Adopting of IFRS for UK Small and Medium Enterprises - Dissertation Example

Download file to see previous pages In the past few decades, both developed and developing countries witnessed an exponential rise in the number of small and medium-scale industries. The rise of SMEs is buoyed by the support provided by the entrepreneurs and the banks as well as the financial institutions of these counties. The rise in the number of SMEs is 5% for all the countries. Small and medium-scale enterprises contribute 14% to the GDP in countries like Oman (Arundel and Geuna, 2004). Developed countries and under-developed countries have the power to generate even more contribution of the SMEs towards the country GDP. In the wake of the financial crisis that gripped the whole of Europe starting from Portugal, Italy, Greece, Spain and Switzerland, a huge chunk of the SME in these countries got wiped out. These small and medium scale enterprises operated independently and there are few governing bodies to monitor the activities of the SMEs (Bates, 2004).

The government spent a huge chunk of the sovereign money in constructing the framework to support the activities of the SMEs. On the other hand, the government did very little to install any regulatory framework to keep an eye on the financial as well as operational activities of these enterprises. Although most of the enterprises follow the GAAP principles and procedures but it is felt that current procedures and principle are falling short to contain the incidents of “window dressing” of the accounting statements.

1.2 Research Objective
The research objectives are set to guide the research aims for the research projects. The research objectives are:
1. The first objective is research objective is to highlight the differences that can be created by following the IFRS in comparison to the GAAP.
2. The second objective is to show the problems faced by the firms while transforming from the GAAP procedure and principle of accounting to the IFRS.
3. The third objective is to show the need to adopt IFRS.

1.3 Research Problem
The extensive surveys conducted by the institutions like the European Financial Stability Fund, and World Bank indicate that the huge sovereign debt on the part of respective governments is due to the inability of the governments to pay for its loan borrowed from the international markets and the general public (Cosh et al. 2006). The failure on the part of the government to settle the debts is also linked to the banks. The banks and financial institutions lend a significant amount of money to Small and Medium Scale Enterprises. Although the banks and financial institutions kept a regular tap on the finances of these SMEs but later on it found that the GAAP principle may not be applicable for small and medium-scale enterprises.

The Exchequer to the government of the UK indicated that almost more than 60% of the financial institutions that granted a huge amount of loans to various small and medium enterprises started realizing loan defaults within a year since the start of the financial crisis (Hall et al. 1999). Within 1 and ½ years, the huge nonperforming assets due to the unrealized loans stood at a staggering GBP 1.2 billion alone. The amount stated came to be realized within 18 months roughly, while the actual nonperforming assets due to failure of the small and medium enterprises later on quadrupled the stated amount. ...Download file to see next pages Read More