UGANDA MARTYRS UNIVERSITY

ASSESSING THE CHALLENGES OF ADOPTING IFRS BY SMEs IN UGANDA

By Muwanika Philip, Anok Patrick, Kaggwa Dennis .S., Kirungi Nancy Banana, Mugagga Joseph, Muraa Constance, Ninsiima Lydia Asiimwe, Omach Deo Olore and Tenywa Patrick
Submitted in Partial fulfillment of the requirement for the award of Master in Business Administration (MBA), Uganda Martyrs University

Supervisor: Mukokoma Maurice.

March 2011
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ABSTRACT
The world over, SMEs contribute 90% of the private sector production and they are prime sources of new jobs in developing countries and play a crucial role in income generation especially for the poor (SME Business Guide 2010). For their progress, SMEs are required to keep books of accounts and several companies irrespective of their size are bound by the statutory rules of a particular country in which they operate to prepare financial reports that conform to specified set of accounting principles. In July 2009 the IASB1 published the IFRS 2 for SMEs 3. The IFRS for SMEs is intended to be applied to the general purpose financial statements of entities that do not have public accountability. The essence of this study, Assessing the Challenges of Adopting IFRS by SMEs in Uganda is to identify the challenges faced by SMEs in Uganda that are using or wish to use IFRS for. Further more, this study will identify the problems that are faced by SMEs in Uganda, in the process of adopting IFRS for SMEs. Lastly, this study will be conducted to check whether SMEs in Uganda prefer to use IFRS for SMEs or the other GAAP 4 by assessing the level of adoption of IFRS. In order to achieve the determined objectives, the study was conducted and a qualitative research employing semi-structured interviews and interview guides was carried out. The Sample was selected based on convenient sampling from the greater Kampala area due to limitations on finances and time resources. Opinions from three different categories of respondents (Consultancy firms, main stream SMEs and Hotels [less than three star] were collected. The data was analyzed using Microsoft office; excel 2007 to obtain tables and figures from which conclusions were made and recommendations as well as areas for further research identified. Based on the qualitative results, the findings exhibit that SMEs in Uganda are not inclined towards IFRS for SMEs and are a long way in adopting these standards. In addition, a large number have even never heard about the IFRS at all let alone using them.

IASB- International Accounting Standards Board IFRS- International Reporting Standard 3 SMEs- Small and Medium sized Entities 4 GAAP- Generally Accepted Accounting Principles
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TABLE OF CONTENTS
ABSTRACT ........................................................................................................................ 1 CHAPTER ONE .................................................................................................................... 3 1.0 INTRODUCTION......................................................................................................... 3 This gives a brief overview of IFRS by SMEs in Uganda in relation to other SMEs . 3 1.1 BACKGROUND ......................................................................................................... 3 CHAPTER TWO .................................................................................................................... 6 2.0 STATEMENT OF THE PROBLEM, RESEARCH OBJECTIVES AND QUESTIONS: ............ 6 2.1 STATEMENT OF THE PROBLEM ................................................................................. 6 2.2 RESEARCH OBJECTIVES ........................................................................................... 6 2.3 RESEARCH QUESTIONS ............................................................................................ 6 CHAPTER THREE .................................................................................................................. 7 3.0 RESEARCH METHODOLOGY ................................................................................... 7 3.1. CHOICE OF THE SUBJECT ....................................................................................... 7 3.2 RESEARCH DESIGN: .................................................................................................. 7 3.3 STUDY POPULATION ................................................................................................. 8 3.4 SAMPLING PROCEDURE .......................................................................................... 8 3.5 DATA COLLECTION AND ANALYSIS ....................................................................... 9 3.6 LIMITATIONS TO THE STUDY ...................................................................................... 9 CHAPTER FOUR ................................................................................................................ 10 4. 0 EMPERICAL FINDINGS AND DISCUSSIONS ......................................................... 10 4.1 INTERVIEWES PROFILES AND CHARACTERISTICS ............................................... 10 4.2. LEVEL OF ADOPTION OF IFRS............................................................................... 11 1

