Factors Affecting the Adoption of Financial Reporting Standards by Micro, Small and Medium Enterprises in Tanzania: The Case of Mbeya City Council

Benance Lackson; Seif Muba

doi:10.37284/eajbe.4.1.480

Benance Lackson Mzumbe University
Seif Muba, PhD Mzumbe University Tanzania

DOI: https://doi.org/10.37284/eajbe.4.1.480

Keywords: Adoption, MSMEs, Financial Reporting Standards, Factors Affecting, Tanzania

Share Article:

Abstract

Different studies have revealed that the majority of the micro, small and medium enterprises (MSMEs) in Tanzania do not use basic accounting principles and practices which are consistent with financial reporting standards in managing business though Tanzania adopted International Financial Reporting Standards for small and medium enterprises (IFRS for SMEs) in 2009 and issued financial reporting standard for Micro entities in 2018. This shows that the level of adoption and applicability of the standards is very low. Therefore, this study was carried out to assess factors that affect the adoption of financial reporting standards by MSMEs in Tanzania. The study was conducted in Mbeya City Council where primary data was collected from a sample size of 245 respondents via a Likert scale questionnaire. The descripto-explanatory research design was employed where the results were quantitatively analysed through descriptive statistics and chi-square (x²) model hypothesis testing. The results show that non-adoption of the standards was the result of inadequate knowledge by MSMEs, lack of awareness by most MSMEs on the existence of the standards, high perceived cost of conversion and implementation, weak legal and regulatory enforcement strategy, low level of technology applicability by SMEs and complexity of the standards as it needs a well-trained accountant to implement. The study recommends the government to come up with the implementation strategy that will first ensure that a large number of MSMEs is well trained on financial reporting standards because the decision to adopt or not to adopt largely depend on the adequacy of knowledge.

Downloads

Download data is not yet available.

References

Adekoya, O. (2011). Similarities and differences, IFRS and Nigerian GAAP. Lagos: Pricewater House Coopers International Limited. (pwCIL).

Alia, M., & Branson, J. (2011). The effect of environmental factors on accounting diversity. A literature review. 2011, P 04, Available at SSRN: https://ssrn. com/abstract, 1780479.

Albu, C. N. (2013). How relevant is size for setting the scope of the IFRS for SMEs. Accounting and Management Information Systems.

Amanamah, R. B., Morrison, A., & Asiedu, K. (2016). Computerised accounting systems usage by small and medium scale enterprises in Kumasi Metropolis, Ghana. Research Journal of Finance and Accounting, 7(16), 16-29.

Arhin, T., Perprem, A., & Hulede, A. (2017). The challenges of adoption and implementing IFRS for SMEs in Ghana. a case of SMEs in the Kumasi metropolis. Research Journal of Accounting.

Berisha, G., & Pula, J. S. (2015). Defining Small and Medium Enterprises: a critical review. Academic Journal of Business, Administration, Law and Social Sciences, 1(1), 17-28.

Cochran, W. G. (1977). Sampling Techniques. New York: John Wiley and Sons, Inc.

DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organisational fields. American Sociological Review, 147-160.

Emekaponuzo, D. E., Jeremiah, O. O., & Alfred, E. J. (2017). Information technology implications of IFRS implementation in Nigeria: Challenges to auditors. Journal of Investment and Management, 6(1), 22-27.

Guyashi, K., & Miku, F. (2015). Effectiveness in Tax Payment by Rural Micro Enterprises in Tanzania. Journal of Economics and Sustainable Development, 6 (21), 88-93.

Hussain, F. F., Chand, P. V., & Rani, P. (2012). The impact of IFRS for SMEs on the accounting profession: Evidence from Fiji. Accounting & Taxation, 4(2), 107-118.

IASB. (2020). Issued standards-The IFRS for SMEs Standard. Retrieved from IFRS: https://www.ifrs.org/issued-standards/ifrs-for-smes/

IFRSFoundation. (2015). International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). London: IFRS Foundation Publications Department.

International Accounting Standards Board. (2015). The International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). London: IFRS Foundation.

Jayabalan, J., Raman, M., Dorasamy, M., & Ching, N. K. C. (2009). Outsourcing of accounting functions amongst SME companies in Malaysia: An exploratory study. Accountancy Business and the Public Interest, 8(2), 96-114.

