Transiting to International Financial Reporting Standards for Small and Medium Sized Enterprises in Ethiopia: Benefits and Costs

Abstract

In every nation in the world small and medium enterprises (SME) have a crucial role in the Socio-economic development. Thus Over a decade’s they are increasingly attracting different stakeholder’s attention. It is in this regard the International Accounting standard Board (IASB) issued IFRS for SMEs in July 09, 2009. This study examined the Benefits and Costs of transiting to International financial reporting standard for Small and Medium sized Enterprises (IFRS for SMEs) in Ethiopia. So as to achieve this objective the researcher used mixed research approach. Semi-structured interview and questionnaires were used as an important tool for gathering the necessary data from tour operators as target group. From 320 SMEs given population size, 32 SMEs firms selected using systematic sampling technique and 93 is the sample size of respondents chosen from 32 SME firms based on Judgmental sampling technique. It was found in this study the benefit of transition towards IFRS for SME is expected to decreases the information asymmetry between insiders and outsiders users of accounting information. Moreover its long run effect helps to achieve of the theoretical concept of the primary & secondary qualitative characteristics of accounting information (Relevance & Reliability Vs Comparability & understandability). Above all, the aggregate effects may increase the number of cross boarder investments, increasing the alternative of sources of financing and reducing cost of debt. Furthermore, the finding shows transition towards IFRS for SME is costly to firms primarily because of the superior exertion of efforts, understanding and information systems needed and during post transition period additional effort needed to manage the risk of potential material misstatements appearing in the IFRS for SMEs-generated financial statements. Lack of knowledge (understanding) requires them to be engaged in a capacity building program with the coordination of Auditing and Accounting Board of Ethiopian & academicians.