Small business drowning in IFRS manuals.

IFRS for SMEs: Are Small Businesses Drowning in Accounting Standards?

Lena Kashyap in Business & Economy June 2025 • 4 min read.

"Discover if the International Financial Reporting Standard for SMEs is truly helping or hindering small and medium-sized entities."

Small and medium-sized enterprises (SMEs) are the backbone of economies worldwide, driving innovation, creating jobs, and fostering competition. However, these businesses often face unique challenges, including navigating complex financial reporting requirements. The International Financial Reporting Standard (IFRS) for SMEs was introduced to provide a simplified accounting framework tailored to their needs. But is it truly helping, or is it adding to their burden?

The IFRS for SMEs was published as a standard by the International Accounting Standards Board (IASB) during July 2009. The goal was to create a common, high-quality, and internationally respected set of accounting requirements that SMEs could use to prepare their financial statements. Many countries, including South Africa, were early adopters of this standard, hoping to reduce the complexity and cost associated with full IFRS compliance.

However, the question remains: does the IFRS for SMEs genuinely alleviate the burden on small businesses, or does it still present significant challenges? A research article in the SAJESBM Volume 5, (2012) investigated the opinions of South African small company practitioners on the applicability of the IFRS for SMEs. This article will delve into the findings of that research and explore the broader implications for SMEs worldwide.

The IFRS for SMEs: A Bridge or a Barrier for Small Businesses?

Small business drowning in IFRS manuals.

The research highlighted a critical concern: the IFRS for SMEs may still be too comprehensive for many small companies. While intended to simplify financial reporting, it might not adequately address the specific needs and capabilities of smaller businesses. The study found that a significant percentage of small practitioners in South Africa believed that financial statements prepared by small companies did not fully comply with all applicable accounting standards.

Several factors contribute to this challenge:

Limited Resources: Small companies often have fewer staff members with limited financial expertise.
High Compliance Costs: Adhering to IFRS requirements can involve substantial additional costs, including complex technical calculations, extensive disclosure, and the need for high-level accounting expertise.
Lack of Perceived Benefit: Some practitioners felt that the costs associated with complying with IFRS outweighed the benefits gained by supplying the information.

This sentiment echoes broader concerns about the 'accounting standards overload problem,' where the complexity and scope of accounting requirements have increased significantly, impacting the costs involved in preparing financial statements. For small businesses, these costs can be disproportionately burdensome.

Simplifying the Path Forward

The journey to simplify financial reporting for SMEs is ongoing. While the IFRS for SMEs was a significant step forward, further refinement and adaptation are needed to ensure that it truly meets the needs of small businesses. By addressing the issues of complexity, cost, and relevance, we can create a more supportive environment where SMEs can thrive and contribute to economic growth.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.4102/sajesbm.v5i1.27, Alternate LINK

Title: International Financial Reporting Standard For Small And Medium-Sized Entities

Subject: Strategy and Management

Journal: The Southern African Journal of Entrepreneurship and Small Business Management

Publisher: AOSIS

Authors: Z Koppeschaar

Published: 2012-12-31

Everything You Need To Know

What is the primary purpose of the IFRS for SMEs?

The International Financial Reporting Standard (IFRS) for SMEs was introduced by the International Accounting Standards Board (IASB) with the goal of providing a simplified accounting framework. This framework is tailored specifically for small and medium-sized enterprises (SMEs) to help them prepare their financial statements. The intention was to create a common, high-quality, and internationally recognized set of accounting requirements suitable for the unique needs of SMEs, aiming to reduce the complexity and cost associated with full IFRS compliance. It's a specific standard designed to address the reporting needs of smaller businesses.

Why are SMEs considered to have unique challenges in financial reporting?

Small and medium-sized enterprises (SMEs) encounter distinct hurdles in financial reporting primarily due to their operational constraints. These businesses often have limited resources, including fewer staff members with less financial expertise. This limitation can make it challenging to comply with complex financial reporting requirements. Moreover, adhering to standards such as the IFRS for SMEs can lead to high compliance costs. These costs encompass technical calculations, extensive disclosure needs, and the requirement for high-level accounting expertise. The lack of perceived benefit from complying with such standards can further exacerbate these challenges, potentially outweighing the value the information provides.

What did the research in SAJESBM Volume 5, (2012) reveal about the IFRS for SMEs?

The research article in the SAJESBM Volume 5, (2012) investigated the perspectives of South African small company practitioners regarding the applicability of the IFRS for SMEs. The research highlighted a significant concern: the IFRS for SMEs may still be too comprehensive for many small companies. A key finding was that a notable percentage of small practitioners in South Africa believed that the financial statements prepared by small companies did not fully comply with all applicable accounting standards. This suggests the standard might not adequately address the specific needs and capabilities of smaller businesses, indicating a need for further refinement.

What are the main factors contributing to the challenges SMEs face in complying with IFRS?

Several factors contribute to the challenges faced by small and medium-sized enterprises (SMEs) in complying with the International Financial Reporting Standard (IFRS). These include limited resources, such as fewer staff members with financial expertise, and high compliance costs. Adhering to IFRS requirements involves complex technical calculations and extensive disclosure, often requiring high-level accounting expertise. Furthermore, some practitioners perceive that the costs associated with complying with IFRS outweigh the benefits of supplying the information, which can discourage full compliance. These combined elements contribute to an 'accounting standards overload problem' that disproportionately burdens small businesses.

How can the path forward be simplified for SMEs regarding financial reporting?

Simplifying financial reporting for small and medium-sized enterprises (SMEs) requires ongoing efforts to refine and adapt existing standards. While the International Financial Reporting Standard (IFRS) for SMEs represents a significant step forward, further changes are necessary. Addressing issues of complexity, cost, and relevance is crucial to creating a more supportive environment. This includes refining the standards to better fit the capabilities and needs of smaller businesses. By making reporting requirements more manageable and less costly, SMEs can better allocate their resources to core business activities, fostering their growth and contribution to economic development. Such simplifications can include reducing the complexity of technical calculations, minimizing the extent of required disclosures, and ensuring that the benefits of compliance outweigh the costs for these businesses.