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An Investigation into the challenges faced by Small to Medium Enterprise operators 2016

when adopting and implementing IFRS for SMEs in Zimbabwe

FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING
PROJECT TOPIC

An Investigation into the challenges faced by Small to Medium Enterprise operators when
adopting and implementing IFRS for SMEs in Zimbabwe

Done by:

NEMATIERE MUNYARADZI
N0126484C
Supervised by:

MR P.KORERA
Submitted in partial fulfillment of the Bachelor of Commerce Honors Degree in
Accounting offered by the National university of Science &Technology (N.U.S.T)

Submitted:

03 MAY 2016

Munyaradzi Nematiere N0126484C


An Investigation into the challenges faced by Small to Medium Enterprise operators 2016
when adopting and implementing IFRS for SMEs in Zimbabwe

Release Form and Declaration

Name of Author: Munyaradzi Nematiere

Title of Project: An Investigation into the challenges faced by Small to Medium Enterprise
operators when adopting and implementing IFRS for SMEs in Zimbabwe

Degree Programme: Bcom (Hons) In Accounting

Year Granted: 2016

I, Munyaradzi Nematiere do hereby declare that this submission is own work towards Bachelor
of Commerce Honors Degree in Accounting and that, to the best of my knowledge it is the result
of own investigation and research except to the extent indicated in the acknowledgements.

Permission is hereby granted to the National University of Science and Technology (NUST)
Library to produce copies of this and lend or sell for private scholarly or scientific research
purposes only.

Munyaradzi Nematiere (N0126484C) ..


Signature Date

2016. M. Nematiere.
All Rights Reserved. No part of this publication or the information contained herein may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means, electronic, mechanical, by photocopying, recording or
otherwise, without prior permission from the author.

Munyaradzi Nematiere N0126484C


An Investigation into the challenges faced by Small to Medium Enterprise operators 2016
when adopting and implementing IFRS for SMEs in Zimbabwe

FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING

_______________________________________

APPROVAL FORM
___________________________________________

The undersigned certify that they have read and recommended to the National University of
Science and Technology (NUST) acceptance, a project entitled An Investigation into the
challenges faced by Small to Medium Enterprise operators when adopting and
implementing IFRS for SMEs in Zimbabwe submitted by NEMATIERE MUNYARADZI,
student number N0126484C in partial fulfillment of the requirements for the Bachelor of
Commerce Honors Degree in Accounting.

...
Supervisor

..
Chairperson/Programme Coordinator

.
External Examiner

Munyaradzi Nematiere N0126484C


An Investigation into the challenges faced by Small to Medium Enterprise operators 2016
when adopting and implementing IFRS for SMEs in Zimbabwe

DEDICATION
This research is dedicated to my departed father (friend, brother and mentor at the same time)
Ezekiel Nematiere for financial support and guidance that you provided up to a point when I
was in lower six. And you used to say If you want to go fast go alone but if you want to go far
then go together, these words are a vital tool in my daily life and I realised that coming
together is a beginning, keeping together is progress and working together is success.

My success story today is a result of gorgeous guidance and effective motivation that you
granted me.

May your soul rest in PEACE

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An Investigation into the challenges faced by Small to Medium Enterprise operators 2016
when adopting and implementing IFRS for SMEs in Zimbabwe

Table of Contents
Acknowledgements ........................................................................................................ vi
Abstract ........................................................................................................................ vii
List of tables ................................................................................................................ viii
List of figures ............................................................................................................... viii
List of Abbreviations...................................................................................................... ix
CHAPTER 1 .................................................................................................................. 1
1.0 Introduction ........................................................................................................... 1
1.2 Background of the problem .................................................................................. 2
1.3 Objective of the study ............................................................................................ 3
1.4 Sub Objectives ...................................................................................................... 3
1.5 Research Problem .................................................................................................. 3
1.6 Research Question ................................................................................................. 3
1.7 Sub Questions........................................................................................................ 3
1.8 Significance of the study........................................................................................ 3
1.8.1Justification of the significance of the study ..................................................... 3
1.9 Assumptions .......................................................................................................... 5
1.10 Conclusion. ......................................................................................................... 5
CHAPTER 2 .................................................................................................................. 6
Literature Review .................................................................................................... 6
2.0 Introduction ........................................................................................................... 6
2.1 Theoretical Framework of the IFRS for SMEs ....................................................... 7
2.2 The essence of Accounting Information Systems ................................................. 10
2.3 IFRS for SMEs .................................................................................................... 11
2.3.1 Comparison with full IFRS ........................................................................... 11
2.3.2 First time adoption of the IFRS for SMEs ..................................................... 12
2.3.3 Adoption rate of IFRS for SMEs ................................................................... 13
2.3.4 Considerations prior to adopting the IFRS for SMEs ..................................... 13
2.3.5 Procedures taken to ensure Implementation .................................................. 16

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2.3.6 How far have the SMEs implemented the standard ....................................... 17
2.4 Level of awareness .............................................................................................. 17
2.4.1 Training resources ........................................................................................ 17
2.4.2 Accounting Education and Training .............................................................. 18
2.4.3 Amendments to existing IFRS and laws ........................................................ 18
2.5 Amendments to the IFRS for SMEs ..................................................................... 19
2.5.1 Factors considered when issuing the amendments ......................................... 19
2.5.2 The expected effects of amendments ............................................................. 19
2.5.3 The effective date for the amendments .......................................................... 20
2.6 Current Issues in SMEs financial reporting .......................................................... 20
2.7 Benefits of Adopting IFRS for SMEs .................................................................. 20
2.8 Reasons for low level Implementations ................................................................ 21
2.9 Recommendations on the adption process ............................................................ 22
2.10 Conclusion ........................................................................................................ 22
CHAPTER 3 ................................................................................................................ 23
3.0 Introduction ......................................................................................................... 23
3.1 Research Philosophies ......................................................................................... 23
3.1.1 Phenomenology or Qualitative Research ....................................................... 23
3.2 Research Design .................................................................................................. 23
3.2.1 Explanatory Research ................................................................................... 24
3.2.2 Descriptive Research .................................................................................... 24
3.3 Sources of Data ................................................................................................... 25
3.3.1 Primary Source ............................................................................................. 25
3.3.2 Secondary Source ......................................................................................... 25
3.4 Population ........................................................................................................... 26
3.4.1 Target Population ......................................................................................... 26
3.5 Sample ................................................................................................................ 26
3.5.1 Sampling Procedures .................................................................................... 26
3.5.2 Judgmental sampling .................................................................................... 26
3.5.3 Convenience Sampling ................................................................................. 27

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3.6 Research Intsruments ........................................................................................... 27


3.6.1 Questionnaires .............................................................................................. 27
3.6.2 Interviewing ................................................................................................. 27
3.7 Use of the Research Technique ............................................................................ 28
3.8 Electronic mail ................................................................................................... 29
3.9 Data Presentation................................................................................................. 29
3.10 Conclusion ........................................................................................................ 29
CHAPTER 4 ................................................................................................................ 30
4.0 Introduction ......................................................................................................... 30
4.1 Interviews ............................................................................................................ 30
4.2 Questionnaires ..................................................................................................... 31
4.2.1 Questionnaire for Private sector entities ........................................................ 31
4.2.2 Questionnaire for Auditors and Consulting firms .......................................... 31
4.3 Questionnaire Responses ..................................................................................... 33
4.3.1 Questionnaire for SMEs ................................................................................ 33
4.3.2 Questionnaire for Auditors and consulting firms ........................................... 37
4.4 Summary of the Information gathered.................................................................. 42
4.4.1 Regression Analysis ...................................................................................... 43
4.5 Conclusion .......................................................................................................... 44
CHAPTER 5 ................................................................................................................ 45
Conclusions and Recommendations .............................................................................. 45
5.0 Introduction ......................................................................................................... 45
5.1 Major Findings .................................................................................................... 45
5.1.1 Level of awareness and adoption of IFRS for SMEs ..................................... 45
5.1.2 Benefits of adopting and implementing IFRS for SMEs ................................ 45
5.1.3 Challenges faced by SMEs when adopting ................................................... 45
5.1.4 Effecs being made to ensure adoption and implementation of IFRS .............. 45
5.2 Recommendations ............................................................................................... 46
5.2.1 Formalisation of business challenges ............................................................ 46
5.2.2 Separation of ownership and management .................................................... 46

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5.2.3 Awareness campaigns ................................................................................... 46


5.2.4 Renaming the standard ..................................................................................... 46
5.2.5 Training employee ........................................................................................... 47
5.2.6 Adding it to the curricular of Universities ......................................................... 47
5.2.7 Professional Accounting firms ......................................................................... 47
5.3 A standard for Micro entities ............................................................................... 47
5.3 Suggestions for further research........................................................................... 47
REFERENCES ............................................................................................................. 48
LIST OF APPENDICES ............................................................................................... 52
APPENDIX 1 ............................................................................................................ 52
APPENDIX 2 ............................................................................................................ 53
APPENDIX 3 ............................................................................................................ 57
Appendix 4................................................................................................................ 60

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ACKNOWLEDGEMENTS
I have fought the good fight, I have finished the course and I have kept the faith. 2 Timothy
4:7

Firstly I would like to give glory to the Almighty Lord for guiding me through from the time I
joined NUST up to this point. Special thanks go to Mr. Korera my Supervisor for assisting me
during the research process. Success always comes as a result of notable tip of ice-berg and
support from unsung people. Your guidance was my pillar of strength during the course of the
whole project. May you continue to receive abundant blessings from the Most High God.

Deep gratitude goes to the National University of Science and Technology, Department of
Accounting Chairperson and the lecturers that has imparted their vast knowledge and has so
much assisted me during my academic period.

My heartfelt gratitude goes to my mother, advisor and also mentor at the same time (Enesy
Nematiere) who provided the much needed motherly love and support. You placed me in the
driving seat of a vehicle that is heading to a prosperous destination, not forgetting my brothers
and sister for the love and financial support they granted me. It is because of your sacrifice that I
am at NUST and nothing could have been done without you guys. Your love is greatest

Paradzai Nematiere
Charles Nematiere
Colleen Nematiere
Clementine Nematiere

Last but not least l would love to thank all my friends and relative for the support that you gave
me. May the good lord bless you all in your endeavors.

