Cogent Business & Management (Dec 2024)
Firm characteristics and compliance with IFRSs for small and medium-sized entities in developing countries: evidence from Tanzania
Abstract
The impact of firm age, firm size, profitability, leverage and auditor type on compliance with the International Financial Reporting Standards for small- and medium-sized entities (IFRSs for SMEs) was investigated in this study. The foundation of the study was SMEs in Tanzania. However, there is limited evidence on the association between firm characteristics and Tanzanian SMEs’ compliance with IFRSs. Thus, by expanding the use of agency theory to ascertain the link between variables, this study adds to the corpus of knowledge. The research specifically employed a quantitative panel data set of 103 SMEs (412 observations) from the 2018–2021 timeframe which were gathered via audited yearly financial reports and processed using regression models and descriptive analysis. According to descriptive statistics, 42.3% of IFRSs disclosures are being complied with by SMEs in Tanzania. The findings indicate that, for SMEs, there is a strong positive correlation between the extent of IFRSs compliance and firm age, firm size, profitability and auditor type. Furthermore, a weak but negative correlation between leverage and IFRSs compliance was discovered by the study. Therefore, SMEs with robust financial performance and those that are expanding in size and age contribute to the acceleration of IFRSs compliance. Additionally, employing reputable audit firms—such as the Big Four audit firms—helps SMEs comply with IFRSs requirements. Therefore, the National Board of Accountants and Auditors should guide best practices for overseas IFRSs compliance by publishing new policies and evaluating current ones. This is crucial, as a poor level of IFRSs compliance in developing countries highlights the importance of noncompliance issues, which should concern standard-setters, regulators and other stakeholders.
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