2 Does Size Influence The Suitability of The IFRS For Small and Medium-Sized Entities

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Does Size Influence the

Suitability of the IFRS for Small
and Medium-Sized Entities?
– Empirical Evidence from
Germany
a b
Brigitte Eierle & Axel Haller
a
University of Bamberg , Germany
b
University of Regensburg , Germany
Published online: 23 Nov 2009.
To cite this article: Brigitte Eierle & Axel Haller (2009) Does Size Influence the
Suitability of the IFRS for Small and Medium-Sized Entities? – Empirical Evidence from
Germany, Accounting in Europe, 6:2, 195-230, DOI: 10.1080/17449480903115779
To link to this article: http://dx.doi.org/10.1080/17449480903115779
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Accounting in Europe
Vol. 6, No. 2, 195– 230, 2009
Does Size Influence the Suitability

of the IFRS for Small and Medium-
Sized Entities? – Empirical
Evidence from Germany
BRIGITTE EIERLE & AXEL HALLER

University of Bamberg, Germany and University of Regensburg, Germany
ABSTRACT This study is set within the context of the IASB’s initiative to develop an IFRS
for small and medium-sized entities (SMEs). It is based on a questionnaire survey of small
and medium-sized entities in Germany exploring the suitability of the IASB’s proposed
SME standard for entities of different size classes. Quantitative size criteria are used in
many national jurisdictions to differentiate financial reporting requirements between
entities. However, there is very little empirical evidence on the question whether the
economic size of an entity has an impact on the economic issues that should be regulated
by accounting rules and on management’s preferences for specific accounting methods.
This paper addresses these deficiencies by exploring to what extend an entity’s economic
size has an impact on its international exposure, the relevance of specific accounting issues
and preparers’ perceptions on costs and benefits associated with the application of selected
accounting methods. Our findings are ambiguous. Size effects are revealed with regard to
the structure of entities, their international exposure and to a large extent to the relevance
of particular accounting issues. Cost and benefit assessments of accounting methods also
differ within and between the size clusters investigated, albeit a generalisation of size as a
factor determining the cost-benefit considerations of firms with regard to particular
accounting treatments and methods is not supported by the study’s results.
1. Introduction
In February 2007 the IASB (2007) published an Exposure Draft of a Proposed
IFRS for Small and Medium-Sized Entities (ED-IFRS for SMEs) in response to
Correspondence Address: Brigitte Eierle, University of Bamberg, Chair of International Accounting

and Auditing, Faculty of Social Sciences, Economics and Business Administration, 96045 Bamberg,
Germany. Email: Brigitte.eierle@uni-bamberg.de
1744-9480 Print/1744-9499 Online/09/020195–36 # 2009 European Accounting Association

DOI: 10.1080/17449480903115779
Published by Routledge Journals, Taylor & Francis Ltd on behalf of the EAA
196 B. Eierle and A. Haller
strong public pressure to develop a special standard for entities without public
accountability (ED-IFRS for SMEs, BC1).1 Although the IASB is convinced
that its existing (full) IFRS are suitable for all types of entities and generally
serve the needs of the users of financial statements (ED-IFRS for SMEs,
BC27) it nevertheless recognises the different users’ needs and cost-benefit
considerations of SMEs (ED-IFRS for SMEs, BC21 and BC25).2
As there is still a tremendous lack of empirical evidence on the particularities
of SMEs, their users’ needs and cost-benefit considerations (see, however, for an
overview on accounting research carried out with regard to SMEs Evans et al.,
2005; Göbel and Kormaier, 2007), the IASB encouraged national standard-
setters and other institutions worldwide to carry out field tests and surveys on
those issues in general and the content of the ED-IFRS for SMEs in particular.
The present research addresses these issues examining the international exposure
of and accounting issues relevant to SMEs as well as their perceptions on costs
and benefits associated with the application of specific accounting methods.
As quantitative size criteria have long been considered in practice as well as in
academe as important factors for differentiating accounting requirements
between entities (International Federation of Accountants, 2006, pp. 7 – 8), the
study concentrates on the investigation of size effects in the answers collected.
The research is based on an analysis of data drawn from a comprehensive
questionnaire survey initiated by the German Accounting Standards Committee
(GASC) in cooperation with the Federation of German Industries (BDI) and
the Association of German Chambers of Industry and Commerce (DIHK).3
The findings reveal obvious size effects with regard to the structure of entities,
their international exposure and to some extent to the relevance of particular
accounting issues. The study also provides evidence that the cost and benefit
assessments of accounting treatments and methods differ within and between
the size clusters investigated. However, the argument that size is a factor that
determines the cost-benefit considerations of firms with regard to particular
accounting treatments and methods is not supported by the study’s results. The
assessments of the potential costs and benefits of particular accounting
methods proposed in the IFRS for SMEs of small entities differs only in a few
cases from the assessments of large entities.
The remainder of the paper is organised as follows: first, based on the relevant
literature and previous research we discuss the arguments used in the literature to
advocate size-based differentiation of financial reporting requirements. This is
followed by a description of our data and the research methodology applied. In
Sections 4-6 we present and discuss the results of our study. The paper concludes
by summarising major results.
2. Size as an Important Determinant for Accounting Differentiation

Quantitative size criteria have been used to differentiate accounting regulations in
many national jurisdictions. In the EU with the implementation of Articles 11 and
Empirical Evidence from Germany 197
27 of the 4th EC-Directive size thresholds were introduced in member states to

differentiate presentation, auditing and publication requirements of financial
statements for limited liability companies. These size criteria of the 4th Directive
form a common basis for defining SMEs for accounting purposes in the different
EU member states. However, even though quantitative size criteria are widely
applied to differentiate financial reporting requirements and are also often used
by various theories as proxy for other qualitative factors (e.g. agency theory
often refers to size criteria as proxy for agency conflicts (Fama and Jensen,
1983)) a generally accepted and understood ‘comprehensive theory of size in
financial reporting’ is still missing (Collis, 2005, p. 5). Arguments presented in
favour of size-based differentiations of accounting and financial reporting
requirements, in the literature often referred to as the ‘big GAAP/little GAAP

debate’ (Collis, 2005, p. 2), draw on cost and benefit considerations.
2.1. Benefit Considerations

