Msechu, Si uni Z.; Kasoga, Pendo S.; Kipesha, E asmus F.
A icle
Fi m cha ac e is ics and compliance wi h IFRSs o small
and medium-sized en i ies in de eloping coun ies:
e idence om Tanzania
Cogen Business & Managemen
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Sugges ed Ci a ion: Msechu, Si uni Z.; Kasoga, Pendo S.; Kipesha, E asmus F. (2024) : Fi m
cha ac e is ics and compliance wi h IFRSs o small and medium-sized en i ies in de eloping
coun ies: e idence om Tanzania, Cogen Business & Managemen , ISSN 2331-1975, Taylo &
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Fi m cha ac e is ics and compliance wi h IFRSs
o small and medium-sized en i ies in de eloping
coun ies: e idence om Tanzania
Si uni Z. Msechu, Pendo S. Kasoga & E asmus F. Kipesha
To ci e his a icle: Si uni Z. Msechu, Pendo S. Kasoga & E asmus F. Kipesha (2024) Fi m
cha ac e is ics and compliance wi h IFRSs o small and medium-sized en i ies in de eloping
coun ies: e idence om Tanzania, Cogen Business & Managemen , 11:1, 2399313, DOI:
10.1080/23311975.2024.2399313
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ACCOUNTING, CORPORATE GOVERNANCE & BUSINESS
ETHICS | RESEARCH ARTIClE
Cogen Business & ManageMen
2024, VoL. 11, no. 1, 2399313
Fi m cha ac e is ics and compliance wi h IFRSs o small and
medium-sized en i ies in de eloping coun ies: e idence om
Tanzania
Si uni Z. Msechua, Pendo S. Kasogaa and E asmus F. Kipeshab
aDepa men o accoun ing and Finance, uni e si y o Dodoma, Dodoma, anzania; bDepa men o accoun ing and Finance,
Mzumbe uni e si y, Mzumbe, Mo ogo o, anzania
ABSTRACT
The impac o i m age, i m size, p o i abili y, le e age and audi o ype on compliance
wi h he In e na ional Financial Repo ing S anda ds o small- and medium-sized
en i ies (IFRSs o SMEs) was in es iga ed in his s udy. The ounda ion o he s udy was
SMEs in Tanzania. Howe e , he e is limi ed e idence on he associa ion be ween i m
cha ac e is ics and Tanzanian SMEs’ compliance wi h IFRSs. Thus, by expanding he use
o agency heo y o asce ain he link be ween a iables, his s udy adds o he co pus
o knowledge. The esea ch speci ically employed a quan i a i e panel da a se o 103
SMEs (412 obse a ions) om he 2018–2021 ime ame which we e ga he ed ia
audi ed yea ly inancial epo s and p ocessed using eg ession models and desc ip i e
analysis. Acco ding o desc ip i e s a is ics, 42.3% o IFRSs disclosu es a e being
complied wi h by SMEs in Tanzania. The indings indica e ha , o SMEs, he e is a
s ong posi i e co ela ion be ween he ex en o IFRSs compliance and i m age, i m
size, p o i abili y and audi o ype. Fu he mo e, a weak bu nega i e co ela ion
be ween le e age and IFRSs compliance was disco e ed by he s udy. The e o e, SMEs
wi h obus inancial pe o mance and hose ha a e expanding in size and age
con ibu e o he accele a ion o IFRSs compliance. Addi ionally, employing epu able
audi i ms—such as he Big Fou audi i ms—helps SMEs comply wi h IFRSs
equi emen s. The e o e, he Na ional Boa d o Accoun an s and Audi o s should guide
bes p ac ices o o e seas IFRSs compliance by publishing new policies and e alua ing
cu en ones. This is c ucial, as a poo le el o IFRSs compliance in de eloping coun ies
highligh s he impo ance o noncompliance issues, which should conce n
s anda d-se e s, egula o s and o he s akeholde s.
1. In oduc ion
Small- and medium-sized en i ies (SMEs) ha e impo an con ibu ion in he economy o many coun ies
in he Wo ld (Chen, 2016; K ishnan & Scullion, 2017; Um ani e al., 2015). This sec o is conside ed as he
cen e o economic de elopmen o bo h de eloped and de eloping coun ies (Pe e a & Chand, 2015;
Singh & Pillai, 2021). The con ibu ion o SMEs o he economy has been e y impo an , as i has p o-
ided employmen and ax con ibu ions o he na ion. To ensu e he sus ainabili y o SMEs, i is impo -
an ha hei s akeholde s ha e a easonable inancial s a us h ough ai ly epo ed inancial s a emen s.