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An Investigation into the challenges faced by Small to Medium Enterprise operators 2016
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ABSTRACT

The main objective of this research paper is to identify the challenges faced by Small to Medium
Enterprises (SMEs) operators in the International Financial Reporting Standard (IFRS) for SMEs
adoption and implementation process and also establishing the level of the adoption in
Zimbabwe, the benefits accruing to such SMEs, maintenance of acceptable accounting records,
the relationship exists between adoption level and challenges for adoption and the promotion of
the adoption of this IFRS. The descriptive research design was used and it comprises of
interviews, questionnaires and observations which gives information directed towards
determining the nature of a situation as it existed at the time of research. The target population
consisted of manufacturing SMEs; retail SMEs, Audit firms, consulting SMEs, SEDCO and
Ministry of Small and Medium Enterprises. The composition was 36 SMEs, 12 from accounting
professional bodies, 1 from the Ministry of SMEs and 1 from SEDCO. The research instruments
used were questionnaires and interviews. Research findings showed that 60% of SMEs are aware
of the standard and of which only 29% adopted the standard with 94% facing challenges in the
adoption and implementation process. Little effort is being made to encourage the adoption of
IFRS for SMEs in the accounting profession. Benefits that could accrue to SMEs that would
have adopted the standard would be better economic decision-making leading to growth through
increased better credit rating, investor confidence, better accountability and tax compliance.
Non- adoption and implementation of IFRS for SMEs has been prompted by client reluctance,
additional cost of training, inadequate training and skills, complexity of the standard and lack of
separation of ownership from management. The study recommends the mounting of seminars or
workshops to ensure 100% awareness of the standard, need to formalise business operations for
SMEs, adding the standard to the curricular of Universities, developing a standard for micro
entities and renaming of the standard.

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List of Tables

Table 2.1 IFRS for SMEs adoption rate in different continents ................................. 13
Table 3.1 Questionnaire Circulation 1( SMEs) .......................................................... 28
Table 3.2Questionnaire Circulation 2 (Auditors & Consulting) ................................. 29
Table 4.1 Response Rate ........................................................................................... 31
Table 4.2 IFRS adoption and uptake level ................................................................. 33
Table 4.3 Challenges faced by SMEs ........................................................................ 34
Table 4.4 Response on differences between full IFRS and IFRS for SMEs ............... 36
Table 4.5Shows compliance rate ............................................................................... 38
Table 4.6Responses on benefits of Adopting IFRS for SMEs .................................... 39
Table 4.7 Actions to ensure IFRS adoption ............................................................... 41
Table 4.8 Summary of the results .............................................................................. 43

List of figures

Figure 2.1 Accounting Framework of the IFRS for SMEs........................................... 9


Figure 4.1 Shows the response rate by different personnel ........................................ 32
Figure4.2Responses to IFRS adoption and uptake .................................................... 34
Figure 4.3 Responses on challenges faced by SMEs ................................................. 35
Figure 4.4 Differences between full IFRS and IFRS for SMEs.................................. 37
Figure4.5Response to IFRS compliance ................................................................... 38
Figure 4.6 Benefits of Adopting IFRS for SMEs....................................................... 39
Figure 4.7Response onactions to ensure IFRS adoption ............................................ 41
Figure 4.8Regression Analysis ................................................................................. 44

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List of Abbreviations

SMEs Small to Medium Enterprises

IFRS International Financial Reporting Standard

IASB International Accounting Standard Board

ZAPB Zimbabwe Accounting Practice Board

PAAB Public Accountants and Auditors Board

SAICA South African Institute of Chartered Accountants

SEDCO Small Enterprises Development Corporation

GAAP Generally Accepted Accounting Practice

XBRL Extensible Business Reporting Language

ICPAK Institute of Certified Public Accountants of Kenya

OECD Organisation for Economic Co-peration and Development

FDI Foreign Direct Investments

ZPAB Zimbabwean Professional Accountants in Business

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CHAPTER 1
INTRODUCTION AND BACKGROUND
1.0 Introduction
Small and medium-sized entities (SMEs) play crucial roles in the economic growth and
sustainable development of every nation be it developing or developed. According to (Gono,
Monetary policy statement, 2013), SMEs contribute to output and employment creation and they
are also a nursery for the larger firms of the future. Also According to (Nyoni, 2012), Zimbabwe
Co-operative Development Minister, SMEs contributed above 60% of employment in the
country.

As a result of broad discussion of SMEs and common standards for SMEs worldwide,
the International Accounting Standard Board (IASB) introduced an International Financial
Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs)
on July 9, 2009 (International Accounting Standards Board, 2010).

The Zimbabwe Accounting Practices Board (ZAPB), which is the national standard-setting
body and the Public Accountants and Auditors Board (PAAB), which is the statutory
regulatory and oversight board for the accounting profession in Zimbabwe, formally adopted
the IFRS for SMEs as the second accounting reporting framework for use in the country, by
eligible entities, with effect from 1 January 2011, (Institute Of Chartered Accountancy
Zimbabwe(ICAZ), 2011). Zimbabwe Accounting Practices Board ( ZAPB) has identified that
there is a low level uptake of IFRS for SMES reporting framework to date though it is
statutory requirement and standard practice for Entities. The PAAB has run awareness programs
including having all universities that offer accountancy degrees to have courses on the IFRS for
SMEs but still nothing has been done. The PAAB has also delivered a workshop for university
lecturers on implementing IFRS for SMEs. PAAB states that whilst the IFRS for SMEs is a
welcome development, we still feel that there are some micro entities, who still find the IFRS for
SMEs as complex, we propose that a reporting framework for very small/micro entities be
developed (Ifrs Foundation, 2012). The introduction of IFRS specifically for SMEs was driven
by many challenges faced by these entities in adopting full IFRSs in financial reporting, the main

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of which was the excessive disclosure requirements, based on a cost-benefit analysis for SMEs
(Nazri, 2010).

The Small and Medium-Sized Entities (SMEs) can be characterized into three categories; micro,
small and medium-size enterprises. They are small businesses employing less than 100
employees (Ministry of SMEs, 2002). The basic requirements for Small and Medium-Sized
Entities (SMEs) are companies that do not have public accountability, and prepare general
purpose financial statements for external users (International Accounting Standards Board,
2010).
1.2 Background of the Problem
Small and Medium Enterprises have low start-up costs, low risk and can exploit untapped
knowledge base of creativity in the population for new product development, but the major
challenge remains of poor financial management and reporting (Moore WC P. J., 2008).

Further studies are showing that, the major reason why small firms fail is due to the fact that they
are being underfinanced, (Gono, Monetary policy statement, 2013). Among investors,
enterprises, financial institutions, educators and financial statement users, few have spent the
time necessary to understand the differences from national GAAPs and the corresponding
impact and are not prepared to adopt, or make important business decisions with these
standards in mind. IFRS for SMEs like full IFRS, have more flexibility, less -specific rules and
more opportunities to apply professional judgment. So it is important for SMEs to follow the
current trend of financial reporting and enjoy the full benefits that are associated.

Accounting systems provide a source of information to owners and managers of SMEs operating
in any industry for use in the measurement of financial performance and make any other
economic decisions so for this information to have both the fundamental and enhancing
characteristics the financial statements will have to be prepared following IFRS. The awareness,
acceptance and implementation of the new IFRS guidelines for SMEs are challenges for many
African countries (Fortuin, 2011)

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1.3 Objective of the study

To identify the challenges faced by SMEs operators in the IFRS for SMEs adoption and
implementation process.

1.4 Sub Objectives

To measure the extent to which IFRS for SMEs is adopted by SMEs enterprises in Bulawayo.
To determine the relationship between IFRS adoption level and the challenges faced in the
adoption process.
To find possible way out to eliminate or reduce the obstacles against IFRS adoption and
implementation.

1.5 Research problem


The lower level adoption of IFRS for SMEs is due to challenges faced in the adoption and
implementation process.
1.6 Research question
What are the challenges faced by SMEs operators in the IFRS for SMEs adoption and
Implementation process?
1.7 Sub questions
What IFRS for SMEs guidelines has been adopted by SMEs?
What is the relationship between the adoption level and the challenges faced in the adoption
process?
What are the possible ways to eliminate or reduce the ironed obstacles to IFRS adoption?

1.8 Significance of the study

1.8.1Justification of the significance of the study


Small and medium scale enterprises are estimated to represent more than 95 per cent of all
entities, according to the (IFRS Foundation, 2010).Many businesses still dont understand what
options are available and how IFRS for SMEs interplay to their benefit(Fortuin, 2011) and also
the differences between Full IFRS and the IFRS for SMEs. By witnessing the pivotal role and
contribution which small scale businesses deliver in developed and developing countries, and

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considering the ongoing reforms by the Reserve Bank of Zimbabwe and PAAB for a sustainable
financial literacy framework for small and medium scale enterprises in the country, the
significance of this study cannot be over emphasized.

This also results in an elimination of a distinct possibility that the same type of transaction
entered into by different companies could be reported differently in the financial statements, thus
makes comparability suffer even consolidation of financial information to be difficult.

In addition to that, the importance of this research therefore lies in an attempt to iron out the
factors that are truly responsible for blocking the adoption and implementation of IFRS amongst
small scale enterprises but which have not been valued, figured or factored into the various
incentives schemes and policy measures being put up for SMEs in the state and the nation at
large.

This study is going to help me through in identifying and understanding the challenges faced by
SMES in an attempt to adopt and implement IFRS for SMEs. Other university students are also
going to enjoy the fruits of the research in the same way as me and the following stakeholders
are also going to derive economic benefits,

Potential Investors
Fellow students
Financial Institutions
Researcher
Professional Accountants in Public Practice
Shareholders
i. Potential Investors
Investors make use of accounting information when deciding whether or not to invest in a
company, so in this case decisions will be made based on relevant and faithfully represented
information in the financial statements.

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ii. Fellow students


The study will enable fellow students to understand the challenges faced by SMEs when
implementing IFRS for SMEs as well as the benefits derived from proper financial reporting to
SMEs.

iii. Financial Institutions


Financial institutions use accounting information in order to evaluate the credit worthiness of a
company when a loan is to be advanced so in this case the information will be more reliable.

iv. To the Researcher


This research is going to help me to have a deeper understanding of the obstacles faced by SMEs
when adopting and implementing IFRS for SMEs, the benefits derived from implementing IFRS
for SMEs, possible ways to minimize or eliminate the adoption gap as well as to know the
relationship between implementation and profitability levels.

v. To auditors

The external auditors will be in a position to conduct audit procedures based on the identified
criteria (IFRS for SMEs) given the challenges identified and rectified.

1.9 Assumptions
Assuming the respondents has an adequate understanding of basic financial reporting.
Assuming the respondents knows the objective of financial reporting.
Assuming the budget will be sufficient to carry out the research.
Assuming data obtained will be relevant, reliable and accurate.
Assuming the research will be completed within the stipulated period of time.
1.10 Conclusion.
This chapter is a summary of the background of the problem and the motive behind the
researchers need to undertake the research. This research formulated the background for the
research on the challenges faced by SMEs when it comes to adoption and implementation of
IFRS for SMEs. It also looked at the research objectives, and research questions, the significance
and assumptions of the research. The following chapter will review literature related to the topic
being understudy.