(a) Size as a proxy for the economic and social importance of a firm
Size is conceived as a proxy for the number of stakeholders that interact with an
entity reflecting its economic and social impact (Canadian Institute of Chartered
Accountants, 1999, p. 29; UK Accounting Standards Board, 2001, note 2.21;
Eierle, 2004, p. 48). The public interest in a company is determined by its econ-
omic and social significance justifying higher levels of responsibility, transpar-
ency and strictness of financial reporting regulations for larger entities.
(b) Size as a proxy for the number and heterogeneity of financial statement users
Another argument used to advocate size-based differentiation of financial report-
ing requirements is that smaller firms have fewer financial statement users than
larger ones and less heterogeneous user groups (Bollen, 1996, pp. 37– 38;
Walton and Harvey, 1996, p. 11; Canadian Institute of Chartered Accountants,
2002, notes 33– 36). Larger entities are usually confronted with more numerous
financial statement users. The larger the user group, the higher the benefits that
result from financial statement information (Canadian Institute of Chartered
Accountants, 2002, notes 33– 36) justifying differential reporting requirements.
In addition, larger entities generally also have a wider range of different user
groups than smaller firms. This has been supported by several empirical
studies showing that apart from shareholders the main non-statutory recipients
of financial statements of smaller entities are banks, the Inland Revenue and
members of the management team (Carsberg et al., 1985, p. 6; Barker and
Noonan, 1996, p. 20; Collis and Jarvis, 2000, pp. 56– 57; Eierle et al., 2007,
p. 9). Public companies in contrast usually have a wide range of users, including
individuals, pension funds, insurance companies, banks, trust companies and
mutual funds, etc. whose information needs may vary strongly (see below).
Therefore, from a decision-usefulness perspective the large and heterogeneous
groups of users of public companies are likely to benefit from extensive and
detailed information in financial statements which might not be the case for
smaller firms (Walton and Harvey, 1996, p. 11; Canadian Institute of Chartered
Accountants, 2002, note 32).
(c) Size as a proxy for different user needs

A further argument in favour of size-based differentiation of financial reporting
regulation is that the information needs of users might differ according to the
size of a firm (Bollen, 1996, p. 38). Financial statement users of smaller firms
might be confronted with different decisions than users of financial statements
of large ones. While investors of public companies use financial information pri-
marily for valuation purposes to make ‘buy, sell or hold decisions’, shareholding
in small companies is unlikely to be liquid and exit strategies are therefore often
not a realistic option (Canadian Institute of Chartered Accountants, 2002, note
33). Thus, comparability of financial statement information might not be as
crucial for investors in small companies than for investors in listed enterprises
(UK Accounting Standards Board, 2001, notes 2.3– 2.6). Also, there might be
a different perception and role of long-term and short-term information and
decision horizons. Furthermore, the levels of sophistication and familiarity
with more complex accounting issues might also differ between professional
investors investing in large enterprises and financial statement users of small enti-
ties (Bollen, 1996, p. 38; UK Accounting Standards Board, 2001, notes 2.3 – 2.6).
Therefore, the provision of understandable accounting information might also
imply a different level of complexity for financial statements of smaller firms.
(d) Size as a proxy for stakeholder structures

Size is also regarded to reflect the structural complexity of a firm. Stakeholders
involved with smaller firms usually have a closer relationship with these firms
and as a result have access to additional information to those included in financial
statements (Bollen, 1996, p. 38; Canadian Institute of Chartered Accountants,
2002, note 35). In small firms owners are often also involved in management,
making the provision of financial statements to reduce agency conflicts
between management and owners redundant (Bollen, 1996, p. 25; John and
Healeas, 2000, p. 11). However, due to a lack of separation of ownership and
control owner-managers can more easily engage in opportunistic behaviour at
the expense of outside stakeholders. As a result, agency conflicts with outside sta-
keholders (especially lenders) may even be more prevalent in owner-managed
companies than in public firms demanding stricter accounting regulation.
2.2. Cost Considerations

(a) Compliance cost
A major argument used to advocate size-based financial reporting relaxations
relates to the costs of adhering to accounting regulation. The logic is that
smaller entities may incur relatively higher costs for complying with financial
reporting requirements than larger companies because they do not enjoy the
accounting-specific economy of scale effects of large firms (Murray and
Johnson, 1983, pp. 11– 12; Evans et al., 2005, p. 25; Coppens et al., 2006,
p. 6). A small company might not have the in-house accounting expertise of a
large company and therefore need to rely more heavily on outside accounting
expertise resulting in higher fees. Complex accounting issues occur less
frequently in small firms. These therefore lack the possibility to develop
routine processes in order to benefit from economies like large firms (Murray
and Johnson, 1983, pp. 11 – 12; Bollen, 1996, p. 42).
(b) Competitive disadvantage

Since small firms often have only a few lines of business, opportunity costs result-
ing from disclosure requirements might be greater for small firms. Outsiders
might gain more detailed insight of the managerial practices, cost structure and
profit margins of small enterprises than they do from larger firms since their
business activities are usually much broader and more complex than those of
small entities (Bollen, 1996, p. 46).
2.3. Previous Empirical Studies

All these arguments have only been partly subject of empirical research studies,
leaving still a considerable gap of ignorance about the influence of an entity’s
size on the attitudes of its representatives and its stakeholders with regard to finan-
cial reporting (see for an overview and discussion Evans et al., 2005). Some studies
have concentrated on the particularities of SMEs with regard to the objectives, pur-
poses and users of financial statements of SMEs. Those are, for example, Abdel-
Khalik (1983), Page (1984), Carsberg et al. (1985), Barker and Noonan (1996),
Paoloni and Demartini (1997), Pratten (1998) and Collis and Jarvis (2000) (for
an overview of these studies see Göbel and Kormaier, 2007). Other studies
focused on the attitudes and behaviour of SMEs with regard to financial state-
ments’ publication (Collis, 2003) and audit (e.g. Collis et al., 2004; Collis, 2005).
3. Research Questions, Methodology and Sample

3.1. Research Questions
There are significant gaps in the literature regarding the adequacy of the proposed
IFRS for SMEs. First, there is a lack of empirical research concerning the demand
for international comparable financial reporting information for SMEs. Second,
comprehensive evidence is missing regarding the accounting topics that are rel-
evant to SMEs and that therefore should be covered in the IFRS for SMEs. Third,
there is a lack of empirical evidence on the costs and benefits of IFRS-based
accounting methods for SMEs. Fourth, it is not known whether the proposed
IFRS for SMEs is equally suitable for all SMEs or whether according to
sized-based differences in cost-benefit considerations further differentiation

would be appropriate. To address these knowledge gaps the paper deals with
the following research questions:
(1) Do SMEs need internationally comparable financial statements?

