Developing countries and their needs

The IASB said it was developing the SME standard for both SMEs in developed and developing economies, but the Discussion Paper asked no questions specific to developing countries. Further, the staff summary prepared by the IASB based on responses to the Discussion Paper did not report any comments about developing countries (Ram, 2012). However, comments on the Discussion Paper highlighted issues of accessibility, comprehensibility, language barriers and the applicability of international accounting standards to developing countries. There was also a call to

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involve developing country professional bodies in the project (Singh & Newberry, 2009). Respondents to the Staff Questionnaire argued that the recognition and measurement requirements arising from fair value accounting were complex and burdensome because developing countries lacked active markets, expertise, and resources. Although the ED did not seek responses on developing country issues, 19 submissions mentioned these concerns. Five of these submissions were from developing countries, 10 from developed countries, three from international organisations, and one from an international accounting firm. Table 10 provides a summary of responses to ED of the accounting standard IFRS for SMEs commenting on developing countries.

Eight respondents to the ED commented that developing countries lacked active markets to allow fair value determinations of most of their assets. For example, the International Network of Accountants and Auditors (2007, p. 10) highlighted that “many SMEs, particularly in emerging economies, do not have access to working markets from where they could obtain information regarding the fair value of their assets”. Others argued that some developing countries do not have the support of specialists needed to assist in fair value determination, thus potentially undermining the credibility and reliability of information through lack of precision and excessive subjectivity (International Federation of Accountants, 2007; Singh & Newberry, 2009; South African Institute of Chartered Accountants, 2007).

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Table 9 : Summary of responses to Exposure Draft IFRS for SMEs commenting on developing countries

Organisation _{Country Affiliation} Developing _countries’ needs Small entities Lack of market Lack of expertise/ resources Language barrier Access to IFRS

Responses from developing countries University of Cape Town South

Africa Academic X

Fiji Institute of Accountants Fiji Professional

Body X

South African Institute of Chartered Accountants

South Africa

Professional

Body X

Malaysian Accounting Standards

Board Malaysia

Standard

Setter X

Federation Argentina de Consejos Profesionales de Ciencias

Economicas

Argentina Professional

Body X X

Responses from developed countries, international organisations and accounting firms Inter-American Accounting

Association Canada/US

Professional

Body X

Institute of Chartered Accountants

of Scotland UK

Professional

Body X

New York Society of CPA’s US Professional

Body X

Certified General Accountants

Association of Canada Canada

Professional

Body X

Ernst & Young Global Accounting

70 Table 9: continues

Organisation Country Affiliation

Developing countries’ needs Small entities Lack of market Lack of expertise/ resources Language barrier Access to IFRS Consiglio Nazionale dei Dottori

Commercialisti and the Consiglio Nazionale dei Ragionieri

Italy Professional

Body X

Association of Chartered Certified

Accountants (UK) UK

Professional

Body X X

International Network of Accountants and Auditors UK

Professional

Body X X

European Accounting Association EU Regional

Body X X

The Confederation of Asian and Pacific Accountants

Regional

Body X X X

Hong Kong Institute of Certified

Public Accountants Hong Kong

Professional Body X International Federation of Accountants International Body X X

Institute of Chartered Accountants

of Barbados Barbados

Professional

Body X X X

London Society of Chartered

Accountants UK

Professional

Body X

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Six respondents commented on the applicability of IFRS for SMEs to small entities in developing countries (Singh & Newberry, 2009). The Hong Kong Institute of Certified Public Accountants (2007) and Association of Chartered Certified Accountants (2007) argued that the proposed IFRS was not for small entities at all, but rather was directed at medium-sized non-publicly accountable entities. As a consequence, the International Federation of Accountants (2007, p. 4) state that “it may prove ill-suited on cost-benefit grounds for application by the great majority of small entities that produce general purpose financial statements for external users, especially those operating in developing nations”.

Six respondents suggested developing countries may lack the resources, expertise, and access to information necessary to prepare financial statements in accordance with the IFRS (International Network of Accountants and Auditors, 2007). The ED’s cross-references to the IFRS would, therefore, increase the burden on those in developing countries because they would need to know the IFRS to apply the SME requirements (Confederation of Asian and Pacific Accountants, 2007).

Several submissions highlighted specific consideration of developing countries’ needs. The ED omitted simplifications of several matters including hyperinflation and agriculture because these were deemed not relevant for SMEs. The IASB proposed cross-reference to the IFRS, if SMEs should encounter such issues. Ernst & Young (2007)argues that those matters are relevant in developing countries, and therefore that simplified accounting guidance on accounting in hyperinflationary economies and on agriculture is necessary. In this context, Institute of Chartered Accountants of Barbados (2007, p. 1) notes:

The burden of complying with full IFRS is clearly greater for SMEs in developing markets operating in emerging economies. The SME standards as drafted do very little to reduce this burden. The Board’s concern in the SME accounting project should be to develop standards for those jurisdictions where the need is greatest and not for jurisdictions which already have their own standards and standard-setting bodies.

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