4.3 CHALLENGES IN USING IFRS .................................................................................. 12 4.4 BENEFITS OF USING IFRS BY SMES ......................................................................... 14 CHAPTER FIVE ................................................................................................................... 15 5.0 SUMMARY, CONCLUSIONS, RECOMMENDATIONS AND AREAS FOR FURTHER RESEARCH ..................................................................................................................... 15 5.1 SUMMARY ............................................................................................................... 15 5.2 CONCLUSIONS ....................................................................................................... 16 5.3 RECOMMENDATIONS ............................................................................................ 17 5.4 AREAS OF FURTHER RESEARCH ............................................................................. 17 REFERENCES AND BIBLIOGRAPHY ................................................................................. 18 Annex 1: Interview guide to Consultancy firms, hotels and Selected SMEs & consultancy firms ......................................................................................................... 20 Annex 2: Questionnaire to SMEs ................................................................................ 21

List of tables and figures Table 1: Level of adoption of IFRS by Respondent categories ................................ 11 Table 2: Major Challenges of SMEs in using IFRS.......................................................13 Figure 1: Respondents categorisation........................................................................10

CHAPTER ONE
1.0 INTRODUCTION
This chapter gives an overview of IFRS by SMEs in Uganda in relation to other IFRS for SMEs the world over.

1.1 BACKGROUND
The term Small and Medium-sized Entities (SMEs), has different meanings in different jurisdictions. The definition in the context of the International Financial Reporting Standards (IFRS) for SMEs is entities that do not have public accountability and publish general purpose financial statements or follow generally accepted accounting principles (GAAP). Every entity has some form of accountability, if only to its owners and the local tax authorities. Public accountability is defined to cover entities with or seeking to have securities traded in a public market or that hold assets in a fiduciary capacity as their main business activity. The definition is therefore based on the nature of an entity rather than on its size. In Uganda, 80 percent of all businesses are SMEs and only a handful lives past their first anniversary (World Bank 2009). This is further supported by the absence or under utilization of laid out finance management systems (Traidlinks, 2010). This is further flanked by survey done by ICPAU 5 in Uganda in July 2009 that established that the Complexity of the IFRS; the high cost of full IFRS compliance; insufficient reference material and the lack of qualified accountants in many of the entities are the major hindrances to IFRS adoption/ compliance by SMEs. The IFRS for SMEs was published in July 2009. It is a matter for authorities in each territory to decide which entities are permitted or even required to apply IFRS for SMEs. There are no equivalent under IFRS; Individual countries are each responsible for policing compliance.

ICPAU stands for Institute of Certified Public Accountants of Uganda) 3

Complexity of the standards and the lack of qualified accountants in many of the companies were the biggest hindrances to IFRS compliance. Also the cost of full IFRS compliance is too high, given the lack of sufficient reference material thus hindrance to IFRS application. Globalization (primarily the economic one) is today an incontestable reality that has an important influence on the human condition, socioeconomic and cultural situation of the collectivites. The SMEs have an important position in the world wide economy. The accounting information provided by them must have the same role. We must decide; who are the users of this information, the comparability is compulsory at this level, the harmonisation is required. However, this global accounting standard may represent a very significant step on the path to global convergence of financial reporting practices by SMEs. It will contribute to enhancing the quality and comparability of SME financial statements around the world and assist SMEs in gaining access to finance. We consider that IFRS for SMEs may still be considered too complex for micro entities; however many of the requirements will not be applicable for entities with a more simple business model. International Financial Reporting Standards for small and medium-sized entities (IFRS for SMEs), has clear benefits for investors, lenders and those Seeking to raise finance through the transparency afforded by a consistently applied global set of financial reporting standards. Such benefits are not confined to the financial statements of entities with securities traded on public capital markets. The IFRS for SMEs does not just reduce disclosure requirements; it also simplifies the recognition and measurement requirements for example, in connection with financial instruments. When there is a policy choice, the IFRS for SMEs generally adopts the simpler option. IFRS for SMEs is written so that it is complete in itself and contains all the mandatory requirements for SME financial statements. When reviewing the argument brought to support the necessity of the financial reporting standards for SMEs, we notice the insistent remainder of the financial institutions interest for the financial statements produced by SMEs, a thing that shows the special importance given to this category of users. 4

If generally listed companies apply for financing to the potential share buyers, the unlisted entities do not choose the same path. This happens because, on one side SMEs are not listed and do not have a market where to negotiate their shares. In absence of the stock, a bank loan is much more accessible from all points of view by a person interested in development of a small enterprise. The extent to which IFRS for SMEs has been adopted by businesses in Uganda remains an issue that requires further study especially paying attention to challenging in adoption and empirically identifying the adoption rates.