(2) Which accounting topics are relevant to SMEs?
(3) How do SMEs perceive the costs and benefits of selected accounting methods
included in the proposed IFRS for SMEs?
(4) Are there significant size-based differences between SMEs with respect to
questions 1 – 3 above?
3.2. Research Method
The study was carried out as a survey based on a questionnaire sent by mail to
4,000 German SMEs (according to the qualitative definition of the IASB),
posted to the director in charge of the annual accounts. The questionnaire was
sent together with an accompanying letter as well as a prepaid envelope and con-
fidentiality was guaranteed. The questionnaire was conceived in a way that it did
not require any knowledge of either IFRS or the ED-IFRS for SMEs. Instead the
particularities of the ED-IFRS for SMEs were explained in the questionnaire to
ensure an adequate level of knowledge necessary to receive accurate and reliable
answers. The questionnaire consisted of 34 mostly structured questions, many of
which were multipart. The questions related to four different aspects:
(1) General questions regarding the entity.

(2) Questions regarding the relevance of certain accounting issues.
(3) Questions regarding the perceptions and expectations on the internationalisa-
tion of accounting.
(4) Specific questions on cost-benefit perceptions of selected accounting
methods.
For most questions a rating scale was provided with six response categories also
including the option ‘impossible to say’. Using non-forced scales was supposed
to improve the accuracy of data (Malhotra, 2007, p. 279).
The sample was developed from the MARKUS database containing approxi-
mately 886,000 German enterprises. This database embraces entities of the
German companies register that do have an acceptable credit rating of Creditre-
form, an institution which evaluates the credit worthiness of companies in
Germany and other countries. By using a disproportionate stratified random
sampling technique we selected 4,000 firms meeting the IASB’s definition of
SMEs and having annual sales of at least 8 million EUR. Small entities with
annual sales of less than 8 million EUR were excluded from the sample since it
is very unlikely that these entities will be eligible to apply the IFRS for SMEs
if the standard is introduced in Germany at all (according to the national discus-
sions, this is very unlikely). The variables used for stratification were size and
legal form of the entities. The disproportionate sampling technique was chosen to
ensure that all important subpopulations were represented in the sample.
The four size clusters used for the sample selection were: 8 – 32 million EUR,
33– 50 million EUR, 51 –100 million EUR and .100 million EUR of annual
sales. The legal form clusters were: AG (stock corporation), GmbH (limited liab-
ility company), GmbH&Co. KG (limited partnership with a limited liability
company as a general partner), KG (limited partnership), OHG (partnership)
and sole proprietorship. From each cluster a minimum of 250 entities were ran-
domly selected. If the MARKUS database did include less than 250 entities in a
particular cluster, all companies of this cluster were selected (resulting in a com-
prehensive selection).
We received 410 usable questionnaires, representing a response rate of 10.3%

(see Table 1).
To draw inferences from responses to mail surveys the problem of non-
response bias must be addressed. Previous research suggests that non-respondents
are similar to late respondents (Wallace and Mellor, 1988, p. 135). Tests compar-
ing main characteristics from early respondents with those from late respondents
revealed no significant differences suggesting that the results are not biased by
non-responses.
3.3. Sample
Tables 2 and 3 indicate that the responding entities are broadly diversified in
terms of legal form and size (annual sales).4 A total of 79.3% of the participating
entities are companies with limited liability (GmbH, GmbH&Co. KG, AG),
17.4% are partnerships (OHG, KGaA, KG) and 2.7% are sole proprietorships.
The low fraction of partnerships and sole proprietorships results from the fact
that these legal forms are mainly used by very small companies. Accordingly,
the MARKUS database contained only a few partnerships and sole proprietor-
ships with annual sales greater than 8 million EUR.
Since four entities did not answer the question regarding their annual sales the
remaining analysis of the paper is based on 406 questionnaires only.
With regard to the ownership structure, the study reveals that most of the
responding entities have quite a small number of owners. Only 7.9% of the
Table 1. Questionnaire response rate

Questionnaires sent out 4,000
Questionnaires returned 428
Rejected questionnaires, due to:
a listing on the stock exchange 6
sales,8 million EUR 11
seated abroad 1
¼ Usable questionnaires 410 (10.3%)
Table 2. Legal form of responding entities

Legal form of entities n % of full sample
AG 77 18.8
GmbH 144 35.1
GmbH&Co. KG 104 25.4
KGaA 4 1.0
OHG 6 1.5
KG 61 14.9
Sole proprietorship 11 2.7
Other 2 0.5
No response 1 0.2
Total 410 100
Table 3. Responding entities according to their annual sales
Annual sales n % of full sample

8–32 million EUR 109 26.6
33 –50 million EUR 76 18.5
51 –100 million EUR 93 22.7
.100 million EUR 128 31.2
No response 4 1.0
Total 410 100
SMEs in our sample indicate that they have more than 10 owners (Table 4).
Regarding the number of shareholders/owners, significant size effects are not
revealed between entities. These findings support the assumption that SMEs
are usually owned by a few individuals (FASB, 1983, p. 10; Canadian Institute
of Chartered Accountants, 1999, p. 30).
Regarding however the existence of owner-managers our results question the
general assumption that owners of SMEs are usually active in the entity’s man-
agement (FASB, 1983, p. 10; Canadian Institute of Chartered Accountants, 1999,
p. 30). In 74.1% of the participating entities not all owners are actively involved
in managing the business. However, the existence of external owners/share-
holders not participating in management activities depends significantly on the
entity’s size (Table 5). These findings suggest that in SMEs principal agent con-
flicts resulting from the separation of ownership and control are typically present.
Though these conflicts are more prevalent in larger entities in which a separation
of ownership and control is more frequent (Table 5). The existence of principal
agent conflicts is often seen to impact financial reporting needs (Canadian Insti-
tute of Chartered Accountants, 1999, p. 30; Collis and Jarvis, 2000, p. 32) with
our results suggesting even for many smaller entities a need to provide financial
accounting information to external owners.
Table 4. Numbers of owners in relation to annual sales

