University Accounting Report: IFRS for SMEs Development and Impact

This research report delves into the development and impact of International Financial Reporting Standards (IFRS) for Small and Medium-sized Enterprises (SMEs). It provides an overview of the IASB's efforts to create simplified IFRS for SMEs, examining the motivations behind these standards and their role in enhancing SMEs' access to international finance. The report explores the background of global accounting standard convergence and outlines the research aims, objectives, and questions, including an analysis of the impact of IFRS on financial accountants and users. It also reviews existing literature on IFRS for SMEs, accounting regulatory structures, and relevant theories like decision usefulness and pecking order theory. Furthermore, the report investigates the importance of SMEs in economic development and the potential benefits of IFRS adoption, such as improved financial information quality and increased access to finance. Finally, it presents a hypothesis on the impact of prior understanding of full IFRS on the interpretation and application of IFRS for SMEs. This report offers a comprehensive analysis of the challenges and implications of IFRS adoption for SMEs and its impact on financial reporting.

Running head: INTEGRATED ACCOUNTING
Integrated accounting
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Research Topic: Development of IFRS for Small and Medium Sized Enterprises (SMEs)
Introduction
The primary purpose of the current research is to deliver insight into recent developments in
different issues of financial accounting and aims to concentrate on the overall influence of the
international financial reporting standards on small as well as medium sized enterprises
(SMEs). In essence, this current research provides a modern-day evaluation of the overall
successes and difficulties of adoption of IFRS by SMEs.
The International Accounting Standards Board has particularly followed a very strong
schedule in current years in order to a formulate a simplified set of International Financial
Reporting Standards for specifically non-publicly liable small as well as medium sized
enterprises (SMEs). Essentially, IFRS for particularly SMEs declared during the year 2009
was draw from the entire IFRS with considerably condensed recognition and measurement
rules. In the records of accounting regulation setting procedures of the IASB, directives of
IFRS for particularly SMEs was essentially the first ever set of directives that were designed
for small as well as medium sized business concerns. Basically, IFRS regulations for SMEs
has received great deal of attention and different accounting regulatory units counting IASB
are always monitoring the process of adoption and the execution of the regulation throughout
the world.
Particularly, small as well as medium enterprises play a crucial role in economic as well as
social development in both developed and developing nations. However, it can be observed
that the segment of small and medium sized business concerns can be considered as the
largest provider of employment in several nations, specifically from the perspective of
employment generation. Moreover, the contribution of diverse SMEs to specifically

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economic output, innovation, strategy and technological advancements is also widely
identified. However, the IASB presents the view that the adoption of IFRS for small as well
as medium sizes business concerns can certainly augment the accessibility of the SMEs to
international finance by means of utilization of harmonizes and at the same time superior
quality financial information. Thus, this switch over can be considered to be a major step
forward for SMEs in case if the perceived advantages are aptly identified by nations.
Background of the study
The notions of worldwide convergence of accounting standards dates back to the year 1950s
that is during the time when the economic assimilation as well as cross border trading started
to flourish post the second world war (Hellman et al., 2015).
Research Aims and Objectives
The primary aim of the current research is to undertake a detailed evaluation of the
conceptual as well as practical concerns associated to convergence of IFRS for different
SMEs and to recommend feasible ways to resolve the issues (Kajüter & Nienhaus, 2017).
The objectives of the research is
- To analytically evaluate IFRS for particularly SMEs counting the development as
well as implementation procedure of the directives and to present thorough insight
into the process of assumption of IFRS for particularly SMEs.
- To critically assess whether financial accountants are capable of distinguishing
between different principles of recognition as well as measurement of full IFRS and
that of the IFRS regulations for SMEs at the time of exercising judgements
(Valentinetti et al., 2016).

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- To critically analyse the overall influence of the reduced directions and regulations of
IFRS for particularly SMEs on the specialized judgement of accountants.
- To examine perceptions of users regarding effectiveness of financial assertions that
are prepared and presented in conformation with regulations of IFRS for particularly
SMEs.
Research Questions
The research questions that are framed for the current study are as mentioned below:
- What is the impact of IFRS for mainly SMEs taking into consideration the
development as well as implementation procedure of the directives?
- Can the financial accountants distinguish between different principles of recognition
and measurement of specifically full IFRS and from that of the IFRS regulations for
mainly SMEs at the time of carrying out judgements?
- What are the impacts of the reduced directions as well as directives of IFRS for
particularly SMEs on the specific judgement of accountants?
- What are the perceptions of different users regarding usefulness of financial assertions
that are prepared and presented in compliance with directives of IFRS for mainly
SMEs?
Links to the present literature
The current section elucidates in detail prior literature that helps in explaining development
of IFRS for small and medium sized enterprises, certain IFRS provisions for small as well as
medium sized enterprises. In addition to this, this segment also helps in understanding the
implementation of IFRS for SMEs in diverse nations, theoretical framework, and emerging
matters in the process of IFRS for diverse SMEs (Markelevich et al., 2015). The existing