CHAPTER TWO
2.0 STATEMENT OF THE PROBLEM, RESEARCH OBJECTIVES AND QUESTIONS:
This chapter draws from the background to highlight the direction of the research. It describes the problem statement, objectives of the study and research questions that will guide the research.

2.1 STATEMENT OF THE PROBLEM

IFRS for SMEs was launched in 2009 to address the issues of uniformity, comparability and reliability of accounting standards. They were designed to improve financial reporting and there by advance the development of SMEs. IFRS benefit the SME stakeholders like business owners, government and financing agencies as it emphasizes transparency through consistently applied Global set of financial reporting standards. The adoption of IFRS for SMEs would improve financial reporting by these entities. This in turn positively impacts the company performance given the indispensability of proper accounting systems for SMEs, and thus enable them gain access to finance from financing bodies. However, only a handful of SMEs in Uganda are adopting the IFRS despite the fact that they use it together with the GAAP to suit their individual needs. This study seeks to establish the challenges of adopting IFRS by SMEs in Uganda.

2.2 RESEARCH OBJECTIVES

To identify the level of adoption of IFRS by SMEs To Identify the challenges and benefits of using IFRS by SMEs To make Recommendations in regard to the challenges

2.3 RESEARCH QUESTIONS

To what extent have SMEs adopted IFRS? What are the challenges facing SMEs in Uganda regarding adoption of IFRS? What are the benefits being derived by SMEs adopting IFRS? What are the possible solutions to the challenges?

CHAPTER THREE
3.0 RESEARCH METHODOLOGY
This chapter describes the methodology that was used in conducting the study. It describes the type of methods selected for data collection and analysis from the selected perspective, and the reasons why these methods were chosen in comparison to other alternative methods. The limitations that were encountered during the study have also been mentioned.

3.1. CHOICE OF THE SUBJECT

The choice of subject for our thesis has been based on the concern for the adoption of IFRS for SMEs by SMEs in Uganda. There has been much debates and discussions during the last decade regarding the formulation of a set of standards suitable for small and medium-sized entities. In the effort, IFRS for SMEs was launched by International Accounting Standards Board (IASB). However, not many companies in Uganda like elsewhere in the world have adopted them. The question at the centre of discussion is why SMEs have not embraced these standards if they need them at all. Thus, in order to find the answers to these questions based on empirical observations we have selected this specific subject as our choice of study.

3.2 RESEARCH DESIGN:

There are different types of research designs; experimental, cross sectional, longitudinal, case study and comparative designs (Bryman & Bell, 2007, p.39). The research design that was employed in our study was cross sectional. It is also called social survey design and involves the collection of data on more than one case and at a single point in time in order to collect a body of quantitative or quantifiable data in connection with two or more variables, which are then examined to detect patterns of association (Bryman & Bell, 2007, p. 55). In this design, we use semi structured interviews for the different cases relating to SMEs in Uganda. The variation between these cases is helpful to us and this can only be obtained when more cases are scrutinised. The data means that the 7

respondents are expected to answer most of the questions asked in the interview, and their feedback was collected promptly. Through this data we obtained useful findings which will help us in the representativeness of the sample being studied in relation to the overall population is adequate. We complemented the research by using questionnaires to collect information especially among the main stream SMEs. The key strong point of this study design is thus derived from its representation of the different cases, which we get through analyzing different reactions of SMEs in Uganda to adopt IFRS for SMEs.

3.3 STUDY POPULATION

Given that financials are used by different stakeholders of SMEs, data collection included respondents from: 52 Main stream SMEs 4 Consultancy firms- those that develop the IFRS or other financial documents. 4 Hotels (less than 3*)

The consultancy forms were included because they are from time to time involved in auditing accounts, including those of SMEs. The study was carried out across SMEs in mainly the greater Kampala area targeting finance managers/ accountants, of the SMEs. The focus on Kampala was due to the ease to access these entities. However, some phone interviews were also done especially for SMEs that couldnt be met face to face and as such, the necessity to use interview schedules. The hotels were included due to the growing contribution of the hotel/ service industry to the development of the country.