Question: How many shareholders/owners does your company have? (n 5 406)
33–50
8–32 million 51 –100 .100
million EUR EUR million EUR million EUR All
Response/sales (n ¼ 109) (n ¼ 76) (n ¼ 93) (n ¼ 128) (n ¼ 406)
1 29.4% 39.5% 31.2% 33.6% 33.0%
2 23.9% 18.4% 26.9% 23.4% 23.4%
3–10 41.3% 36.8% 36.6% 29.7% 35.7%
.10 5.5% 5.3% 5.4% 13.3% 7.9%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 12.019
(p-value) 0.212
The reported Chi-square test statistic indicates no significance at p-values of 0.01, 0.05 and 0.10 or
better.
Table 5. Existence of non-participating owners in relation to annual sales
Question: Are all owners at the same time members of the board of directors? (n 5 406)
8– 32 33–50 51–100 .100
million EUR million EUR million EUR million EUR All
Yes (1) 33.0% 30.3% 17.2% 14.8% 23.2%
No (2) 62.4% 68.4% 78.5% 84.4% 74.1%
No response 4.6% 1.3% 4.3% 0.8% 2.7%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 15.794
(p-value) 0.001

indicates significance of the reported Chi-square test statistic at p-values of 0.01 or better. The
category ‘no response’ was not included for calculating the Chi-square test statistic.
Whether the accounting information needs to be internationally comparable

depends very much on user needs. These are in turn driven by the international
activities and business relationships of firms (international exposure).
4. International Exposure of SMEs

The development of the IFRS for SMEs is – besides other reasons – justified by
the argument that SMEs increasingly engage in international business activities
(Majocci and Zuccella, 2003, p. 250) and that therefore foreign stakeholders as
well as the entity itself could profit from internationally comparable financial
accounting data (ED-IFRS for SMEs, BC15 –16). To investigate this argument
the study analysed the ‘international orientation’ of German SMEs. The
responses to the questionnaire reveal that German SMEs have considerable
cross-border activities. Foreign exports and imports are the most commonly
reported activities. For 57.1% of the responding entities exports are of moderate
(14.0%) or (very) high (43.1%) importance. About one-half of the respondents
rate imports to be of moderate (21.2%) or (very) high (27.1%) relevance (see
Table 6). Further analysis shows that many entities purchase (30.8%) or sell
(25.6%) their goods and services in a foreign currency. These findings suggest
that a large proportion of the export and import activities take place outside
the Euro Zone.
Apart from exports and imports other international activities are for most enti-
ties of minor importance. A total of 86.3% assess equity from foreign investors
and 87.2% borrowings from abroad as having no or only very limited relevance.
This corresponds with the statement of 84.0% of the respondents that they have
very little or no financing in a foreign currency. Additionally, the comparability
(benchmarking) with foreign competitors is an issue for only 25.6% of the
responding entities.
Further analysis shows a strong correlation between the importance of cross-
border activities and the economic size of the company: comparatively large
entities revealed overall more cross-border activities than comparatively small
entities (Table 6). Significant differences between the size clusters are revealed
for foreign exports, foreign imports, existence of foreign subsidiaries and
foreign competitors. However, even for 43.1% of the entities in the smallest
size cluster (8 – 32 million EUR annual sales) exports are (very) important and
18.3% of the respondents in this size cluster have to deal with foreign
competitors.
Despite the importance of exports and imports reported in the questionnaire
about half of the responding entities (47.8%) do not see any need to provide inter-
nationally comparable financial accounting data (see Table 7). This suggests that
in contrast to the IASB’s perception (ED-IFRS for SMEs, BC16) SMEs do not
consider foreign suppliers and customers as major users of their financial state-
ments, albeit the respondents’ judgements are correlated to the entity’s size.
Analysis indicates that there is a significant association between the size of the
entity and the need expressed to provide internationally comparable financial
statements (see Table 7).
The international (accounting) orientation is to some extend also expressed
in the level of IFRS knowledge of the director in charge of the annual accounts
and of its employees. In this respect a strong size effect becomes obvious.
While on average 19.7% of the respondents rate their knowledge of IFRS as
(very) good, this figure differs significantly between the size clusters analysed.
Only 6.4% of the respondents in the small size cluster but 33.6% of the respon-
dents in the largest size category describe their IFRS knowledge as (very) good
(see Table 8). Similar size effects appear for the question related to the IFRS
Table 6. Cross-border activities

Question: How relevant are the following foreign activities for your entity (your
group, respectively, if your entity is a parent company which prepares consolidated
financial statements)? (n 5 406)
8–32 33–50 51–100 .100
million million million million
EUR EUR EUR EUR All
I. Foreign exports
No relevance (1) 30.3% 18.4% 21.5% 19.5% 22.7%
Low relevance (2) 13.8% 19.7% 21.5% 13.3% 16.5%
Moderate relevance (3) 10.1% 19.7% 18.3% 10.9% 14.0%

High relevance (4) 22.0% 13.2% 9.7% 21.1% 17.2%
Very high relevance (5) 21.1% 22.4% 26.9% 31.3% 25.9%
Impossible to say 0.0% 1.3% 0.0% 1.6% 0.7%
No response 2.8% 5.3% 2.2% 2.3% 3.0%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 21.255
(p-value) 0.037
II. Foreign imports
No relevance (1) 29.4% 14.5% 14.0% 17.2% 19.2%
Low relevance (2) 31.2% 39.5% 29.0% 18.8% 28.3%
High relevance (4) 10.1% 13.2% 20.4% 18.0% 15.5%
No response 2.8% 5.3% 3.2% 2.3% 3.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 26.777
(p-value) 0.008
III. Equity from foreign investors
No relevance (1) 83.5% 78.9% 76.3% 78.9% 79.6%
Low relevance (2) 7.3% 7.9% 4.3% 7.0% 6.7%
High relevance (4) 0.9% 1.3% 6.5% 4.7% 3.4%
No response 2.8% 6.6% 3.2% 1.6% 3.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 9.974
(p-value) 0.618
IV. Borrowings abroad
No relevance (1) 82.6% 82.9% 74.2% 71.9% 77.3%
Low relevance (2) 9.2% 6.6% 12.9% 10.2% 9.9%
High relevance (4) 2.8% 1.3% 0.0% 3.9% 2.2%
(Continued)
Table 6. Continued
8–32 33–50 51 –100 .100
EUR EUR EUR EUR All
No response 2.8% 5.3% 3.2% 2.3% 3.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 18.319
(p-value) 0.106
V. Foreign subsidiaries
No (0) 72.5% 60.5% 58.1% 41.4% 57.1%
Yes (1) 16.5% 25.0% 25.8% 51.6% 31.3%
No response 11.0% 14.5% 16.1% 7.0% 11.6%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 39.651
(p-value) 0.000
VI. Foreign competitors
No (0) 73.4% 67.1% 68.8% 50.8% 64.0%
Yes (1) 18.3% 18.4% 23.7% 37.5% 25.6%
No response 8.3% 14.5% 7.5% 11.7% 10.3%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 17.311
(p-value) 0.008