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CHAPTER 2
LITERATURE REVIEW
2.0 Introduction

Evidence from literature reveals that there is no universally agreed definition of a SME across all
academic levels. This is so because there is no single definition that captures all the dimensions
of a small and medium-sized entity, nor can be expected to reflect the differences between
entities in different industrial sectors or countries at different levels of development.

Most definitions are however based on size and they are fundamental bases such as number of
employees, annual turnover or financial position (Ghafoor Z, 2007). However, none of these
bases are pegged at the same level across disciplines and national boundaries (Holt, 2008)

In virtually every jurisdiction, from the largest economies to the smallest, over 99% of
companies have fewer than 50 employees (Pacter, 2009) quoted in (South African Institute of
Chartered Accountants, 2010). In Zimbabwe, the Ministry of SMEs (Ministry of SMEs, 2002)
defines a small enterprise as a business that employs not more than 50 people while operating as
a registered entity and a medium enterprise as one employing up to 75 and 100 people.

The Small Enterprises Development Corporation (2010), does not differentiate between small
and medium entities but defines a SME as a firm that has not more than 100 employees with
maximum annual sales of up to $830 000 (Small Enterprise Development Corporation (SEDCO)
of Zimbabwe, 2010).

The International Accounting Standards Committee Foundation, (IASCF, February 2007)


defines a SME as an entity that does not have a public accountability and thus publishes general
purpose financial statements for external users. SMEs are entities which do not have the onerous
requirement of filing their financial statements with any regulatory body for the purpose of
issuing financial instruments. These entities do not hold assets in any fiduciary capacity for a
group of outside investors (security brokers, insurance entities, banks, funds, etc.) but only the
owners, who usually are also managers.

Accounting practices and financial reporting of SMEs in most jurisdictions, the law requires all
or many of the SMEs to prepare financial statements and, often, to have them audited. Normally,
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the financial statements are filed with the government, posted on a website or are made available
on request (European Commission , 2008). In Zimbabwe, all companies are required to keep
proper books of accounts in compliance with Section 140 of the Companies Act ( Chapter 24:03)
and to prepare and submit tax returns based on these financial statements to the tax authority,
Zimbabwe Revenue Authority (ZIMRA), in compliance with various pieces of tax legislation.

2.1 Theoretical framework of the IFRS for SMEs


a. Scope

Any company that publishes general purpose financial statements for external users and does
not have public accountability can use the IFRS for SMEs. Insurance entities, securities brokers,
bankers, dealers and pension funds are examples of entities that hold assets in a fiduciary
capacity for a broad group of third parties hence cannot use the IFRS for SMEs (Price
Waterhouse Coopers, 2009)

b. Historical cost

The IFRS for SMEs mainly requires items to be measured at their historical cost. However, it
requires the revaluation of investment property and biological assets to fair value, where such
information is readily available. Besides that, it also requires certain categories of financial
instrument to be measured at fair value. All items are subject to impairment other than those
carried at fair value (Price Waterhouse Coopers, 2009)

c. Concepts

Financial statements are prepared on an accruals basis and on the assumption that the entity is
going concern and will continue in operation for the foreseeable future (which is at least 12
months from the end of the reporting period). Their objective is to provide information about the
financial position, performance and cash flows of an entity that is useful to users in making
economic decisions. The principal characteristics that make information provided in financial
statements useful to users are understandability, relevance, materiality, reliability, and substance
over form, prudence, completeness, comparability, timeliness and achieving a balance between
benefit and cost (Price Waterhouse Coopers, 2009).

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In Financial reporting, a conceptual framework as shown in Fig 2.1 is a theory of accounting


prepared by a standard setting body against which practical problems can be tested objectively,
in other words, a theoretical base, a recognized criteria, a statement of principles, a philosophy
and a map, (Association of Chartered Certified Accountants, 2011). In September 2010, the
IASB issued a revised version of its conceptual framework, (Conceptual Framework for
Financial Reporting, 2010). The two fundamental objectives of financial statements which are
prepared using IFRS are stewardship and economic decision making. The main users of financial
statements are considered to be equity investors, debt holders and other creditors, while the
primary characteristics are relevance and faithful representation.

i. Relevance- Relevant information is capable of making a difference in the decisions made


by users. Information may be capable of making a difference in a decision even if some
users choose not to take advantage of it or are already aware of it from other sources.
ii. Faithful representation- To be useful, financial information must not only represent
relevant phenomena, but it must also faithfully represent the phenomena that it purports
to represent. The information to be complete, neutral and free from errors for it to be
faithful representation (Conceptual Framework for Financial Reporting, 2010).

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Figure: 2.1 Theoretical Framework of the IFRS for SMEs

Objectives

To provide useful information for


sound decision making

Qualitative Characteristics
of Financial Statements RECOGNITION &
MEASUREMENT
(a) Fundamental Elements CONCEPTS
Relevance
Faithful Assets ASSUMPTIONS
Liabilities Economic entity
Representation
Income Going concern
(b) Enhancing Expenses Periodicity
Completeness Equity Monetary unit
Understandability PRINCIPLES
Timeliness Historic cost
Verifiability Realization
Matching

Financial Statements

Statement Of Financial
Position
Statement Of Profit or
Loss and Other
Comprehensive
income
Statement Of Changes
in Equity
Cash flow statement
Notes to annual
Financial statements

Source: Conceptual framework 2010

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2.2 The essence of Accounting Information Systems.


Accounting is viewed as a process of analysing and recording systematically, in terms of
monetary or some other unit of measurement, operations or transactions and
summarizing, interpreting and reporting the results thereof (Kaplan, 1987).
Accounting Information System is a bracket of interrelated activities, technologies and
documents designed to collect financial and non-financial data, process it and report the
information generated to a diverse group of internal and external end users for sound
economic decision making.
The primary function of Accounting is to maintain or keep a proper and chronological
record of financial and non financial transactions and events, which grants a base for
further processing and proof for inspecting and verification purposes. It involves writing
in the original or subsidiary books, posting to the ledger, preparation of trial balance and
final accounts (Shayamapiki, 2005).
It is also a strategy for meeting legal requirements. Accounting assists to comply with the
various legal or statutory requirements. The joint stock companies have a mandatory to
prepare and present their accounts in a prescribed format.
Shim and Siegel (1999) also viewed that accounting facilitates protection and
safeguarding of business assets (Shim, 1999). Records provide a dual purpose as
evidence in the event of any dispute regarding ownership title for any assets of the
business or property hence prevent unwarranted and unjustified use.
Maintaining accounting records also triggers rational economic decision making. A
sound price policy, satisfied wage structure, competing with rivals, promotion policies
and collective bargaining decisions, all salute it to a well set accounting structure.
Accounting provides the necessary database on which a range of alternatives can be
considered to make managerial decision-making process a rational one (Shim, 1999).

After looking on the essence of Accounting Information System, we now move on to discuss
IFRS for SMEs.

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2.3 IFRS for SMEs

IFRS for SMEs are a set of accounting standards developed by IASB for its intended use in
general purpose financial statements and reporting by small and medium-sized entities, private
firms and non-publicly accountable enterprises.

According to International Accounting Standards Board (International Accounting Standards


Board, 2010), the IFRS for SMEs is self-contained standard designed to meet the needs and
capabilities of small and medium-sized entities (SMEs), which are estimated to account for over
96% of all companies around the world. The IFRS for SMEs is about good financial reporting
made simple but built on an IFRS foundation. It was designed specifically for SMEs and it is
internationally recognized. The IASB took five years to develop it (KPMG, United Kingdom,
2010). The final standard was issued by the IASB on the 9th of July 2009. The standard is
available for any jurisdiction to adopt, whether or not it has adopted full IFRSs. Each jurisdiction
has to determine which entities should use the standard. The only restriction by the IASB is that
listed companies and financial institutions should not use it at all. The definition is therefore
based on the nature of an entity rather than on its size. Where an entry is not addressed by the
IFRS for SMEs, management is expected to use judgment to determine its accounting policy. If
such a transaction is covered in Full IFRS, management may refer to the appropriate
international standard if it wishes but is not required to do so by the IFRS for SMEs (Price
Waterhouse Coopers, 2009).

2.3.1 Comparison with full IFRSs

The IFRS for SMEs development was based on the main principles and concepts from the IASB
framework and full IFRSs, with modifications to take into account the particular financial
reporting needs of the SMEs and from a cost-benefit perspective.

In addition and given the unlikely applicability, the IFRS for SMEs does not address the
following topics:

interim financial reporting


segment information

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Classification of non-current assets (or disposal groups) as held for sale or distribution.
insurance contracts
earnings per share

The modifications gave birth to the IFRS for SMEs containing significantly less detailed
guidance and examples than full IFRSs for topics that are addressed. Therefore the similarities to
and differences from full IFRSs highlighted in this publication may require further consideration
as experience is gained in using the standard.

Since the IFRS for SMEs does not contain a specific effective date, the requirements generally
are compared to the requirements in full IFRSs on issue and that are mandatorily effective for
periods beginning on 1 January 2010 (KPMG, 2010).

2.3.2 First-time adoption of the IFRS for SMEs

A first-time adopter of the IFRS for SMEs is an entity that presents its annual financial
statements in accordance with the IFRS for SMEs for the first time; regardless of whether its
previous accounting framework was full IFRS or another set of generally accepted accounting
principles.

The IFRS for SMEs includes a separate section that sets out all transitional requirements,
mandatory exceptions and optional exemptions available on the first-time adoption of the
standard.

The transitional requirements of the IFRS for SMEs apply to a first-time adopter of the standard
regardless of its previous GAAP, even if that financial reporting framework was full IFRSs
(KPMG, United Kingdom, 2010). An entity can be a first-time adopter of the IFRS for SMEs
only once. Therefore it cannot benefit more than once from the special measurement and
recognition exceptions and exemptions available on first-time adoption of the IFRS for SMEs,
for example if an entity stops using the IFRS for SMEs for a period of time and then is required
or chooses to adopt it again at a later date, it will not be regarded as a first-time adopter at that
later date, thus we move on to look on the adoption rate of IFRS for SMEs in different
jurisdictions.

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2.3.3Adoption rate for IFRS for SMEs

South Africa was the first country to adopt IFRS for SMEs as its national SME Standard through
the South African Institute of Chartered Accountants (SAICA). Over 80 jurisdictions have either
adopted the IFRS for SMEs or stated a plan to adopt it within the next three years (IFRS
Foundation, 2014). The table below shows the adoption rate:

Table 2.1 Shows IFRS for SMEs adoption rate in different continents

Continent Number Countries

Africa 17 Zimbabwe, South Africa, Zambia, Botswana


etc.
Asia 11 Singapore, Hong Kong etc.
Eurasia 4 Turkey, Moldova etc.
Central America 7 Costa Rica, Honduras etc.
Caribbean 14 Jamaica, Aruba etc.
South America 8 Brazil, Chile etc.
Europe 8 Bosnia, United Kingdom etc.
North America 2 United States, Canada (limited use).
Middle East 4 Jordan, Palestine etc.

