INTERNATIONAL FINANCIAL REPORTING STANDARD FOR SMALL AND

MEDIUM SCALE ENTERPRISE IMPLEMENTATION AND FINANCIAL

REPORTING QUALITY OF SMALL AND MEDIUM SCALE ENTERPRISE

Oluwatoyin Deborah ADEYEMO

MATRIC NUMBER: 170601030

A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING,

FACULTY OF ADMINISTRATION AND MANAGEMENT SCIENCES, ADEKUNLE
AJASIN UNIVERSITY AKUNGBA - AKOKO, ONDO STATE. IN PARTIAL
FULFILMENT FOR THE AWARD OF BACHELOR OF SCIENCE (B.Sc.) IN
ACCOUNTING.

Supervisor: Dr. Igbekoyi O.E.

March, 2023.
 DECLARATION

I, Oluwatoyin Deborah ADEYEMO with matriculation number 170601030, declare that

this research was carried out under the supervision of the Department of Accounting, Faculty
of Administration and Management Sciences, Adekunle Ajasin University, Akungba -
Akoko, Ondo State. I declare that this project has not been presented either wholly or partially
for the award of any degree elsewhere.

Oluwatoyin Deborah ADEYEMO ______________________

Signature / Date

i
 CERTIFICATION

This is to certify that Oluwatoyin Deborah ADEYEMO with matriculation number

170601030 carried out this research project under our supervision in the Department of
Accounting, Faculty of Administration and Management Sciences, Adekunle Ajasin
University Akungba Akoko, Ondo State, Nigeria.

_______________________ __________________

Dr. Igbekoyi O.E. Date

(Supervisor)

_______________________ _________________

Dr. Alade M.E. Date

(Head of Department)

ii
 DEDICATION

This Research Project is dedicated to God, the creator of heaven and earth, the one who
gave me the grace and power to complete my Bachelor's degree programme.

iii
 ACKNOWLEDGEMENTS

I give praise to God Almighty, for his help throughout my academic program in Adekunle
Ajasin University and also for His enablement in completing this research project despite all
odds.

My sincere gratitude goes to my supervisor, Dr. Igbekoyi O.E. for her motherly love and
care, guidance and tolerance throughout the course of this research project. She demonstrated
intense interest in my research work by taking the pain of reading through it and making
necessary corrections and several useful suggestions at every point of this research work. God
bless you and your family abundantly.

My appreciation also goes to Dr. Alade M.E., head of the department of accounting, Prof.
Felix Olurankinse, Dean of faculty of Administration and Management sciences and other
lecturers in the department; Dr. Oladutire E.O., Dr. Agbaje W.H., Dr. Adegbayibi A.T., Dr.
Adeusi S.A., Mr. Olabisi O.S., Mrs. Odugbemi O.M., Mr. Aiyesan O.O., Mr. Adegboyegun
A.E., Mr. Oloruntoba S.R., and Dr. Ologun O.V.

I sincerely appreciate my supportive families: both biological, relational and spiritual; My

parent, Mr. & Mrs. Samuel Adeyemo, Mr.Olusola Raphael Abegunde, Miss Funmi Adelabi,
Barr. Arowojolu Mercy, Abiodun Jombo, Mrs.Toluwalope Akinfolarin, Amokaye Abel
Olumide and all members of Baptist Student Fellowship, Adekunle Ajasin University,
Akungba Akoko. Thanks for been supportive, I am immensely grateful.

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 TABLE OF CONTENTS

Title page i

Declaration ii

Certification iii

Dedication iv

Acknowledgements v

Table of contents vi

List of Tables ix

List of Abbrevations x

Abstract xi

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study 1

1.2 Statement of the Problem 2

1.3 Research Questions 4

1.4 Objectives of the Study 5

1.5 Research Hypothesis 5

1.6 Significance of the Study 6

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1.7 Scope of the Study 6

1.8 Operational Definition of Terms 7

CHAPTER TWO: LITERATURE REVIEW

2.1 Conceptual Review 8

2.1.1 International Financial Reporting Standard Implementation 8

2.1.2 Trend of IFRS implementation among SMEs 9

2.1.3 IFRS Implementation and financial reporting quality 10

2.1.4 Small and medium sized entities 11

2.2 Theoretical review 12

2.2.1 Stakeholders theory 12

2.2.2 Agency theory 13

2.2.3 Institutional Theory 14

2.3 Empirical Review 15

2.4 Gap in Literature 24

CHAPTER THREE: METHODOLOGY

3.1 Research Design 26

3.2 Source of Data 26

3.3 Population of the Study 27

3.4 Sample size and Sampling Technique 27

3.5 Research Instrument 27

3.6 Reliability & Validity of Research instrument 27

3.7 Measurement of variable 29

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3.8 Data Analysis Technique 30

CHAPTER FOUR: DATAPRESENTATION, ANALYSIS AND

DISCUSSION OF FINDINGS

4.1 Descriptive Statistics 31

4.1.1 Demographic Information of Respondents 32

4.2 Full implementation of the provisions of IFRS for SME 33

4.3 Level of consistency in the implementation of IFRS by small

and medium sized entities in Ondo State 35

4.4 The effect of IFRS for SME implementation on financial

reporting quality of SMEs in Ondo State 38

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATIONS

5.1 Summary 40

5.2 Conclusion 41

5.3 Recommendations 41

References 43

Appendix 46

vii
 LIST OF TABLES

Tables Pages

3.6 Reliability and Validity of Research Instrument 28

3.7 Measurement of variables 29

4.1.1 Demographic information of respondents 32

4.2.1 Full implementation of the provisions of IFRS for SME 34

4.3.1 Level of Consistency in the implementation of IFRS

by SME in Ondo State since its adoption in 2012 36

4.4.1 Regression analysis on the effect of IFRS implementation

and financial reporting quality of SME 39

viii
 LIST OF ABBREVIATIONS

IASB International Accounting Standard Board

IFRS International Financial Reporting Standard

IFRS for SME International Financial Reporting standard for Small and
Medium Scale Enterprise

SME Small and Medium Scale Enterprises

SMEDAN Small and Medium Sized Entities Development Agency of Nigeria

UNIDO United Nations International Development Organization

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 ABSTRACT
The failure of SME had been associated with lack of access to credit facilities for growth and
expansion. The inability to access credit facilities had been linked with the inability of SME
to present a good financial and non-financial information. Lenders of funds places so much
importance on the quality of information when granting loans to borrowers of fund.
Undoubtedly, the continuity or closure of any business depends on keeping accurate, timely
and reliable information that can help access the financial position and performance of an
entity. It is in this light that this study investigated IFRS implementation and financial
reporting quality of SME in Ondo State.
The study used the survey research design, the population of the study includes One hundred
and ninety - four (194) medium scale enterprise in Ondo State according to SMEDAN,
(2019). One hundred and three (103) medium scale enterprise were sampled the provisions of
IFRS. Findings also showed that medium scale Enterprises are not consistent in implementing
the provisions of IFRS since its adoption in 2012. Lastly, findings revealed that the
implementation of IFRS will have positive effect on finacial reporting quality of SME.
The study concluded that the implementation of IFRS improves the financial reporting quality
of SME. The study therefore recommends that efforts should be made by government to
establish a committee who will examine the financial reports of SME at government year-end
in order to punish erring SME.

x
 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The introduction and adoption of the International Financial Reporting Standard (IFRS)

for small and medium scale enterprise (SME) came with high expectations and all

stakeholders are optimistic about how its implementation will enhance the financial reporting

quality of SME. The standard was introduced to curtail poor financial reporting practices

among SME, aid comparability of financial statement and enhance global competitiveness.

Poor financial and non - financial reporting practices has been identified among SME

globally especially in developing countries (Ball et al., 2018). An entity in implementing

IFRS for SMEs will incur costs in training experts, updating their information and financial

reporting system, hiring experts to assist in the transition from their local generally acceptable

accounting principle to IFRS for SME. This among other reasons has been identified as the

major reason some SME have not comply with the standard.