categories ‘no response’ and ‘impossible to say’ were not included for calculating the Chi-square
test statistic.
knowledge of the employees in the accounting department (see Table 9), albeit at
a much lower level. For their employees only 13.3% rate the IFRS knowledge
(very) high.
Summing up, the analysis shows that international activities and the affinity
with IFRS are size-sensitive issues. Respondents of larger entities report a
greater importance of cross-border activities, indicate a higher need to provide
internationally comparable accounting information and claim more often to
have a (very) good knowledge of IFRS than respondents of smaller entities.
However, it has to be noted that even smaller entities do have not only cross-
border activities but also knowledge of IFRS, albeit to a smaller extend. These
findings suggest that even smaller entities could profit from the application of
IFRS in general and an IFRS for SMEs in particular. Although the majority of
the respondents do see only little or no need to provide internationally compar-
able accounting information to their stakeholders. To evaluate the sensibility
and suitability of IASB’s initiative to develop a particular standard for SMEs,
Table 7. Need to provide internationally comparable financial statement information in

relation to annual sales
Question: How would you assess the need for your entity to provide internationally
comparable accounting information? (n 5 406)
8–32 33 –50 51 –100 .100
No need (1) 54.1% 53.9% 49.5% 37.5% 47.8%
Little need (2) 19.3% 21.1% 19.4% 21.9% 20.4%
Partial demand (3) 21.1% 17.1% 18.3% 20.3% 19.5%
High need (4) 2.8% 6.6% 9.7% 17.2% 9.6%
Very high need (5) 0.9% 1.3% 2.2% 3.1% 2.0%

No response 1.8% 0.0% 1.1% 0.0% 0.7%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 20.493
(p-value) 0.058

Table 8. Level of IFRS knowledge by respondents in relation to annual sales
Question: How would you describe your own knowledge about IFRS? (n 5 406)
8–32 33– 50 51–100 .100
EUR EUR EUR EUR All
No knowledge (1) 27.5% 6.6% 8.6% 4.7% 12.1%
Little knowledge (2) 36.7% 35.5% 45.2% 24.2% 34.5%
Moderate knowledge (3) 28.4% 35.5% 31.2% 37.5% 33.3%
Good knowledge (4) 4.6% 18.4% 12.9% 29.7% 17.0%
Very good knowledge (5) 1.8% 3.9% 1.1% 3.9% 2.7%
No response 0.9% 0.0% 1.1% 0.0% 0.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 64.412
(p-value) 0.000

it is important to know whether accounting-relevant economic issues differ

between small and large entities, as well as whether accounting methods and
treatments are assessed differently by entities of different sizes. These questions
are dealt with in the following.
Table 9. Level of IFRS knowledge of employees in relation to annual sales

Question: How would you describe the level of knowledge of IFRS of your employees
in the accounting department? (n 5 406)
8–32 33 –50 51 –100 .100
EUR EUR EUR EUR All
No knowledge (1) 44.0% 27.6% 23.7% 18.0% 28.1%
Little knowledge (2) 39.4% 40.8% 45.2% 32.8% 38.9%
Moderate knowledge (3) 11.9% 17.1% 16.1% 25.8% 18.2%
Good knowledge (4) 3.7% 13.2% 10.8% 18.0% 11.6%
Very good knowledge (5) 0.0% 0.0% 2.2% 3.9% 1.7%

No accountancy employees 0.0% 0.0% 1.1% 0.0% 0.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 41.442
(p-value) 0.000

test statistic.
5. Relevance of Specific Accounting-Related Topics for SMEs

To restrict the volume and complexity of the IFRS for SMEs the IASB considered
addressing only those issues and transactions in the IFRS for SMEs that are of
general relevance for SMEs (ED-IFRS for SMEs, BC56 – 57). The questionnaire
therefore included several questions to identify which transactions SMEs regu-
larly encounter.
Our results (Table 10) indicate that SMEs in Germany act rarely as a lessor in a
finance lease (92.2% have never or very seldom acted as such). The same is true
for the sale of a business unit and discontinued operations; 84.7% of the partici-
pants stated no or very little relevance of this issue. Accounting issues that are
more relevant for SMEs are research and development activities and construction
contracts. Research and development projects occur for 29.1% of the participat-
ing entities (very) often and 28.3% of the entities encounter construction con-
tracts often or even very often. Significant size effects are revealed for the sale
of a business unit/discontinued operations and research and development activi-
ties. Though surprisingly, entities with annual sales of 8 –32 million EUR seem to
be more often confronted with research and development activities than entities
with annual sales of 33– 50 million EUR or 51– 100 million EUR.
No material size effects were revealed with respect to the relevance (occur-
rence) of share-based payments and employee benefits. However, the level of rel-
evance of those two issues is different in general. While the vast majority of the
entities (90.1%) responded that share-based payments do not occur at all or occur
Table 10. Frequency of particular issues in SMEs

Question: How often do the following issues occur in your entity? (n 5 406)
8–32 33 –50 51– 100 .100
I. Construction contracts
Not at all (1) 33.9% 35.5% 38.7% 46.1% 39.2%
Seldom (2) 4.6% 2.6% 3.2% 3.9% 3.7%
Sometimes (3) 3.7% 3.9% 6.5% 5.5% 4.9%
Often (4) 8.3% 13.2% 8.6% 12.5% 10.6%
Very often (5) 22.9% 25.0% 17.2% 9.4% 17.7%