To ensu e his, he In e na ional Accoun ing S anda d Boa d (IASB) issued a special e sion o he
In e na ional Financial Repo ing S anda ds (IFRSs) o SMEs based on he ope a ing en i onmen o
SMEs o he pu pose o imp o ing he eliabili y o inancial epo ing p ocesses. Tanzanian SMEs like
any o he en i ies in wo ld a e equi ed o p epa e inancial s a emen s ha comply wi h IFRSs o SMEs
(Mawu o e al., 2019; Olango & Ke ongo, 2014).
© 2024 he au ho (s). Published by in o ma uK Limi ed, ading as aylo & F ancis g oup
CONTACT si uni Z. Msechu [email protected] Depa men o accoun ing and Finance, uni e si y o Dodoma, 1 Benjamin Mkapa
oad, 41218 iyumbu, Dodoma, anzania
h ps://doi.o g/10.1080/23311975.2024.2399313
his is an open access a icle dis ibu ed unde he e ms o he C ea i e Commons a ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. he e ms on which his a icle has been
published allow he pos ing o he accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
ARTICLE HISTORY
Recei ed 12 Ap il 2024
Re ised 23 Augus 2024
Accep ed 26 Augus 2024
KEYWORDS
Compliance wi h IFRSs;
SMEs; Fi m cha ac e is ics;
IFRS o SMEs; Tanzania;
Compliance wi h IFRSs
o SMEs
SUBJECTS
Co po a e Finance;
Accoun ing; Co po a e
Social Responsibili y &
Business E hics;
O ganiza ional S udies
2 S. Z. MSECHU ETAl.
The e o e, he IASB in July 2009 published a single se o IFRSs o SMEs. This was he ou come o he
majo e o o IASB o ha e a well-simpli ied copy o ull IFRSs which simpli y ecogni ion, measu emen s
and disclosu e equi emen s. This simpli ied e sion was aimed o be used by en i ies ha in many coun-
ies a e e e ed by di e en e ms, including SMEs, p i a e en i ies and nonpublic accoun able en i ies
which p epa e hei inancial s a emen s o o he ex e nal use s (Gassen, 2017). In Tanzania 2009, he
Na ional Boa d o Accoun an s and Audi o s (NBAA) issued a echnical p onouncemen 3, which o icial-
ized he applicabili y o he IFRSs o SMEs. This echnical p onouncemen pe mi ed all nonpublicly
accoun able en i ies ha publish inancial s a emen s o o he ex e nal use s o apply he IFRSs o
SMEs. la e on, in Sep embe 2018, NBAA eleased ano he p onouncemen ha eplaced he p e ious
one. This p onouncemen pe mi ed all comme cial en i ies ha a e no public-in e es en i ies o apply
he IFRSs o SMEs. Acco ding o his p onouncemen , he quali ying en i ies a e hose wi h annual u n-
o e o TZS 800 million o abo e and o al asse s o TZS 400 million o abo e.
Despi e he ad an ages o complying o he IFRSs, esea ches indica e ha o ganiza ions in all
ad anced and eme ging coun ies a e s ill s uggling o adequa ely comply wi h he IFRS’s p o isions
(Agyei-Mensah, 2017; Al-Shamma i e al., 2008; Glaum e al., 2013; Hellman e al., 2018; Sellami & Taha i,
2017). Fo example, he s udy by Glaum e al. (2013) ac oss Eu opean coun ies ound a signi ican le el
o noncompliance wi h IFRSs by companies. The same low le el o compliance wi h IFRSs was ound by
Mokh a e al. (2018), Appiah e al. (2016), and Yiadom and A sunyo (2014) in Wes and No h A ica. In
Eas A ica, he p oblem o low a e o compliance wi h IFRSs was also documen ed by Nalukenge (2020)
and Nalukenge e al. (2018). In Tanzania, he low a e o compliance was documen ed by he s udies
conduc ed by Mbelwa and Mahangila (2019), Mpoma (2016), as well as Gwo a (2011). S udies show ha
low compliance is a esul o weak ins i u ional amewo ks and en o cemen in eme ging na ions (Bo a&
Pe ei a, 2012; Nnadi & Sooba oyen, 2015; Tawiah & Boolaky, 2019b).
