SMEs adoption of financial standards could benefit both the government and the companies alike, experts said on Wednesday.
They noted that while embracing International Financing Reporting Standards (IFRS) is not “necessary”, it would still on one hand help micro, small and medium enterprises (MSMEs) enhance their growth, and, on the other, assist the government in its regulation efforts.
During the three-day World Bank conference held at the Dead Sea this week, experts from across the globe discussed the implementation of the IFRS by MSMEs.
“Improving the MSME standards is very important in Jordan and applying them is as necessity,” KPMG Managing Partner Hatem Kawasmy told The Jordan Times on the sidelines of the conference.
According to a recent report published by the Ministry of Planning and International Cooperation, 44 per cent of the labour force works in the informal sector, implying that the government does not receive any taxes off that activity and that the workers do not benefit from any social protection.
“If the government supports IFRS standards for SMEs, it will encourage a lot of companies to grow more transparent,” Kawasmy said.
According to a 2008 World Bank report discussed during the conference, one of the main obstacles banks encountered in financing smaller businesses is the lack of quality of their financial information.
“Because MSMEs are financed through grants, [IFRS] could not only help them track and monitor their finances but it would also allow them to produce financial statements that can help them access this financing,” Kawasmy noted.
The full IFRS standards are compiled into a 3,000 pages document, whereas local initiatives have developed reduced versions where only the topics and principles relevant to smaller business are listed.
“Accounting standards are not a necessity for MSMEs and if they decide to implement them anyways they need to be tailor-made,” IFRS Education Initiative Director Michael Wells commented on a reaction from the audience refuting the standards as being a “useless burden for MSMEs”.
Developed to bridge the country-wide gaps left by the 185 existing accounting systems, the IFRS have been adopted, or planned to be so, in over 120 countries, offering harmonised financial statements.
“The full IFRS are too heavy to be implemented by MSMEs… and although it can have a positive impact, it can also be too costly for these companies to get an accountant and it also requires technology,” Deloitte Audit Senior Manager Amin Hajar, from Yemen, mentioned as an obstacle to implementing the accountancy standards in SMEs.
An example of adapted documentation was presented at “The Exchange: Strengthening Accountancy as a Foundation for MSME Sector Development and Job Creation” conference, with the 16-pages long accounting and financial reporting guidelines for small and medium-sized enterprises (SMEGA) developed by the United Nations’ Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR).
“Today, MSMEs have to disclose a lot of irrelevant information in their financial statements so applying a set of norms tailored for MSMEs would reduce the volume of work for regulators… the costs and the efforts of trying to apply the full IFRS, “ Kawasmy said.
ESCP Europe Business School professor Joelle Le Vourc’h is currently preparing an e-learning tutorial to help small entrepreneurs learn the basics of accounting as “the small entrepreneurs often focuses on running [their] business and not on the paperwork”.
“Facilitating accountancy trainings for MSMEs would fulfil three goals: Help businesses back into the formal sector, support their growth, and ensure that entrepreneurs have a clear overview over the financial state of their business,” she indicated after her intervention at the conference.
The definitions of micro, small and medium enterprises vary widely across countries, as one of the speakers pointed out, noting that they can variably be categorised according to their size, number of employees or turnover figures.
Meanwhile, their contribution to growth and employment was also highlighted at the conference, with Financial Reporting expert Anthony Hegarty indicating that they can represent up to 40 to 70 per cent of private sector employment and sales alike.
Official figures indicate that over 95 per cent of businesses in Jordan are SMEs, which account for over 55 per cent of domestic exports and contribute by around 50 per cent to the gross domestic product. SMEs also provide nearly 70 per cent of jobs, according to official data.