The sustained crisis has not left Nigeria out, the failure of SME has been associated with

poor financial management and book - keeping amongst others. Accessing credit facilities

depends largely on the quality of financial and non - financial information provided by an

entity. Most bank and non - bank institutions prefer to lend resources to listed companies

rather than SME. This is because, SME lack a good information infrastructure and the

financial industry requires quality information before granting credit facilities to borrowers of

fund. The lack of a good information infrastructure by SME compounds the information

asymmetry problem. The increase in accounting scandals in the early 21st century pointed to

1
the weakness in financial reporting quality. Financial Reporting Council of Nigeria (June,

2015) found out that SME investors view financial reporting quality to be a key factor in

investment decision, while small and medium sized enterprise directors perceive the financial

report to be a mere exercise of compliance.

Financial reporting practice is a vital part of any entity, as it does not only enable entities

keep track of their financial transactions, but is equally a legal obligation in many countries

particularly for tax purposes. IFRS for SME has developed by the International Accounting

Standard Board (IASB) contains rules and guidelines on measurement, recognition and

disclosure of various line items in the financial statement. It explained how an entity is

expected to structure its financial statement to meet international standard and aid global

competitiveness. The standard provides insight by acting as a catalyst to help manager and

accountant have deeper understanding of how a good financial report should be prepared and

presented. IFRS for SME is less complex in a number of ways; topics not relevant to SME are

omitted, significant fewer disclosures are required.

The quality of financial report is of dominant importance to users of information as it

affects their economic decision making. Financial Reporting quality is a broad concept that

does not only refer to financial information, but also disclosures and other non - financial

information that is relevant for decision making. An entity without a good system of financial

reporting can be regarded as a body without a soul. If this shared belief breaks down, then

corners will be cut, management will become complacent and users of information will lose

confidence in an entity and its financial information. Having considered all of this, this study

aims to examine whether the implementation of international financial reporting standard for

SME has improved the financial reporting quality of SME.

2
1.2 Statement of the Problem

Over the years, poor financial reporting practice has been identified among SME.

Failure of SME has also been attributed to improper and inadequate financial reporting

practices which hinder timely and profitable decision making. However, it is documented that

most SMEs owners have poor record-keeping behavior. Supporting that view, (Howard,

2019) argued that non-adoption of financial reporting techniques such as external auditing,

taxation planning; non-application of accounting practices such as cost and management

accounting principles among others have led to major problems. Poor internal accounting

practice of some SME will eventually lead to poor planning, excessive expenses, lack of

control, low collection of trade receivables, and poor record-keeping which ought to be

monitored for effective decision making.

Regardless of the lofty potentials and various efforts by governments at different levels

as well as other development agencies such as United Nations International Development

Organization (UNIDO) and Small and Medium Enterprises Development Agency of Nigeria

(SMEDAN) to create a vibrant SME sector. Poor performance and the high mortality rate has

continued to be the bane of the sector in the country. Poor business performance among these

categories of entities has derailed the macro-economic objective of developing nations where

SME constitute a greater proportion of all business activities in the economy.

The problem of poor financial reporting practices among SME affect their performance

and survival in the long run, the continuity or closure of any business depends on keeping

accurate, timely and reliable information that can help to assess the position of an entity. Poor

financial reporting practices among SME result into lack of a good information structure.

SME often under rate the importance of preparing and presenting a comprehensive and

3
quality financial report (Olurinola, 2019). The lack of good financial and non-financial

information by SME compounds the information asymmetry problem. Usually, the financial

market place so much importance on information when a borrower want to source for fund.

Lack of a sound information infrastructure has restrained the SME sector from assessing

fund, this has in turn limit their possibility of growth and expansion.

The primary reason why small businesses fail is a lack of funding or working capital

which is mostly as a result of lack of good financial and non-financial Information. This leads

to funding shortfalls that can quickly put small businesses out of operation. SME face

challenges in terms of obtaining financing as finances is needed in order to bring a new

product to market, fund an expansion, or pay for ongoing marketing cost. While investors,

venture capitalists, and conventional bank loans are among the funding sources available to

small businesses, not every SME has the financial and non-financial information needed to

secure major financing from them. Without an influx of funding for large projects or ongoing

working capital needs, small businesses are forced to close their doors.

Adebayo, (2019) suggested that training should be organized for accountants and owners

of SME on proper understanding and implementation of the standard. Also, Adegbite and

Adewoye, (2019) recommended that channel of funding be diversified by establishing private

SME lenders. Inspire of these recommendations, a number of SME still does not prepare and

present a good financial report. Despite the growing number of studies on the benefits and

challenges of adopting IFRS for SME on possible solutions to curb poor financial reporting

practices among SME, studies have not been carried out on how the implementation of IFRS

for SME has improved the financial reporting quality of SME.

4
This study seeks to answer the question of whether SME has fully implements the provisions

of IFRS in the preparation of their financial reports and whether they have been consistent in

its implementation. In light of the above, the study takes quite a different turn from majority

of existing literatures, by examining the impact of IFRS on financial reporting quality of

SME.

1.3 Research Questions

The research questions that are asked based on the research problem are:

i. To what extent does the financial statement prepared by SME meet statutory

requirement?

ii. To what extent do SME in Ondo State implement the provisions of IFRS in the

preparation of their financial report?

iii. How does the implementation of IFRS improve the financial reporting quality of

SME when compared to their previous style of reporting?

1.4 Objectives of the Study

The broad objectives of this study is to assess whether the implementation of IFRS for

SME has improved the financial reporting quality of SME in Ondo State.

The specific Objectives are to:

i. investigate whether SME in Ondo State has fully implement the provisions of IFRS in

the preparation of their financial report.

ii. determine the level of consistency in the implementation of IFRS by SME in Ondo

State since its adoption in 2012.

5
 iii. determine the effect of IFRS implementation on financial reporting quality of SME in

Ondo State.

1.5 Hypotheses of the Study

To achieve the stated objectives, the hypothesis below will be tested in the course of the

study.

HO₁: The implementation of IFRS does not have significant effect on the financial reporting

quality of SME.

1.6 Significance of the study

With the significant contribution been made by SME to the Nigeria economy, this study

on IFRS for SME is poised to determine whether the implementation of the standard has

improved the quality of SME financial report. Precisely looking at the financial reporting

practice of SME in Ondo State, there is a dearth of studies in this area. Therefore it will be of

paramount importance to add with empirical evidence to the literature which already exist on

the effect of implementing IFRS. This study will be of good benefit to SME manager/ policy

makers, the society and the academia.

It will be of great benefit to managers of SME because preparation and presentation of

financial report is the main way through which companies communicate with investors and

stakeholders. The study will enable policy makers/accounting standard setters know the

extent to which accounting standards enhances the reporting quality of business entities.

6
 The study will help the society such as investors and users of financial information to

determine whether IFRS has enhanced reporting consistencies, global competition, and

improved financial reporting transparency. Financial statement users will know what to look

out for when assessing financial statement of entities which will enable them make an

informed decision based on the nature of the financial statement presented. It will also serve

as a useful reference in the Academia for researchers carrying out research in the study area.

1.7 Scope of the Study

The study is within the area of Implementation of IFRS and financial reporting quality

of small and medium sized entities in Ondo State. The study captures 194 medium sized

entities in Ondo State (SMEDAN, 2019), data will be collected from owners and managers

directly through the use of questionnaire.

1.8 Operational definition of terms

For easy comprehension of this research work, the following terms have been defined as it

applies in the context of use in the study.

Small and Medium Scale Enterprise (SME): The Small and Medium Scale Enterprise

can be characterized into three categories; micro, small and medium scale enterprise. Micro

enterprise are enterprise with total asset value, (excluding land and buildings) of less than ₦5

million with a total workforce of less than 10 employees. Small scale enterprise are those with

total assets value, (excluding land and buildings) above ₦5 million but not exceeding ₦50

million with a total workforce of between ten (10) to forty-nine (49) employees, while

medium scale enterprise are those with total assets value (excluding land and building) above

7
₦50 million, but not more than ₦500 million with a total workforce of between 50 and 199

employees (SMEDAN, 2019).

Financial Reporting Quality: The quality of financial reporting depends on how reliable

the financial report is for the users to make decisions on an entity financial position and

performance. A quality financial report provides useful information which is relevant to

ascertain the economic state of an entity financial position and performance at the end of the

period, usually a year. The qualitative characteristics of a quality financial report that will be

examined are relevance, timeliness, and faithful representation.