The egula o y au ho i ies o he coun y hold he highes impo ance when i comes o de e mining
IFRSs compliance (Ch is ensen e al., 2013; Hellman e al., 2018). In Tanzania, he Company Ac o 2019
( e ised), he Mic o inance Ac o 2018 and he Income Tax Ac o 2019 ( e ised) manda e all companies
o p epa e inancial s a emen s ha comply wi h IFRSs. E en wi h signi ican e o s made by he go -
e nmen and o he ele an pa ies, low IFRSs compliance emains a conce n (Mpoma, 2016; Nalukenge
e al., 2018). Acco ding o Alnaas and Rashid (2019), compliance wi h IFRSs would be dic a ed by he
s eng h o he i m cha ac e is ics in he en i onmen whe e egula o y egula ion amewo ks a e weak.
The e o e, his calls o he s udy o IFRSs compliance wi h o he ac o s o he han legal amewo k. Due
o his ac , his s udy add o he knowledge by s udying how SMEs i m’s cha ac e is ics in luence he
ex en o IFRSs compliance.
A subs an ial numbe o s udies ha e been conduc ed on he i m cha ac e is ics ( i m age, i m size,
le e age, p o i abili y and audi o ype) and how hey in luence he ex en o compliance wi h IFRSs
(Alnaas & Rashid, 2019; Iwiyisi, 2018; Samaha & Khli , 2016; Yiadom & A sunyo, 2014). Howe e , hese
s udies ocused on lis ed i ms while lea ing behind unlis ed i ms including SMEs. Fu he mo e, hey
concen a ed on de eloped coun ies, lea ing behind eme ging coun ies like Tanzania. Fo example,
some s udies show ha IFRSs compliance is posi i ely associa ed wi h i m size (Alnaas & Rashid, 2019;
Haapamäki, 2018; Juhmani, 2012; Tsegba e al., 2017), p o i abili y (Tsegba e al., 2017; Uya e al., 2016),
i m age (Sellami & Taha i, 2017; Yiadom & A sunyo, 2014), audi o ype (Demi & Bahadi , 2014; Juhmani,
2012; Se a imoska e al., 2015; Tsegba e al., 2017) and le e age (Demi & Bahadi , 2014; Gue ei o e al.,
2008). While o he s udies concluded ha IFRSs compliance is no associa ed wi h i m size (Demi &
Bahadi , 2014; Glaum e al., 2013; Sellami & Taha i, 2017), p o i abili y (Alnaas & Rashid, 2019; Juhmani,
2012; Mu awaa & Hewaidy, 2010; Yiadom & A sunyo, 2014), le e age (Alnaas & Rashid, 2019; Kim e al.,
2011; Tsegba e al., 2017), audi o ype (Sellami & Taha i, 2017) and i m age (Demi & Bahadi , 2014;
Iwiyisi, 2018). The e o e, he in luence o i m cha ac e is ics on IFRSs compliance di e s om one coun-
y o he o he due o di e en economic o ces and na u e o en i ies (Bo a & Pe ei a, 2012; Hellman
e al., 2018; Sode s om & Sun, 2017). Fu he mo e, he impac o a i m cha ac e is ics on he le el o
IFRSs compliance is no well suppo ed by empi ical da a, especially when i comes o SMEs in Tanzania.
In Tanzania, he e a e ew s udies ha in es iga ed compliance wi h IFRSs, hough hei s udies con-
cen a ed on o he sub-sec o s using di e en se o IFRSs. Fo ins ance, Mwakapala e al. (2024) e iewed
IFRSs o SACCOs employed ull IFRSs. The conclusion o his s udy canno be gene alized o SMEs due
COGENT BUSINESS & MANAGEMENT 3
o di e en legal and ope a ing en i onmen . This p omp ed he cu en s udy o e iew he compliance
wi h IFRSs o SMEs in Tanzanian con ex .
This s udy con ibu es o he limi ed li e a u e by explo ing how i m cha ac e is ics in SMEs in luence
IFRSs compliance le els. Mo eo e , he esul s om his s udy a e ele an o mul iple s akeholde s, like
s anda d-se e s, egula o y bodies and p ac i ione s, o c ea ing a conduci e en i onmen o SMEs p os-
pe i y. Mo e p ecisely, he esea ch’s conclusions gi e decision-make s use ul in o ma ion o conside when
o mula ing policies ha will inc ease IFRSs compliance le els in o de o make hem mo e sus ainable.
