Small and Medium Enterprises (SMEs) in Uganda have been urged to follow the classified international financial reporting standards (IFRS) for SMEs as a way of improving their sustainability and profit making.
Originally all accountants for all sized companies were expected to follow the general IFRS.
However, in 2009, the international body for standards (IBS) published the new IFRS designed for use by SMEs. These were formally adopted by the institute of certified accountants of Uganda (ICPAU) in January 2010 which in turn directed all public accountants and SMSs to start using them.
But research by Dr. Mary Maurice Nalwoga Mukokoma of Kyabongo University and Prof. Charles Ndyamuba Tushabomwe-Kazooba with aid from ICPAU, conducted in 2018 on over 300 SMEs from Kampala and Mbarara, revealed low adoption levels with a full IFRS for SMEs adoption level of 35%, partial adoption of 54% and non-adoption of 11%.
According to John Bosco Ntangaare, Director Education at the Institute of Certified Accountants of Uganda (ICPAU), the low adaptation rates are attributed to lack of information by SMEs and the ego held by some companies who feel that adopting the IFRS for SMEs will affect their assumed international status.
“Almost 80% all businesses in Uganda are SMEs. It is also believed that the reason why most SMEs fail are due to poor financial reporting and management standards. The adoption of IFRS for SMEs is both a global and national initiative intended to improve the quality of financial reports for SMEs. Unfortunately, the quality of financial reports produced by SMEs in Uganda is still below expectations. We urge all companies and certified accountants to adopt the new standards and put them to use. This is for their own good,’’ said Ntagaare
This was during the on-going Financial Management and Reporting for SMEs organized by ICPAU on Wednesday.
Speaking at the same event, CPA’s Kenneth Makanga noted that the IRFS for SMEs is a simplified version of the main stream international standards that is well fit to meet the needs of SMEs in Uganda and hence would help SMEs to address the challenge of improper financial reporting and management that has led to most of them not progressing
“Generally, SMEs are characterized by inability to use stock exchange markets, are high dependency on commercial banks to source funding and having a fluid distinction between ownership and management. With such characteristics, it was so challenging for SMEs to report following the main stream International Accounting Standards,” he said