TOTAL 75
Source: 2014 IFRS Foundation. London EC4M 6XH | UK. www.ifrs.org

2.3.4 Considerations prior to adopting the IFRS for SMEs

The IFRS for SMEs aims to simplify and reduce the costs of preparing financial statements. Any
entity is permitted to adopt the IFRS for SMEs, however, only those entities within the intended
scope of the standard as noted in section 2.6 can describe their financial statements as complying
with the IFRS for SMEs. The following factors to be taken into consideration when adopting the
IFRS for SMEs.

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i. Local financial reporting requirements

The adoption of the IFRS for SMEs depends, among other things, on whether the standard fits in
with local laws. Even if it fits in with local laws and a jurisdiction requires or permits the
standard as an acceptable financial reporting framework, then individual entities considering
applying the standard still need to determine whether they can claim compliance with the
standard in their particular circumstances, for instance an entity that qualifies under the criteria
specified by a jurisdiction that allows application of the IFRS for SMEs by certain entities,
would not be able to claim compliance with the standard if it has publicly- traded debt
instruments(KPMG, United Kingdom, 2010).

Another aspect to consider is whether the IFRS for SMEs is a widely accepted financial
reporting framework in the business environment in which the entities operate. One vital
question to ask is whether users such as local finance providers would accept or prefer financial
information in accordance with the IFRS for SMEs, or whether they would require additional
disclosures and statements.

On the other hand, firms involved in cross-border trade or seeking foreign investment would
benefit from adopting a standard developed by an independent international standard setter that:

Is based on similar principles as the widely accepted full IFRSs


Is simplified to be fit for purpose for SMEs than full IFRSs, but still result in the
presentation of high-quality financial information.
Is a more widely recognized framework than local GAAP?
ii. Users and comparability to other entities

Given that the requirements in the IFRS for SMEs are not as exhaustive as those in full
IFRSs, it appears inevitable that entities reporting under the IFRS for SMEs will in certain
circumstances use different accounting treatments, which may result in financial statements
of entities reporting under the IFRS for SMEs initially being less comparable than those of
entities applying full IFRSs. This may be a short- term concern for users (e.g. finance
providers) that might be interested in comparing the financial statements of different entities,

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but would most likely reduce over time as more entities adopt the standard and the
interpretation of the requirements of the standard becomes more standardized.

iii. Business impacts


Some of the key business aspects to consider include the effect on an entitys financial
metrics (e.g. reporting ratios, net profit), existing debt covenants and the terms and
conditions of contractual arrangements.
It also may impact on items such as:
The amount of taxes payable- if net profit changes and or tax law is based on the
accounting, and then taxable income and the amount of taxes payable could change.
The ability to pay dividends and or the amount of dividends that could be paid in
jurisdictions, in which dividends are limited to distributable reserves or are subject to
capital management requirements, the ability to pay dividends and or the amount of
dividends that could be paid could be impacted.
Management compensation- If management compensation, including incentives, is
based on net profit or other financial metrics, then the amount payable could change.
iv. Long-term goals
Entities should consider their long term goals and plans when determining whether to adopt
the IFRS for SMEs. When an entity has growth ambitions or planning an event such as a
listing in the future that would require the adoption of full IFRSs, an earlier adoption of the
IFRS for SMEs may be a useful step towards adopting full IFRSs when coming from a less
detailed and complex local GAAP.
v. Group reporting

Requirements in different jurisdictions may be particularly relevant to consider for group


reporting purposes, if, for instance, a group with subsidiaries, joint ventures or associates
(group entities) in South Africa, Germany and France is considering applying the IFRS for
SMEs for group reporting purposes, then the business case for using the standard will be
more compelling if it is an accepted financial reporting framework in most jurisdictions in
which the group entities are located as group reporting and statutory reporting will be aligned
in those cases.

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vi. Cost
Adopting the IFRS for SMEs may have various cost implications to consider, depending on
entity and jurisdiction-specific circumstances (KPMG, United Kingdom, 2010). They can
include the following:
Upfront Investment- the initial adoption of the IFRS for SMEs may require some upfront
investment resulting from system changes, reformatting of the financial statements and
training costs.
Ongoing training- as the IFRS for SMEs will not be updated every year; ongoing training
costs may be less than those which would be incurred under a rapidly and constantly
changing financial reporting framework.
Financial reporting- the fact that the IFRS for SMEs may be considered a more widely
recognized financial reporting framework because of its international status may result in
entities no longer having to prepare information for regulators or finance providers to
supplement their local GAAP financial statements.
Disclosure requirements- the extent of disclosures in financial statements prepared under
the IFRS for SMEs is expected to be significantly less than in those prepared under full
IFRS, thereby resulting in lower costs to prepare financial statements under the IFRS for
SMEs. The opposite might be true if the local GAAP requirements are less onerous than the
IFRS for SMEs.

2.3.5 Procedures taken by IASB and IASC to ensure Implementation.

To assist in the implementation, the International Accounting Standards Board (2010) and
International Accounting Standards Committee have taken a number of steps which had several
implications that are worthwhile to be noted:

Implementation guidance- IFRS manual of accounting 2009 PWCS global IFRS


manual provides comprehensive practical guidance on how to prepare financial
statements in accordance with IFRS, it includes hundreds of worked examples, extracts
from company reports and model financial statements (Price Waterhouse Coopers, 2009)
Workshops- the IASC Foundation is holding regional, train the trainers workshops in
cooperation with regional professional associations and the worlds development

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agencies, to build capacity for the implementation of the IFRS for SMEs, particularly in
developing and emerging economies.
IFRS Taxonomy- the IFRS Taxonomy is a translation of IFRSs, including the IFRS for
SMEs into XBRL (Extensible Business Reporting Language). XBRL is a digital
language used to communicate information between business and other users of
financial information.
Training material- The International Accounting Standards Committee Foundation
developed a comprehensive free to download training materials to support the
implementation of the IFRS for SMEs (International Accounting Standards Board, 2010)

2.3.6 How far have the SMEs Implemented IFRSs for SMEs?

The uptake of IFRS for SMEs in Zimbabwe is very low. Past studies revealed that 80% of SMEs
in Zimbabwe did not maintain accounting records and had not adopted IFRS for SMEs
(Grazyina, 2013). The council of the Institute of Certified Public Accountants of Kenya (ICPAK)
and the Council of the National Board of Accountants and Auditors of Tanzania approved the
use of IFRS for SMEs in 2009. Also the UK Accounting Standards Board (ASB) set the 1
January 2012 for implementing the new accounting framework (Adekoya, 2011).

2.4Level of Awareness

The implementation of IFRS for SMEs requires a vigorous preparation both at country and firm
levels to provide clarity on the authority that IFRS for SMEs will have in relation to other
existing national laws. This should include communicating the temporary impact of the transition
on financial position and business performance, raising awareness on amendments to IFRS for
SMEs and revised IFRS and identifying regulatory synergies to be derived.

More so, the transition plan to IFRS for SMEs and its effects to preparers and users of financial
statements, educators, regulators and other stakeholders have to be nicely communicated.

2.4.1 Training Resources

Professional accountants in business and public practice have personal responsibilities to ensure
successful implementation of IFRS in every jurisdiction. Along with these financial analysts, tax

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practitioners, government officials, accounting lecturers, preparers of financial statements, stock-


brokers and information officers are all responsible for smooth adoption process.

The training materials on IFRS are not readily available at affordable costs in Zimbabwe to train
such a large group which poses a great challenge to IFRS adoption.

2.4.2 Accounting Education and Training

Practical implementation of IFRS for SMEs needs adequate technical capacity among preparers
and users of financial statements, professional accountants in public practice and regulatory
authorities. Jurisdictions that implemented IFRS faced a variety of capacity- related issues,
depending on the chosen approach. One of the principal challenges Zimbabwe is encountering in
the practical implementation process, is the shortage of accountants and auditors who are
technically competent in implementing IFRS for SMEs since the qualified once are moving out
of country in search of green pastures.

2.4.3 Amendment to Existing IFRS and Laws

In Zimbabwe, accounting practices are governed by the Companies Act (Chapter 24:03), Public
Accountants and Auditors Act ( Chapter 27:12), Local GAAP based on the 1998 IFRS version
and other existing laws such as Zimbabwe Stock Exchange Act, Income Tax Act (Chapter
23:06), Value Added Tax 2011, Banks and other Financial Institution Act. All these provide
some guidelines on preparation of financial statements in Zimbabwe. IFRS for SMEs does not
recognize the presence of these laws and the accountants have to follow the IFRS fully with no
overriding provisions from these laws.

Zimbabwe Accounting Practice Board (ZAPB) through its technical committee assesses,
examines, evaluates and analyses the applicability and relevance of the standard in the
Zimbabwean context. In effect the ZAPB when incorporating amendments to existing and new
IFRS and IASs have to exercise extreme caution to ensure a smooth transition to IFRS.

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2.5 Amendments to the IFRS for SMEs

The International Accounting Standards Board (IASB) initially issued the IFRS for SMEs in July
2009. It stated its plan by then to undertake an initial comprehensive review of the IFRS for
SMEs after the first two years and a subsequent omnibus review after every three years.

After taking into account the feedback it received during the initial comprehensive review in
2012 and considering the fact that the IFRS for SMEs is still a new standard, the IASB has made
limited amendments to the IFRS for SMEs (Ernst & Young, 2015).

2.5.1 The factors considered by IASB in issuing the amendments:

the usefulness of financial information in decision making


the complexity of the types of events, transactions and conditions encountered by typical
SMEs
How comparability of financial information would be improved, both between reporting
periods and across different entities.
Ensuring that the IFRS for SMEs is not more onerous than full IFRSs.
Undue effort or cost in addressing the information needs for users of the financial
statements (Ernst & Young, 2015).

2.5.2 The expected effects of the amendments.

The IASB highlighted that the majority of the amendments in their basis for conclusions are
intended to clarify existing requirements or add supporting guidance, rather than to change the
underlying requirements in the IFRS for SMEs.

In addition to that, for most SMEs the amendments are expected to improve understanding of the
existing requirements, without necessarily resulting in changes in practice or changes that would
affect the financial statements (Pricewater House Coppers, 2015)

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2.5.3 The effective date for the amendments.