International Financial Reporting Standards (IFRS): International Financial

Reporting Standard for small and medium scale enterprise is a standard issued specifically for

use by SME, the standard is organized by topic, with each topic presented in a separate

section.

CHAPTER TWO

LITERATURE REVIEW

This chapter discuss the conceptual review of literatures, theoretical review of theories

and empirical review of existing literatures. The gap in literature is also discussed thereafter.

2.1 CONCEPTUAL REVIEW

2.1.1 International Financial Reporting Standard Implementation

IFRS Implementation is an accounting process which goes far beyond an ordinary book

keeping exercise. It rather represents reporting framework which requires a lot of professional

8
inputs. These inputs include changes in design, program and data that are being reported. It

entails re-evaluation and computation for compliance. According to Mary, Okoye and

Adediran, (2018), the aim of implementation is to ensure re-alignment of internal and external

governance and bring the needed corrections to internal audit. Globalization has necessitated

the need for intensive research in both mandatory and voluntarily IFRS adoption so as to

bring in the needed change, and focus on a more value creation.

IFRS for SME is a modified and simplified version of full IFRS aimed at meeting the

needs of SME financial Reporting and easing the financial reporting burden on SME through

a cost - benefit approach IFRS for SME in itself is an independent global financial accounting

and reporting standard that can be applied in the preparation of general purpose financial

statements and other financial reporting by SME. IFRS for SME was established with focus

on the needs of a typical mid-size entity, IFRS for SME may be used by any non - publicly

accountable entity regardless of Size.

2.1.2 Trend of IFRS implementation among SME

According to Stain bank, (2018) South Africa is the first country in the world to adopt the

IFRS for SME. It was first adopted in its draft form. In the work of Stain bank, it was

concluded that the major reason for the adoption of the draft IFRS for SME was the urgent

need for auditors to express an opinion on financial statements which are prepared in

accordance with an accepted framework of the auditing profession in South Africa. The

second major reason for the adoption was to provide a beneficial framework for the

preparation of the financial statements.

9
 Alali and Cao, (2019) conducted research in Ireland and explored IFRS relevance for

small businesses at different scales. The findings of the study indicated that there was no

significant relationship between scale and assessment of accounting methods. This shows that

the IFRS for SME was suitable for all types of business scales. However, it still had the

complexity, novelty and very strict regulations on information disclosure in terms of quantity

and quality of information, deadlines and responsibilities for information.

Atik, (2021) investigated the awareness of owners, managers or accountants of IFRS in

Turkey. The findings showed that SME often made financial statements for tax purposes.

Small businesses want to adopt new standards voluntarily and international investors also

supported small businesses in applying IFRS.

Nerudova and Bohusova, (2019) found that the Czech Republic is a country that has

applied IFRS, and the study concluded that IFRS was really not suitable for SME, therefore

causing a waste of resources. Nerudova discovered that the main problem would be the

relevance of IFRS for all types of SME in the implementation process. According to their

research, the first application of IFRS for SME would be costly and time-consuming for small

and medium enterprises in the Czech Republic. On the other hand, the profit was expected to

exceed IFRS cost for the implementation of small and medium enterprises. IFRS for SME

implementation in Nigeria will be hindered by the various problems of SME in the Country.

Findings revealed that the challenges of SME in Nigeria should be attended to before the

adoption of IFRS. The study concludes that despite the cumbersomeness and the

anticipated problems of IFRS adoption and challenges of SME in Nigeria, SME should

convert to IFRS.

2.1.3 IFRS Implementation and Financial Reporting Quality

10
 The quality of financial report determines, and depends on the relevance of accounting

information provided by the financial statement. It is essential to provide high-quality

financial report to influence users in making investments decisions, and to enhance market

efficiency. Providing ideal methods for assessing the quality of financial reporting is a global

demand. The higher the quality of financial reporting, the more significant are the benefits

gained by investors and users of the financial reports. The application of objectives and

qualitative characteristics should lead to high-quality accounting standards, which in turn lead

to high-quality financial reporting information that is useful for decision making (IASB,

2015).

The International Financial Reporting Standards are playing a crucial role in global

financial reporting as they are increasingly being adopted by many countries. The financial

reporting formation and adoption of IFRS enable investors, organizations, and governments

to compare financial statements from various sources supported by IFRS with more ease.

According to the Conceptual Framework, financial statements prepared according to IFRS

should have fundamental and improving qualitative characteristics. Fundamental qualitative

characteristics include relevance; faithful representation. Fundamental characteristics are

binding characteristics of quality reporting of financial information. If the financial statement

of the company does not satisfy at least one of them, it cannot be of a high quality.

2.1.4 Small and Medium Scale Enterprise

International Accounting Standards Board (IASB) defined SME as entities that do not

have public accountability and prepare general purpose financial statements for external

users. Holgate (2019) stated that by "public accountability", the IASB mean listed companies.

Therefore, a non - listed private company, however large would be regarded as SME under

11
this approach. The definition of SME differs with jurisdiction and there is no consensus on

the real definition of SME as the terms 'Small' and 'Medium' are relative and they differ from

industry to industry and country to country. Besides, no single definition can reflect the

difference between firms, sectors and countries due to varying level of development (Holt,

2019). Ekpenyong and Nyong (2021) claimed that there is no generally accepted definition of

SME because the classification of business into small or medium entities is subjective and of

qualitative judgement.

SME are recognized in the Nigerian economic policies and programs as a growing

business with major contribution to economic growth and development. This is especially in

the area of income generation, poverty reduction, employment generation, and provision of

both consumables and industrial goods with the fact that a small amount is needed to start its

operation (Sunday, 2019). However, the sector is found to be underperforming in Nigeria

over the years. Realizing the importance of the SME sector, different policies and programs

are put in place by different countries, international organizations such as World Bank and

other supporting agencies for SME development. For instance, in Nigeria, the Small and

Medium Scale Enterprise Development Agency of Nigeria (SMEDAN) was established in

2003 (SMEDAN/NBS survey, 2019).

According to Sunday (2019), SME remain the most powerful instruments of economic

growth and development of any nation in the world. SME represent an important sector in

developing countries. Sunday argues that most breakthroughs in information technology (IT)

in the U.S., China, South Korea, Malaysia, and India are propelled by SME. Also, most

consumables and industrial goods in a developing economy are the end-products of SME

(Oni, Paiko, & Ormin 2021).

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2.2 THEORETICALREVIEW

2.2.1 Stakeholders Theory

The stakeholder theory was propounded by Edward Freeman who originally defined it as

a theory of organizational management and business ethics that address morals and values in

managing an organization. In this theory, the concept “stakeholders” refer to managers,

shareholders or other users of financial reports which are influenced, either directly or

indirectly by the actions of the auditor. A stakeholder is any individual or group who can

affect or is affected by the achievement of the organization’s objectives (Mohiuddin &

Karbbari, 2019). Thus, stakeholder includes shareholders, employees, suppliers, customers,

creditors, communities in the vicinity of the entity’s operations and the general public.

The stakeholder theory, in organizational management and business ethics,

emphasizes the importance of the moral value in corporate affairs. The stakeholders have

legitimate claims on a firm, which are established through exchange-driven relationship

(Iyoha, 2019). The growing information needs of the stakeholders have operational bearing

on financial reports, resulting in the quest for timely and credible financial reports. The

relationship of stakeholder trust and timely company information is also critical. Management

may also increase the degree of trust in the relationship between the company and its

stakeholders by selecting communication channels and experts who would provide the needed

information to stakeholders in a timely manner to avoid loss of relevance.

The theory represent that the entity is a separate organisational entity and it is

connected to different parties in achieving a broad range of purpose (Donaldson & Preston,

2021). The theory emphasize interests of diverse groups and argue on the likelihood of

13
favoring one group’s interest over that of the other. Donaldson and Preston (2021) pointed out

that managers are responsible for developing their wise decisions and best efforts in obtaining

benefits for all stakeholders. The board cannot overlook its responsibilities in protecting

stakeholders interest. (Hillman, Keim and Lace (2019) found that conclusion of interested

parties in the board merely improves their relation and performance.

