been a major concern among
accounting professionals. In spite of existing studies on the adoption of IFRS
for SMEs by the developed and industrialized countries of the world, less
attention has been given to the developing countries. Little educational
publication exists on the adoption of IFRS for SMEs in Nigeria. Those existing
few focuses mainly on the likely benefits to the government and are viewed from
a general African perspective (Mazhindu and Mafuba, 2013; Stainbank, 2008;
Kopperschaar, 2012).
This study is therefore motivated because of
absence of studies in the area of IFRS for SMEs adoption in Nigeria, its
benefits, challenges and factors likely to explain the reasons for its
adoption. Considering the differences in environment between the developed and
the emerging economies, it is imperative to see the problem in the developing
countries context to enrich and extend the understanding of IFRS for SMEs and
the issues relating to its first time adoption within the Nigerian environment.
Purpose of the Study
The adoption of International Financial
Reporting Standards for Small and Medium Enterprises (IFRS for SMEs) has
received widespread acceptability by various nations of the world as the
benchmark for the financial reporting of SMEs. However, many countries and
researchers suggest that the adoption of IFRS for SMEs may not improve the
financial reporting of SMEs across board because every economy have peculiar
and unique factors surrounding their financial reporting activities.
This research work therefore intends to carry
out an empirical investigation on those issues and challenges that SMEs within
the Nigerian environment may encounter in the processes of adopting IFRS for
SMEs and how these issues could be solved so as to making sure that their
reports is in line with international best practices.
Aims and Objectives of the Study
The general aim of this research work is to
investigate the likely challenges that SMEs will encounter in adopting IFRs for
SMEs within the Nigerian environment and those factors that could hamper the
adoption of the standard by SMEs. To achieve the intended aim of this study,
the researcher will try to:
i. establish the various challenges that will
be faced by SMEs while adopting the standard (IFRS for SMEs);
ii. Ascertain the benefits that SMEs could
derive from adopting the standard (IFRS for SMEs);
iii. Identify some issues that are likely to
prevent SMEs from adopting the standard (IFRS for SMEs) and
iv. Ascertain the underlying factors (i.e.
government policy, professional bodies, company size, and capital market and
education/qualification level) that could affect the level of adoption of IFRS
for SMEs.
Significance of the Study
The study would have many advantages to all
practitioners and academicians by providing useful information about IFRS for
SMEs and issues related to its adoption in Nigeria. It would also be useful to
organizations’ management by providing information about the theoretical and
actual benefits, issues and challenges of adopting IFRS for SMEs. For academic
purposes, it will provide useful information concerning the statement of
problems.
To those who may be interested in conducting
a detailed research/study regarding the adoption of IFRS for SMEs, this study
could be used as an initiation. Why perceiving the actual benefits of IFRS for
SMEs, this research could act as a guide to the management of companies to be
aware of the challenges they could encounter in adopting IFRS for SMEs and
provide insight on the efficient and effective adoption of IFRS for SMEs.
Relevant Research Question
To achieve its aim, the study practically
provided answers to the following research questions:
RQ1: What are the likelihood of Government
Policies hampering the adoption of IFRS for SMEs?
RQ2: What practical benefits could the
policies present towards the adoption of the standard?
RQ3: What practical issues from Capital
Market view could prevent an organization from successfully adopting IFRS for
SMEs?
RQ4: What benefits/roles does Professional
Bodies provide in the adoption process of IFRS for SMEs?
RQ5: What significant role does company size
play in the adoption of the standard?
RQ6: How can Educational Qualification/Level
aid the adoption of IFRS for SMEs?
Research Hypothesis
According to Frank (1979 as cited in Mazhindu
and Mafuba 2013), a hypothesis is a tentative statement of fact that is yet to
be verified by the researcher. Therefore, in this study in order to address the
various research questions that could explain the adoption of IFRS for SMEs,
one dependent variable against five independent variables will be developed and
investigated. The dependent variable is the adoption of IFRS for SMEs, while
the independent variables are government policy, professional bodies, company
size, capital market and educational qualification/level.
The dependent variable is the variable that
is the effect or is the result of other variables while the independent
variable are those forces or conditions that aids or acts on something else.
IFRS for SMEs being the dependent variable is a standard for reporting
financial results and activities of non-public accountable organizations and
applicable to organization that are not quoted on the stock exchange but are
involved in profit oriented activities. The adoption of IFRS for SMEs therefore
is referred to as the harmonization of international accounting standard and in
this case in Nigeria. These, therefore, form the subject of discussion for the
research. Considering the impact of the independent variables of government
policy, professional bodies, company size, capital market and educational
qualification/level on the dependent variable, the following research
hypothesis will therefore be investigated.
Hypothesis 1:
H0: There is no significant relationship
between Government Policies and the adoption of IFRS for SMEs.
H1: There is a significant relationship
between Government Policies and the adoption of IFRS for SMEs.
Hypothesis 2:
H0: There is no significant relationship
between Capital Market and the adoption of IFRS for SMEs.
H1: There is a significant relationship
between Capital Market and the adoption of IFRS for SMEs.
Hypothesis 3:
H0: There is no significant relationship
between Educational Qualifications/Level and the adoption of IFRS for SMEs.
H1: There is a significant relationship
between Educational Qualifications/Level and the adoption of IFRS for SMEs.
Hypothesis 4:
H0: There is no significant relationship
between Professional Bodies and the adoption of IFRS for SMEs.
H1: There is a significant relationship
between Professional Bodies and the adoption of IFRS for SMEs.
Hypothesis 5:
H0: There is no significant relationship
between Company Size and the adoption of IFRS for SMEs.
H1: There is no significant relationship between
Company Size and the adoption of IFRS for SMEs.
Scope of the Study
The general aim of the study is to access the
issues and challenges in the adoption of IFRs for SMEs. Due to its broad and
complex nature, this study focused on those factors that could explain the
adoption of IFRS for SMEs by Nigerian companies (SMEs), the economic benefits
of adopting the standard in Nigeria as well as the challenges that could be
encountered in the adoption of the standard.
However, due to limited research existing in
Nigeria in the area of IFRs for SMEs, this study is developed on current
literatures and studies conducted in other countries (developed and developing)
but mostly within the African context.
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