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literature also illustrates in detail different jurisdictions of IFRS and gaining linkages to
existing literature explaining accounting regulatory structure for different small and medium
enterprises (SMEs) (Uyar & Güngörmüş, 2013).
Rossi & Hanni (2016) asserts that small as well as medium sized corporations in diverse
jurisdictions are recently gaining enormous attention and have also stepped into worldwide
accounting reporting field as an outcome of the opening of the International Financial
Reporting Standards (IFRS) for small as well as medium enterprises. In particular, this
current study analytically assesses IFRS for specifically SMEs, counting the development
along with execution procedure of the standards. In addition to this, this applies the structure
of decision usefulness theory as well as pecking order theory for evaluating concerns
pertaining to both development as well as execution of IFRS for small and medium sized
enterprises. In addition to this, this study also delivers substantiation that IFRS for
particularly SMEs have been a difficult proposition for non-publicly liable units to adopt. In
addition to this, there are also numerous conceptual as well as practical concerns with
regulations of IFRS for mainly SMEs (Kordecki & Bullen, 2014). Again, the evaluation and
deep insights provided by the current study will have severe insinuations for revising IFRS
for particularly SMEs and will help in addressing future complications in the process of
convergence (Kordecki & Bullen, 2014).
Accounting regulatory structure for SMEs
Graham et al., (2017) asserts that explicit accounting information directs the way towards
successful management of a particular business, regardless of the size of the firm.
Fundamentally, SMEs are let off from statutory audit necessities and are necessarily subject
to diverse simplified accounting principles (Rossi & Hanni, 2016). However, with the entire
set of IFRS implemented for diverse publicly accountable business entities, numerous

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arguments were raised by different small sized business entities regarding the intricacy of
application of the entire IFRS. Thus, the requirement for simplified set of accounting
regulations fitting for SMEs was widely appealed by several jurisdictions. Subsequently, the
IASB declared IFRS for particularly SMEs during the period 2009 with the intention that
they would be implemented by SMEs around the world (Liu & Lee, 2014).
It is identified that the directives of IFRS augment the overall comparability of pecuniary
information of diverse business units across the entire world. Again, publicly accountable
business entities that are traded in diverse public capital markets, SMEs normally do not have
the liability of the current superior quality comparable financial information for diverse users
(Uyar & Güngörmüş, 2013). Nevertheless, the IASB is primarily of the opinion that SMEs
can acquire advantage of accessing competitive loans from mainly transnational financial
lenders in case if the financial assertions between the nations were comparable. Essentially,
the main aim of introducing the directive is to deliver financial reporting relaxation and
lessen the managerial burden of business concerns that necessarily do not have public
liability, however, prepare and present general purpose financial statements for diverse
external users (Wagenhofer, 2016). Again, the IASB also believes that the straightforward
version can replicate the overall requirement of diverse users of small and medium business
concerns’ financial assertions and the cost benefit factors of SMEs. Abdullah et al., (2017)
mentions that the objective of IASB to introduce a novel accounting structure for small as
well as medium sized enterprises necessarily embraces the entire notion of user oriented
financial assertion. In particular, the attention on specific decision effectiveness in IFRS
mainly includes assessment of pecuniary information. Again, then attention on decision
effectiveness in IFRS for mainly SMEs can be considered to be paradigm shift from mainly
traditional focus of financial assertions of small and medium enterprises. Nassar et al., (2014)
asserts that the theory on decision usefulness presupposes that the primary aim of accounting