The amendments to IFRS for SMEs will be effective for annual periods beginning on or after 1
January 2017 and earlier applications are permitted. The amendments are to be applied
retrospectively except as highlighted in the standard.

In scenarios where it is impracticable for an entity to apply any new or revised requirements in
the amendments retrospectively, the standard allows an entity to apply those requirements in the
earliest period for which it is practicable to do so.

2.6 Current issues in small and medium-sized entities (SMEs) financial reporting

On 13 January 2016, the IASB published a new lease accounting standard which is IFRS 16 and
it will require companies to bring most leases on- balance sheet from 2019 on. This will affect
the scope of issues covered in IFRS for SMEs, the amount of implementation guidance and the
volume of disclosures. The larger the lease portfolio, the greater the impact on key reporting
metrics (KPMG, 2016).

2.7 Benefits of Adopting IFRSs for SMEs

Adekoya (2011), Pointed out that IFRS for SMEs have clear benefits for investors, lenders and
those seeking to raise finance through the transparency afforded by a consistently applied global
set of financial reporting standards (Adekoya, 2011).

It will provide a standard which is simple and well understood and this will ease transition to
full IFRS for growing firms once they become publicly accountable.
The IFRS for SMEs does not just reduce disclosure requirements, it also simplifies the
recognition and measurement requirements- for example, in connection with financial
instruments, when there is a policy choice, and the IFRS for SMEs generally adopts the
simpler option.
More so, IFRS for SMEs also provide an accounting framework for entities that are not of
the size or have the resources to adopt full IFRS (Alp, 2009)
The ability to improve comparability and understandability of financial statements will also
build investor confidence, (Adekoya, 2011).

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The removal of irrelevant topics to SMEs has resulted in improved access to capital,
improved comparability, improved quality of reporting as compared to existing national
GAAP, and less of a burden for entities in jurisdictions where full IFRSs or full national
GAAP are now required (Cai F. &., 2014)
2.8 Reasons for Low Level Implementation of IFRS for SMEs

The biggest challenge that exists in adopting and implementing IFRS for SMEs is in providing
adequate training to equip accountants and auditors with the crucial technical skills before
applying the standard.

Unlike the big 4 firms ( Price Waterhouse Coopers, Delloite, Ernst and Young and KPMG), the
non-big 4 usually do not posses expertise and personnel needed to assist them with transition to
international standards nor do they have global networks or counterparts to provide them with
substantial educational resources and training support. Thus, we rush to conclude that the non-
big 4 firms face more challenges than the big 4 firms when it comes to adoption of IFRS for
SMEs.

In addition to that, the IASB noted that the adoption of any new reporting framework would at
first be costly, both to the profession and the reporting entities IASB (2014). These costs are
usually a hindrance to adoption of IFRS for SMEs by emerging economies. Whilst the
accounting profession would incur costs in communicating the standards and granting training
and academic support to its members, SMEs would also incur costs and these includes costs of
upgrading and updating information systems, training staff, legal and professional fees to address
the impacts on existing contracts and meeting multiplied auditing costs, as it is likely to increase
after adoption.

More so, the success of any set of accounting standards is contingent on future professional
accountants in public and business practice having sufficient academic background (Miller,
2013). The availability of competent and trained staff will be limited until educational programs
cheap in up to the requirement. There is a great need for universities to update their curriculum
by incorporating revised, amended and new standards like IFRS for SMEs in their degree

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programs (Ifrs Foundation, 2012). Universities in Zimbabwe have already incorporated full IFRS
into their degree programs but with IFRS for SMEs nothing has been done yet.

2.9 Recommendation on the way forward to the Adoption of IFRS for SMEs

According to Cai and Wong (2014), governments should be ready to provide incentives to SMEs
especially those that can reduce their tax burdens, increased accessibility to capital and provide
them with an opportunity for growth. The starting point for those who have no information is
creating awareness and with the rest training needs to be reinforced (Cai, F. and H. Wong, 2014).

ZAPB should take up its roles and formulate an all encompassing IFRS with local bodies
utilizing the existing business conditions to recommend suitable financial reporting standards for
SMEs within their jurisdiction. Research in South Africa has shown that a single threshold for
differential corporate reporting may not adequately address the South African differential
corporate reporting needs and that multiple thresholds each with their own reporting
requirements may be the most comprehensive solution (Stainbank, 2012).

2.10 Conclusion

In a nutshell, the transition to IFRS for SMEs from Zimbabwe Local GAAP and full IFRS is
likely to pose a number of challenges for practitioners in Zimbabwe, including meeting training
and educational requirements, information needs of SMEs as well as justifying to SMEs the need
for a globalized reporting framework among others. This chapter is just a mere summary of the
views of the author on the issue concerned, it may not be advisable to draw conclusions on the
matter so early in the transition. The following chapter details the research methodology. It is
going to show the type of research carried out and the field work conducted by the researcher.

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CHAPTER 3
RESEARCH METHODOLOGY
3.0 Introduction
The chapter looks at the activities and procedures employed during the course of the research
process. More so, it points out the research instruments to be used, the primary data collection
procedures, analysis of data and presentation plans.

3.1 Research Philosophies

There are basically two philosophies to the research process that dominate literature which are
positivism (quantitative) and phenomenology (qualitative). According to New York University
(New York University, 2011), research philosophy refers to the structure of an enquiry
undertaken to ensure that the evidence collected enables the researcher to answer study questions
or test the hypotheses as unambiguously as possible. Kato (Kato, 2002), argues that no study
depends solely on one approach but in this case the researcher used the phenomenology.

3.1.1 Phenomenology or Qualitative Research

The phenomenological approach takes on a qualitative perspective to the research process. One
may argue that the world of business and management is too complex to lend itself to theorizing
by definite laws in the same way as physical sciences. According to Kato (Kato, 2002), greater
insight can often be derived when collecting data under a qualitative research framework through
such ways as interviews, observation, document and media analysis.

3.2 Research Design


Generally, the research design provides a framework that guides and specifies the type of
information gathered, its sources, how it is collected and how data is going to be analyzed
(Kothari, 2004). A research design is also considered a blueprint of research dealing with at least
four problems which are what data is relevant? What data to gather? What questions to study?
And how to analyze results (Yin, 2003).
There are a number of research designs that a researcher can make use of and these include
observation, research, case study, survey and experiment. Nevertheless, given that there was a
need to collect information from a number of SMEs in Bulawayo and from professional bodies,

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the researcher chose to do a survey. Surveys are means of collecting information that describe
the nature and the extent of a specified count of frequencies, attitudes and opinion (Henning,
2004).
Such a research design can be segregated into three types which are explanatory research design,
casual research design and descriptive research design. In this context a descriptive research
design was primarily used as the research seeks to provide a descriptive position on the subject
of the research.

3.2.1 Explanatory Research.


Explanatory research was employed, as the research had been looking for insights into the
general nature of the problem that is the challenges to the adoption and implementations of IFRS
for SMEs, the possible solutions and the relevant variables that need to be considered. The
advantages of using explanatory research are as stated below:

Research methods are unstructured thus allow a thorough pursuit of interesting ideas and
clues of the research problem.
Flexibility.
It is also vital in establishing priorities among research questions.
Research is qualitative that is the researcher begins without prior misconceptions as to the
research findings.
3.2.2 Descriptive Research
Descriptive research design comprises of interviews, questionnaires and observations which
gives information directed towards determining the nature of a situation as it existed at the time
of research. It embraces a large portion of the research problem, the main purpose being to
provide an accurate snapshot of some aspect of the problem area. The researcher will make use
of this technique for the following reasons:

Provide a detailed, highly clear picture of the problem under consideration.


Supply a report on the background or context of the research problem.
Also gives a detailed guidance by introducing more detail to the research question.

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The selection of the above research design was done so as to enhances the whole research
process since explanatory and descriptive research are different sides of the same coin meaning
they complement each other.

3.3 Sources of Data


In order to gather data on the challenges faced by SMEs in the adoption and implementation of
IFRS for SMEs basically two sources of data were taken into consideration that is primary and
secondary sources.
3.3.1 Primary Source
Primary data is that data which is first hand information collected during the study through
observation, questionnaires and interviews. The primary data is original data specifically for
solving the problem at hand and the data collected is ideal and specifically for the study. The use
of primary data enabled the research to have a complete set of information on the study.

i. Merits

It provides first hand information, which is clear and straight forward.

Primary data can be gathered in ever changing situations because the study can change the
collection techniques.

ii. Demerits
It needs a tedious process to sort out the collected data in order to come up with reasonable
ideas or judgments.
Prone to manipulation by the researcher hence can lead to bias.

3.3.2 Secondary source


This is the source of data for some purpose other than that for which it was originally collected.
Some sources include but not limited to periodical, company journals and publications.

i. Advantages

It is less costly and time consuming since data is already available.

It grants the study a starting point in the data collection process.

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ii. Disadvantages

Characterized with outdated or limited information to the study.

Ethical issues concerning confidentiality may exist.

3.4 Population
The population is the group of interest to the researcher.(Kato, 2002), say that it is upon this
group that the researcher would generalize the outcome of the study. It stretches to all the
elements under study and about which a conclusion is trying to be drawn.

The population can be in two categories, the study and target population.
3.4.1 Target Population

The target population is the actual population to which the researcher would really like to
generalize. It refers to any group of individuals that have one or more characteristics in common
that are of interest to the research. The target population of this study are manufacturing SMEs in
the central business district of Bulawayo in Zimbabwe; retail SMEs, Audit firms, consulting
SMEs, SEDCO and Ministry of Small and Medium Enterprises.
3.5 Sample
A sample is a representative part of a target population taken and tested to show what the rest of
the population is like. Levin (1994:52) defines a sample as a collection of some, but not all of the
elements of the population under study, used to describe the population. A sample can be broken
down into a sampling unit which is a single group of elements subject to selection in a sample.

3.5.1 Sampling procedures


The researcher used non probability sampling as it accommodated the calculation of the nature
and extent of any biases in the sample thus it gave more relevant and reliable, unbiased results.

3.5.2 Judgmental Sampling


Participants who had been judged or are known to be the best source of information in the field
were sought and chosen for the sample. In this context the sample comprised of participants in
the manufacturing, retail and accounting fields.

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3.5.3 Convenience Sampling


This is a sampling method in which the most readily available participants are selected since
most people in the accounting profession were usually busy, the research got information from
those who were available at that time.

3.6 Research Instruments

These are tools and techniques that were used in the collection of data for the research and the
following methods were in respect of the target population.

3.6.1 Questionnaires
A questionnaire can be referred as a document that asks the same question to all the respondents
of individuals of a sample. A questionnaire was distributed to the target respondents containing
both structured and unstructured questions. A structured questionnaire consists of a set of
questions, which leaves several blank spaces for the respondent to fill in. A non structured
questionnaire is one which is not open ended.

i. Benefits of questionnaires

Questionnaires can reach out a number of respondents.


