Academic journal article Asian Social Science

Development of Accounting and Financial Reporting for Small and Medium-Sized Businesses in Accordance with International Financial Reporting Standards

Academic journal article Asian Social Science

Development of Accounting and Financial Reporting for Small and Medium-Sized Businesses in Accordance with International Financial Reporting Standards

Article excerpt

Abstract

This publication considers accounting procedures and financial data reporting by small and medium size businesses in accordance with International Financial Reporting Standards (IFRS). It studies different IFRS influence zones in small and medium size businesses. The present study offers the following information: a definition for "small and medium sized business"; a model of financial accounting and reporting procedural guidelines for Russian small and medium sized businesses; approaches to creating an accounting system to prepare IFRS-based financial statements; an algorithm to transform small and medium sized businesses' accounting statements in accordance with IFRS requirements.

Keywords: small and medium sized businesses; IFRS for small and medium sized businesses, financial reporting, transformation

1. Introduction

At the present stage one of the key factors for successful small and medium sized business development is bringing financial reporting practices in line with international requirements. Implementation of international financial reporting standards enhances fundraising abilities, affords an opportunity to call for international tenders and to analyze financial situation among customers, makes external crediting more available (Klychova, Nizamutdinov, Safiullin, & Mavlieva, 2014). It is a matter of utmost importance, as small businesses play a key role in developing not only the world economy but also its separate regions and sectors (Maletic & Ceranic, 2010).

2. Theory

A full set of international financial reporting standards is intended for big businesses (Ildiko & Dekan, 2013). It is complicated enough to be employed by small businesses so it was necessary to develop a simplified set of fundamental accounting principles for not big and non-publicly traded companies based on the full IFRS (Figure 1).

According to the new standard small and medium sized businesses are companies which are not publicly responsible and do not publish their financial reports for external users. Such companies do not publish debt instruments or shares on open access and do not hold third party assets.

IFRS implementation for small and medium size enterprises in Russia requires substantial legal framework upgrading. Much has already been done in this area. For instance, a new law No209-[straight phi]? "For small and medium entrepreneurship development in the RF" was adopted on July, 24, 2007. It specifies the criteria to classify small and medium enterprises, although a number of economists believe it necessary to revise it. We offer the following definition. Small and medium size businesses are legal entities registered in accordance with the legislation, whose core capital includes no more than 25% from the RF or its entities, municipal entities, foreign legal entities, foreign citizens, social and religious organizations (associations), charitable or any other foundations; the share of one or several legal entities who are not small and medium sized business entities does not exceed 25%. They do not belong to state municipal unitary enterprises; they are not fudiciaries to assets of a wide community of outsiders (banks, credit unions, insurance companies, share funds, etc.); their primary activities are not associated with leasing; they do not publish their debt and equity instruments in the open market and are not issuing such instruments for open market trade (are not obliged to present financial reports to a wide range of users); the average number of employees over the preceding calendar year does not exceed 250, and the income from sales (works, services) without value-added tax corresponds the standards set by the RF government (Klyichova & Fahretdinova, 2014).

A number of experts find it possible to use IFRS as a basis to create a managerial accounting system (Klychova, Safiullin, & Zakirova, 2014a, 2014b, 2014c). By harmonizing financial reporting requirements for small and medium sized enterprises with IFRS we will provide transparency to their economic activities and make the process of adapting IFRS smoother if small businesses expand to a degree and become classified as medium sized and later on large organizations (http://www. …

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