SME Finance Policy Guide

G-20 SME FINANCE POLICY GUIDE
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quality of SME information, but can also act as a barrier
to SME finance and growth. External audits can be costly
and difficult to justify, as SME accounting is usually
straightforward, relying on historical cost-based, rather
than fair value, measurement. They may also act as an
incentive to stay disengaged from the formal sector and
full regulatory compliance. 52
International Financial Reporting Standards (IFRS)
have been adapted and streamlined for SMEs, and
about 60 countries have adopted the SME version of
IFRS. However some countries have concluded that the
SME version of IFRS is still too costly and burdensome
for local and smaller SMEs, and have adopted a simpler
set of obligatory standards. There are similar concerns
regarding obligatory auditing. Although auditing
improves the reliability of financial statements, the EU
exempts firms with fewer than 50 employees from
obligatory audits, a rule that also attempts to strike a
balance between the objectives of improving transparency
and reducing the regulatory burden for small
firms. Some studies have found that effective accounting
standards are positively associated with measures
of access, but research in this area has been limited by
the lack of good quantitative indicators of the quality
of financial reporting, and are not focused on SMEs.
There has been substantial debate around developing
accounting and auditing standards for SMEs that strike
the right balance between transparency and regulatory
simplicity. SMEs are typically non-public entities with
simple financial transactions. Many of the disclosures
aimed at public shareholders and lenders may be
unnecessary for SMEs. Several countries resist adopting
IFRS for SMEs, claiming that these standards remain
excessively complex and costly for smaller firms.
World Bank research shows that many countries use
company size to determine a company’s financial
reporting and audit requirements, although the relief
that is given tends to be quite limited. Most commonly,
SMEs are exempted from statutory audit
Global Technology and Innovation
Partners (GTIP)
Diaspora can play a prominent role in introducing and
financing innovation, as has been widely acknowledged
in the case of India and Israel. An emerging example is
the Arab Diaspora links to support SME Innovation in the
MENA region. Global Technology and Innovation
Partners (GTIP) is a partnership of successful Arab diaspora
entrepreneurs based in Silicon Valley, targeting
investments across the Middle East, North Africa and
South Asia regions (MENASA). GTIP has recently established
the “Rising Tide Venture Capital Fund” ($250 million
being raised) that will focus on building local
entrepreneurial ecosystems and provide seed, early, and
growth-stage capital for innovative ventures in MENASA
countries. To help ensure the development and acceleration
of successful and innovative start-ups in the region,
GTIP intends to pool their staff, partners, and other successful
entrepreneurs from Silicon Valley, and elsewhere
in the United States to provide companies in MENA with
continuous mentorship and expertise.
GTIP has two key partners to help transfer support and
provide mentorship: Plug and Play Technology Center
(PnP), which is a technology incubator based in Silicon
Valley, and the TechWadi networking association, which
allows GTIP to tap into the Arab diaspora to provide
mentorship and advice to MENA entrepreneurs.
requirements and/or are subjected to simplified
accounting standards. However, the thresholds used
to define SMEs are often quite low and exempt only
the smallest of companies. There is significant resistance,
often motivated by genuine concerns, within
parts of the accounting and audit profession to the
notion that SMEs should be afforded greater relief in
their financial reporting and audit obligations. The
benefits of differentiated standards or systems need
to be better understood.
Standards, Guidelines and Good Practice
A clear case can be made in favor of simplified accounting
and financial reporting framework for smaller
52 Ibid