Cost per questionnaire is very low
ii. Weaknesses of questionnaires

Some people are ignorant, might not return them if so then unfilled.
Normally are close ended thus crucial explanations might be lost.
3.6.2 Interviewing
This is a research method where oral questions are posed to the respondents. This can take the
form of face-to-face meeting or a telephone or Skype conversation. The research made use of the
interviews which facilitated in-depth discussion with the Matebeleland South Provincial
Development Officer for the Ministry of SMEs and Cooperative Development and the
Matebeleland Chamber of SMEs provincial secretary in regards to the challenges faced in IFRS
for SMEs adoption and implementation.

i. Advantages

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Feedback is provided on the spot.


Facts are presented as they are and no emphasis will be place on the researchers
interpretation.
ii. Disadvantages

Fear of victimization may lead the interviewee to grant only the theoretical aspects of the
problem rather than the practical one.

Interviewees by knowing that they can be identified and such they may be unwilling to grant
out sensitive information.

3.7 Use of the Research Technique

The questionnaires were distributed to all the subjects that were defined from the target
population. The table below shows how the questionnaires were circulated.

Table 3.1 Questionnaire 1 (SMEs)

Sectors Number Finance Finance Accountant Accounts


Director Manager Clerks

Manufacturing 15 2 2 8 3

Retail 12 1 3 6 2

Consulting 5 1 1 2 1

Other 4 1 1 1 1

Total 36 5 7 17 7

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Table 3.2 Questionnaire 2 (External Auditors and Consulting Firms)

CA firm Number Associate Management Articled Clerks

Ernst & Young 2 1 1

Delloite 2 1 1

KPMG 3 1 1 1

Consulting Firms 5 3 2

SEDCO 1 1

Ministry 1 1

Totals 14 1 8 5

3.8 Electronic Mail (E-mail)


Some date will be gathered and collected from respondents via an e-mail, as this model is fast
and reliable. Also the confidentiality of information is safeguarded, as only the researcher made
use of the information.
3.9 Data Presentation and Analysis
Data gathered was analyzed thoroughly so as to check for completeness, timeliness and accuracy
of data responses obtained. The researcher organized and presented the data using pie charts,
tables, percentages, bar graphs and the regression analysis. These were used since they are fairly
simple to interpret, accurate, reliable and rather more meaningful to the ordinary person.

3.10 Conclusion
This chapter contains methods of data collection, research design, their merits and demerits,
methods of sampling and the manner in which the questionnaire was administered. Data
collected would be analyzed, evaluated and presented in the following chapter.

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CHAPTER 4
DATA PRESENTATION, INTERPRETATION AND ANLYSIS
4.0 Introduction
This chapter concentrates on the presentation, interpretation and analysis of the data gathered
from the field research. The findings and analysis were directed towards addressing research
objectives and answering research questions. The findings and data analysis sought to understand
the challenges faced by SMEs operators in the adoption and implementation of IFRS for SMEs
in Zimbabwe.

4.1 Interviews
Two Interviews were conducted with the Matebeleland South Provincial Development Officer
for the Ministry of SMEs and Cooperative Development and the Matebeleland Chamber of
SMEs provincial secretary. The following questions were asked and the responses obtained are
as follows.

Question 1
In your opinion, to what extent does IFRS for SMEs likely to benefit emerging economies?

The adoption and Implementation of IFRS for SMEs by reporting entities in emerging
economies is likely to benefit such economies in many aspects. The biggest merit would be
having an internationally recognized financial reporting framework for SMEs. In addition to that,
such a reporting framework should increase SMEs access to credit facilities and equity capital,
reduce audit inefficiencies and ease the burden of financial reporting on SMEs in countries
where full IFRS is now required. This was strongly confirmed by the response of the Provincial
Development Officer as quoted below:

Zimbabwe is surely going to benefit from the adoption and implementation of IFRS for
SMEs. We will now have an updated set of internationally recognized standards for SMEs.
We are not even in a capacity to update current standards as ZAPB does not have the
necessary resources to do so.

However, emerging economies like Zimbabwe can face a bunch of difficulties given the
intention to develop its own financial reporting standards, as the process is vigorous and requires

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substantial amounts of funds, expertise, time and resources. Therefore it is depending on the
IASB to craft standards for it. This single set of reporting standards will help achieve a consistent
and comparable financial reporting framework hence attracts foreign direct investments (FDI)
and results in quality investment decisions. Although theoretically this seems to be sounding, it
may not be the scenario in Zimbabwe, as argued by the chamber of SMEs provincial secretary:

It is too early to comment on the benefits. The nature and operating context of small firms
in Zimbabwe is such that they have a very limited scope abroad. Truly speaking, for many
SMEs, financial reporting is basically for meeting statutory obligations for instance tax
requirements.

4.2 Questionnaires
The researcher sent a total of 50 questionnaires to respondents who had been chosen by way of
convenience and judgmental sampling to come up with a convenient proper sample. The
questionnaires were distributed in two different forms. The first form of questionnaires was sent
to private sector firms whilst the other form of questionnaires was sent to Auditing and
Consulting firms.

4.2.1 Questionnaires for Private Sector entities


The main objective of the questionnaire was to gather a thorough understanding of the challenges
faced by these private sector entities in the adoption and implementation of IFRS for SMEs when
preparing their financial statements.

4.2.2 Questionnaire for Auditors and Consulting firms


The objective of the questionnaire was to obtain a clear picture on the challenges faced by SMEs
operators when adopting and implementing the standard as witnessed by the consultants who
prepared financial statements on behalf of their clients (SMEs) and also auditors who audit their
financial statements. In total 50 questionnaires were sent to SMEs, SEDCO, Ministry of SMEs,
auditors and consulting firms. The following table shows the response rate.

Table 4.1 Response rate

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Category Of Participants Sample Target Response Non Response R Rate (%) N R Rate(%)

SMEs 36 32 4 89% 11%


Professional Bodies 12 10 2 83% 17%
Ministry of SMEs and SEDCO 2 2 0 100% 0%
Total 50 44 6 88% 12%
Source: Primary Data Survey, April 2016

Analysis

Fig 4.1shows that, from a sample target of 50 participants, responses were obtained from 44
participants (32 participants in SMEs, 1 participant from the Ministry of SMEs, 1 participant
from SEDCO and 10 from professional bodies (Auditors and consulting firms). There was an
88% response rate, which was acceptable as it was well above 67% which is recommended by
(Saunders, 2009). This rate owes its success to the use of convenient sampling technique and
anonymity guaranteed to respondents. The twelve percent (12%) who did not submit completed
questionnaires failed to do so because of the time constraint and some were saying the
information is sensitive and were not able to respond especially the informal SMEs. Some of
them did not communicate their failure possibly because of other commitments. And for the 88%
response, the components of it are represented by the pie chart below.

Fig 4.1- Shows the response rate by different personnel

Response Rate
Associate
Finance Directors
2%
Accounts Clerks 10%
24%

Associate
Finance Directors
Finance Managers
Finance Managers
30% Accountants
Accounts Clerks

Accountants
34%

Source: Primary Data Survey, April 2016

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4.3 Questionnaire responses


The responses to the questionnaires are presented, evaluated and analyzed in two forms, first set
being responses from SMEs and the second from Auditors, consulting firms, SEDCO and
ministry of SMEs.

4.3.1 Questionnaire for SMEs


A total of 36questionnaires were distributed to 20different SMEs. Most of the firms responded
except for 4 which were not returned back.

a) Responses on Level of Awareness and Uptake of IFRS for SMEs

The researcher asked questions pertaining to the level of IFRS for SMEs awareness and uptake
in the manufacturing sector, retail sector and consulting sector in Zimbabwe. Table 4.2shows
that data, while Fig 4.2is a graphical representation of the findings.

Table 4.2- Shows IFRS adoption and uptake level

Responses
Very High High Low Very Low Unsure Total
Awareness 0 0 3 2 0 5
Uptake 0 0 2 5 0 7
Compliance 0 0 1 5 0 6
Total 0 0 6 12 0 18
Source: Primary Data Survey, April 2016
Analysis

The findings in fig 4.2shows that 2 out of 7 participants ( 29%) revealed that the level of uptake
of IFRS for SMEs was low and 5 participants (71) were saying that the level of uptake is very
low in Zimbabwe. The other 3 participants (60%) showed that awareness of IFRS for SMEs was
low with 2 participants (40%) highlighted that is actually very low in Zimbabwe. More so, all 13
(100%) respondents said that compliance and uptake levels were not favorable; with 3 out of 13
(23%) saying it is very low. In addition to that, 5 out of 5 participants (100%) revealed that

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SMEs are not even aware of the existence of IFRS for SMEs, therefore, there might be a great
need to do intensive campaigns on awareness and educate.

Fig 4.2Responses to IFRS adoption and Uptake

IFRS for SMEs Adoption level

Compliance

Uptake

Awareness

0% 20% 40% 60% 80% 100%

Awareness Uptake Compliance


Low 60% 29% 17%
Very Low 40% 71% 83%

Source: Primary Data Survey, April 2016

b) Responses on challenges faced by SMEs operators in adopting IFRS for SMEs


Table 4.3 shows the results obtained on challenges that are encountered by SMEs in the adoption
of IFRS for SMEs.

Fig Table 4.3- Challenges faced by SMEs

Yes No
Participants citing Challenges 30 2
Source: Primary Data Survey, April 2016

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The research highlighted that 30 out of 32 (94%) had some challenges. The study revealed that
inadequate training and skills, additional cost of reporting, client reluctance to adopt IFRS for
SMEs, complexity and suitability of the standard, lack of separation between ownership and
management of SMEs hindered some of the organizations from adopting and implementing IFRS
for SMEs and maintaining accounting records. The Fig 4.3 shows findings on the challenges
faced.

Fig 4.3 Shows responses on challenges faced by SMEs in the adoption process.

IFRS Adoption Challenges

Complexity and suitability of the standard

Onwership and Management concetration

Client reluctance

Additional cost of training

Inadequate training and skills

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Onwership and Complexity and


Inadequate training and Additional cost of
Client reluctance Management suitability of the
skills training
concetration standard
No 6% 4% 25% 33% 7%
Yes 94% 96% 75% 67% 93%

Source: Primary Data Survey, April 2016

Analysis
Another challenge faced in the adoption and implementation of IFRSs for SMEs was that of
financial resources. From the study it was reviewed that maintaining the system is costly,
especially when it comes to human resources and this is in line with assertions made by (Smith,

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2013)those SMEs are significantly underfinanced. It shows again that there is lack of separation
on ownership and control. Therefore, there is a high risk of accountability absence and this
seems to be in line with the opinion made by (Organisation for Economic Co-peration and
Development (OECD), 2004) that SMEs are at great risk of failure, partially because company
directors may possess less collective management experience than larger organizations.
One respondent mentioned the various challenges faced by SMEs operators when adopting and
implementing IFRS for SMEs.
The first being that there is a lack of awareness on preparers as they were trained under
full IFRS.
SMEs are subsidiaries for public companies and must comply with full IFRS for group
reporting.
Most entities do not want to be deemed as small, therefore IASB should consider giving
the standard a new name like IFRS for Non- public interest entities.