2. Small and medium en e p ises in Tanzania
Va ious academics ha e app oached he de ini ion o SMEs om di e en angles. Acco ding o Sappo
e al. (2023), since he ph ase ‘SMEs’ is ague and b oad, people a e ee o in e p e wha hey mean by
i . The de ini ion o SMEs di e s depending on he na ion and he sec o (Wo ld Bank, 2017). Acco ding
o some w i e s, a company’s abili y o be classi ied as an SME was p ima ily de e mined by a numbe
o ac o s, including i s size, capi al, sales alue, numbe o employees and inancial s abili y. The c i e ion
se by he Eu opean Commission was based on he wo k o ce. Acco ding o Amoah and Amoah (2018)’s
s a emen , companies wi h 0–9 employees a e classi ied as mic o i ms, 10–99 as small en e p ises and
100–499 as medium i ms.
In Tanzania, he SMEs De elopmen Policy (2003) de ines SMEs acco ding o c i e ia o employees and
capi al in es men in machine y. Whe eby, small businesses a e o en o malized ope a ions wi h 5 o 49
people o capi al in es men s anging om TZS. 5 million o TZS. 200 million. Medium-sized businesses
ha e be ween 50 and 99 employees o equi e capi al in es men s anging om TZS. 200 million o TZS.
800 million.
The IASB’s de ini ion o SMEs was adhe ed o in his s udy. SMEs a e de ined by IASB (2009) as
non-accoun able en i ies ha publish inancial s a emen s o ex e nal use s. Acco ding o IASB (2009), a
company has a public du y i i s deb o equi y ins umen s a e lis ed on a public exchange, o i i is
in he p ocess o doing so; addi ionally, i one o i s p ima y unc ions in ol es managing asse s in a
iducia y capaci y o a sizable numbe o ex e nal pa ies, such as banks and insu ance companies.
3.Theo e ical li e a u e e iew
The manage –sha eholde ela ionship and he sha eholde –deb holde ela ionship a e wo ypes o
agency ela ionships de ined by agency heo y (Healy & Palepu, 2001; Jensen & Meckling, 1976). This
heo y ecognizes sepa a ion be ween managemen (agen ) and owne ship (p incipal) whe eby
sel -in e es is hough o be d i ing his ela ionship (Fama & Jensen, 1983). Ne e heless, businesses
mus also show ha hey a e complying wi h he IFRSs in o de o ge he mos ou o implemen ing
highe quali y s anda ds. Depending on each company’s unique cha ac e is ics, he incen i e o pu sue
compliance gains may di e sys ema ically.
Acco ding o he li e a u e, s udies ha employed agency heo y o explain how i m cha ac e is ics
and IFRSs compliance ela e o each o he p oduced inconsis en indings (Alnaas & Rashid, 2019; Sellami
& Bo gi, 2020; Sellami & Taha i, 2017). Thei ange o ac i i ies a ies, hough, as his s udy used da a
om di e en ypes o businesses. This way o iew could lead o biased es ima es. Rega ding how i m
cha ac e is ics a ec he deg ee o IFRSs compliance, wo compe ing poin s o iew ha e been p e-
sen ed. I has been p oposed ha IFRSs may mi iga e he p oblem o agency h ough encou aging man-
agemen o ac mo e as owne s’ ep esen a i es when p oducing inancial epo s (Jensen & Meckling,
1976). In o de o change he managemen conduc and decisions o ac in he owne s’ bes in e es ,
IFRSs can be used as a disciplina y ool. On he one hand, highe ex en o IFRSs compliance inc ease
he likelihood o imp o ed moni o ing, which aises agency cos s because i acili a es compliance,
acco ding o Jensen and Meckling (1976). Owing o his con lic ing iewpoin , he cu en s udy, which
ocuses on SMEs in Tanzania, uses agency heo y o enligh en he associa ion be ween i m cha ac e is-
ics and he ex en o compliance wi h IFRSs.
Consequen ly, agency heo is s lay he ounda ion o in es iga ing he connec ion be ween i m
cha ac e is ics and IFRSs compliance. As a esul , a heo y has been applied o asce ain how he age,
4 S. Z. MSECHU ETAl.
size, p o i abili y, le e age and audi o ype o a i m a ec he deg ee o IFRSs compliance. I assis ed
he esea che in coming o logical conclusions h oughou he in e p e a ion and discussion o he
esul s.
4. Li e a u e e iew and hypo heses de elopmen
Se e al schola s ha e de e mined how i m-speci ic cha ac e is ics a ec he deg ee o IFRSs compliance.
Acco dingly, IFRSs compliance is impac ed by i m cha ac e is ics such as age, size, p o i abili y, le e age
and audi o ype (Alnaas & Rashid, 2019; Appiah e al., 2016; Iwiyisi, 2018; Kang e al., 2016; Tsala ou as
e al., 2020; Tsegba e al., 2017; Uma e al., 2022; Uya e al., 2016). The ela ionships be ween a ious
i m cha ac e is ics and IFRSs compliance le els a e co e ed in he ensuing subsec ions.
4.1. Fi m age
Acco ding o s udies, es ablished companies should ealize he ad an ages o implemen ing IFRSs in
o de o imp o e he accu acy o hei inancial epo s (Alnaas & Rashid, 2019). Olde businesses migh
be be e a ealizing how c ucial IFRSs compliance is o aising he ba on disclosu e. I ’s concei able
ha di e en use s o olde i ms demand a high deg ee o anspa ency. In o de o enhance he in o -
ma ion hey p o ide abou hei inances, hese companies migh y o use IFRSs. Finally, compa ed o
olde companies, eshly ounded i ms may ind he cos o adop ing IFRSs o be mo e bu densome.
Howe e , empi ical indings showed a con adic ing esul s. Fo example, he s udy by Yiadom and
A sunyo (2014) ound a signi ican associa ion be ween i m age and he le el o IFRSs compliance. On
he o he hand, Iwiyisi (2018) and Demi and Bahadi (2014) ound no link be ween i m age and IFRSs
compliance. Due o hese ac o s, i is easonable o assume ha a i m’s age may ha e an in luence on
he ex en o compliance wi h IFRSs. Fo ha eason, his s udy hypo hesizes ha :
Hypo hesis 1: The e is a signi ican posi i e associa ion be ween i m age and IFRSs compliance
4.2. Fi m size
Many s udies ound a signi ican posi i e associa ion be ween i m size and he le el o IFRSs compli-
ance, as he la ge he i m, he mo e he company wan s o p o ec i s epu a ion by complying wi h
IFRSs, a ac mo e in es o s and capi al p o ide s, and u he mo e, p o ec i sel om poli ical cos s
(Alnaas & Rashid, 2019; Iwiyisi, 2018; Juhmani, 2012; Kang e al., 2016). Fu he mo e, ex a disclosu e
helps lowe he po en ial agency cos because la ge o ganiza ions ha e mo e sha eholde s and so ha e
la ge agency cos s (Wa s & Zimme man, 1983). E en ye , he e a e se e al p oblems wi h he abo e
easoning. Jensen and Meckling (1976) made a s ong case agains he o he asse ion. Con a ily, hey
easoned ha big businesses could be mo e inclined o conceal in o ma ion ha has poli ical ami ica-
ions, such as s ic e laws and g ea e ax and social obliga ions, by wi hholding i . No ably, he e a e
s eams o s udies ha ound no signi ican link be ween i m size and IFRSs compliance (Demi &
Bahadi , 2014; S ee & B yan , 2000; Uma e al., 2022). While some o he s udies ound a posi i e asso-
cia ion be ween i m size and IFRSs compliance (Alnaas & Rashid, 2019; Kang e al., 2016). As a esul ,
based on p e ious esea ches, his s udy hypo hesizes ha :
Hypo hesis 2: The e is signi ican posi i e associa ion be ween i m size and IFRSs compliance o unlis ed
en i ies.
4.3. Le e age
Acco ding o s udies, agency cos s inc ease wi h le e age, and IFRSs compliance can help minimize in o -
ma ion asymme y and agency cos s be ween managemen and loan holde s (Uma e al., 2022; Uya
e al., 2016). Bu p e ious s udies on he ela ionship be ween le e age and IFRSs compliance p o ide
con adic ing indings. Uya e al. (2016) and Kim e al. (2011) disco e ed a nega i e co ela ion be ween
COGENT BUSINESS & MANAGEMENT 5
le e age and IFRSs compliance; Al-Shamma i e al. (2008) and Ia idis and Rou olis (2010) ound a posi-
i e co ela ion; many o he esea che s (Alnaas & Rashid, 2019; Demi & Bahadi , 2014; Mu awaa &
Hewaidy, 2010; Uma e al., 2022) ound no signi ican co ela ion. In o de o examine he associa ion
be ween IFRSs compliance and le e age, his s udy es s he ollowing hypo hesis:
Hypo hesis 3: Fi m le e age is signi ican ly posi i ely ela ed wi h IFRSs compliance.
4.4. P o i abili y
Because p o i able i ms a e mo e likely o incu poli ical cos s, hey should p epa e hei published
inancial s a emen s in compliance wi h IFRSs o enhance he c edibili y o he epo s (Alnaas & Rashid,
2019; Uya e al., 2016). Fu he mo e, Gue ei o e al. (2008) con end ha p o i able companies can
demons a e he accu acy o epo ed ea nings by adhe ing o IFRSs. Howe e , Alnaas and Rashid (2019),
Demi and Bahadi (2014), Juhmani (2012), and Uya e al. (2016) ound no signi ican associa ion be ween
p o i abili y and le el o IFRSs compliance. Fu he mo e, Uma e al. (2022) and Uya e al. (2016) ound
a nega i e associa ion. As a esul , his s udy hypo hesizes, based on he abo e a gumen :
Hypo hesis 4: The e is signi ican posi i e associa ion be ween i m p o i abili y and IFRSs compliance
4.5. Audi o ype
The heo y ha he selec ion o an ex e nal audi o is a ool o mi iga ing con lic s o in e es be ween
managemen and sha eholde s was ad anced by C aswell and Taylo (1992) and Wa s and Zimme man
(1983). Jensen and Meckling (1976) and Wa s and Zimme man (1983) con ended ha big audi i ms
unc ion as a means o cu bing agency expenses and assuming a mo e igilan ole by s i ling manage s’
oppo unis ic ac ions. The e o e, he ex en o IFRSs compliance has been linked wi h he audi o ype
he i m use (Glaum e al., 2013; Kang e al., 2016; Uma e al., 2022). Kang e al. (2016), Se a imoska
e al. (2015) and Uma e al. (2022) ound a signi ican posi i e associa ion be ween IFRSs compliance
and he i ms audi ed by one among he Big Fou audi ing i ms. They a gued ha big audi i ms ac
as good subs ance o educe agency cos s by e-assu ing owne s ha managemen complies wi h all
equi emen s o IFRSs. Howe e , he s udy by Hossain e al. (1995) ound no signi ican link be ween
audi o ype and he le el o i ms compliance wi h IFRSs. Hence, as a esul o he abo e a gumen , his
s udy hypo hesizes ha :
Hypo hesis 5: IFRSs compliance and he use o a Big Fou audi i m a e signi ican ly and posi i ely ela ed.
5. Resea ch design
5.1. Sou ces o da a
SMEs om Da es Salaam, Mo ogo o, A usha, Mwanza and Kilimanja o egions we e selec ed o p o ide
da a o his s udy. These egions we e selec ed because o he la ge concen a ion o SMEs, which
oge he accoun o 55.6% o all en i ies on he Tanzanian mainland (Na ional Bu eau o S a is ics, 2016).
This s udy co e s 4 yea s (2018–2021). This ime pe iod was chosen because, in 2018, NBAA issued a
echnical p onouncemen manda ing any comme cial en e p ises ha a e no public-in e es en i ies and
ha e an annual u no e o TZS 800 million o mo e and o al asse s o TZS 400 million o mo e o p e-
pa e hei inancial s a emen s based on IFRSs o SMEs. Da a o he s udy we e ob ained om SMEs
o ices, as p esen ly, in Tanzania SMEs a e no manda ed o publish inancial epo s online. A o al o
528 audi ed inancial s a emen s om SMEs we e collec ed. The ea e , SMEs wi hou ull da a o he
selec ed pe iod in e al we e igno ed. Finally, a sum o 412 ou o 528 (equi alen o 78%) o audi ed
inancial epo s wi h a o al o 2,060 obse a ions was analyzed.
As pe he indings o Al-Shamma i e al. (2008), Alnaas and Rashid (2019) and Yiadom and A sunyo
(2014), he inclusion o s anda ds in a s udy ough o be de e mined by hei sui abili y o he i m’s
6 S. Z. MSECHU ETAl.
ci cums ances and he yea ha accoun ing s anda ds came in o o ce. The e o e, 14 IFRSs o SMEs sec-
ions we e ound use ul and hence selec ed. These a e SECT 3, SECT 4, SECT 5, SECT 6, SECT 7, SECT 8,
SECT 13, SECT 17, SECT 20, SECT 23, SECT 25, SECT 27, SECT 28 and SECT 33.
A ho ough checklis was c ea ed in acco dance wi h p e ious esea ch on IFRSs compliance (Appiah
e al., 2016; Glaum e al., 2013; Juhmani, 2017; Sellami & Bo gi, 2020; Sellami & Fend i, 2017; Tawiah &
Boolaky, 2019a; Tsala ou as, 2011). This checklis was c ea ed using he IASB’s websi e as a guide, and
he equi ed accoun ing s anda ds we e examined and chosen based on how hey a ec ed SMEs busi-
nesses. The c ea ed IFRSs compliance checklis was examined, app o ed by accoun ing p o essionals, and
compa ed o o he ea lie esea ch in o de o ensu e con en alidi y.
The e hical app o al o he s udy was ob ained om he Uni e si y o Dodoma (UDOM) e hical com-
mi ee ollowing pos g adua e egula ions o UDOM. Da a we e collec ed om SMEs o ices whe eby a
w i en in o med consen was ob ained be o e he in o ma ion om SMEs annual epo s being aken o
be in ol ed in his esea ch wo k.
5.2. Va iable de ini ion and measu emen s
The ex en o IFRSs compliance in his s udy was measu ed h ough he compliance index using he
dicho omous me hod. This app oach p e en s an en i y om being penalized o ailing o disclose in o -
ma ion ha is i ele an o i (Cooke, 1989). Hence, ollowing mos o he p io compliance s udies, all
i ems we e equally weigh ed (Alnaas & Rashid, 2019; Glaum e al., 2013; Rahman & Hamdan, 2017;
Sellami & Bo gi, 2020; Tsala ou as, 2011). The e o e, he compliance index was calcula ed by a ibu ing
a sco e o 1 (1) o an i em i i was complied wi h, ze o (0) i i was no complied wi h, and no appli-
cable (N/A) i an i em is no applicable o he SME. Consequen ly, he o al numbe o i ems disclosed
di ided by he maximum numbe o i ems ele an o ha SME was used o gene a e he IFRSs compli-
ance disclosu e index o each s anda d. The o e all compliance index o each company (j) du ing he
yea ( ) is ep esen ed by he o mula:
CIFRS
T di j
M di j
j
i
n
i
m
==
=
∑
∑
1
1
,
,
whe e CIFRSj is he o al sco e o SME j’s compliance in yea , M is he maximum numbe o i ems
(applicable disclosu e i ems) ha SME j migh ha e disclosed in yea , and T is he o al numbe o i ems
disclosed (di) by SME j du ing ha yea .
SMEs we e chosen a andom by au ho s and skilled p o essionals o gua an ee he accu acy o he
coding. The e we e no app eciable a ia ions in he in es iga o s’ compliance sco es when compa ing
hei indings.
Nex , ollowing he s udies o Abdullah e al. (2015), Tsala ou as (2011) and S ee and G ay (2002),
he s udy used he pa ial compliance unweigh ed me hod. Acco ding o his me hod, each SME’s com-
pliance le el is calcula ed by summing he compliance le els o each s anda d and hen di iding he
amoun by he numbe o s anda ds applicable o he SME, whe eby all s anda ds a e gi en equal weigh
and a e he e o e o simila impo ance (Demi & Bahadi , 2014; Glaum e al., 2013). As a esul , he o al
compliance sco e o each SME was calcula ed by di iding he o al numbe o applicable s anda ds by
he sum o he compliance sco es (CIFRS).
This is compu ed using he ollowing o mula, whe e Cj is he o al compliance sco e o i m j
in yea .
C
CIFRS
A
j
i
i
j
==
∑
1,
,
whe eby
C
j is he o al compliance sco e o each SME j o a pa icula yea . Because he o al com-
pliance sco e a ies be ween 0 and 1, i was exp essed as a pe cen age.
