Impact Of International Financial Reporting Standards (IFRS) On Small And Medium Scale Enterprises In Nigeria

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Impact Of International Financial Reporting Standards (IFRS) On Small And Medium Scale Enterprises In Nigeria


Abstract


This study sought to establish the relevance of International Financial Reporting Standard (IFRS) to small scale enterprises in Nigeria. The international accounting standard board (IASB), in its objectives and preamble, suppose that the beneficial effects from IFRS adoption include transparency, accounting quality and reduced cost of capital. Based on these assumptions, this study applied timeliness, simplicity/ understandability, quality, transparency and comparability to find out whether the adoption of IFRS has relevance to small scale enterprises in Nigeria. The study employed multiple regression analysis and the findings showed that there is a positive significant relationship between the variable timely preparation of financial statement and the adoption of IFRS. The study concluded that the adoption of IFRS is a big move for the firms, accounting regulatory body and the government in Nigeria because the benefits are more than the demerits as discussed earlier in this report. However, the study recommended that the government should introduce some incentives to motivate the SMEs or introduce compulsory adoption of these standards to ensure that all SMEs adhere to the adoption.


Chapter One


Introduction

1.1 Background to the Study

Government at all levels in Nigeria have in recent times emphasized on the diversification of the economy through the promotion of small and medium scale enterprises.

The importance of small and medium scale enterprises to the economic development of any country whether developed or developing cannot be over-emphasized. They are the driving forces of economic and industrial development. To a large extent, small and medium scale enterprises play significant role in improving the living standard of the citizens of any nation by creating goods and services, stimulating private ownership and entrepreneurial skills, creating sources of revenue to both individuals and government developmental purposes, creating employment opportunities and aiding the development of indigenous technology. According to Adelaja (2014) SMEs are generally seen as labour intensive, capital saving and capable of helping create most of the one million new jobs the world will need by the end of the century.

Owing to the enormous benefits inherent in the development and sustainability of small and medium enterprises, government through the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN), Manufacturers Association of Nigeria (MAN), and other organizations such as the International Accounting Standards Board (IASB) have been on the vanguard of exploring possible means of promoting the activities of SMEs. According to Osotimehin (2012), no other development strategy has enjoyed as much prominence in Nigeria’s development plans as the Small and Medium Scale Enterprises (SMEs) development strategy.

The international Accounting Standards Board (IASB) in July, 2009 introduced the International Financial Reporting Standards (IFRS) for Small and Medium Scale Enterprises (SMEs) as a way of enhancing the activities of small and medium scale enterprises through improved accounting and reporting practices. IFRS for SMEs is a self-contained set of accounting principles that is based on full IFRS but has been simplified for SMEs (Deloitte, 2010).

Accounting and reporting information is a critical component of an enterprise business decision-making strategy. Accounting and reporting information enables an enterprise to perform the function of measuring its financial standing, assessing profitability and cash flow. Good accounting and reporting information can also help an enterprise in accessing funds both locally and internationally. As a result of the importance of SMEs to the economic and industrial development of Nigeria and the role of accounting and reporting information in enhancing the activities and growth of any enterprise, it becomes very pertinent to examine the relevance of IFRS for SMEs to Small and Medium Scale Enterprises in Nigeria, using selected enterprises in Benin, Edo State as case study.


1.2 Statement of Problem

All over the world, including Nigeria, greater emphasis have been on the growth and development o SMEs due to their contributions to economic, industrial and infrastructural development of any country.

However, according to Deloitte (2012), Nigeria has joined the league of Nations reporting IFRS and currently in her second phase of IFRS implementation with first phase drawing to a close on 31st December, 2012 when all listed and significant public entities are expected to produce first IFRS financial statements.

With the issuance of IFRS for SMEs by IASB in July, 2009, SMEs in Nigeria are also expected to adopt and implement IFRS in the preparation and presentation of their financial statements. This research work is thus intended to examine/assess the relevance of IFRS for SMEs to Small and Medium Scale Enterprises in Nigeria and to offer suggestions and recommendations on how enterprises can benefit from the adoption of IFRS for SMEs with reference to the selection and study of some SMEs in Benin metropolis.

More so, this research is intended to bridge the gap in knowledge of IFRS and its importance to SMEs in Nigeria.


1.3 Research Questions

In relation to the objective of the study, the following research questions are addressed:

  1. Are Small and Medium Scale Enterprises in Nigeria aware of the introduction of IFRS for SMEs?
  2. Are accounting and reporting practices of Small and Medium Scale Enterprises in Nigeria in accordance with IFRS for SM Es?
  3. Are IFRS for SMEs adoption relevant to Small and Medium Scale Enterprises in Nigeria?

1.4 Objective of the Study

The broad objective of the study is to examine the relevance of IFRS to Small and Medium Scale Enterprises in Nigeria with particular emphasis on Small and Medium Enterprises in Benin metropolis.
Specifically, the objective of this study are to:

  1. Ascertain whether SMEs in Nigeria are aware of the introduction of IFRS for SMEs.
  2. Determine whether SMEs in Nigeria have already adopted 1FRS for SMEs.
  3. Investigate if IFRS for SMEs are relevant to Small and Medium Enterprises in Nigeria.

