An Explanatory Study on the Adoption of IFRSs for SMEs in Zimbabwe’s SME Sector

Abstract

Objectives: This paper explored the level of adoption of International Financial Reporting Standards (IFRS) for Small and Medium Enterprises (SMEs) by SMEs in Zimbabwe. The study identified the motivations for SMEs to adopt IFRS for SMEs and uncovered the challenges SMEs face during the adoption process. Prior Work: This study builds on prior research on IFRS adoption, SME financial reporting, and regulatory compliance challenges. Approach: The study employed an explanatory research design within the pragmatism paradigm. A mixed-methods research approach was adopted, and quantitative data was collected using a five-point Likert scale and semi-structured interviews. Results: The study found a low adoption level of IFRSs for SMEs in the SME sector in Zimbabwe. SMEs were motivated to adopt IFRSs by aligning with IFRS, enhancing stakeholders’ credibility, and improving financial reporting and transparency. The study discovered that the primary reasons for the non-adoption of IFRSs for SMEs were a lack of awareness about IFRSs for SMEs, the complexity of IFRS implementation, cost consideration, lack of knowledge and expertise in the implementation of IFRSs and limited resources for training. The results also revealed that difficulties in understanding and interpreting IFRS requirements, limited support from the regulatory board, lack of resources in implementing IFRS, availability of skilled professionals in IFRS compliance and resource constraints in implementing were the major challenges faced by SMEs in the adoption and implementation of IFRSs for SMEs. Implications The study recommended that SMEs adopt IFRSs for SMEs to produce high quality financial statements that enable effective economic financial decisions making. It is recommended that the regulatory board implement targeted awareness campaigns and educational programs to increase awareness and understanding of the benefits of adopting IFRSs among SMEs in Zimbabwe. Value: This study highlights the low adoption of IFRSs for SMEs in Zimbabwe’s SME sector, identifying key motivations such as improved financial reporting and stakeholder credibility, while uncovering significant challenges, including lack of awareness, complexity, cost, and resource constraints, and recommending targeted awareness campaigns and educational programs to enhance adoption.