3.4 SAMPLING PROCEDURE

Sampling was purely based on simple random sampling and companies that fit into the SME category and are located within the 6CBD. The companies that were accessible were considered for the research. In addition, consultancy firms were selected based on first access first interviewed basis.
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CBD- Central Business District

3.5 DATA COLLECTION AND ANALYSIS

On return of questionnaires and information collected using the schedule, the data was ideated to remove editors; summarising of details; preparation of tables and interpretation. Microsoft Office excel was used.

3.6 LIMITATIONS TO THE STUDY

Researchers encountered the following limitations in the study due to time and financial resources, these limitations include; 1. The literature review in this paper only discusses key issues and needs, on the basis of which accounting standards for SMEs were required. It did not take into consideration the details and standards provided in different sets of accounting standards. Explanation of standards in either IFRS for SMEs or GAAP was not discussed in this study, as the accounting standards are self explanatory. This study examined and discussed the challenges SMEs are facing using IFRS but excluded any kind of accounting treatments on financial statements. Due to time and cost limitation the main focus of our study was limited to SMEs in the greater Kampala. For data collection respondent were divided into three categories; main stream SMEs, Hotels and consultancy firms. Given the limited time in conducting the research, not all the questionnaires were recovered (20% was not recovered).

2. 3.

4.

5.

CHAPTER FOUR
4. 0 EMPERICAL FINDINGS AND DISCUSSIONS
In this chapter we will be discussing the empirical findings based on the data being collected from respondents. The empirical findings are based on the tools used acquire the opinions and feedback of the SMEs and their accountants in the real market regarding their perceptions and practical approach towards adoption IFRS for SMEs. All the interviews were conducted face-to-face with the respondents as per their permission and convenience. Based on these empirical findings analysis, discussions and conclusions will be made.

4.1 INTERVIEWES PROFILES AND CHARACTERISTICS

Accountants or head of finance officers or managing directors were contacted during the interviews and although more than one was contacted in some organisations, each company was considered as one respondent. Out of the 65 respondents that were interviewed, only 52 returned their copies and as such the latter will be the area of concentration. The respondents as earlier mentioned included; Mainstream SMEs, Consultancy firms, and Hotels that are less than three stars.
Figure 1: Respondents categorisation

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4.2. LEVEL OF ADOPTION OF IFRS

Given that not many companies world over have fully adopted the use of IFRS, Uganda is not particularly exceptional. Table 1, reflects the level of adoption of IFRS by selected Uganda companies that were part of the research.
Table 1: Level of adoption of IFRS by Respondent categories

Class of business

Fully adopted IFRS No %ge 15% 25% 15%

Partially to adopted No %ge 14 2 1 17 27% 50% 25% 28.3 %

Not adopted No %ge 30 1 3 34 58% 25% 75% 56.7 %

Totals

No %ge 52 4 4 60 100 100 100 100

Main stream SMEs Consultancy firms Hotels (less than 3*)

8 1 -

Total/ percentage of 9 overall classes

Consultancy firms had the highest adoption rates (25% of companies fully adopted the IFRS) compared to other categories. The mainstream SMEs had 15% level of adoption while the hotels had 0% levels of full adoption. The zero adoption to IFRS by hotels is not surprise since the service industries rarely need complex system in their accounting procedures. Given that the consultancy/ service firms had the highest adoption rates, it is not a surprise that they were the mainly run by professionals accountants. As such, service firms tend to be more professionals (most of who prepare and make their own costing). Generally, 15% of all respondents have fully adopted IFRS; 28.3% have partially adopted and 56.7% have not adopted. This supports the usual belief that the large number of Ugandan SMEs has not adopted IFRS in their financial and accounting reporting.

