Research Insights—A Study of Countries’ Adoption of IFRS for SMEs

Maximilian Koch, Devrimi Kaya | April 21, 2015 |


Devrimi Kaya and Maximilian Koch. “Countries’ Adoption of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) – Early Empirical Evidence.” Accounting and Business Research 45, no. 1 (2015): 93-120. 

DOI: 10.1080/00014788.2014.969188


What are the determinants that explain adoption of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) at the country level?


In July 2009, the International Accounting Standards Board (IASB) issued the IFRS for SMEs, which focuses on general purpose financial statements of entities that do not have public accountability. According to the IASB, 95% of all companies worldwide are eligible to use the IFRS for SMEs. Despite the economic importance of non-publicly accountable entities, little is known about what factors influence countries’ decisions to adopt the standard. The study, based on the IASB’s jurisdiction profiles covering 128 countries around the world as of 2013, is among the first research that examines the worldwide diffusion of the IFRS for SMEs.


The study found that out of the 128 sample countries, 65 countries have not adopted the standard, while 63 countries have adopted it.

The adopting countries are predominantly located in Latin America and the Caribbean (27 jurisdictions), followed by Sub-Saharan Africa (14 jurisdictions), Europe and Central Asia (7 jurisdictions), and Middle East and North Africa (6 jurisdictions). In general, these countries have adopted the IFRS for SMEs on a voluntary basis without making any modifications to the standard. Only six countries require the application of the IFRS for SMEs (e.g., Chile, Serbia, Venezuela).

The group of non-adopting countries is dominated by the European Union (EU) Member States. As of 2013, no single EU Member State has adopted the standard. According to the study, incompatibilities between the EU Accounting Directive and the IFRS for SMEs limit EU Member States’ ability to adopt the IFRS for SMEs as issued by the IASB. For instance, the requirement to presume the useful life of goodwill to be ten years if an entity is unable to make a reliable estimate of the useful life (IFRS for SMEs 19.23) is not compatible with the Accounting Directive. Accordingly, either EU Member States adopt the IFRS for SMEs with modifications or they converge their national GAAP with IFRS for SMEs to comply with the requirements of the Accounting Directive.

Currently, the IASB’s overall objective to develop and promote globally accepted accounting standards has not been met entirely.

In order to validate the univariate findings, the authors applied logit regression models to assess the likelihood of adoption of the IFRS for SMEs at the country level. The results show that countries that are not capable of developing their own local GAAP are more likely to adopt the IFRS for SMEs. There is also evidence that in jurisdictions where full IFRS have been applied to private firms, the likelihood of adoption of the IFRS for SMEs increases, suggesting that these jurisdictions have aimed to reduce the financial reporting burden on SMEs. Further, the results show that less developed countries, measured by a governance index, are more likely to adopt the standard. More broadly, the results of the study suggest that developing economies can facilitate their ability to attract loans from international organizations like the World Bank or the International Monetary Fund by adopting the IFRS for SMEs.

Limitations and Outlook

Overall, the study highlights important differences with respect to the adoption patterns (e.g., geographical diffusion, application form) of the IFRS for SMEs compared to the adoption of the full set of IFRS. The authors acknowledge that the diffusion of the IFRS for SMEs is an ongoing policy debate and, therefore, it might be too early to draw definitive conclusions. Since more countries are likely to adopt the IFRS for SMEs in the near future, the results of this study may change too. In countries where private firms are required to disclose financial statements based on the IFRS for SMEs, future studies could analyze the determinants and economic consequences of adoption of the IFRS for SMEs at the firm level.


Maximilian Koch

Attorney, Siemens AG

Maximilian Koch Ph.D., M.B.A., is an attorney. Mr. Koch received his doctorate from the University of Erlangen-Nürnberg (Germany). His research has been published in international peer-reviewed journals such as Accounting and Business Research. In practice, he has 9 years of experience as attorney-at-law, contract manager and operational auditor at Siemens AG, primarily specialising in risks and opportunities of project business.

Devrimi Kaya

Assistant Professor of Accounting, University of Erlangen-Nürnberg (Germany)

Devrimi Kaya is an Assistant Professor of Accounting at the University of Erlangen-Nürnberg (Germany). Devrimi Kaya’s research interests broadly relate to financial reporting, corporate disclosure strategies and the worldwide adoption of International Financial Reporting Standards (IFRS/IFRS for SMEs). His research has been published in international peer-reviewed journals such as Accounting Horizons and Accounting and Business Research. Devrimi Kaya was a Visiting Scholar at the Accounting Department of the University of Washington in Seattle. In practice, he worked for an international auditing firm.


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