In the relationship between managers and stakeholders, there is the likelihood of

information asymmetry. Information provide to stakeholders may be influenced by business

leaders, which often complicate the pertinent issues. Business leaders who are believed as

being open and willingly to provide information could contribute to boost trust not only in the

relationship framework but also for the managers themselves as they inter-relate. Accordingly

the theory argues that in the absence of an opportunity to hide bad news due to mandatory

disclosure requirements, managers have incentive arising from the delay in the release of

information and subsequent imputation gradually into share prices.

2.2.2 Agency Theory

The agency theory can be traced back to Adam Smith and his renowned book, “The

Wealth of Nations.” Sun and Kirkbride (2018) pointed out that the agency problem was

effectively identified by Adam Smith when he argued that company directors are not likely to

be careful with other people's resources as they would with their own. This has ultimately led

to consequent review of a set of contradicting relationship among individuals. The most

essential among these was the agency relationship, defined as a contract in which one or more

persons known as the Principal(s) engage another person referred to as Agent to carry out

business operations on their behalf. This includes delegating some decision making authority

14
to the agents. The agency relationship can be a problem because the agent may not always act

in the best interest of the principal(s).

The assumption of the agency theory is that the role of the agents is to maximize the

wealth of owners of the firm (Ujunwa, et al, 2019). The agency theory is concerned with

analyzing and resolving the conflicts of interest that occur between the owners and the agents

or the management (Mulili& Wong, 2019). The conflict originated from the separation of

ownership from control in which owners perceive that the manager’s actions are based on

self-interest. Agency model suggests that, as result of information asymmetry and self-

interest, principals lack reasons to trust their agents and will seek to resolve these concerns by

putting in place mechanisms to align the interests of agents with principals and to reduce the

scope for the information asymmetries and opportunistic behavior (Fama & Jenson 2021).

The most significant basis of agency theory is that the managers are usually motivated by

their own personal gains and the work to support their own personal interests rather than

considering shareholder interests and maximizing shareholders value.

2.2.3 Institutional Theory

The theory was propounded by Meyer and Rowan who assumes that organizations

adopt structures and management practices that are considered legitimate by other

organizations in their field, regardless of their actual usefulness. Legitimated structures or

practices can be transmitted to organization in a field through tradition or norm, through

imitation, by coercion and through normative pressure. Other scholars; palmer and Jennings

(2018), Scott (2019) viewed Institutional theory base on the premise that organizations

respond to pressures from their institutional environments and adopt structures and

procedures that are socially acceptable as being appropriate organizational choice. Meyer and

15
Rowan argue that institutional techniques are not based on efficiency but used to establish as

appropriate, rational, and modern. They are said to be used to display responsibility and avoid

claims of negligence. According to Dimaggio and Powell (2019) governments often have

ambitious goals and unreliable performance measures and as such resort to legitimacy rituals

to demonstrate social and economic fitness.

The study adopt the institutional theory as a framework for this research because it is

based on an entitys' tendency towards conformity with pre - dominant norms, traditions and

social influences in their internal and external environment leading to homogeneity among

organization in their structures and practices. IFRS for small and medium scale enterprise in

Nigeria have been adopted in conformity with the Financial Reporting Council of Nigeria

under the Small and Medium sized entities Implementation Group (SMEIG). The mission of

the SME Implementation Group (SMEIG) is to support the international Adoption and

Implementationof the IFRS for Small and Medium-Sized Entities (IFRS for SME) and to

monitor its implementation among SME to turn poor reporting practices.

2.3 Empirical Review

Leoni, (2018) discussed the determinants of financial reporting quality of SMEs in

Italy. The objective of the study was to extend the research on the financial reporting quality

(FRQ) of SME by exploring its determinants through an empirical analysis of financial data

from a sample of Italian SME. The paper used primary and secondary source of data were

used and data were analysed using correlation analysis and regression model. The study found

out that the presence of a Board of Statutory Auditors, as well as a high level of leverage, can

improve the Financial Reporting Quality of SME.

16
 Sithole, (2018) discussed the relevance of adopting International Financial Reporting

Standards (IFRS) for SME in Swaziland. The purpose of the study is to explore the relevance

of adopting IFRS for SME in Swaziland, the study further seeks to determine if IFRS for

SME can be the solution to better reporting by local SME. The study adopt the survey

research design. Data were analysed using statistical analysis of questionnaires completed by

accountants from SME in Swaziland as well as other stakeholders who have a direct or an

indirect interest in the financial statements of SME. The stakeholders includes audit firms and

financial institutions. The sampling rate of 10% was applied across each industry to come up

with a sample of 60 SME. Furthermore, a 100% sampling rate on the other stakeholders was

applied, there were nine financial institutions and eight audit firms in the sample size. The

findings from the study revealed that SME in Swaziland are having challenges with the

current reporting framework but to some extent, the framework is suitable. Most SME are not

aware of IFRS for SME, therefore the accounting profession in Swaziland (SIA) has a huge

role to play in training auditors and accountants in the country.

Oyebisi et al., (2018) examined the Impact of the Mandatory adoption of IFRS adoption

and its effects on SME in Lagos, Nigeria. The study used a descriptive survey design and

primary source of data through the administration of questionnaires. Yaro-Yamene sampling

techniques was used and 324 SME were sampled. The paper concluded that adopting IFRS is

crucial to SME since it aids the comparability of financial reporting. IFRS for SME is

perceived to be, not just relevant but, also a core requirement to competing in a globalized

world.

Mandaza, (2018) analysed the effects of adopting IFRS for SME on quality of

accounting reports of SME in Harare Zimbabwe. The objectives of the study is to evaluate the

17
extent to which IFRS for SME enhance quality of financial reporting. The targeted population

size used in this study was 18 and the sample size was constituted by 11 respondents. Data

collected were analysed using the qualitative approach. The study used exploratory research

design. The study concluded that adopting IFRS significantly affects the quality of accounting

reports of SME.The use of conceptual framework and accounting conservatism methods were

the most applied by SME. Findings also showed that the legal framework of the country were

a major determinant of reporting for SME. The SME who participated in the study, had mixed

feelings on the impact of IFRS on their accounting reports. The study recommended that the

government should assist in minimizing the cost of adopting IFRS and business stakeholders

to help with the relevant resources required to implement IFRS for SME.

Schutte and Buys, (2018) conducted a comparative evaluation of South Africa SME

financial statements with IFRS requirements. The objective of the study was to compare

current disclosure practices by South Africa with the IFRS for SMEs illustrative financial

statement. Qualitative research design was used. SME financial statement were analysed

using content analysis, 100 SME were sampled. Based on this findings, the following

conclusions were drawn: that proper financial reporting is however not necessarily an SME

objective; traditionally SME owners also fulfil a management function in the business. Also,

evidence exist that disclosure practices of SME are not monitored. Notwithstanding these

circumstances the IFRS for SME was developed for the SME sector worldwide and should be

implemented. The relevance and adequacy of this accounting framework to the SME sector is

therefore doubtful.

Ploybutt, (2018) investigated SME financial reporting in Thailand to ascertain its

features and to evaluate its costs and benefits to SME stakeholders. Both qualitative and

18
quantitative approaches are adopted in the study. Semi-structured interview of SME, users of

financial statement and other stakeholders are conducted. Data were analysed using Strauss

and Corbin’s grounded theory approach. A questionnaire survey of directors or managers of

SME and a review of SME financial statements are also undertaken. Univariate and

multivariate data analysis is carried out with these two data sets. Overall, the interview and

survey research concludes that SME in Thailand prepare and publish their financial reporting

largely in order to meet legal requirements. They rely on their accountants in filing their

financial report. For SME directors, costs of reporting are not considered to be an undue

burden. Tax authorities, entities’ management and lenders, are perceived to be the most

important users. However, it appears that the financial information in SME financial is unable

to meet the needs of the main users of financial statement. Preparation of financial statements

with tax motivation, limited disclosures and out-of-date information are identified as the main

weaknesses in SME financial statements. The analysis of SME financial statements shows

that: the majority of SME engage in simple business transactions and non-compliance with

mandatory accounting standards exists among many SME. SME stakeholders generally

support using simpler accounting standards for SME. The IFRS for SME seems to be too

complicated for many Thai SME and inconsistency with tax rules is an issue.