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4.3 CHALLENGES IN USING IFRS

The challenges that SMEs are facing in using IFRS are listed but for analysis purposes, the priority challenges as highlighted by respondents were considered. They are analysed and shown in table2. In general, the respondents highlighted the following as the key challenges: Lack of knowledge on IFRS and qualified staff who have an understanding of operation of IFRS Some of the surveyed SMEs associate the introduction of IFRS with higher internal staffing costs since new staff (certified accountants) will need to be employed and paid highly or current staff which in turn will also be costly. High cost of using IFRS through subscription requirements and other membership fees Culture and attitude of businesses towards the use of IFRS as the companies regard the IFRS accounting principles as overly complex Lack of reference materials like literature is another key challenge. Weak advocacy association/ body like ICPAU (Institute of Certified Public Accountants of Uganda) Lack of practical knowledge on converting from traditional accounting standards to IFRS Limited access to technology like the need to use Broadband internet services.

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Table2: Major Challenges of SMEs in using IFRS

Particulars

Lack of knowledge on IFRS and qualified HR

No %ge

Culture and attitude

High cost in using IFRS

Total

No

%ge

No

%ge

Main stream SMEs Consultancy firms Hotels (less than 3*) Totals

27 2 1 30

51.9% 50% 25% 50%

5 1 2 8

9.6% 25% 50% 13.3%

20 1 1 22

38.5% 25% 25% 36.7%

52 4 4 60

On the whole, 50% of the respondents are challenged by the lack of knowledge on the use of IFRS and lack qualified staff (human resources) that are competent to use IFRS. This closely agrees with the common assumption there exist few qualified accountants although a larger number (more than qualified accountant) actually handle accounts in different organisations. As such, we observe that tying the use of IFRS to professional accountants in counterproductive. The level of adoption of this system could be highly boosted had there been training and sensitisation of the prospective users. In addition, integrating this financial reporting standard into the education system as opposed to limiting it professional accountants could possibly boost adoption of these IFRS. This can be done to expanding the training and exposure to include senior six students (in Entrepreneurship or Economics) will increase knowledge. The respondents in addition mentioned the high cost of using IFRS (through membership requirements, subscription) as a second major challenge (36.7%). This true as companies are required to make double subscription for the international standards body as well as the ICPAU. This calls for a more harmonised system in subscription management. Furthermore, the government could subsidise the subscription by probably contributing 50% of the local subscription to ICPAU. This is based on the win-win situation where proper financial reporting system will assure government of tax and will also provide 13

companies a clearer picture to compare with other businesses in other states as the use of IFRS affords comparability. In the meantime, culture and attitude of the business community also came out as a challenge to adoption of IFRS by SMEs. This calls for further sensitisation of the business fraternity on the benefits embedded in the use proper accounting standards especially IFRS. It goes without mentioning that instituting the mandatory use of IFRS for SMEs will directly persuade their adoption as long as preparation is done and stakeholders involved from the start.

4.4 BENEFITS OF USING IFRS BY SMES

The respondents cited fundamental improvements to the presentation of their capital, financial, and revenue situation. Other benefits included easier access to alternative methods of financing for their businesses and positive effects in their rating by their banks. According to some companies, reporting by IFRS can also provide impetus for internationalization. Some of them expect to become more competitive on international markets in the near future starting with expansion into the East African Common market, then the EAC-COMESA 7SADC 8 tripartite trade/ business arrangement.

7 8

COMESA- Common Market for Eastern and Southern Africa SADC- Southern African Development Community

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CHAPTER FIVE
5.0 SUMMARY, CONCLUSIONS, RECOMMENDATIONS AND AREAS FOR FURTHER RESEARCH
This chapter looks back at the research problem and the objectives which were stated at the beginning of this research. On the basis of it conclusion for this study will be derived, recommendations made and areas for further research highlighted.

5.1 SUMMARY
This study is an attempt to assess the challenges SMEs are facing in adopting IFRS. For this purpose, we interviewed SMES as well as users of IRFs. Our results suggest that a large number of SMEs is not currently using IFRS for SMEs. The users in the SME environment generally require less complex and less sophisticated financial reporting since they are less capital market oriented, this has simplified global trading and improving access to funding by financial institutions The major huddles have been that the change in accounting methods involves some financial and time cost, which can much more difficult for smaller companies, companies had to contend with some unfamiliar accounting, new terminology as well as changes to information systems software and processes. The use of IFRS has its limitations, the major one being that it requires more discretion and that other forms of accounting are more principle based and detailed. IFRS has wider rules and less specific guidance applications, giving more room to interpretation, thus incorporating value judgment of an accountant in its financial report. These value judgments can easily be influenced by incentives a company may have, causing a variety of ways to implement IFRS. This also further interferes with creating a global standard. Most of the respondents opinions were that the IFRS for SMEs would improve financial reporting by many entities. However, the caution was that the IFRS for SMEs may not have a significant impact on the financial reporting process, due to inadequate knowledge about the standard and its application and the fact that the greater focus on the users of SME environment tend to use financial 15