1.5 Statement of Hypothesis

The study seeks to test the following hypotheses:

Hypothesis One
  • HO: SMEs in Nigeria are not aware of the introduction of IFRS for SMEs.
  • HI: SMEs in Nigeria are aware of the introduction of IFRS for SMEs.
Hypothesis Two
  • HO: SMEs in Nigeria do not carry out their accounting and reporting practices in accordance with IFRS for SMEs.
  • HI: SMEs in Nigeria do not carry out their accounting and reporting practices in accordance with IFRS for SMEs.
Hypothesis Three
  • HO: The adoption of IFRS for SMEs is not relevant to Small and Medium Enterprises in Nigeria.
  • HI: The adoption of IFRS for SMEs is relevant to Small and Medium Enterprises in Nigeria.

1.6 Significance of the Study

This study would be beneficial to practitioners, academicians, management of SMEs government and interested researchers in the following ways;

  1. To practitioners and academicians: this study provides useful information about the relevance of IFRS to SMEs in Nigeria.
  2. To management of SMEs: This study provides information about the theoretical and actual benefits and challenges of adoption of IFRS for SMEs.
  3. To government, IFRS regulatory body and management of SMEs, it helps them to be aware of the perceived and actual benefits and challenges in the adoption of IFRS by SMEs and give insights on how to benefit from IFRS not effectively.
  4. To interested researchers, it help others that are interested in conducting detailed and comprehensive research study on the relevance of IFRS and SMEs in Nigeria to have a spring board to initiate their study on.

1.7 Scope of the Study

The topic International Financial Reporting Standard (IFRS) in SMEs in Nigeria is a wide and complex one. In this study the researcher is quite aware that the study is supposed to be a comprehensive survey of all small and medium enterprise in Nigeria but this could not be possible due to the fact that time and cost does not permit the researcher to move from one enterprise to the other.

However, the study has been designed to study selected small and medium enterprises in Benin metropolis. Only companies that fall within range of small and medium scale enterprises and are located within Benin metropolis are considered in this study. That means companies that are listed on the Nigerian Stock Exchange and publish their financial statements to the public are not covered in the study. A sample size of 50 was employed for effective result.


1.8 Limitations of the Study

This study is mostly limited by scope. The following are the limitations of this research study;

The research is for small and medium enterprises in Nigeria but by design is limited to selected small and medium enterprises in Benin metropolis. This is a small population of the small and medium enterprises operating in Nigeria.

There are larger concentrations of small and medium enterprises in towns like Lagos, Onitsha, Aba and Kano. It therefore becomes difficult to generalize the outcome of this research on the whole population of SMEs in Nigeria.
Another limitation of this study is the difficulty in obtaining data.

Most SMEs do not know the importance of keeping proper books of accounts.

Lack of co-operation from management of SMEs is another trend as most of them are not willing to give their firms financial information, thinking that if might be misused by their competitors and fear of being reprimanded by their employer.


1.9 Definition of Terms

IFRS:

This means International financial Reporting Standards. IFRS is used interchangeably with IFRS for SMEs which is the abridged version of the International Financial Reporting Standards for Small and Medium Scale Enterprises.

SMEs:

This means Small and Medium Scale Enterprises, that is, not quoted privately owned enterprises that do not publish their financial statements to the public.

IASB:

This means International Accounting Standards Board. It is the body responsible for publishing and reviewing of international accounting standards.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain the impact of international financial reporting standard on small and medium scale enterprise in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of IFRS adoption by SMEs.


5.2 Summary

The research work focused on the effect on adoption of IFRS for SMEs on financial disclosures by small and medium-sized enterprises in Nigeria. The results of the hypotheses tested revealed that adoption of IFRS for SMEs will impact positively on the financial information disclosures of SMEs in Nigeria. It further reveals that such will lead to greater disclosures of financial information, will lead to greater investors’ confidence and in turn enhance inflow of external capital into the activities of SMEs from banks, internal and foreign investors


5.3 Conclusion

Based on the results that have been already presented from our field study, we conclude that from the viewpoint of Chartered Accountants, Users of financial statements and owners of Small and medium enterprises, that adoption of IFRS by SMEs can be seen as a required effort to the growth and survival of Small and medium enterprises. Although IFRS for SMEs is costly and burdensome but the adoption of IFRS will enhance competitive advantage, potentials for growth and sustainability of SMEs in Nigeria. Adoption of IFRS by SMEs in Nigeria will encourage comparison of financial statements within the industry, across industries, improved transparency and accountability globally.


5.4 Recommendations

Based on the findings of this study, the following recommendations were made:

  1. The adoption of IFRS for SMEs in Nigeria should be gradual but sustained process.
  2. Adoption of IFRS by SMEs in Nigeria should beginning with enlightenment campaigns.
  3. Training on IFRS is required for SMEs to have required skill and competence as required for IFRS accounting.
  4. Government should support the adoption of IFRS by solving the problems of SMEs.

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