International Financial Reporting Standards for Small and Medium-sized Enterprises and the quality of financial reporting: South African Perspective

Small and Medium-sized Enterprises (SMEs) are essential to the South African economy.  The corporations Act of South Africa (71 of 2008) mandates that corporations adhere to either complete International Financial Reporting Standards (IFRS) or IFRS for Small and Medium-sized Entities (SMEs).  The International Accounting Standards Board (IASB) established IFRS for SMEs in 2009 as an alternative framework for qualifying firms, providing an option in lieu of the comprehensive IFRS standards.  Notwithstanding its deployment, the impact of IFRS for SMEs on financial reporting quality (FRQ) in South Africa has not been extensively examined.  The research involved a sample of twenty accounting firms, with five businesses chosen from each municipality to manage Annual Financial Statements (AFS) for five SMEs each, culminating in a total of 100 SMEs.  Due to the absence of a universally accepted metric for evaluating FRQ, the study utilised three previously established measures together with an aggregate measure.  The research employed Ordinary Least Squares (OLS) Regression analysis to investigate trends in FRQ over two time periods: 2010-2014 and 2015-2019.  Findings demonstrate no substantial enhancement in FRQ among Vhembe SMEs over time.  Discretionary accruals exhibited stability, indicating consistent reporting quality.  The results underscore the significance of accrual accounting and standardised methodologies, enhancing the quality and dependability of financial data for stakeholders.  This research offers essential insights for accountants, business proprietors, investors, and regulatory entities, highlighting the beneficial effects of IFRS for SMEs on the quality of financial reporting among South African SMEs.