statements to assess the quality of management (effectiveness of strategy, performance etc.) than to reach conclusions about whether to grant credit or not. Therefore, the adoption of the IFRS for SMEs needs to be phased both for the firms themselves as well as for accounting and auditing firms.

5.2 CONCLUSIONS
IFRS for SMEs is intended to be a stand-alone document for a typical small business with approximately 15 to 45 employees, with respect to micro entities with one to three employees. It was considered that external users such as creditors, suppliers, customers, credit rating agencies and employers need certain information, but have no authority to demand reports tailored to meet their needs for information. In this case they must rely on general purpose financial statements and those prepared under IFRS for SMEs to meet their needs. From our study, we conclude that the informational asymmetry is not caused by the financial statements prepared by the small entities, so the adoption of IFRS for SMEs will add a new problem to those that SMEs already have. The study further showed that the small businesses do not need sophisticated accounting and reporting regulations and that any accounting regulating body must recognise differences between larger and smaller business enterprises. The need for universality for small businesses is not sustained in practise because the main users of these financial statements, and implicit of all financial statements are banks and other financial institutions. We also considered that these entities may have the option to prepare the financial statements if the users of the financial information require them.

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5.3 RECOMMENDATIONS
The government needs to empower the local association (ICPAU) through funding to increase awareness and encourage adoption of IFRS through trainings The use of IFRS needs to be mandatory for SMEs and other businesses and widen the net to beyond companies applying for loans. One such example would be to integrate the same alongside Bona Bagagawale program which is mainly targeting Savings and Credit Cooperative Organisations (SACCOS). Although the issuance of the IFRS for SMEs is indeed a giant leap in the right direction, much still has to be done on the accounting standards for the typical smaller entities that are dominant in Uganda. It could probably be necessary to design separate accounting standards for the smaller and micro-entities.

5.4 AREAS OF FURTHER RESEARCH

As this study was only carried out in Kampala (Central Business District). Further research needs to be done out of Kampala to include areas like Jinja, Mbarara and other places where business are operating. This will give concrete information on challenges SMEs are facing in adopting IFRS. Given that everybody is mooting for regional integration, there is need to do a similar research in Kenya or Tanzania. This would provide a broader spectrum of knowledge in terms of how does the majority of SMEs across different countries perceive IFRS for SMEs, and how better equipped they are in terms of adopting these new set of accounting standards. Further research could also be conducted in Uganda in terms of comparing the UK GAAP [commonly used by Ugandan companies] to that of IFRS for SMEs in terms of what are the differences and similarities in the accounting standards in both of the accounting systems. Research can be conducted on the identification of threshold level of those SMEs which could possible adopt the IFRS for SMEs at an optimum level both in terms of cost and benefits as opposed to bull-dozing all SMEs. Further research needs to be done to assess the challenges faced by regulatory authorities to enforce the use of the IFRS for SMEs