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is to help the overall decision making procedure of the pertinent users of different accounting
reports by delivering effectual else wise data on accounting. Kamath & Desai (2014) put
forwards their view that this notion also delivers a specific rational structure that can help in
deriving accounting principles as well as accounting practices. Essentially, history of
establishing standard process, decision usefulness theory can be regarded as a significant
benchmark in selecting suitable accounting treatment that suit the requirements of different
users (Valentinetti et al., 2016).
Extant academic literature mentions the fact that little is known about actual users and their
requirements of information in association to the financial pronouncements of SME. Again,
there too exists inconsistency in the observations on users and their information requirements
in the available limited literature on financial assertions of SME and these questions remain
unreciprocated. Chen et al., (2014) asserts that users and their necessity for information vary
between publicly as well as non-publicly liable business entities. The development procedure
of simplifying different principles of accounting and accounting practices founded on
identical conceptual framework and the extent to which these methods of simplifications are
deduced from the information requirements of varied users of financial information of SMEs
is unclear (Kajüter & Nienhaus, 2017).
As rightly indicated by Jeong et al., (2014), another revolutionary idea behind introduction of
IFRS for SMEs is to augment access of SMEs to different international capital by means of
utilization of superior quality as well as harmonized financial declarations. As correctly
mentioned by the pecking order theory, business entities prioritize different sources of
financing in a hierarchical inclination order from internal sources of funding, debt funding to
equity funding (Kajüter & Nienhaus, 2017). As per this notion, information asymmetry exerts
impact on the overall choice/selection between internal as well as external sources of funding.
As far as effectual utilization of financial information in the process of accessing diverse

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external sources of financing is concerned, IASB’s intention to reduce information
asymmetry of SMEs by presenting and preparing superior quality pecuniary pronouncements
using directives of IFRS for SMEs have the need to be analysed implementing the pecking
order theory (Hellman et al., 2015).
As rightly put forward by Beckman et al., (2017), learners are interested in finding out
whether accounting information requirements of different groups of users of financial
assertions differ considerably. Again, an ongoing discussion on diverse user groups of
financial assertions stresses that users of financial declarations are not a homogeneous group
(Boateng et al., 2014).
Development of Hypotheses
H1: Prior understanding and beliefs regarding the full IRFS regulation will exert impact on
the process of interpretation and application of IFRS for mainly SMEs
Illustration: This addresses primarily the first objective of the current study. In essence, the
main objective of this study is to analytically assess IFRS for mainly SMEs, counting the
development as well as execution procedures of the regulation. Particularly, it starts by
delivering an overview on the background to the entire accounting regulatory structure for
mainly SMEs and thereafter assesses the significance of SMEs. As such, the current study
implements the entire structure of specifically decisions usefulness theory as well as the
pecking theory for evaluating issues pertaining to the development and execution procedure
of IFRS for mainly SMEs. However, this study can help in recognizing different issues that
are engaged in the due process and elucidates the way these types of issues can hinder the
entire process of development along with process of implementation of IFRS for mainly
SMEs. Again, this can also help in delivering evidence as regards diverse complications as
well as contentious concerns associated to execution procedure of the directive (Kajüter &

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Nienhaus, 2017). Particularly, the study also helps in understanding diverse barriers as well
as inconsistencies in provincial regulation and reporting structures, disagreement over
differential reporting structure along with technical difficulties that are inherent in directives
of IFRS for mainly SMEs.
H2: Requirement of Judgement justification can mitigate the entire confirmation bias
stemming from prior understanding as well as belief regarding full regulations of IFRS at the
time when professional accountants interpret and implement IFRS for mainly SMEs
Illustration: This essentially the second objective of the present study. This presents an
argument that when specifically recognition and enumeration necessities are diverse across
particularly full regulations of IFRS as well as IFRS for mainly SMEs, then ensuing
judgements regarding reporting of accountants on specifically IFRS for mainly SMEs might
get biased towards the directives of full IFRS. This mainly happens at the time when
professional accountants have prior knowledge as well as beliefs regarding full IFRS (also
referred to as confirmation bias) impact on the reporting judgements of specifically
accountants at the time of implementing IFRS for mainly SMEs. Thus, the current study
intends to critically examine the judgement validation necessities and the availability of
diverse decision aids that can further assist in mitigating difficulties of confirmation bias that
necessarily stems from prior beliefs and knowledge on full IFRS (Kajüter & Nienhaus, 2017).
Again, the inclination to substantiate prior knowledge along with beliefs regarding full IFRS
certainly impairs the reporting judgements of diverse professional judgements. This
essentially happens at the time when people interpret and implement IFRS for mainly SMEs.
Again, the confirmation bias in particularly the process of making judgements can be
alleviated by enhancing awareness regarding justification necessities and by utilizing suitably
designed decision that contrast the variances in specifically recognition as well as
measurement criteria between IFRS for mainly SMEs and essentially full IFRS.

