Research has shown that nine years since its adoption by the Institute of Certified Public Accountants of Uganda (ICPAU), few Small and Medium Enterprises (SMEs) comply with the International Financial Reporting Standard (IFRS) for SMEs.
The research titled: ‘Enablers and Inhibitors of IFRS for SMEs Adoption in Uganda, was commissioned in August 2018 to ascertain the level of compliance and implementation of the standard.
The research was conducted by Dr Mary Maurice Nalwoga Mukokoma, the head of department, Finance and Accounting at Kyambogo University and Professor Charles Tushabomwe of Mbarara University of Science and Technology.
According to the findings, only 35 per cent of SMEs in Uganda have fully adopted and complied with all the requirements in the standard. 54 percent have partially adopted. However, 11 per cent of the SMEs in Uganda have not adopted the standard at all. This state of affairs, Dr Nalwoga said, is bad for SMEs in Uganda.
Dr Nalwoga noted that due to the low adoption and understanding, some SMEs are producing incomplete and poor quality reports, which in turn affects the sustainability of the entities.
She attributed the low adoption levels to the fear of entities to share financial information with third parties, the prohibitive costs of staff training, costs of accounting systems, high consultation fees and high costs of accounting services.
Mr John Bosco Ntangaare, the director - Education at ICPAU, revealed that the research was commissioned in fulfillment of the research function of ICPAU.
“Pursuant to this mandate, we thought it necessary to have the research done in order to ascertain the levels of adoption, and also to guide us on how best to help the SMEs that had not fully complied and those that had not complied at all,” Mr, Ntangaare said.
Mr Ntangaare is optimistic that with more sensitisation, compliance would increase.
Why low compliance?
Certified Public Accountant Kenneth Makanga, a partner at BDO East Africa, attributed the low adoption levels to the fear of companies in the SME category to be considered small.
“A number of SMEs we audit fear that, if they use this standard, commercial banks and investors will deny them credit and financing under the pretext that they are too small to comply with payment terms,” CPA Makanga said.
He also attributed the low compliance to the wide knowledge gap.
“The new breed of accountants do not know and appreciate this standard. There is need to reduce this knowledge gap, and one of the ways to do this is to introduce the IFRS for SMEs as a subject on the ICPAU syllabus,” CPA Makanga said.
IFRS for SMEs
IFRS for SMEs is a set of standards developed by the IFRS Foundation to help small and medium businesses to produce reliable, understandable, objective, comparable and timely financial reports.
The definition of an SME varies jurisdiction by jurisdiction. In Uganda, different government bodies segment SMEs differently depending on parameters that best fit in their business models. For example, the Uganda Revenue Authority classifies SMEs depending on their tax compliance capabilities. On the other hand, the Uganda Investment Authority segments SMEs depending on their capital share.
However, for purposes of the IFRS for SMEs standard, any entity which does not operate in public interest can apply the standard.