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REFERENCES AND BIBLIOGRAPHY

Alexander and Nobes(2007). Financial Accounting an International Introduction,
Analoui, F. and Karami, A. (2003). Strategic Management in Small and Medium Enterprises. 1st edition. London, Great Britain: Thomson Learning. Epstein, B.J. and Jermakowicz, E.K. (2010). Wiley IFRS 2010: Interpretation and Application of International Accounting and Financial Reporting Standards 2010. New Jersey: John Wiley & Sons, Inc. European Commission. (2008). Putting small businesses first: Europe is good for SMEs, SMEs are good for Europe. [Booklet]. European Commission. Ghauri P. and Gronhaug K (2005). Research methods in business studies: a practical guide. 3rd Edition. New Jersey: Prentice Hall. International Accounting Standards Board. (2009). Basis for Conclusions: IFRS for SMEs. (2009). [Booklet]. London: IASB. International Accounting Standards Board. (2009). International Financial Reporting Standards (IFRS) for Small and Medium-sized Entities (SMEs) by International Accounting Standards Board (IASB). London: IASB. Lippitt, J. & Oliver, B. (1983). Big GAAP, Little GAAP: Financial Reporting in the small business environment. Journal of Small Business Management. Lungu, C. Caraiani, C. & Dascalu, C. (2007). New Directions of Financial Reporting within Global Accounting Standards for Small and Medium-Sized Entities. Nelson, M.W. (2003). Behavioral evidence on the effects of principles- and rules-based standards (commentary). Accounting Horizons. Organization for Economic Co-operation and Development (OECD). (2006). The SME Financing Gap (Vol. 1): Theory and Evidence. France: OECD Publishing. Rundfelt, R. 2007. Accounting Standards for unlisted entities: Do we need special accounting standards for unlisted entities and, if so, what should they look like? Taylor, D.W. (2009). Costs-benefits of adoption of IFRSs in countries with different harmonization histories. Asian Review of Accounting.

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Traidlinks; Report on the status of Ugandan Manufacturing companies 2010. Tyrrall, D., Woodward, D. and Rakhimbekova, A. (2007). The relevance of International

Uganda Investment Authority 2008-Small and Medium Enterprises Business Guide

Wittsiepe, R. (2008). IFRS for Small and Medium-sized Enterprises: Structuring the Transition Process. 1st Edition. World bank Report 2009

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Annex 1: Interview guide to Consultancy firms, hotels and Selected SMEs & consultancy firms
1. What kind of accounting standards are followed by SMEs in Uganda 2. What is your opinion regarding the launch of the International Financial Reporting Standards (IFRS) for SMEs in 2009. 3. It has been stated that IFRS for SMEs will bring quality and comparability to the financial statements f SMEs. What is your opinion of this? 4. According to you, who are the users of financial statements of SMEs? 5. How do you see the approach of SMEs in Uganda toward their willingness to adopt IFRS for SMEs. 6. How often do SMEs wish to use accounting standards in their financial reports. 7. Do you agree/disagree that harmonised accounting standards increases market efficiency and reduces cost of raising capital. 8. Do you think the first time adoption of IFRS for SMEs will cost the SMEs both in terms of time and resources? 9. Do you think the benefits of IFRS for SMEs in the later stages outweigh the initial costs incurred? 10. It has been stated that IFRS for SMEs would ease the job for banks in making their lending decisions and monitoring the loan agreement. What is your opinion? 11. Uganda Revenue Authority needs financial statements for the calculation of taxes. Comment. 12. Do you think it will economically favourable for SMEs to be imposed with a statutory regulation to use IFRS for SMEs in the financial statements? 13. Do the SMEs that borrow from financial institutions use IFRS for SMEs in the presentation of their financials?

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Annex 2: Questionnaire to SMEs

The researcher is conducting a survey on challenges SMEs face in adopting IFRS for SMEs in Uganda. Your company has been identified in the study sample. It is a privilege to have you as a participant in the study. I request you to cooperate in responding to the questions posed below. The research is purely for academic purposes. A. GENERAL INFORMATION Name of company Title of the Respondent Level of qualification .............................................. ..............................................

B: Use of IFRS: Do you (or company) have knowledge of any financial management/ reporting system?
................................................................................................................................ .................................................................................................................................

Which accounting reporting system is your company using currently? a) IFRS b) GAAP c) Others please specify......................... If you are currently using IFRS, How do you find their use compared to other standards
................................................................................................................................ .................................................................................................................................

What advantages to you see in the use of IFRS instead of others standards? ...... ................................................................................................................................ As an owner of a business, are you satisfied with the current reporting standards 21

If you are not satisfied, why?

...... ................................................................................................................................ .......................................................................................................................... ................................................................................................................................ .................................................................................................................................

C. Challenges SMEs are facing in using IFRS

Mention 5 of your major challenges you (or your company) has faced in using IFRS
................................................................ ................................................................ ................................................................. ................................................................ ................................................................. ................................................................ ..................................................................................................................................

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