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H3: A decision made is expected to mitigate the overall confirmation bias stemming from
prior knowledge as well as beliefs regarding the entire IFRS when different accountants
analyse and implement IFRS for mainly SMEs.
The third hypotheses also assesses the possible role that specific judgment validation
requirement along with availability of specific decision aids have in the process of justifying
the confirmation bias stemming from former beliefs regarding full IFRS.
Research Methodology
The research methodology can be considered as the methodical, theoretical evaluation of the
mechanisms implemented to a particular field of study. Essentially, research methodology
comprises of theoretical evaluation of the entire body of mechanisms as well as principles
related a branch of knowledge. Research Methodology hereby helps in understanding the
procedure that can be carried out for undertaking the current research study.
Research Design
As rightly indicated by Mackey & Gass (2015), research design indicates towards the overall
policy that will be selected for the process of integration of diverse components of the current
study in a coherent as well as rational manner. This can help in making certain the fact that
this research design can effectually address the specific research problem and assists in
comprehending the overall blueprint of the research collection, process of measurements and
evaluation of data.
Research Approach
There are necessarily two different types of research approach that includes deductive and
inductive approach. As rightly mentioned by Taylor et al., (2015), the inductive approach
does not comprise of development of hypotheses. Essentially, this starts with research

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questions, research aims along with research objectives that have the need to be attained
during the process of the research. On the other hand, the deductive research approach refers
to formulation of an entire set of hypotheses for the study that have the need to be confirmed
or else rejected during the procedure of the research. This necessarily comprises of analysis
of theory, deduction of hypotheses based on the hypotheses. Thereafter, this process includes
observations as well as tests and subsequently conformation else wise rejection of the stated
hypotheses. However, the purpose of the present study, the learner intends to present
inductive research approach that can help in understanding the problem associated to the
research and carry out specific observations and arrive at particular observations (Flick,
2015).
Research Design
The learner intends to undertake exploratory research design that can help in exploring the
identified research questions and does not necessarily present final as well as conclusive
solutions to diverse existing difficulties. This can be illustrated as an assertion of different
affairs and can be characterised as an attempt to specifically determine, illustrate or else
recognize the topic under consideration. The selection of this research design of descriptive
type can help in describing different aspects of the current phenomenon, characteristics as
well as behaviour of the target sample. Additionally, adoption of this research design can
assist in illustrating and substantiating diverse research findings (Taylor et al., 2015).
Research Methods:
As correctly put forward by Taylor et al., (2015), there are two different types of quantitative
as well as qualitative research methods. Quantitative research method is mainly utilized for
the purpose of quantification of the identified research problem by means of generation of
numerical data. This numerical data can be later on transformed into specific usable statistics.

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Essentially, this can be utilized for the purpose of quantification of specific attitudes,
behaviours, diverse defined variables as well as opinions. Again, this can also be used for
generalization of results from a large sample. On the other hand, qualitative research
mechanism is primarily used in relation to exploratory research. Taylor et al., (2015)
mentions that this research provides specific insights into specific research problems and
assists in the process of development of ideas else wise hypotheses for quantitative research.
Quantitative research study therefore can be used for uncovering diverse trends in specific
thoughts as well as opinions and delve deeper into the identified problem. In essence, for the
purpose of the present study, the learner intends to utilize the mixed methods that include
both the quantitative as well as qualitative methods. Essentially, the learner intends to
undertake mixed research approach that involves mixing both quantitative as well as
qualitative research. This can assist in gaining breadth along with depth of comprehending
and corroboration, whilst offsetting the limitations that are inherent to utilizing each
approach.
The current study intends to utilize a mixed method approach in order to address all the
identified research questions (Flick, 2015). In this study, the learner intends to conduct a
survey on wine production industry for the purpose of assessing the effectiveness of diverse
disclosures that are included in the financial assertions of SMEs that necessarily are prepared
as per regulations of IFRS for SMEs. In addition to this, the learner also intends to undertake
semi-structured interviews with managers of the wine production industries. This interview
process can help in gaining deep insight into appropriateness as well as economic
consequences of the process of simplification of the entire procedure of recognition along
with the principles of measurements necessities of IFRS for small and medium sized
enterprises.
Sources of Data: