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The IASB assert that the IFRS for SMEs is based on the full IFRS with modifications to reflect the needs of users of SMEs’ financial statements and cost- benefit considerations (International Accounting Standards Board, 2009a). To identify the costs and benefits associated with the provision of information and to ascertain how the respondents perceive those costs and benefits, those who adopted the SLFRS for SMEs were asked additional questions. Therefore, subsequent analysis on costs and benefits of SLFRS for SMEs was based on the responses given by the adopting SMEs.

8.9.1 Costs of using the SLFRS for SMEs

Six elements involved in the costs of the preparation and provision of financial statements identified in the literature were presented to the survey respondents. They were asked to identify costs relevant to their entities and all those who had adopted the accounting standard SLFRS for SMEs were surveyed about the significance of the standard. The respondents were asked to rate the significance of each cost element using a 5-point Likert-type scale where 1 indicated not significant and 5 indicated very significant. The results are summarised in Table 33.

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Table 33 : Significance of costs of preparing SLFRS for SMEs financial statements

Type of cost

N Responses (% of total respondents) Mean

Not significant Very significant

1 2 3 4 5

Costs of training accounting and IT staff

136 5.10 16.20 39.97 29.40 9.60 3.22

Costs of hiring qualified accounting staff

135 3.70 12.60 42.20 34.10 7.40 3.29

Costs of obtaining external technical advice and payments to accounting firms

134 3.70 11.20 21.60 56.00 7.50 3.52

Costs of changing accounting software and systems

128 5.50 12.50 39.80 29.70 12.50 3.31

Costs of information

acquisition

128 6.30 10.20 25.00 50.80 7.80 3.44

Costs of taking tax advice 137 5.10 14.60 38.00 28.50 13.90 3.31

As can be seen from Table 33, more than half of the responding entities indicated that the costs of obtaining external technical advice from and making payments to accounting firms, and the costs of information acquisition were the most significant (indeed very significant) costs incurred when preparing financial statements in accordance with SLFRS for SMEs. This finding most probably reflects the fact that the majority of the entities surveyed use external accountants to prepare and audit their financial statements (Carsberg et al., 1985; Kitching et al., 2011; Marriott & Marriott, 2000; Professional Oversight Board for Accountancy, 2006). This finding further confirms that the internal accounting staff employed in these SMEs are not competent to implement the standard when preparing financial statements (Halbouni, 2005).

Further analysis on the views of the SME owner-managers and the accountants was performed to assess whether there is a significant difference between these groups. A Mann-Whitney U test suggested that there was a statistically significant difference in the views of the SME owner-managers and accountants on the cost of taking tax advice (Mann-Whitney U = 1875, Z= -1.97, p=.049). The accountants, however, placed more importance on the cost of taking tax advice than the SME owner-managers.

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8.9.2 Benefits of preparing financial statements in accordance with SLFRS for SMEs

The respondents were asked about the benefits they might gain from the preparation of financial statements in accordance with SLFRS for SMEs. Seven statements regarding the benefits of SLFRS for SMEs were presented to the respondents. These were the benefits identified in the literature and by the International Accounting Standards Board (IASB). Table 34presents the results of this analysis.

Table 34: Benefits from SLFRS for SMEs compliant financial statements

Type of benefit No

Responses (% of total respondents)

Mean

Not beneficial Very beneficial

1 2 3 4 5

To compare financial

statements 138 4.30 10.10 25.40 39.10 21.00 3.62 To fulfil tax declaration 138 4.30 2.20 18.10 52.90 22.50 3.87

To provide easy access to

finance 131 - 3.10 19.80 51.90 25.20 3.99

To serve

administrative/statistical purposes of the government

131 3.80 9.90 32.80 38.20 15.30 3.51

To support loan applications 125 4.80 5.60 18.40 40.80 30.40 3.86

To tender for business

projects/contracts 125 5.60 13.60 24.80 36.80 19.20 3.50 To meet your internal

management needs 132 6.80 4.50 22.00 38.60 28.00 3.77 The main benefit that the respondents perceive is easy access to finance. This benefit was selected by more than 77% of the respondents. It was followed by fulfilling tax declaration (75.40%), and supporting loan applications (71.20%). Respondents from large entities were more likely to perceive these benefits than the respondents from medium and small entities. Respondents from medium entities were also more likely to than the respondents from small entities to perceive these benefits. According to IASB, one of the objectives of IFRS for SMEs is to improve the comparability of financial information of SMEs. However, this benefit was placed fourth in importance by Sri Lankan SMEs.

