What Drives Developing and Transitional Countries to Adopt the IFRS for SMEs? An Institutional Perspective

Abstract

With the awareness of the socioeconomic importance of small- and medium‐sized enterprises (SMEs) and the growing demand for a high‐quality accounting framework for these businesses, the International Accounting Standards Board issued on July 9, 2009 a simplified version of financial reporting standards (IFRS for SMEs) to meet the specific needs of such entities. Recently, there is an increasing widespread acceptance of this standard around the world. While considerable effort has been made to explain the worldwide diffusion of full IFRS, still little empirical evidence on the factors influencing the IFRS for SMEs adoption has been undertaken. This study seeks to examine the institutional factors associated with the adoption of the IFRS for SMEs specifically in the context of developing and transitional economies. Based on a sample of 70 countries, the research results show that SMEs' importance, country's reliance on external funding, and external openness degree positively affect the IFRS for SMEs adoption. They reveal a negative effect of tax system and governance quality on this decision. However, education level and prior adoption of full IFRS are nonsignificant factors. These results are relevant to practitioners, SMEs' potential investors, standard setters, regulators, CPA firms, SMEs' managers, and policy‐makers. © 2018 Wiley Periodicals, Inc.

Cross-country determinants of IFRS for SMEs adoption

“…This result is confirmed by Zehri and Chouabi (2013) and Shima and Yang (2012). However, Kossentini and Ben Othman (2014), Sellami and Gafsi (2018) and Bonito and Pais (2018) found that economic growth had a positive but statistically insignificant effect on the adoption of international standards.…”

“…These authors found that the political costs of negotiating a new standard are high. In addition, the results of Sellami and Gafsi (2018) showed that the tax system negatively influences the decision to adopt IFRS for SME. However, Bonito and Pais (2018) demonstrated that the strict link between taxation and accounting has no effect on IFRS for SMEs adoption.…”

“…Previous research has focused on the impact of institutional factors on the adoption of IFRS (Sellami and Gafsi, 2018;Kossentini and Ben Othman, 2014;Ritsumeikan, 2011;Bogdan et al, 2010;Judge et al, 2010). The institutional factors used in these studies are the three types of isomorphism as follows: coercive, mimetic and normative.…”

“…Eierle and Haller (2009) in Germany, Atik (2010) and Kiliç et al (2016) in Turkey studied determinants and tried to determine the impact of the characteristics of SMEs on the adoption of IFRS for SMEs. To our knowledge, only Kaya and Koch (2015), Bonito and Pais (2018), Sellami and Gafsi (2018) and Zahid and Simga-Mugan (2019) have examined, which factors influence countries' adoption of IFRS for SMEs. Kaya and Koch (2015) analyzed 128 countries, including 63 jurisdictions that have adopted IFRS for SMEs in 2013.…”

“…Moreover, Sellami and Gafsi (2018) have studied the IFRS for SMEs adoption in 70 developing and transition countries, 38 of which adopted this standard in 2014. Their results showed that the number of SMEs in a country, as well as coercive and mimetic isomorphism, have a positive effect on IFRS for SMEs adoption.…”