No response 24.8% 19.7% 24.7% 21.9% 22.9%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 14.467
(p-value) 0.272
II. Research and development projects within the company
Not at all (1) 45.0% 31.6% 41.9% 29.7% 36.9%
Seldom (2) 13.8% 27.6% 19.4% 14.8% 18.0%
Sometimes (3) 11.9% 19.7% 16.1% 14.8% 15.3%
Often (4) 15.6% 13.2% 12.9% 21.1% 16.3%
Very often (5) 12.8% 7.9% 8.6% 18.8% 12.8%
No response 0.0% 0.0% 1.1% 0.8% 0.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 21.770
(p-value) 0.04
III. Sale of businesses or discontinuation/sale of business operations
Not at all (1) 64.2% 44.7% 53.8% 32.0% 48.0%
Seldom (2) 28.4% 39.5% 28.0% 48.4% 36.7%
Sometimes (3) 6.4% 13.2% 16.1% 16.4% 13.1%
Often (4) 0.0% 2.6% 0.0% 2.3% 1.2%
Very often (5) 0.0% 0.0% 0.0% 0.0% 0.5%
No response 0.0% 0.0% 1.1% 0.8% 0.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 32.916
(p-value) 0.000
IV. Leases with your company being the lessor
Not at all (1) 82.6% 81.6% 86.0% 81.3% 82.8%
Seldom (2) 9.2% 10.5% 8.6% 9.4% 9.4%
Sometimes (3) 4.6% 3.9% 2.2% 3.9% 3.7%
Often (4) 1.8% 2.6% 0.0% 3.1% 2.0%
Very often (5) 0.9% 1.3% 2.2% 1.6% 1.5%
(Continued)
Table 10. Continued

8–32 33 –50 51–100 .100
No response 0.0% 0.0% 1.1% 0.8% 0.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 4.620
(p-value) 0.969

, indicates significance of the reported Chi-square test statistic at p-values of 0.01 and 0.05 or
better, respectively. The categories ‘no response’ and ‘impossible to say’ were not included for
calculating the Chi-square test statistic.
very seldom, 17.7% of the respondents express a high or very high relevance of
defined contribution plans and 24.1% indicate a moderate relevance. Even more
relevant are defined benefit plans. They are assessed as of (very) high relevance
by 30.5% and of moderate relevance by 18.7% of the entities.
In contrast, hedge activities are size sensitive; the answers reveal that foreign
currency exchange risks are the most frequent reasons for hedge transactions. On
average 20.9% of the entities indicate that those risks are hedged frequently or
very frequently (see Table 11). While foreign exchange risks are also the most
frequent reasons for hedging in entities with 8 –32 million EUR annual sales
only 12% of these entities hedge these risks (very) frequently. This size effect
also appears in all the other risks inquired (see Table 11), albeit on a much
lower absolute level.
An analysis of the relevance of different types of investments reveals that
investments in non-listed entities with an interest of more than 50% play a con-
siderable role for SMEs and increases with the economic size of the entities (see
Table 12). The financial integration of SMEs is much more intensive with respect
to majority ownerships (interest over 50%) than with associate relationships
(interest between 20 and 50%); a fact which seems to be true for all size clusters.
Another size-sensitive issue seems to be joint ventures. Although they do not play
a considerable role for SMEs (only 6.1% of the entities express a (very) high and
8.9% a moderate relevance), they seem to be more important in large SMEs than
in small ones. While only 2.7 or 3.7% of the small size cluster (8 – 32 million EUR
of annual sales) expressed a high or moderate relevance of this type of investment
these rates were 11.8 and 10.2% in entities with annual sales larger than 100
million EUR.
Small relevance and only a weak size effect is revealed for investments in non-
listed associates (only 6.6% of the entities indicated a high or very high relevance
and 8.4% a moderate relevance of investments in non-listed associates; the rates
of investments in listed associates were even lower; see Table 12).5 The
responses of the survey show also the small relevance of investments in listed
companies by SMEs as well as of investment properties. With regard to
Table 11. Frequency of particular hedge transactions

Question: How often do transactions occur in order to hedge the following risks in
your entity? (n 5 406)
8–32 33 –50 51 –100 .100
I. Interest rate risk
Not at all (1) 59.6% 43.4% 48.4% 38.3% 47.3%
Seldom (2) 19.3% 28.9% 20.4% 20.3% 21.7%
Sometimes (3) 15.6% 19.7% 18.3% 26.6% 20.4%
Often (4) 3.7% 7.9% 7.5% 9.4% 7.1%
Very often (5) 0.0% 0.0% 3.2% 3.1% 1.7%

No response 0.9% 0.0% 1.1% 1.6% 1.0%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 20.771
(p-value) 0.054
II. Foreign exchange risk in a firm commitment or a highly probable forecast
transaction
Not at all (1) 68.8% 64.5% 55.9% 40.6% 56.2%
Seldom (2) 18.3% 25.0% 20.4% 20.3% 20.7%
Sometimes (3) 5.5% 6.6% 14.0% 17.2% 11.3%
Often (4) 4.6% 3.9% 5.4% 12.5% 7.1%
Very often (5) 0.9% 0.0% 2.2% 7.0% 3.0%
No response 0.9% 0.0% 1.1% 1.6% 1.0%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 38.576
(p-value) 0.000
III. Foreign exchange risk in a foreign currency position
Not at all (1) 65.1% 53.9% 50.5% 28.9% 48.3%
Seldom (2) 13.8% 19.7% 20.4% 15.6% 17.0%
Sometimes (3) 7.3% 18.4% 8.6% 17.2% 12.8%
Often (4) 8.3% 5.3% 8.6% 24.2% 12.8%
Very often (5) 3.7% 2.6% 10.8% 13.3% 8.1%
No response 0.9% 0.0% 1.1% 0.0% 0.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 56.241
(p-value) 0.000
IV. Price risk
Not at all (1) 63.3% 59.2% 61.3% 38.3% 54.2%
Seldom (2) 18.3% 22.4% 21.5% 31.3% 23.9%
Sometimes (3) 12.8% 11.8% 10.8% 14.1% 12.6%
Often (4) 3.7% 5.3% 1.1% 10.9% 5.7%
Very often (5) 0.0% 1.3% 2.2% 3.1% 1.7%
(Continued)
Table 11. Continued