Mann-Whitney U tests was performed to test the difference between the views of the SME owner-managers and those of accountants. Table 35 shows that there was a significant difference between the views of the two groups in the following areas:

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the benefits of being able to compare financial statements; to fulfil tax declaration; to serve administrative/statistical purposes of the government; to tender for business projects/contracts; and, to meet internal management needs.

Table 35: Perceptions of SME owner-managers and accountants on the benefits

Benefits Position N Mean Rank Sum of Ranks Mann- Whitney Z p To compare financial statements Owners 77 54.47 4194.00 1191.00 -5.19 0.000* Accountants 61 88.48 5397.00 To fulfil tax declaration Owners 77 62.06 4779.00 1776.00 -2.69 0.007* Accountants 61 78.89 4812.00 To provide easy access to finance Owners 75 63.64 4773.00 1923.00 -0.90 0.368 Accountants 56 69.16 3873.00 To serve administrative/st atistical purposes of the government Owners 76 56.53 4296.50 1370.50 -3.53 0.000* Accountants 55 79.08 4349.50 To support loan applications Owners 75 62.95 4721.00 1871.00 -0.02 0.983 Accountants 50 63.08 3154.00 To tender for business projects/contract s Owners 75 57.97 4348.00 1498.00 -1.98 0.048** Accountants 50 70.54 3527.00 To meet your internal management needs Owners 76 52.93 4023.00 1097.00 -4.98 0.000* Accountants 56 84.91 4755.00 Note:

*The difference is significant at the 0.01 level (p < 0.01). ** The difference is significant at the 0.05 level (p<0.05).

Differences in total number of samples were caused by missing data.

In all cases, accountants tend to perceive the items as more beneficial than the owner-managers of the SMEs. Although the difference between the SME owner- managers and the accountants on the benefits of providing easy access to finance and supporting loan applications are not significant, it can be inferred from the mean ranks that there is a difference in the perceptions of these two groups. It would appear that accountants tend to place more importance on these benefits than do owner-managers.

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8.9.3 Relationship between the costs and benefits

Apart from the identification of costs and benefits, the study also attempts to examine the respondents’ perception of the relationship between the costs and benefits of preparing financial statements in accordance with SLFRS for SMEs. Respondents were asked how they perceived the relationship between the costs and benefits producing compliant financial statements. Four options were presented to the respondents and Table 36 presents the results.

Table 36 : Relationship between the costs and the benefits

Cost-benefit relationship Number of employees All (N=136) 5-15 (n=30) 16-39 (n=38) 40-99 (n=68) n % n % n % n %

The benefits exceeds the costs

5 16.70 7 18.40 8 11.80 20 14.70

The benefit fit with the costs

12 40.00 12 31.60 14 20.60 38 27.90

The costs exceeds the benefit

13 43.30 17 44.70 41 60.30 71 52.20

No idea 0 0.00 2 5.30 5 7.40 7 5.10

30 100.00 38 100.00 68 100.00 136 100.00

The majority of the respondents (52.20%) believe the costs exceed the benefits. Similar results were obtained in the study conducted by Chand et al. (2015). The majority of respondents in their survey strongly agreed with the statement that the costs of complying with IFRS for SMEs are far greater than the corresponding benefits. It appears that the SLFRS for SMEs has not succeeded in reducing financial reporting costs associated with preparing financial statements of SMEs in Sri Lanka. Thus, IASB has failed to balance benefits and costs as they claimed for the IFRS for SMEs. Since the IFRS for SMEs was developed based on the full IFRS using the top-down approach, it seems to be a challenge for Sri Lankan SMEs to implement.

8.9.4 Additional exemptions for the SLFRS for SMEs

It is apparent from the responses shown in Table 37 that the respondents generally know virtually nothing about the additional exemptions to SLFRS for SMEs. This finding may have been shaped by their lack of knowledge of SLFRS for SMEs and, thus, their inability to comment on it. However, nearly 46% of respondents agreed

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with a need for additional exemptions to SLFRS for SMEs. This finding further confirms the complexity of the SLFRS for SMEs for Sri Lankan SMEs.

Table 37 : Perception on the requirement to provide additional exemptions to the SLFRS for SMEs

Response Number of employees All (N=133)

5-15 (n=28) 16-39 (n=38) 40-99 (n=67) n % n % n % n % Yes 11 39.30 20 52.60 30 44.80 61 45.90 No 1 3.60 2 5.30 4 6.00 7 5.30 No idea 16 57.10 16 42.10 33 49.30 65 48.90 28 100.00 38 100.00 67 100.00 133 100.00