Kaur, J. (2013). Techniques Used in Hypothesis Testing in Research Methodology – A Review. International Journal of Science and Research (IJSR), 363-364.

Kaya, D., & Koch, M. (2015). Countries’ adoption of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs)–early empirical evidence. Accounting and Business Research, 45(1), 93-120.

Kenneth, M., & Grazyina, M. (2013). The adoption of international financial reporting standards for small to medium enterprises in Zimbabwe. International Journal of Asian Social Science, 3(11), 2315-2349.

Khoury, S. (2009). Public, private or non-profit: How IFRS can add value to your Information Systems.

Kibona, I. (2020). Financial management practices and performance of Micro, small and medium enterprises (MSMEs) in Tanzania: A case of Kibaha Town Council. Morogoro: Mzumbe university.

Kiliç, M., & Uyar, A. (2017). Adoption process of IFRS for SMEs in Turkey: Insights from academics and accountants. Accounting and Management Information Systems, 16(2), 313-339.

Litjens, R., Bissessur, S., Langendijk, H., & Vergoossen, R. (2012). How do preparers perceive costs and benefits of IFRS for SMEs? Empirical evidence from the Netherlands. Accounting in Europe, 9(2), 227-250.

Lukumay, B. L. (2018). Impact of accounting practices on financial performance of SMEs in Ilala district of Tanzania. International Academic Journal of Human Resource and Business Administration, 1 (4), 50-51

Mawutor, J. K. M., Williams, S., & Oduwaa, M. A. (2019). Assessment of the adoption and implementation of IFRS for small and medium scale entities (SMEs). “A study of selected SMEs GA East of Ghana. Asian Journal of Finance & Accounting, 11(1), 24-258.

Mkasiwa, T. A. (2014). SMEs’ Financial and Differential Reporting-A Review of Publications. International Journal of Accounting and Financial Reporting, 4(2), 82.

Moll, J., Burns, J., & Major, M. (2006). Institutional Theory In Hoque, Z.(ed). Methodological issues in accounting research: theories, methods and issues.

Msuya, R., & Maleko, G. (2015). Non-compliance and Challenges of Implementing IFRS in Saving and Credits Cooperative Societies (SACCOS) in Shinyanga Region” “Tanzania. Journal of Business Administration and Education, 7(1).

Mwakujonga, J., & Bwana, K. M. (2013). The practice of preparing and using financial information in financial decisions: a survey of SMEs in Tanzania. European Journal of Business and Management, 5 (9), 161-169.

National Board of Accountants and Auditors (NBAA). (2018). Technical Updates. Retrieved from The United Republic of Tanzania: National Board of Accountant and Auditors (NBAA): https://www.nbaa.go.tz/pages/technical-updates

Nzunda, F. W. (2013). The compliance and non-compliance of Tanzania small and medium enterprises (SME’s) to international financial reporting standards IFRS’s) the survey made at Morogoro municipal. Mzumbe University.

Perera, D., & Chand, P. (2015). Issues in the adoption of international financial reporting standards (IFRS) for small and medium-sized enterprises (SMES). Advances in accounting, 31(1), 165-178.

Rudzani, S., & Charles, M. D. (2016). An assessment of the challenges of adopting and implementing IFRSS for SMEs in South Africa. Problems and perspectives in management, (14, Iss. 2 (contin. 1)), 212-221.

Samujh, H., & Devi, S. S. (2015). Implementing IFRS for SMEs: Challenges for developing economies. International Journal of Management and Sustainability, 4(3), 39-59.

Saunders, M., Lewis, P., & Thornhill, A. (2009). Research Methods for Business Students. London: Pearson Education Limited.

Ssenyonga, Y. (2019). Adoption of International Financial Reporting Standard for Small and Medium Entities as a Financial Reporting Framework; A case study of the Greater Kampala Metropolitan Area. Makerere University.

Tavakol, M., & Dennick, R. (2011). Making sense of Cronbach’s alpha. International journal of medical education, 2, 53.

Zeghal, D., & Mhedhbi, K. (2006). An analysis of the factors affecting the adoption of international accounting standards by developing countries. The International Journal of Accounting, 373–386.