Mahmood and Atta, (2018) investigated the perceptions of accountants regarding the

possible adoption of IFRS for SME in Pakistan. The study used primary data through

administration of structured questionnaire, convenient sampling technique approach was used

in the selection of interviwees. The study found out that IFRS awareness and training

programs must be organized by all regulatory and professional bodies on both country and

firm level to achieve the purpose of the adoption.

19
 Olowolaju, (2019) assessed the level of compliance with International Financial

Reporting Standards (IFRS) by Small and Medium-Scale Enterprise (SME). The objective of

the study is to assess the factors that influence the level of compliance with IFRS by SME in

Akure, Ondo State Nigeria. The paper adopted a cross sectional survey of one hundred SME

in Akure was conducted through structured questionnaire. Data collected were analyzed using

Single-Factor Descriptive Analysis, Weighted Mean Scoring, Principal Component Analysis

and Regression Analysis. The study found out that there was low level of compliance by the

SME in the study area and major factors influencing compliance are proper accounting

records, submission of accounting statements to regulatory bodies. The paper concluded that

there is need for SME in the study area to comply with the disclosure requirements of IFRS in

order to improve their capitalization and profitability. The study recommended that Financial

Reporting Act in Nigeria should be reviewed to make compliance of SME with IFRS

mandatory and that Financial Reporting Council should ensure proper capacity development

to enable SME compliance.

Uddin et al., (2019) examined whether application of IFRS for SME was associated

with higher quality reporting. The study was based mainly on primary data and a structured

questionnaire was developed to collect primary data. The study adopt random sampling

technique and 105 SME were sampled. After collecting the data, several statistical tools such

as frequency table, descriptive statistics, and bar graphs were demonstrated to reveal the

overall scenario of SME sector. Two hypotheses were developed and chi-square test was used

to test the hypotheses. The study revealed that the application of IFRS for SME increases the

level of accountability and transparency in the SME reporting. The study also demonstrated

that the adoption of IFRS for SME will enhance comparability and international best practice

in SME reporting.

20
 Evans et al., (2020) assessed the comparative study of the IFRS implementation for

public companies in Ghana and Nigeria. The objective of the research were to conduct a

comparative study on international financial reporting standard adoption and implementation

in Ghana and Nigeria. Desk search was employed for this research. This research conducted

to compare the IFRS adoption and implementation of these countries through a literature

review. The findings show that Ghana and Nigeria commenced the adoption process in 2005

and 2010 respectively, it was revealed that the national standards of Ghana and Nigeria were

closely related and both suffered lack of certain standards and disclosure requirements.

Besides it was revealed that the IFRS adoption and implementation demands a new set of

skills and expertise.

Ayadi et al., (2020) identified the influence of environmental and institutional factors on

the adoption of the international financial reporting standard for small and medium-sized

entities (IFRS for SME). This study used the neo-institutional theory and the economic theory

of networks to explain why countries choose to adopt IFRS for SME. The study is based on

logistic regression analysis to investigate 20 countries, including 15 jurisdictions that adopted

IFRS for SME between 2009 and 2015. The findings confirm that the adoption of IFRS for

SME is significantly related to law enforcement quality, culture, trading networks and

economic growth. At the institutional level, coercive and normative isomorphism was found

to be positively associated with IFRS for SME adoption. The results show also that the

quality of the audit has no significant effect on the adoption of IFRS for SME. However, the

joint effect of the quality of audit and quality of law enforcement is significantly related to the

adoption of IFRS for SME. The study contributes to a better understanding of the factors

influencing the implementation of IFRS for SME standard across the globe and could be used

to predict a country’s decision to adopt this standard.

21
 Talahmeh, (2020) studied the accounting practices of SME drawing on a survey of 100

SME in Palestine. The results revealed that majority of SME failed to keep proper accounting

records pertaining to their businesses. Consequently, it was difficult for the owner-managers

to determine the profit earned or loss suffered in the business during a particular

accounting.The major reasons for the entities failure to maintain proper accounting records

and prepare a complete set of financial statements included inability to prepare financial

reports as a result of poor records keeping, Lack of skills, inability to prepare financial

Reports, distrustful attitude of owner /manager, Cost of hiring qualified employees, finally

fear to disclose all information to government It is recommended that training programs must

be organized to sensitize owners/managers on the need to maintain proper books of accounts.

The government should also come out with the necessary legal instruments to make the

preparation of proper books of accounts mandatory in order to improve SME practice of

accounting in Palestine.

Ajekwe and Ibiamke, (2020) justified the use of IFRS for SME by SME in Makurdi in

their research "Financial reporting for SME in Nigeria; a literature review". The study used

secondary data through the review and analysis of relevant literatures. Findings showed that

the implementation of IFRS for SME will facilitate cross - border acquisition and initiation of

proposed partnership with foreign entities.

Gamlath and Jayawardene, (2020) examined whether the implementation of IFRS for

SME enhance SME financial reporting in Sri - Lanka. The study used a descriptive survey

research design, data were collected from primary sources through interview and

administration of questionnaire. 60 SME were used as the sample size, data were analyzed

22
using multiple regression analysis. Findings revealed that financial reporting practices using

IFRS for SME enhances the quality of SME financial statement.

Abraham and Adeiza, (2020) examined the adoption of IFRS by SME in Sokoto. The

paper used existing literature, to make an analyses whereby the benefits and likely challenges

of implementing IFRS for SME in Sokoto State, Nigeria can be deciphered, the general

objective is to investigate the likely issues, challenges and prospects that SME will encounter

in adopting IFRSs for SME within a Nigerian State and those factors that could prevent the

adoption of the standards by SME. The paper used questionnaire to get answers to the

research questions, questionnaires were distributed seeking the opinion of respondents. 75

questionnaires were distributed to Accountants, Accounts clerks, Analysts,

Executives/Business owners, etc. out of which 60 were successfully retrieved. The data

collected was analyzed using descriptive statistics. The result showed that the only issue

capable of affecting the adoption of IFRS for SME in Sokoto State is the proper monitoring of

continuous professional development programs. The study concluded that SME must seek

ways to reduce any challenges in the adoption process and find ways of strengthening the

system and ensuring continuity of the IFRS adoption process. Accordingly, and despite the

coherence between standard setting bodies and professional bodies, it was recommended that:

professional bodies should remain involved in a robust implementation framework for the

adoption process.

Erin et al., (2020) examined the linkage between financial reporting practices and

sustainability of the SME sector; as it is believed these practices are among causes of

mortality. A structured questionnaire was designed to gather data from 185 operators of SME

drawn using a multi-stage sampling technique involving stratified sampling, cluster sampling,

23
random sampling, and purposive sampling. The primary data collected were analyzed using

descriptive statistics (mean analysis), simple and multiple regressions to test the individual

and joint effects of the independent variables (financial accounting practices, auditing

practices, and cost/management accounting practice) on the dependent variable (sustainability

of SME). It was therefore, recommended that more attention be paid to improving knowledge

of SME operators on the adoption and usage of financial accounting practices, installation of

internal control/audit units and engagement of external auditors as well as the adoption of

contemporary cost and management accounting practices to enhance their sustainability.

Ebaid, (2021) examined the effect of IFRS implementation on the qualitative

characteristics of accounting information of SME in Saudi Arabia. The study used qualitative

research method, data were collected using primary data through a survey questionnaire, data

were analysed using descriptive statistics and 100 SME were sampled. Findings revealed that

the quality of financial reports which is measured through relevance, faithful representation

improved significantly after implementing IFRS compared to prior periods to its

implementation.

Nangih and Olushi, (2021) assessed the influence of management’s choice of accounting

policy and accounting approximations in financial statements on the quality of financial

reports of Small and Medium Scale Enterprises in Nigeria. The study was anchored on the

stakeholders’ theory. The study adopted the survey design approach. Data were mainly

collected through the questionnaire and was analyzed using descriptive statistics and

regression techniques. Findings revealed that wrong accounting policies and judgements

might affect the quality of financial reports, together with other factors. It was recommended

that small and medium enterprise management adhere to accounting standards when

24
designing their accounting policies and in their judgements/approximations to reduce material

errors and enhance the quality of their financial report.