8–32 33 –50 51 –100 .100
No response 0.9% 0.0% 1.1% 1.6% 1.0%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 28.073
(p-value) 0.005
V. Foreign exchange risk in a net investment in a foreign operation
Not at all (1) 82.6% 80.3% 76.3% 60.9% 73.9%
Seldom (2) 8.3% 6.6% 7.5% 18.0% 10.8%

Sometimes (3) 3.7% 6.6% 6.5% 10.2% 6.9%
Often (4) 2.8% 5.3% 6.5% 4.7% 4.7%
Very often (5) 0.0% 0.0% 1.1% 3.1% 1.2%
No response 1.8% 0.0% 1.1% 1.6% 1.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 27.411
(p-value) 0.026

, , indicates significance of the reported Chi-square test statistic at p-values of 0.01, 0.05 and
0.10 or better, respectively. The categories ‘no response’ and ‘impossible to say’ were not included for
investment properties only 2.9% of the responding entities expressed a (very)

high and 10.3% a moderate relevance. Quite surprisingly, the rates where
higher in smaller entities (8– 32 million EUR annual sales) than the average
figures; 3.6% of the entities of this size cluster reported a (very) high and
12.8% a moderate relevance. This may be due to the fact that in smaller firms
the proportion of sole proprietorships and partnerships may be higher. In these
legal forms it is more common that assets are used partly for business purposes
and partly for private purposes of the owner(s).
The survey depicts clearly that acquisitions are a highly relevant topic for
SMEs. More than half of the responding entities indicated that they had at
least one acquisition during the last 10 years (see Table 13). It becomes also
obvious that the frequency of acquisitions is significantly associated with the
size of an entity. In the cluster of 8 – 32 million EUR of annual sales, 30 entities
(27.5%) had one to three acquisitions and none of the respondents had more
than six acquisitions during the last 10 years whereas in the cluster of more
than 100 million EUR sales volume 43 entities (33.6%) had one to three
acquisitions and 27 entities (21.1%) had more than six acquisitions during the
same period.
The results provide evidence that even SMEs use acquisitions as a tool to accel-
erate growth. Accordingly, business combinations and goodwill accounting seem
to be important issues for SMEs that should be addressed in the IFRS for SMEs.
Table 12. Relevance of particular types of investments

Question: How relevant are – amongst others – the following types of investments
with regard to the overall portfolio of your entity? (n 5 406)
8 –32 33– 50 51 –100 .100
EUR EUR EUR EUR All
I. Investments in non-listed limited companies resp. partnerships with an investment
between 20 and 50% (non-listed associates)
No relevance (1) 57.8% 55.3% 54.8% 51.6% 54.7%
Low relevance (2) 6.4% 3.9% 4.3% 13.3% 7.6%

High relevance (4) 0.9% 7.9% 4.3% 5.5% 4.4%
No response 20.2% 23.7% 20.4% 9.4% 17.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 23.668
(p-value) 0.071
II. Investments in non-listed limited companies resp. partnerships with an investment
of more than 50%
No relevance (1) 54.1% 47.4% 48.4% 36.7% 46.1%
Low relevance (2) 3.7% 5.3% 2.2% 4.7% 3.9%
High relevance (4) 8.3% 10.5% 9.7% 19.5% 12.6%
No response 15.6% 18.4% 16.1% 3.9% 12.6%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 26.945
(p-value) 0.008
III. Investments in listed limited companies with an investment between 20 and 50%
(listed associates)
No relevance (1) 65.1% 64.5% 75.3% 82.0% 72.7%
Low relevance (2) 3.7% 1.3% 2.2% 2.3% 2.5%
High relevance (4) 0.0% 0.0% 0.0% 1.6% 0.5%
No response 19.3% 28.9% 16.1% 8.6% 17.0%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 9.701
(p-value) 0.642
IV. Investments in listed limited companies with an investment of more than 50%
No relevance (1) 65.1% 64.5% 75.3% 82.0% 72.7%
Low relevance (2) 3.7% 1.3% 1.1% 3.9% 2.7%
(Continued)
Table 12. Continued

8 –32 33–50 51 –100 .100
EUR EUR EUR EUR All
High relevance (4) 0.0% 0.0% 0.0% 0.0% 0.0%
No response 19.3% 27.6% 18.3% 7.8% 17.0%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 3.620
(p-value) 0.728
V. Joint ventures
No relevance (1) 68.8% 64.5% 62.4% 59.4% 63.5%
Low relevance (2) 3.7% 6.6% 6.5% 11.7% 7.4%
High relevance (4) 1.8% 3.9% 2.2% 10.2% 4.9%
No response 11.0% 10.5% 9.7% 3.9% 8.4%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 21.198
(p-value) 0.048
VI. Property (land and/or building) held to earn rentals and/or for capital
appreciation (investment property)
No relevance (1) 54.1% 55.3% 53.8% 57.8% 55.4%
Low relevance (2) 11.0% 19.7% 22.6% 21.9% 18.7%
High relevance (4) 1.8% 1.3% 2.2% 0.0% 1.2%
No response 8.3% 9.2% 5.4% 3.9% 6.4%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 9.526
(p-value) 0.657

In summary the results reveal that three-quarters of the responding SMEs

encounter the following accounting issues only seldom or not at all, or are of
little or no relevance: the sale of businesses/discontinued operations, leases in
which the company acts as lessor, share-based payments, transactions to hedge
price or exchange risks (except foreign exchange risk in a foreign currency pos-
ition), investments in listed associates and listed subsidiaries. Furthermore, in
most of the issues a clear size effect is obvious; the level of relevance or fre-
quency is generally lower for small entities than for large ones. These accounting
Table 13. Amount of acquisitions during the last 10 years

Question: How many business acquisitions did your entity pursue over the last 10
years? (n 5 406)
8 –32 million 33 –50 51– 100 .100
Response/ EUR million EUR million EUR million EUR All
sales (n ¼ 109) (n ¼ 76) (n ¼ 93) (n ¼ 128) (n ¼ 406)
0 70.6% 46.1% 55.9% 35.2% 51.5%
1–3 27.5% 46.1% 31.2% 33.6% 33.7%
4–6 0.9% 5.3% 6.5% 9.4% 5.7%
.6 0.0% 2.6% 6.5% 21.1% 8.6%
No response 0.9% 0.0% 0.0% 0.8% 0.5%
100.0% 100.0% 100.0% 100.0% 100.0%

