Small businesses, big Standards: How IFRSs propel SMEs.
Managing a business in today’s dynamic environment is no easy feat. Apart from the intrinsic granularity in functions and management, entrepreneurs must navigate a myriad of regulatory requirements and the day-to-day operations that can be demanding. Furthermore, the ever-shifting landscape of regulations (including tax and reporting) also calls for constant adaptation.
What entity qualifies as a Small and Mediumsized Enterprise (SME)?
Small enterprises are those that employ between 5-49 people, having total assets between 10-100M (UGX). Medium enterprises employ 50-100 people, with total assets between 100-360M (UGX).
In Uganda, SMEs play a significant role in the economy, accounting for 80% of the country’s Gross Domestic Product (GDP) and 90% of the private sector.
SMEs and International Financial Reporting Standards (IFRS)
Small and Medium-sized Enterprises are encouraged to adopt International Financial Reporting Standards, specifically, IFRS for SMEs which provides an accounting framework designed to meet the entity’s needs as well as those of the users of financial statements.
The IFRS for SMEs was designed for entities that do not have public accountability and the requirement to publish general-purpose financial statements for external users. Issued by the International Auditing and Assurance Standards Board (IAASB) in 2009 and amended in 2023, IFRS for SMEs offers a simpler alternative to full IFRS. The framework allows entities to present high-quality, understandable financial statements and reports using a globally recognised standard, fostering transparency and trust for SMEs aspiring to bolster and reach global markets
What is in it to gain for SMEs applying the IFRS?
Simplification: IFRS for SMEs is tailored to the needs of smaller businesses, with significant simplifications in recognition, measurement, derecognition, and disclosures.
Accessibility: As all the standards are in one document, it is easy to obtain the required information.
Gateway to finance – Besides business owners, other important users of accounting information are banks. Many SMEs are financed by banks. SMEs must, therefore, ensure that financial statements generated by the entity are reliable for such critical stakeholders. This is only possible by SMEs ensuring compliance with financial reporting standards. Additionally, adopting IFRSs enhances SMEs’ opportunities for access to international finance through harmonised and high-quality financial information.
Positioning: With internationally reliable financial reports, SMEs can position themselves not only to seize emerging opportunities, for example in the oil and gas sector, but also to tap into global markets. With global recognition, SMEs can explore cross-border partnerships, which are a catalyst for growth through accessing larger markets.
What should SMEs do to comply with International Financial Reporting Standards?
Hire talent – One critical aspect of running a successful SME is hiring the right people and retaining them. Highly talented individuals drive the business toward growth and profitability. SMEs should hire the right
talent in all aspects of the business, starting with the front desk to top management. When it comes to the accounting function, SMEs should hire staff that are qualified and conversant with the financial reporting standards, to advise and support management/directors in compliance and decision-making. ‘Weak companies hire the right experience to do the job. Strong companies hire the right person to join their team’. Simon Simek.
