Abstract

This research work highlights the result of a research carried out to examine “Factors That Affect Adoption of IFRS by SMEs Selected in the Fako Division of Cameroon”. The specific objectives were; to examine the effect of Existence of Accounting Professional bodies on adoption of IFRS by SMEs selected in the Fako Division of Cameroon, to examine the effect of level of accounting Education on adoption of IFRS by SMEs selected in the Fako Division of Cameroon and to examine the effect of Legal system of the country on adoption of IFRS by SMEs in the Fako Division of Cameroon through the adoption of a descriptive survey design. This research uses a sample size base on a survey of 40 enterprises.

A substantial aspect of the study involved collecting primary data through the instrumentation of self-administered questionnaires so as to collect the required data. The data collected were classified and analyzed using descriptive statistics and the multiple regression analysis with the help of Statistical Package for Social Sciences (SPSS) software.

The hypothesis was tested through a correlation test, and it revealed that there is a strong positive relationship between the variables. This result showed that the Existence of Accounting Professional bodies, level of accounting Education and Legal system of the country significantly affects the adoption of IFRS by SMEs in the Fako Division of Cameroon.

The study therefore recommends that, effective adoption of IFRS in SMEs should put in place so as to increase the reliability and quality of financial statements. Also, the management should build a strong relationship with their employee’s based on the study factors so as to build positive relationship with the financial performance and operations.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study 

Over the years, many innovations have taken place in the world. Among this, International Financial Reporting Standards (IFRS), are a set of accounting standards referred to by the International Accounting Standards Board (IASB) which have been developed. International Accounting Standards Board (IASB) is an independent body based in London, which has 15 members from various countries. The delegation was established by the big accounting firms, private financial institutions and a number of other professional organizations in the field of accounting.

The application of IFRS could increase investment for companies that want their own benefit. The application of IFRS standards in some countries is mandatory and some voluntary. Financial reporting aims are derived from the informational needs and demands of the users from an outsider (Camfferman & Zeff, 2016).

The key objective is to determine the influence of the economic activities and financial activities on the business’s financial position and performance to help business decision-making entities. Therefore, the financial reporting should provide accurate financial information about the company, free from bias, allowing readers to make comparisons using standard criteria and benchmarks (Gilaninia et al., 2018). It is about transmitting financial and non-financial data to different financial data users to assess economic resources and claims against a reporting entity’s financial liquidity, profitability, and viability.

Financial reporting is essential as covering the needs of different users such as owners/ shareholders, management, government, investors and creditors, customers and employees, and competitors (Soyinka, 2017). Financial reporting enables contracting parties to reduce information asymmetry problems and improprieties among both parties involved and it’s considered to be a crucial aspect for the dedication to increasing transparency and quality of financial reporting (Healy & Palepu, 2019).

Numerous SMEs and even large enterprises exist along with a wide range of industries, which play a crucial role as drivers of sustainable developments and jobs.  SMEs play a critical role in developed and developing countries.

As shown in Shandon research, 6080percent of the total job opportunities are produced only through the SME industry. Moreover, the SME sector is of paramount significance for developing countries and contributes to economic developments in reducing poverty and unemployment problems.

However, developing and adopting a well-developed financial reporting system can help managers and owners of SMEs regulate their economic condition, success, and overall operations (Rathnasiri, 2018). Besides, financial reporting is a powerful tool for owners and managers of SMEs and it is crucial in decreasing the information asymmetry problem.

The goal of financial reporting is to make information available for decision making. Historically, there is diversity in financial reporting in different countries due to culture, legal systems, tax systems and business structures. International financial reporting standards (IFRS) harmonizes this diversity by making information more comparable and easier for analysis, promoting efficient allocation of resources and reduction in capital cost.

Diversity in financial reporting in different countries arises because of the differences in legal systems, tax systems and business structures. The IFRS is intended to harmonize this diversity by making information more comparable and easier for analysis, promoting efficient collaboration of resource and reduction in capital cost (Soyinka, 2017).

Companies are working together towards the adoption of this international standard in Cameroon. In Cameroon SMEs that are registered as limited liability companies, public limited companies has already been required to prepare their financial statements in accordance with IFRS. To this end, this study mainly aimed to investigate the factors affecting the adoption of IFRS byh SMEs, and specify the benefits SMEs will derive & challenges face due to the adoption of IFRS in SMEs, that has not been studied by previous researchers on the studied variables

1.2 Statement of the problem   

The relevance of accounting information can be evaluated through various measures, such as its impact on stock price, on the accuracy of analyst forecasts, the cost of finance & investment strategies. The level of details in financial reporting under IFRS is higher than GAAP. Under IFRS, income statements items are detailed in terms of nature & function. Also must include more & detailed notes under IFRS. This should provide additional relevant benefit to decision makers (Zegal et al., 2020).

The adoption of IFRS Regulation by SMEs will brings new accounting philosophy with a much stronger economic and business orientation, especially in terms of focusing on the information needs of the capital markets (Zehri & Chovaibi, 2018). Also, Adopting IFRS and its movement towards fair value should enhance the external reporting perspective to inform about company performance & attractiveness of the business both existing & potential stakeholders of the company, to financial analysts & partners of business or employees. Shareholders and analysts should be able to obtain a better indication of the created share value.

Creditors will receive more relevant information in estimating the company’s ability to make future payments. Suppliers will provided with better information concerning whether buyers will continue to place orders. Managers will obtain useful information allowing them to steer and control business in terms of maximizing economic value, in the short-term as well as long-term perspective. Employees also should receive better information about the financial position and the firm’s value generation and its value distribution process (Zegal et al., 2016).

Adoption of the IFRS requires a high level of education, competence, and expertise to be able to understand, interpret and then make use of these standards. The existence of professional accounting bodies also have a major factor that drives the decision to adopt IFRS, Similarly showed that professional bodies play important roles in IFRS adoption in developing countries.

There have been attempts in the past to study IFRS but much focus has been on the IFRS and its implementation especially as mention above. In Cameroon, less research has been done to investigate the factors affecting the adoption of IFRS by SMES in the Fako Division; therefore this research addresses that gap. The study therefore, seeks to determine the factors affecting the adoption of IFRS by SMEs selected in the Fako Division.

1.3 Research Question

1.3.1 Main Research Question

What are the factors that affect the adoption of IFRS by SMEs selected in the Fako Division?

1.3.2 Specific Research Questions

1. What is the effect of the Existence of Accounting Professional bodies on the adoption of IFRS by SMEs selected in the Fako Division?
2. What is the effect of the level of Accounting Education on the adoption of IFRS by SMEs selected in the Fako Division?
3. What is the effect of the Legal system of the country on the adoption of IFRS by SMEs in the Fako Division?

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