An assessment of the challenges of adopting and implementing IFRSS for SMEs in South Africa

Abstract

The purpose of this study is to assess the challenges faced by small and medium sized enterprises (SMEs) in adopting and implementing International Financial Reporting Standards (IFRS) for SMEs in South Africa. There is a perception that, although SMEs are required to use IFRS for SMEs in South Africa, many of these entities are finding it difficult to adopt or implement the IFRS for various reasons including lack of the necessary expertise. The objective of the study is to establish, empirically, the reasons and, subsequently, to determine the attributing causes of the problem, if that was the case. The study is based on a sample of randomly selected number of SMEs in Vhembe district, Thohoyandou, Limpopo province, South Africa. The study findings show that many SMEs in Vhembe District (67%) have adopted IFRS for SMEs in various forms and degree, but, generally, SMEs still find challenges in implementation due to lack of resources. For compliance purposes, however, even those SMEs which have not substantially implemented the IFRS for SMEs are expected to prepare their financial statements by referring to the guidelines. Consequently, this raises a problem when comparing financial performance of various SMEs whose financial statements are prepared using different approaches. The study findings serve as a reminder to the accounting profession about the challenges that SMEs face when they attempt to adopt IFRS for SMEs.