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AWARENESS, CHALLENGES AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARD FOR SMALL AND MEDIUM ENTERPRISES

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

The process of businesses presenting financial reports in a unified worldwide acceptable manner started witnessing a sporadic revolution within the European Union in 2002 when it was made mandatory that all publicly quoted companies or rather, companies with public accountability must prepare their financial statements in accordance with the requirement of the International Financial Reporting Standards (IFRS) with effect from 2005 (Ball, 2006). Such revolution encompasses the adoption and adaptation of local accounting practices and harmonizing it with that of the International Financial Reporting Standards (IFRS) which formally was the International Accounting Standards (IAS).

It is in recognition of the need to having quality financial reports and other benefits such as ability to improve the comparability among entities, having access to global capital markets and reduced cost of capital, access to cross border acquisitions, that the adoption of IFRS is becoming a trend among nations. Nigeria as a country therefore, set out its roadmap to harmonization and accepting of the IFRS in 2010 with a reporting date of 2012 (Ayuba, 2012). Although, there are significant benefits of adopting IFRS, it is not without problems. Among such problems, include the conversion challenges such as increased volatility of earning, high cost of implementation, complex nature of IFRS and issues of implementation.

To cater for the needs of the Small and Medium Enterprises (SMEs) and understanding their impact in the sustenance and development of a nation and the need to make them present a quality financial statement, the International Accounting Standard Board (IASB) in 2009 developed the International Financial Reporting Standards for Small and Medium Enterprises – IFRS for SMEs (Mazhindu and Mafuba, 2013), and also as a response to a ‘strong international demand from both developed and emerging economies for a rigorous and common set of accounting standard for smaller companies’ (Albu, 2013). With its stated benefits, Albu (2013) noticed that the adoption of IFRS for SMEs is laden with various challenges such as high level of expectation, the associated cost of implementation, lack of competencies of local professions among others. According to Ayuba (2012), proper criteria for the definition of SMEs may constitute a challenge as Nigeria adopts its roadmap of the SMEs reporting date of 2014.

Understanding the vital role of SMEs in every economy, ranging from positive developments to creation of employments and their very key impact within the various sectors where they are operational, it therefore becomes so operational to critically analyze, using extant literature, the benefits and likely challenges of implementing IFRs for SMEs in Nigeria.Various studies have been conducted to assess the adoption of IFRS for SMEs in different countries of the world. A set of studies have been conducted in relations to the importance or benefits (Neag, Masca and Pascan, 2009; Mazhindu and Mafuba, 2013; Schutte and Buys, 2011a) and the challenges of adopting IFRS from SMEs (Stainbank, 2008; Albu, 2013; Kordecki and Bullen, 2012). Most of these studies were conducted using member European Union for data analysis. Comparatively, few researches have been conducted or 

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