In addition to that, participants argued that there was need for awareness and education
campaigns by the PAAB indicating the benefits to SMEs in adopting the IFRS for SMEs. The
distribution of the IFRS in soft or hard copy format to target entities will results in an increase in
accessibility to users ( despite the fact that the information is freely available online still the users
are not always aware of this fact).
More so, the other challenge was the behavior issue where entities and people actually resist
change and avoid by all means learning new ideas. And some SMEs are not even keeping books
of accounts.
c) Responses on the difference between Full IFRS and IFRS for SMEs
The researcher asked this question so as trying to get an accounting appreciation from SMEs
operators and the results are as displayed in Table 4.4

Table 4.4Response on differences between full IFRS and IFRS for SMEs

Response
Yes No Not sure
Difference between Full IFRS and IFRS for SMES 1 8 11
Source: Primary Data Survey, April 2016

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Fig 4.4- Shows the difference between full IFRS and IFRS for SMEs

Difference between Full IFRS and IFRS for SMEs

60%
Not Sure
40%
No
20%
Yes
0%
Difference Between Full IFRS and IFRS
for SMEs
Yes 5%
No 40%
Not Sure 55%

Source: Primary Data Survey, April 2016


Analysis
From the results obtained as shown in Fig 4.4 five percent (5%) of the respondents are
indicating that there is a difference with forty percent (40%) saying that there is no difference
and fifty five percent (55%) not sure. This tend to create confusion to the researcher there is
no clear link with other responses but in conclusion this shows ignorance in SMEs operators
as to which standard is which and the level of awareness will then take precedence that they
were just filling without clear understanding.

4.3.2 Questionnaire for Auditors and Consulting firms


(a) Response on compliant to IFRS for SMEs when preparing financial statements
This question was asked so as to identify the reporting framework used by SMEs in the
preparation of financial statements. The following Table 4.5 will shows the results obtained
from auditors and consulting firms and Fig 4.5 will illustrate the results diagrammatically.

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Table 4.5- Shows Compliance rate

Yes
100 % compliance 3 Yes but less than 100 % No

Source: Primary Data Survey, April 2016

Fig 4.5- Response to IFRS compliance

IFRS Compliance
Yes Yes but Less than 100% No

72%

7%
21%

100 % Compliance

Source: Primary Data Survey, April 2016

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Analysis

From the results obtained as shown in Fig 4.5 seventy nine percent (79%) of the participants
showed that the private sector institutions does not comply 100% with the relevant
professional requirements of IFRS when preparing financial statements with 21% complying
100%. This cannot be a shock to the researcher because the level of IFRS for SMEs
awareness was very poor meaning the accounting profession regulatory body (PAAB) and
the accounting standard setting body (ZAPB) still has a lot to be done regarding adoption and
implementation of this standard.

b) Responses on the benefits of adopting IFRS for SMEs to the SMEs and accounting
profession.

The study showed that SMEs derive a number of benefits through the adoption and
implementation of IFRS for SMEs. Table 4.6 represents the data in this scenario whilst Fig
4.6illustrates the responses from professional bodies, consulting firms, ministry of SMEs and
SEDCO on the envisaged benefits.

Table 4.6Responses on Benefits of Adopting IFRS for SMEs

Responses
Benefit Strongly Agree Agree Disagree Strongly disagree
Investor Confidence 5 3 0 0
Growth 4 2 0 1
Allows Comparability 5 2 0 0
Better Credit Rating 3 2 1 1
Increased mobility of local 2 1 1 1
Accountants
Tax Compliance 8 2 0 0
Total 27 12 2 3
Source: Primary Data Survey, April 2016

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Analysis

Fig 4.6 shows that SMEs and the accounting profession are set to benefit when they adopt and
implement IFRS for SMEs. The study clearly showed that adopting the standard is very crucial
and this assertion is supported by (Shim J. a., 1999) who viewed that accounting facilities
safeguarding and protection of business assets. Hence, SMEs in manufacturing, retail and
consulting sector needed to be taught about the importance of accounting information.

Fig 4.6 Benefits of adopting IFRS for SMEs

Benefits of adopting IFRS for SMEs

Tax Compliance

Increased mobility of local accountants

Better credit rating


Benefits

Allows comparability

Growth

Investor Confidence

0% 20% 40% 60% 80% 100% 120%

Increased
Investor Allows Better credit
Growth mobility of local Tax Compliance
Confidence comparability rating
accountants
Strongly Agree 63% 57% 71% 43% 40% 80%
Agree 38% 29% 29% 29% 20% 20%
Disagree 0% 0% 0% 14% 20% 0%
Strongly Disagree 0% 14% 0% 14% 20% 0%

Source: Primary Data Survey, April 2016

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c) Responses on the specific regulations ensure compliance on IFRS adoption

The researcher asked question if any specific regulations that can be put in place to ensure
compliance on IFRS for SMEs adoption and implementation in Zimbabwe. Table 4.7 shows
responses in this regard while Fig 4.7 is a graphical illustration of the findings.
Table 4.7- Actions to ensure IFRS adoption
ACTION RESPONSES
YES NO UNSURE
Efforts are adequate. 2 10 1
Action is being taken to encourage adoption of 1 11 2
IFRS for SMEs.
Source: Primary Data Survey, April 2016

Fig 4.7Shows response on action to be taken to ensure IFRS for SMEs compliance

Specific regulations on IFRS for SMEs compliance

ACTION IS BEING TAKEN TO ENSURE


IMPLEMENTATION OF IFRS FOR SMES

EFFORTS ARE ADEQUATE

0% 10% 20% 30% 40% 50% 60% 70% 80%

Action is being taken to ensure implementation


Efforts are adequate
of IFRS for SMEs
Not Sure 8% 15%
No 77% 79%
Yes 15% 7%

Source: Primary Data Survey, April 2016

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Analysis

The table above shows that 1 out of 14 participants in the study (7%) are agreeing that the action
was being executed to ensure the implementation, however the majority which is 13 participants
(93%) said action is not being taken. Though some of participants which are 10 out of 13 (77%)
said the action being taken is not even adequate to ensure 100% compliance to IFRS for SMEs, 2
out of 13 (15%) are in agreement that it is more than adequate with 1 out of 13 (8%) in doughty.
In a nutshell, it was not surprising that the level of awareness of IFRS for SMEs was very low.
This force the researcher to conclude that there is very little or no effort towards encouraging
SMEs to adopt their standard in Zimbabwe. One participant viewed that, One of the reasons
might be that Zimbabwean Professional Accountants in Business (PAIB) is not following the
CPD requirements of membership to professional bodies as closely as those in public practice.
As a result the knowledge gap on the IFRS for SMEs could be perceived as higher amongst
professional accountants in business practice than those in public practice. This is not empirical
evidence though, but just a subjective assessment which is supported by many colleagues.

4.4 Summary of Information Gathered

4.4.1 Regression Analysis

Eleven questions were selected, six from the questionnaires circulated to SMEs and five to
auditors and consulting firms. These questions had an impact on the level of adoption and
implementation of IFRS for SMEs. The objective here was to determine the relationship that
exists between the adoption levels with challenges faced when adopting the standard.

Questions Selected.

For SMEs

4. Are you aware of IFRS for SMEs?

5. Have you adopted IFRS for SMEs?

6. Have you been using full IFRS?

7. Is there any differences between full IFRS and IFRS for SMEs?

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11. Are you facing any challenges in implementing the IFRS for SMEs?

For Auditing and Consulting firms

2 (a). Do your private sector clients comply 100% with International Financial Reporting
Standards when preparing financial Statements?

6(a). Do your clients implemented or intend to implement the IFRS for SMEs?

8 If No, do they have plans to adopt it?

9. Has PAAB provided adequate training and educational support to its members?
15. Can specific regulations be put aside to ensure compliance on IFRS implementations given
clients are reluctant to adopt?

Table 4.8Summary of the results

Question Yes No
4 5 13
4 (a) 3 11
5 7 11
6 2 25
6 (a) 3 6
7 1 8
8 4 2
9 3 11
11 20 3
15 10 4
Source: Primary Data Survey, April 2016

Definition of Variables
Yes- This represents the challenges faced in the adption of IFRS and is the independent variable.
No- This represents the adoption level and is the dependent variable.
Analysis

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From the results obtained in Fig 4.8, there is an inverse relationship between the adoption level
of IFRS for SMEs (Y) and the challenges (X) faced when adopting and implementing the
standard in Zimbabwe. The line of best fitness is showing that when the challenges (X)
increases, the adoption and implementation level decreases but when the challenges are
eliminated or reduced to lower levels then the adoption level will increase. This implies that the
existence of challenges in the adoption of IFRS for SMEs is the main cause of lower level
adoption and implementation though there are other factors like client ignorance which
constitutes.

Correlationship of challenges and IFRS adoption level


Y
30

25

20
Adoption Level

15
No
Linear (No)
10
y = -0.5364x + 12.511
R = 0.2042
5

0
0 5 10 15 20 25
X
Challenges

Source: Primary Data Survey, April 2016

4.5 Conclusion
In this chapter the researcher presented, evaluated and analysed responses to interviews and
questionnaires. The data obtained using the collection techniques was analysed and presented in
text form and some of the explanations to the results was aided by the use of charts, tables and
graphs. The next chapter will be summarising the findings from the research and outline the
recommendations suggested by the researcher.

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CHAPTER 5
CONCLUSIONS AND RECOMMENDATIONS
5.0 Introduction
This chapter seeks to attach meaning to the results presented in previous chapter (Chapter 4).
Thus having discussed the findings vis--vis the research questions and objectives as outlined in
chapter one, it will draw conclusions from the study. Having drawn conclusions from the study,
the chapter will make recommendations based on the challenges faced by SME operators in the
adoption and implementation of IFRS for SMEs.