Abudullah and Abdul, (2022) investigates attitudes towards and perceptions of the

adoption of the international financial reporting standard for small and medium-scale

enterprises in Saudi Arabia, before and during the period of adoption. The study employs an

interpretive approach, using a new institutional theory framework, drawing on concepts of

institutional isomorphism and institutional logics. Research was undertaken using extensive

interviews of business owners, managers, accountants, auditors, regulators and others.

Interviewees were identified using the snowball sampling technique, and the research

discussed the appropriateness of this method for research in management in Middle East and

North Africa countries. The findings of this study suggested that the adoption of IFRS for

SME in Saudi Arabia can best be understood as a case of normative isomorphism, as these

standards were regarded as best international practice. There were also signs of mimetic

isomorphism, as many respondents considered that the country adopted these standards in

order to emulate other countries in the Gulf Cooperation Council. However, at the level of

individual businesses, the adoption of IFRS for SME was experienced more as something

imposed on businesses rather than accepted voluntarily. Hence, explanations grounded in

coercive isomorphism appear more appropriate at this level. Because of the unusual

relationship between the Saudi government and the professional accounting body, it was

found that the institutional logics of state and profession interacted in unusual ways. The

adoption of IFRS for SME was part of a reform programme that included introduction of

Value Added Tax and enhanced publicity about businesses, and the institutional logics of

state, market and family are important in understanding how business owners and managers

saw adoption as something that they could not resist.

25
 Amir et al., (2022) identified the reason why optimal results from the IFRS by SME is

hindered, by taking on an empirical approach using surveys and interviews involving business

owners as well as SME around the area to understand the usage and relevancy of IFRS in

their operations. Subsequently, providing a realistic view on the development and

implementation rate of IFRS in SME located in Palembang, South Sumatera. Systematic

literature reviews from relevant journals and articles were conducted in order to explore what

it means to implement IFRS effectively alongside the barriers and challenges it brings. The

results of this study discovered that financial reports are important not only as a means of

controlling and monitoring businesses but also as a means of achieving greater objectives,

such as the ability to use IFRS in their business to compete in global markets.

2.4 Gap in Literature

The adoption of International Financial Reporting standards has been the focus of

theoretical and empirical accounting research in many countries. Studies investigated the

adoption of international financial reporting standards and financial reporting quality of SME

in different countries. However, no research work has been conducted in Ondo State on

whether SME in Ondo State had implement the standard and how it has improved their

financial reporting quality as far as the researcher's knowledge is concerned. Most of the

literatures reviewed indicate that previous researchers only concentrates on IFRS adoption,

Benefits, Challenges and Prospect of the standard. From a survey of relevant literature, it has

been found that there are no studies specific to Ondo State on the effect of implementation of

IFRS on financial reporting quality of SME.

26
 The findings of previous studies indicated different results: that implementation of the

standard will be hindered by the various problems of SME in the country, the implementation

of the standard will require regulatory enforcement by relevant regulatory bodies, that the

global application of the standard will culminate to less comparability between listed and non

- listed firms, to mention a few. In the context of Nigeria, the related study conducted by

Olowolaju, (2019) assessed the level of compliance with IFRS by SME in Ondo State

Nigeria, which is about six years ago. The study limits its scope only by investigating the

reason for low level of compliance with IFRS by SME. As a result of this, this research work

will fill existing gap by assessing whether SME in Ondo State fully implement the provision

of IFRS in the preparation of their financial reports and to determine the effect of

implementation on financial reporting quality of SME in Ondo State.

CHAPTER THREE

METHODOLOGY

This chapter present the Research design, Source of data, Population of the study,

Sampling size and Sampling technique, Research instrument, Reliability and Validity of

research instrument. Measurement of Variables as well as data analysis technique were also

presented.

27
3.1 Research Design

The survey research design was used to obtain information for this study. A survey

research design was used because it provides a quick, efficient, and accurate means of

assessing information about a population. The population is 194 Medium scale enterprise in

Ondo State (SMEDAN, 2019). The sample size include a sample of 103 medium scale

enterprise. Primary source of data was used to collect data through self - administered

questionnaire. The target respondents are owners and managers of the SME, the questionnaire

is structured in a close ended form. Data obtained were analyzed using descriptive statistics

and inferential statistics using ordinary least square (OLS) statistical package.

3.2 Source of Data

Data were collected from primary source through the administration of questionnaire to

the respondents who are managers and accountants of medium sized entities that are

responsible for the preparation of financial statement of selected SME for the Study.

3.3 Population of the Study

The target population of this study is 194 medium scale enterprises according to

(SMEDAN, 2019) from across different sectors ranging from manufacturing, services and

Trading.

3.4 Sample Size and Sampling technique

28
 The sample size for the study consists 103 medium scale enterprise, the sample size

was selected randomly across different sectors. The purposive sampling technique was used,

because it allows for random selection of respondents due to researcher's experience and

judgement of the population.

3.5 Research Instrument

The research instrument used was a self - structured questionnaire. The questionnaire is

divided into two sections (A&B), where section A consists demographic information about

the respondents; while section B consists 19 questions or statements that points to obtaining

information on the effect of implementation on financial reporting quality of small and

medium scale enterprises in Ondo State.

3.6 Reliability and Validity of the Research Instrument

The questionnaire was designed based on earlier studies conducted, the questionnaire

was presented to and assessed by my supervisor. A pilot study was also conducted on a small

group of respondent to validate the questionnaire in order to determine if the

questions/statements are reliable and meet up with the requirement of the study. To further

establish the validity of the research instrument, Cronbach Alpha was used to test if the

questions asked in the questionnaire are

significantly relevant to each objective of the study. The percentage of reliability of questions

raised to investigate the extent of implementation of the provisions of IFRS showed 82.4

percent; questions asked to determine the level of consistency in the implementation of IFRS

by SME is 66.5 percent reliable; and lastly the results on the assessment of the effects of

29
implementing IFRS for SME on financial reporting quality revealed that the questions are

83.2 percent relevant and valid.

_____________________________________________________________________

Variables Cronbach Alpha Average inter-item No of items

Covariance

_____________________________________________________________________

1 0.824 .6763333 4

2 0.665 .4573333 4

3 0.832 .4913333 11

_____________________________________________________________________

Researcher's computation, (2023)

3.7 Measurement of Variables

Source of

30
Variables Description Measurement variable

Full It is an accounting process which Frequency distribution and Gamlath,

implemeta goes beyond an ordinary book percentages of responses of (2020)
tion of keeping exercise. It entails the use respondents to questions 1,
IFRS of the measurement, recognition 2, 3, and 4 in section B
and disclosure criteria in preparing
financial report as specified by
IFRS
Consisten It refers to the cohesiveness and Frequency distribution and Mizunour
cy of how often SME implements the percentage of responses of a, (2016)
implement provisions of the standard in respondents to question 5, 6,
ation preparing their financial report. 7 and 8 in section B
IFRS Financial Reporting Quality refers Mean score of responses to Ebaid,
implement to the comprehensiveness of questions 9, 10, 11, 12, 13, (2021)
ation and information contained in the 14, 15, 16, 17, 18, 19 in
financial financial report and the ability of section B
reporting such information to enable users
quality of make informed decision. It is
SME. characterized by faithful
representation, relevance and
understandability of the financial
report.
Source: Researcher's computation, (2023)

3.8 Data Analysis Technique

31
 To provide answers to research questions and to achieve stated objectives, data obtained

will be analyzed using descriptive statistics such as bar chart, percentages, mean distribution

and inferential statistics using statistical packages. In other to achieve stated objectives,

hypothesis would be tested using multiple regression to test the relationship between

variables.

32
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS

This chapter contains the presentation, analysis and interpretation of the data collected

for this study through the use of questionnaire as the study focus on international financial

reporting standard (IFRS) for small and medium scale enterprise (SME) implementation and

financial reporting quality of SME in Ondo State. The total number of questionnaires

distributed was One hundred and three (103) and all questionnaire were returned. Data

obtained were analyzed using descriptive statistics and inferential statistics. The chapter also

discussed the implication of the findings on the study.