CIFRSi
is he compliance sco e
o each s anda d. A
j
is he o al numbe o s anda ds ha apply o ha SME’s j du ing yea .
COGENT BUSINESS & MANAGEMENT 7
5.3. Independen a iables
In o de o achie e he esea ch goal, i e ac o s ela ed o i m cha ac e is ics which a e i m age, i m
size, le e age, p o i abili y and audi o ype we e selec ed. Da a on i m cha ac e is ics o he yea s
2018–2021 we e ga he ed om he SMEs’ annual epo s. This a iable’s measu emen is desc ibed in
Table 1.
5.4. Da a analysis and model de elopmen
Using a panel eg ession model, he ela ionship be ween i m cha ac e is ics and he deg ee o IFRSs
compliance was de e mined. To de e mine which speci ica ion o he linea eg ession model o u ilize,
ku osis and skewness alues (as shown in Table 2) we e examined as pa o he no mali y es s.
Reg ession equi emen s on he pooled O dina y leas Squa es (OlS) we e me by es ing p e- and
pos -es ima ion linea eg ession assump ions, including no mali y, mul icollinea i y, he e oskedas ici y
and au oco ela ion, in acco dance wi h Abdullah e al. (2023) and Pallan (2020). The es showed ha
he da a we e dis ibu ed no mally, wi h he excep ion o he size and p o i abili y o SMEs. The size and
p o i abili y o he SMEs we e ans o med o he na u al loga i hm in o de o add ess he ou lie s and
no mali y issues (Adams e al., 2019).
Table 1. ope a ionaliza ion a iables unde s udy.
Va iable Measu emen Da a sou ce sou ce o li e a u e
Dependen a iable
Compliance index (CinDeX) Pe cen age o compliance wi h iFRs
o sMes s anda d.
annual epo s o sMes
(2018–2021)
alnaas and Rashid, (2019), awiah
and Boolaky, (2019a,b), appiah
e al., (2016), Juhmani (2017),
sala ou as (2011), al-shamma i
e al. (2008)
Independen a iables
Fi m size
(siZe)
he na u al log o o al asse s. annual epo s o sMes
(2018–2021)
alnaas and Rashid (2019), Ba bu
e al. (2014), Ma olcsy e al.
(2012), al-shamma i e al. (2008),
Moon and andon (2007),
ande son and Reeb (2003)
Fi m age
(age)
Dummy a iable se o 1 i olde i m
(10 yea s and abo e since
inco po a ion) and 0 i o he wise.
annual epo s o sMes
(2018–2021)
Coad e al. (2016)
Le e age
(LeV)
o al deb (long- e m plus
sho - e m)/equi y.
annual epo s o sMes
(2018–2021)
alnaas and Rashid (2019), Bushee
and Mille (2012), gue ei o e al.
(2008), Low and Chen (2004),
Yung (2001), Depoe s (2000)
P o i abili y
(PF )
ea nings be o e in e es and ax
(eBi )/ o al asse s.
annual epo s o sMes
(2018–2021)
alnaas and Rashid (2019), Ma olcsy
e al. (2012), Fe guson e al.
(2011), Choi e al. (2010),
Chalme s e al. (2006), Walke
e al. (2000)
audi o ype
(aD )
Dummy a iable se o 1 i he
company has been audi ed by
one o he Big Fou audi ing i ms
and 0 o he wise.
annual epo s o sMes
(2018–2021)
se a imoska e al. (2015), glaum
e al. (2013), Juhmani (2012),
sala ou as (2011), al-ak a e al.
(2010), al-shamma i e al.
(2008), glaum and s ee (2003)
Table 2. Desc ip i e s a is ics o he dependen and independen a iables.
Va iable obs Minimum Maximum Mean sD skewness Ku osis
Dependen a iable
CinDeX 2060 0.28 0.72 0.423 0.168 1.21 2.72
Independen
a iable
sMes age 2060 0.00 1.00 0.17 0.38 0.16 0.383
sMes size 2060 13.77 25.22 18.94 2.46 0.96 3.14
sMes le e age 2060 0.00 1.66 0.15 0.23 0.46 2.58
sMes p o i abili y 2060 −3.71 0.62 0.06 0.46 0.86 3.07
audi o ype 2060 0.00 1.00 0.17 0.38 0.0000 0.7657
sou ce: Field Da a.
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