THE COMPLIANCE AND CHALLENGES OF IMPLEMENTING INTERNATIONAL FINANCIAL REPORTING STANDARD FOR SMALL AND MEDIUM- SIZED ENTERPRISES IN TANZANIA

Abstract

Small and Medium-sized Enterprises (SMEs) play a crucial role and forms a dominant part of the overall economy in most countries. Both developed, emerging and developing countries including Tanzania. Consequently, the financial reporting framework of this particular sector is of importance. The research work deals with assessing the level of compliance and challenges faced by SMEs in adopting and implementing IFRS for SMEs in Tanzania. Adoption of the standard is perceived to result into comparability of SMEs financial information and easier access to capital. Despite the preserved benefits arising from complying with IFRS for SMEs, these entities are still reluctant to adopt the standard and they face challenges in implementing it. The objective of the study is to uncover the reasons and subsequently to ascertain the cause of the problem. The research has been conducted in Dar es Salaam and Mbeya regions in Tanzania.A descriptive survey has been applied and a random sample technique has been used to select SMEs operating in Dar es Salaam and Mbeya belonging to different sectors including retail, manufacturing, health as well as consulting. Research instruments used are questionnaires. The study findings reveal that there is low compliance to IFRS for SMEs, the poor implementation is mainly due to quite high costs of implementation and indeed, even ignorance about the existence of IFRS for SMEs. Moreover, lack of infrastructure and an absence of separation between ownership and management of business hinder most SMEs from maintaining accounting records. In addition, most of the SMEs employees lack basic accounting records knowledge. Also, it was observed that, at present, the IFRS for SMEs’ requirements are still too complex, preventing micro entities from adopting the standard. Hence, the study recommends to the Tanzanian National Board of Accountants and Auditors (NBAA) a further review of the standard to be applied for micro entities. In general, the research suggests to policy makers and standard setter to put a stronger effort on encouraging the adoption of IFRS for SMEs through the organization of seminars or workshops in which micro and small enterprises have to be actively involved. As a consequence, SMEs may perceive the benefits connected with the adoption of IFRS for SMEs and formalizing their business operations.