4.1 Descriptive Statistics

Table 4.1.1 shows the distribution of the respondents. According to the representation

described in the table. The percentage of respondents that are male are 48.5 percent and 51.5

percent are female while 34 percent of the respondents are owners of their own business, 26.2

percent are managers, while the rest 39.8 percent of the respondents fall on other categories

which include accountants and other senior members of staff implying that the questionnaire

were fairly distributed to individuals that have ability to give opinion on the subject matter.

Also revealed from the table is the distribution of the questionnaire among the major lines of

business in Nigeria which indicated that 35 percent are into rendering various services, 16.5

percent are into manufacturing; 27.2 percent are into trading and the remaining 21.4 percent

are engaged in other categories of business. It was further indicated in the table that 29.1

percent of the business have been in existence between 0-10 years while 70.9 percent have

33
been in business for about 11 to 15 years. Finally, the table revealed that 39.8 percent of the

SME have employees numbering below 50 while 60.2 percent have employees ranging from

50 to 100 in number.

The descriptive statistics of respondents shows that SME in the sampled area cut across

important line of business that will boost the economic growth of the area and it is evident

that majority of them fall under the category of medium scale enterprise as majority of them

have employees that their number does not exceed 100.

Table 4.1.1: Demographic information of respondents

___________________________________________________________________________
Demographic Information Frequency Percentage Cumulative
___________________________________________________________________________
Gender:
Male 50 48.5% 48.5%
Female 53 51.5% 100
Position of respondent:
Owner 35 34% 34%
Manager 27 26.2% 50.2%
Others 41 39.8% 100%
Type of Business:
Services 36 35% 35%
Manufacturing 17 16.5% 51.5%
Trading 28 27.2% 78.5%
Others 22 21.4% 100%
Years of Business Existence:
0 to 10 years 30 29.1% 29.1%
11 to 15 years 73 70.9% 100%
Number of Employees:
Below 50 41 39.8% 39.8%

34
50 to 100 62 60.2% 100%
__________________________________________________________________________
Source: Field Survey, (2023

4.2 Full Implementation of the provisions of IFRS for SME

In table 4.2.1 the result for statement 1 showed that 51.5 percent of respondents strongly

agreed that they are aware of IFRS for SME, 28.2 percent of respondents agreed with the

statement, 4.9 percent of respondents were undecided about the statement, while 9.7 percent

of respondents disagreed with the statement and 5.8 percent of the respondents strongly

disagree with the statement. This implies that 51.5 percent of medium scale enterprise in the

study area are aware of the IFRS for SME. For Statement 2, 45.6 percent of respondents

strongly agreed that they implement the provisions of IFRS for SME in the preparation of

their financial report, 26.2 percent of respondents agreed with the statement, 6.8 percent of

respondents were undecided about the statement, while 13.6 percent of respondents disagreed

with the statement and 7.8 percent of respondents strongly disagree with the statement. The

responses as regards statement 3 on the full implementation of the provisions of IFRS by

SME showed that 25.2 percent of respondents strongly agreed that they fully implement the

provisions of IFRS for SME. This implies that most medium scale enterprise do not fully

implement the provisions of IFRS for SME, as only 25.2 percent attest that they implement

the provisions of the standard fully. Statement 4 revealed that 15.5 percent of respondents

strongly agree that their financial report meet statutory requirements, 26.2 percent of

respondents agreed with the statement, 49.5 percent of respondents were undecided about the

statement, while 5.8 percent of respondents disagreed with the statement and 2.9 percent of

the respondents strongly disagreed with the statement.

35
 Olowolaju, (2019) assessed the level of compliance with IFRS for SME, the objective of

the study was to assess the factors that influence the level of compliance with IFRS by SME

in Akure. The study found out that there was a low level of compliance by SME in the study

area. This agrees with the findings of the study that medium scale enterprise have not fully

complied with the provisions of IFRS

Table 4.2.1

___________________________________________________________________________

STATEMENTS FREQUENCY PERCENTAGE

___________________________________________________________________________

Are you aware of the IFRS for small and medium

sized entities

Strongly Agree 53 51.5%

Agree 29 28.2%

Undecided 5 4.9%

Disagree 10 9.7%

Strongly Disagree 6 5.8%

Total 103 100

Do you implement the provisions of IFRS for SME

in the preparation of your financial report

Strongly agree 47 45.6%

Agree 27 26.2%

Undecided 7 6.8%

Disagree 14 13.6%

Strongly Disagree 8 7.8%

36
Total 103 100

Do you fully implement the provisions of IFRS in

the preparation of your financial report

Strongly agree 26 25.2%

Agree 19 18.4%

Undecided 9 8.7%

Disagree 40 38.8%

Strongly disagree 9 8.7%

Total 103 100

Does your financial report meet statutory

requirements

Strongly agree 16 15.5%

Agree 27 26.2%

Undecided 51 49.5%

Disagree 6 5.8%

Strongly Disagree 3 2.9%

Total 103 100%

Source: Field Survey, (2023)

4.3 Level of Consistency in the Implementation of IFRS by Small and Medium Sized

Entities in Ondo State Since its Adoption in 2012.

37
 The opinions of respondents to section Bíi of the research instrument presented in table

4.3.1 revealed that for statement 1, 81.6 percent of respondents strongly agreed that the

preparation of financial report is useful in business, 15.5 percent of respondents agreed with

the statement, 1.9 percent of respondents were undecided about the statement, while 1 percent

of respondents disagreed with the statement and none of the respondents strongly disagree

with the statement. For Statement 2, the result from descriptive statistics shows that 81.6

percent of respondents strongly agree that financial report should be prepared often, this

findings revealed that owners and managers of SME knows the importance of preparing

financial report often or as statutorily required, 12.6 percent of respondents agreed with the

statement, 4.9 percent of respondents were undecided about the statement, while 1 percent of

respondents disagreed with the statement and none of the respondents strongly disagreed with

the statement.

For statement 3, 27.2 percent of respondents strongly agreed that they have been

consistent in implementing the standard since its adoption in 2014, 35 percent of respondents

agreed with the statement, while 8.7 percent of respondents were undecided about the

statement, 20.4 percent of the respondents disagree with the statement and 8.7 percent of

respondents strongly disagreed with the statement. Statement 4 revealed that 46.6 percent of

respondents strongly agree that they prepare statement of financial position in compliance

with IFRS for SME, 31.1 percent of respondents agreed with the statement, 4.9 percent of

respondents were undecided about the statement, while 10.7 percent of respondents disagreed

with the statement and 6.8 percent of respondents strongly disagreed with the statement.

Nangih and Olushi, (2021) assessed the influence of Management's choice of accounting

policies on the quality of financial reports of small and medium sized entities in Nigeria, he

found out that Management's choice of accounting policies has reduced Consistency in

38
implementing IFRS. This agrees with the findings of the study that medium scale enterprise

are not consistent in implementing IFRS in the study area.

39
Table 4.3.1

STATEMENTS FREQUENC PERCENTAG

Y E
Sou
Do you agree that preparation of financial
rce:
report is useful in business

Strongly agree 84 81.6%

Agree 16 15.5%

Undecided 2 1.9%

Disagree 1 1%

Strongly Disagree - -

Total 103 100

Do you agree that financial report should be

prepared often

Strongly agree 84 81.6%

Agree 13 12.6%

Undecided 5 4.9%

Disagree 1 1%

Strongly Disagree - -

Total 103 100%

You have been consistent in implementing the

standard since its adoption in 2014

Strongly agree 28 27.2%

Agree 36 35%

Undecided 9 8.7%

Disagree 21 20.4%

Strongly Disagree 9 8.7%

Total 103 100

Do you agree that you prepare financial

40
reports in compliance with IFRS for SME

Strongly agree 48 46.6%

Agree 32 31.1%
Field Survey, (2023)

4.4 The effect of IFRS for SME implementation on financial reporting quality of

SME in Ondo State

The study used multiple regression to achieve the third specific objective which is the

effect of IFRS implementation on financial reporting quality of SME in Ondo State and the

result is presented in table 4.4.1. The result shows that Implementation of IFRS for SME and

Consistency in implementation can cause 70 percent variation in the dependent variable

which is the financial reporting quality of SME as reflected by R-square result. This result is

further established with table generated from the simple regression conducted with F-Value of

122.06 which is significant at 5%.