5.1 Major Findings


The major findings of the study were as follows
5.1.1 Level of awareness and adoption of IFRS for SMEs
The study showed that 60% of the participants were aware of the standard and only 29% adopted
with 17 % complying with it. Generally this means that uptake of IFRS for SMEs in Zimbabwe
is very poor though operators are aware of the existence of the standard but its adoption is very
poor.
5.1.2 Benefits of adopting and implementing IFRS for SMEs
The study reviewed that SMEs would enjoy a sizable number of benefits if they adopt IFRS for
SMEs. These included enhancing financial statements comparability, builds investor confidence,
tax compliance, increased mobility of local accountants and better credit rating.
5.1.3 Challenges faced by SMEs when adopting IFRS for SMEs
The research reviewed 94% are facing challenges in the adoption and implementation process.
Ignorance on the existence of IFRS for SMEs is the main challenge. Other challenges are lack of
adequate training and skills, additional cost of training and absence of separation between
management and ownership of business hindered most SMEs from maintaining set of accounting
records. The study was success as it managed to assess level of IFRS for SMEs awareness and
the extent to which the standard is applied and challenges faced and the way forward.
5.1.4 Efforts being made to ensure adoption and implementation of IFRS for SMEs
The research reviewed that very little if not none effort was being taken by the accounting
regulatory body (PAAB) and accounting profession standard setting body (ZAPB) to ensure

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adoption and implementation of IFRS for SMEs in Zimbabwe. This was because of the fact that
most participants in SMEs were ignorant about its existence.
5.2 Recommendations
For the challenges ironed out, the researcher is recommending the following measures,

5.2.1 Formalization of business operations

There is a need for SMEs to formalize their business operations and maintain proper accounting
records. This will help those charged with governance or management to make economic
decisions on investments, expansions, product development, pricing strategies and to determine
if the business operating in required ranges of profits.

5.2.2 Separation of Ownership and Management


There is need for separation of ownership and control of business affairs in entities, this would
ensure more accountability and reduce the risk of management over ride of controls. Also it will
bring the tri- par tight relationship of the intended user (Owners), responsible party
(Management) and auditor, so whenever financial statements are audited which means
managements responsibility of complying with relevant accounting framework when preparing
financial statements will be enhanced.

5.2.3 Awareness Campaigns


The research reviewed that very little or no effort was being employed to encourage adoption
and implementation of IFRS for SMEs. Therefore, Public Accountants and Auditors Board
(PAAB) and the Zimbabwe Accounting Practice Board (ZAPB) need to organize seminars and
workshops so as to create awareness on the importance of maintaining accounting records and
implementing IFRS for SMEs. Emphasis must be on the benefits of adopting IFRS for SMEs.
Also various professional bodies to distribute IFRS for SMEs in soft or hard copies to targeted
entities.

5.2.4 Renaming of the standard


The renaming of the standard could be the solution to the adoption and implementation of IFRS
for SMEs to IFRS for Non-Public Interest Entities. The name SMEs gives an impression that

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they are small while they view themselves as major player in the industry and would be seen as
such.

5.2.5 Training of Employees


The researcher suggests that it is crucial for SMEs to send their employees for accounting
courses even at certificate level to obtain just an appreciation of accounting. This was just
because of the fact that most SMEs did not have accounting records maintained.

5.2.6 Adding it to the curricular of universities


IFRS for SMEs to be added to the curricular of universities as the graduates will be employed
either as accountants, managers and even owners of SMEs and this could be an added advantage
on the adoption of the standard.

5.2.7 Professional Accounting firms


SMEs operators have to outsource financial reporting from accounting firms who are always up
to date with new accounting standards development, amendments to existing and have the
required technical skills to implement the standard.

5.3 A standard for Micro entities


The researcher is of opinion of having a standard for micro entities since this IFRS for SMEs
seems to be still complicated for them.

5.4 Suggestions for further research


The researcher recommends further research to be conducted on the implementation and
adoption of IFRS for other SMEs in Zimbabwe. This was because of the fact that the study
focused on SMEs in manufacturing, retail and consulting sector only. A more comprehensive
research by the research institute could be more desirable.

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LIST OF APPENDICES
APPENDIX 1

Research Questionnaire

FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING
Box AC 939, Ascot, Bulawayo, Zimbabwe Telephone: +263-9-282842 Ext: 2059
Fax: +263-9-286803 / 285933
2061

03 March 2016

To whom it may concern:

This letter serves to certify that Munyaradzi Nematiere [student number N0126484C] is a final
year student in the department of Accounting at the National University of Science and
Technology. He is carrying out a research entitled An investigation into challenges faced by
SME operators in the adoption and implementation of IFRS for SMEs in Zimbabwe
(Bulawayo).

May you kindly assist him carry out this project by answering the following questions. The
research is purely for academic purposes and therefore the results will be treated confidentially
and professionally.

Thank you

P Korera [Mr.]

ACADEMIC SUPERVISOR.

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APPENDIX 2

Questionnaires for Retail Shops and Manufacturing firms

Introduction

My Name is Munyaradzi Nematiere and I am pursuing a Bachelor of Commerce (Hons) degree


in Accounting at National University of Science and Technology. I m carrying out a research
entitled An investigation into challenges faced by SME operators in the adoption and
implementation of IFRS for SMEs in Zimbabwe (Bulawayo). May you please kindly complete
this questionnaire and return it. The information you supply will be used solely for the purpose
of this research and shall be handled with great confidentiality. There will be no disclosure of the
respondent what so ever.

Directions

Tick in the boxes provided. Explain your answer in the blank spaces provided.
If your response is yes tick the box adjacent to Yes, if your suggestion is no then tick the
box adjacent to No.
If you are not certain about how to respond to any given question please skip the question
and go to the next one.
PART A
Name of organisation....................................................................Date.......................................

Organisation Stamp............................................................................

1. (a) For how long have you been working at your organisation?
Five (5) Years and below Five (5) Years and above

(b) Position you hold in your organisation............................................................................

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(c) Number of employees in your organisation. (Tick one)


Below 50 between 50-100 Above 100
PART B

2. Are your financial statements audited?

Yes No

3(a). Do you have an Internal Audit Department?

Yes No

3(b). Does it work in hand with your External Auditors in addressing revised and new
accounting standards?

Yes No

4. Are you aware of IFRS for SMEs?

Yes No

5 (a).Have you adopted IFRS for SMEs?

Yes No

5(b).If No, do you have plans to adopt it?

Yes No

If your answer is No on question 4(b) above which financial reporting framework do you
use when preparing financial statements?

6. Have you been using full IFRS?

Yes No

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7. Is there any differences between full IFRS and IFRS for SMEs?

Yes No not sure

8. Can specific regulations be put aside to ensure compliance on IFRS implementations?

Yes No not sure

If your answer is Yes on question 7 above then what might be the specific regulations?

9. In your opinion, to what extent does IFRS for SMEs likely to enhance financial
reporting?

Greater Extent Limited Extent No

10. Is IFRS for SMEs benefiting Bulawayo?

Yes No

If your answer is yes on question 9 above then what are the benefits?

a. Improve financial reporting


b. Attract foreign investors
If any others, can you specify below.

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11. Are you facing any challenges in implementing the IFRS for SMEs?

Yes No

If your answer is yes on question 10 above then what are the challenges?

a. Additional cost of reporting


b. Client reluctance to adopt IFRS for SMEs
c. Inadequate training and skills
d. Satisfaction of users information needs
e. Complexity and suitability of the standard
If any others, can you specify below.

Thank you for your Corporation

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when adopting and implementing IFRS for SMEs in Zimbabwe

APPENDIX 3

Questionnaires for External Auditors and Consulting firms.

Introduction

My Name is Munyaradzi Nematiere and I am pursuing a Bachelor of Commerce (Hons) degree


in Accounting at National University of Science and Technology. I m carrying out a research
entitled An investigation into challenges faced by SME operators in the adoption and
implementation of IFRS for SMEs in Zimbabwe (Bulawayo). May you please kindly complete
this questionnaire and return it. The information you supply will be used solely for the purpose
of this research and shall be handled with great confidentiality. There will be no disclosure of the
respondent what so ever.

Instructions

Tick in the boxes provided.


If your response is yes tick the box adjacent to Yes, if your suggestion is no then tick the
box adjacent to No.
Explain your answer in the blank spaces provided if explanation is need.
If you are not certain about how to respond to any given question please skip the question
and go to the next one.
PART A
Name of organisation....................................................................Date........................................

Organisation Stamp............................................................................

1. (a) For how long have you been working at your organisation?
Five (5) Years and below Five (5) Years and above

(b) Position you hold in your organisation............................................................................

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when adopting and implementing IFRS for SMEs in Zimbabwe

(c) Number of employees in your organisation. (Tick one)


Below 50 between 50-100 Above 100

PART B

2. Which type of an organization are you?


Auditing Firm

Consulting Firm

Other

If any other can you specify?

3. Does your audit or consulting firm have private sector clients or have you ever had
private sector clients?

Yes No

4. Do your private sector clients comply 100% with International Financial Reporting
Standards when preparing financial Statements?

Yes No yes but not 100%

If your answer is not YES above, give reasons.

......................

5. In light of the question 2 above, highlight the types of audits that you perform or that are
similar besides Financial Audit.

a. Compliance Audits

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b. Performance audit
c. Budget Audit
d. Information Technology
If any other, can you specify?
............................................................................................................................................................
............................................................................................................................................................
6. Do your clients implemented or intend to implement the IFRS for SMEs?
Yes No

7 .If No, do they have plans to adopt it?

Yes No

If your answer is No on question 6 above which financial reporting framework do they use
when preparing financial statements?

8. The adoption of IFRS for SMEs requires additional training. Will this training enhance
professional competency levels and marketability status?
Yes No

9. Has PAAB provided adequate training and educational support to its members?
Yes No

10. Will the profession benefit from the adoption?


Yes No
If your answer is YES above, in what ways?

a. By having International best practice and quality reporting


b. Increased mobility of local accountants
If any other, can you specify?

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11. Will the adoption of IFRS for SMEs benefit emerging entities?

Yes No

12. Giving reasons, is IFRS for SMEs going to enhance financial reporting?

....................
.........................................................................................

13. Are seminars and workshops organized by PAAB helpful?


Yes No
14. What are the likely challenges in adopting IFRS for SMEs?

....................
............................................................................................................................................................
15. Can specific regulations be put aside to ensure compliance on IFRS implementations
given clients are reluctant to adopt?

Yes No

If your answer is Yes on question 15 above then what might be the specific regulations?

Thank you for your cooperation.

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when adopting and implementing IFRS for SMEs in Zimbabwe

Appendix 4
Interview questions (Pilot Questions)

1. In your opinion, to what extent does IFRS for SMEs likely to benefit emerging
economies?

2. Can you please state the benefits enjoyed by implementing IFRS for SMEs?

3. What are the significant differences between full IFRS and IFRS for SMEs?

4. What are the reporting requirements of private sector institutions?

5. In your opinion, what might be the suggested solution to the challenges?

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