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

Main Article Content

Dagnachew Abera Hunde
Kefiyalew Belachew Bayu


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.


Article Details

How to Cite
Hunde, D. A., & Bayu, K. B. (2020). Transiting to International Financial Reporting Standards for Small and Medium Sized Enterprises in Ethiopia: Benefits and Costs. Journal of Economics, Management and Trade, 26(8), 72-87.
Original Research Article


Francis J, LaFond R, Olsson P, Schipper K. Costs of equity and earnings attributes. The Accounting Review. 2004;79:967–1010.

Tafa Mosisa, Accounting practices of small and medium sized enterprises and its effect on access to Finance in Addis Ababa, Addis Ababa University, Ethiopia; 2011.

Luetkenhorst W., Corporate Social Responsibility and the Development Agenda: The case for actively involving small and medium enterprises‟, Inter economics; 2004.

Nelson Maseko*, Onias Manyani. Accounting practices of SMEs in Zimbabwe: An investigative study of record keeping for performance measurement (A case study of Bindura), Journal of Accounting and Taxation. 2011;3(8):171-181.

Devi S. A framework for differential reporting: A response to ISAR's accounting and financial reporting guidelines for small and medium sized enterprises, Confederation of Asian and Pacific Accountants; 2003.

Gorton M. Use of financial management techniques in the U.K. – based small and medium sized enterprises: empirical research findings. Journal of Financial Management & Analysis, Jan-Jun. 1999; 12(1):56-64.

Beck T, Demirguç-Kunt A, Levine R. SMEs Growth, and Poverty: Cross-country Evidence, World Bank memo; 2005.

Ghafoor Z, Iqbal M. Role of the Internet in SME growth strategies: Case studies of Swedish companies, Thesis, Lulea University; 2007.

Zindiye S, Roberts-Lombard M, Herbst G. An empirical investigation into the factors affecting the performance of SMEs in the private companies, Journal of Small Business and Enterprise Development; 2008.

Holt G. IFRS for SMEs In: Student Accountant. Kaplan - ACCA. London; 2008.

Pacter P. Will the GAAP widen for SMEs? Institute of Chartered Accountants in England & Wales, Accountancy. 2004; 133(1325):118-122.

South African Institute of Chartered Accountants (SAICA 2010). IFRS for SMEs, May; 2010.

Government of Ethiopia, the federal micro and small enterprise development agency; 2011.

International Accounting Standards Committee Foundation (IASCF), Exposure Draft of a proposed IFRS for SMEs, IASC Foundation Pubs, London, February; 2007.

McMahon RGP, Putting SME Financial Reporting into Theoretical and Practical Perspective, Res. Paper Series 98-10, The Flinder University, South Austrilia. Adelaide; 1999.

Che Ruhana Isa, Zakiah Saleh, Noor Sharoja Sapiei. A survey on financial and management Accounting practices among small and Medium enterprises in malaysia, Journal of Accounting Perspectives. 2008;1:13-25.

McMahon RGP. Financial reporting practices of Australian manufacturing SMEs; 1998.

Collis J, Jarvis R. Financial information and the management of small Countries: A case of Cambodia, Proceedings of the 7th Intl. Conf. Innov. Manage. 2002;1881-1885.

Nayak A, Greenfield S. The use of management accounting information for managing micro businesses, In Hughes, A. and Storey, D.J. (eds.), Finance and the Small Firms, London; 1994.

Hopper T, Koga T, Goto J. Cost accounting in small and medium sized manufacturing sector of Harare, Zimbabwe, Mcom. Thesis, Fort Hare Univ. SA; 1999.

Government of Ethiopia, Income tax proclamation No. 286/2002.

Keasy K, Short H. The accounting burdens facing small firms: An empirical research note. J. Acc. Bus. Res; 1990.

Marriot N, Marriot P. Professional accountants and the development of management accounting service for the small firm: Barriers and possibilities. J. Mgt Acc. Res. 2000;11:75-492.

Storey DJ. Understanding the small business sector, London: International Thomson Business Press; 1994.

UNCTAD, Accounting by small and medium-sized enterprises: A report by the ad hoc consultative group of experts on accounting by small and medium-sized enterprises; TD/B/COM.2/ISAR/16/Add.4.; 2002.

Holtmann M. et al., SME Financing: Lessons from Microfinance. SME Issue 1(November). 2002;1-8., accessed on September 19; 2019

Ball Ray. Corporate Governance and Financial Reporting at Daimler-Benz Infor. Paper prepared for Small and Medium-sized Practices Committee, IFAC. NY; 2004.

KPMG International, The Information Systems Impacts of IFRS –Complexity behind the numbers, KPMG Leadership Publications, Kuiperskaai, Belgium; 2005.

Gordon, Elizabeth, Sustainability in global financial reporting and innovation in Japanese companies: An exploratory study, Accounting and Business Research; 2008.

Larson, Robert K. & Street, Donna L, Convergence with IFRS in an expanding Europe: progress and obstacles identified by large accounting firms‟ survey. Journal of International Accounting, Auditing and Taxation. 2004;13:89-119.

International Accounting Standards Board, International Financial Reporting Standards (IFRS) for Small and Medium-sized Entities (SMEs), International Accounting Standards Board (IASB). London: IASB; 2009.

El-Gazzar SM, Finn PM, Jacob R. An empirical investigation of multinational firms compliance with international accounting standards. International Journal of Accounting. 1999;34(2):239–248.

Cohn M. Private co. committee wants standards clarified. Accounting Today. 2009;23(19).

Haller A, Eierle B. Accounting standards for small and medium-sized entities - erste Weichenstellungen durch das IASB, Betriebs-Berater. 2004;59(34):1838-1845.

ASRB, Proposed application of accounting and assurance standards under the proposed new statutory framework for financial reporting: discussion document. Accounting, Auditing and Taxation. 2009; 13:89-119.

Suhaib Aamir, Umar Farooq. Assessing the preparedness of of Small and medium sized entities in Sweden to adopt International financial reporting standards (IFRS) for small and medium sized entities (SMEs), Umea school of Business; 2010.

Bryman A, Bell E., Business Research Methods, 2nd Edition. New York, USA: Oxford University Press; 2007.

Creswell WJ. Research Design: Qualitative, Quantitative and Mixed approaches, 2nd edition, New Delhi: sage; 2003.

Mcnabb D. Research Methods in Public Administration, New York: Sharpe; 2002.

Fowler FJ, Jr. Survey Research Methods, 2nd Ed. Newbury Park, CA: Sage; 1993.

Government of Ethiopia, Ministry of tourism and culture; 2012.

Fikeru Fantahun. The adoption of international financial reporting standard (IFRS) in Ethiopia: Benefits and Key challenges, Addis Ababa University, Ethiopia; 2011.