The result in table 4.4.1 also indicate that implementing IFRS for SME will improve

financial reporting quality by 31.95 percent which is statistically significant at 5 percent, this

implies that if IFRS for SME can be implemented by SME, their financial reporting quality

will be greatly improved. Table 4.4.1 further shows that the consistency of implementation of

IFRS for SME shows a positive co-efficient of 0.4927 which is statistically significant at 5

percent indicating that consistently implementing IFRS for SME will have positive and

significant effect on the quality of their financial reports. Therefore, hypothesis 1 is rejected

and this implies that the implementation of IFRS as well as the Consistency of the

Implementation has a significant influence on quality of financial reports of SME.

Oyebisi et all., (2018) assessed the level of compliance with IFRS for SME, the study

found out that there was a low level of compliance by SME in the study area and that the

41
implementation of the standard will improve financial reporting quality greatly. This agrees

with the findings of this study.

Schutte and Buys, (2018) conducted a comparative evaluation of South Africa SME

financial statement with IFRS requirements. The result of the findings showed that proper

financial reporting is not necessarily an SME objective and that the relevance and adequacy

of the IFRS for SME framework to SME sector is therefore doubtful.

Table 4.4.1:

Regression Analysis on effect of IFRS implementation and financial reporting quality of

SME in Ondo State

FRQ Coef. Std. er. t p>|t| [95% conf. Interval]

IMP .3195575 .05567464 5.81 0.000 .2103453 .4284674

CONS .4927345 .07847345 6.32 0.000 .3375858 .6474858

cons .7227235 0.243245 2.97 0.004 .2404656 1.203574

Number of obs = 103

F (2, 100) = 122.06

Prob > F = 0.0000

R-squared = 0.7094

Adj R-squared= 0.7041

Source: Field survey, (2023)

CHAPTER FIVE

42
 SUMMARY, CONCLUSION AND RECOMMENDATIONS

This chapter presents the summary of this study on IFRS implementation and financial

reporting quality of SME, conclusion and recommendation from the study were also

presented.

5.1 Summary

The study was carried out to assess the effect of IFRS implementation on the financial

reporting quality of SME in Ondo State. The objectives of the study are to; investigate

whether SME has fully implement the provisions of IFRS in the preparation of their financial

report, determine the level of consistency in the implementation of IFRS by SME since its

adoption and to determine the effect of IFRS Implementation on financial reporting quality.

Chapter one provides background to the study which explains the global issue and the

current state of the topic in Nigeria; the introduction, adoption, diverse research findings on

the implementation of IFRS by SME by different scholars and authors. It also explains

statement of problem which was as a result of limited research on the topic in the study area

and the specific problem which the study want to solve. The research questions, objectives

and the study hypotheses were also formulated.

Chapter two focused on the review of literatures, it explained the variables contained in

the study by defining concepts. Theories that supported this study were also explored and the

study hinged on one of these theories. Existing studies that have been done in Nigeria and

other countries in the world in the area of study were also reviewed which revealed the gap to

be filled by this study. Chapter three contain explanation on the methodology used to carry

out the study in order to achieve the research objective. It also explained research design,

source of data, Population of the study, sample size and sampling technique, measurement of

variable and data analysis technique used in analyzing the research variables.

43
 Chapter Four revealed the presentation, analysis and interpretation of data obtained.

The summary of the findings are:

i. Majority of Medium scale enterprise in Ondo State do not fully implement the

provisions of IFRS for SME.

ii. Medium scale enterprise in the study area have not consistent in implementing the

provisions of the standard since its adoption in 2012.

iii. The implementation of IFRS will improve their financial reporting quality of

SME.

5.2 Conclusion

It is concluded based on the analysis and findings of this study that the

implementation of IFRS for SME improves the financial reporting quality of SME than their

previous way of reporting. Most SME in the study area attest to the fact that they are aware of

IFRS for SME. Although, its current level of implementation is low among SME in Ondo

State. Nevertheless, statistical analysisjas revealed that there is a positive correlation between

the implementation of IFRS and financial reporting quality of SME irrespective of the

challenges they might face in the process of implementation.

5.3 Recommendations

Based on findings, the study recommends the following:

i. IFRS for SME should be made available in printed form and distributed to all SME to

serve as a guide and for reference purpose.

ii. Efforts should be made by government to establish a committee that will examine the

financial report of SME whether it has been prepared according to the provisions of

the standard and to punish erring SME.

44
iii. Small and Medium sized Entities Implementation Group should embark on

programme that will facilitate IFRS Implementation among SME in Ondo State.

45
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 APPENDIX

QUESTIONNAIRE

Dear Respondent,

REQUEST FOR REQUEST TO COMPLETE QUESTIONNAIRE

I am an undergraduate student of Adekunle Ajasin University Akungba - Akoko currently

undergoing a B.Sc. program in Accounting. I am conducting a research on the study titled
“International Financial Reporting Standard (IFRS) for small and medium sized entities
(SMEs) Implementation and Financial reporting quality of Small and medium sized entities in
Ondo State”. This study will enable SME owners and managers know whether the
implementation of IFRS for SMEs can improve small and medium sized entities financial
reporting quality. I hope to have a few minute of your time to assist in completing the
questionnaire. Your personal information and all other information provided will be treated
with strict confidentiality and used solely for academic purpose.

Thanks for your assistance and cooperation.

Yours faithfully,

Oluwatoyin Adeyemo

SECTION A: (Demographic data)

Instructions: Kindly tick ( √ ) on that which agrees with your opinion.

1. Gender: (a) Male [ ] (b) Female [ ]

2. Position of the respondent: Owner [ ] Manager [ ] Other (Specify):

………………….

3. Line of business: Services [ ] Manufacturing [ ] Trading [ ]

49
Other (specify): _______________

4. Years of business existence (tick appropriate):

Below 5-10 [ ] 11-15 [ ] 16 -20 [ ] 21 and above [ ]

5. What is the number of employees in your organization?

less than 50 [ ] 50-100 [ ] 101-150 [ ] 151-199 [ ]

SECTION B

This section consists of sets of statements asked with respect to IFRS for SME
implementation and financial reporting quality of SMEs. Please tick (√) the most appropriate
option to the statements stated below.

Code: SA-Strongly agree, A-Agree, UD- undecided, D-Disagree, SD-Strongly disagree

(Bi) The implementation level of the provisions of IFRS among SMEs in Ondo State.

S A U D S
S/N Statements A 4 D 2 D
5 3 1
1 Are you aware of the IFRS for small and medium Sized
entities?
2 Implementation of the provisions of IFRS for SME in the
preparation of your financial report?
3 Do you fully implement the provisions of IFRS for SMEs in
the preparation of your financial report?
4 To what extent does financial report meet statutory
requirements?

(Bii) Level of consistency in the implementation of IFRS for SMEs since its adoption in
2014?

SD A U D S
S/N Statements 5 4 D 2 D
3 1
5 Do you agree that preparation of financial report is useful in
business?
6 Do you agree that financial report should be prepared often?
7 You have been consistent in implementing the standard since
its adoption in 2014

50
8 Do you agree that you prepare statement of financial position
in compliance with IFRS for SME?

(Biii) The effect of IFRS implementation on financial reporting quality of SME

S A U D S
S/N Statements A 4 D 2 D
5 3 1
9 Do you prepare statement of income and other
comprehensive income?
10 Do you use one statement approach? (a single statement of
comprehensive income)
11 Or a two statement approach? (an income statement and a
statement of comprehensive income)
12 Do you segregate dis-continued operations?
13 Do you present profit or loss sub-total in income statement?
14 And total comprehensive income sub-total in the statement of
comprehensive income before allocating those amounts to
non-controlling interests and owners of parents?
15 Do you split current/non-current asset when preparing
statement of financial position?
16 The implementation of IFRS enhance the quality of your
financial report compared to your previous style of Reporting
17 The Implementation of IFRS enhance the usefulness of
financial report to users
18 Implementation of IFRS faithfully represents the true and fair
view of your business as it is in reality
19 IFRS for SME is relevant to your business and can be used in
preparing financial report

51