Chi-square 63.917
(p-value) 0.000

topics therefore would give leeway for further reductions in complexity and
volume of the IFRS for SMEs.
6. Cost-Benefit Assessment of Particular Accounting Treatments or

Methods
Another major focus of the survey was to investigate cost-benefit considerations
of SMEs with respect to particular accounting treatments and methods included
in the ED-IFRS for SMEs. With regard to the benefits, the participants had to
assess the expected benefits for internal management and control purposes as
well as for information purposes for external financial statement users. In order
to try to avoid influences of the current German legal and tax accounting
framework on the assessments the respondents were asked to answer the ques-
tions on accounting methods without considering the currently existing national
framework.
Our results reveal that SMEs’ evaluation of the revaluation model compared
to the cost model as referred to in Sections 16 and 17 of the ED-IFRS for SMEs
(which is similar to IAS 16 and IAS 38) depends on size. With regard to property,
plant and equipment size effects exist primarily in two cases. Firstly, if fair value
needs to be estimated large entities (.100 million EUR annual sales) evaluate
the usefulness for internal decision-making and management purposes (much)
lower (45.3%) than entities in smaller size classes. Secondly, large entities
(.100 million EUR) also estimate the costs for determining the fair value
(much) higher (71.1%) than smaller entities (see Table 14).
In addition to that it is obvious that SMEs assess the revaluation model in total
quite advantageous for internal management purposes (60% evaluated it (much)
Table 14. Evaluation of the revaluation model for property, plant and equipment according
to expected costs and benefits
Required assessment: Please assess the revaluation model for property, plant and
equipment compared to the cost model with regard to the following criteria:
8– 32 33–50 51 –100 .100
I.a. Usefulness for internal decision-making and management purposes – if market
price exists
Much lower (1) 3.7% 3.9% 5.4% 4.7% 4.4%
Lower (2) 9.2% 5.3% 7.5% 9.4% 8.1%
About the same (3) 24.8% 32.9% 18.3% 18.0% 22.7%

Higher (4) 31.2% 30.3% 38.7% 43.8% 36.7%
Much higher (5) 13.8% 21.1% 16.1% 16.4% 16.5%
No response 4.6% 1.3% 1.1% 2.3% 2.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 21.770
(p-value) 0.242
I.b. Usefulness for internal decision-making and management purposes – if fair value
needs to be estimated
Much lower (1) 9.2% 11.8% 17.2% 17.2% 14.0%
Lower (2) 22.9% 18.4% 19.4% 28.1% 22.9%
About the same (3) 33.9% 35.5% 28.0% 29.7% 31.5%
Higher (4) 11.0% 23.7% 19.4% 14.8% 16.5%
Much higher (5) 6.4% 3.9% 1.1% 2.3% 3.4%
No response 4.6% 1.3% 1.1% 2.3% 2.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 26.932
(p-value) 0.080
II.a. Costs for determining the fair value – if market price exists
Much lower (1) 1.8% 2.6% 3.2% 4.7% 3.2%
Lower (2) 4.6% 6.6% 6.5% 8.6% 6.7%
About the same (3) 35.8% 35.5% 32.3% 23.4% 31.0%
Higher (4) 27.5% 34.2% 28.0% 32.8% 30.5%
Much higher (5) 11.0% 13.2% 17.2% 20.3% 15.8%
No response 4.6% 1.3% 2.2% 2.3% 2.7%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 17.542
(p-value) 0.486
II.b. Costs for determining the fair value – if fair value needs to be estimated
Much lower (1) 5.5% 3.9% 4.3% 3.1% 4.2%
Lower (2) 0.9% 5.3% 2.2% 8.6% 4.4%
About the same (3) 23.9% 30.3% 31.2% 7.0% 21.4%
(Continued)
Table 14. Continued

8– 32 33– 50 51 –100 .100
Higher (4) 27.5% 30.3% 23.7% 34.4% 29.3%
Much higher (5) 22.9% 21.1% 24.7% 36.7% 27.3%
No response 4.6% 1.3% 2.2% 2.3% 2.7%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 43.577
(p-value) 0.001
III.a. Usefulness for providing information to external users of financial statements –

if market price exists
Much lower (1) 6.4% 5.3% 7.5% 3.1% 5.4%
Lower (2) 3.7% 7.9% 4.3% 9.4% 6.4%
About the same (3) 24.8% 26.3% 15.1% 18.8% 20.9%
Higher (4) 26.6% 25.0% 36.6% 41.4% 33.3%
Much higher (5) 13.8% 21.1% 17.2% 16.4% 16.7%
No response 4.6% 3.9% 2.2% 2.3% 3.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 25.478
(p-value) 0.112
III.b. Usefulness for providing information to external users of financial statements –
if fair value needs to be estimated
Much lower (1) 8.3% 13.2% 14.0% 11.7% 11.6%
Lower (2) 14.7% 14.5% 23.7% 27.3% 20.7%
About the same (3) 32.1% 28.9% 23.7% 25.8% 27.6%
Higher (4) 14.7% 23.7% 15.1% 19.5% 18.0%
Much higher (5) 5.5% 5.3% 4.3% 3.9% 4.7%
No response 4.6% 3.9% 2.2% 3.1% 3.4%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 11.507
(p-value) 0.486

higher than the cost model) as well as for decision-making of external users
(57.8% evaluated it (much) higher than the cost model) when the fair value
can be reliably measured through market prices. However, the figures in Table
14 do not reveal a significant size sensibility.
About one-third of the respondents (35.2%) evaluate the revaluation of intan-
gible as advantageous for providing information to external users. A total of
30.3% of participants assess it as advantageous for internal management pur-
poses. However, the majority of entities (62.1%) also expect (much) higher
Table 15. Evaluation of the revaluation model for intangible assets according to expected
costs and benefits
Required assessment: Please assess the revaluation model for intangible assts
compared to the cost model with regard to the following criteria:
8– 32 33–50 51 –100 .100
I. Usefulness for internal decision-making and management purposes
Much lower (1) 9.2% 5.3% 1.1% 6.3% 5.7%
Lower (2) 8.3% 11.8% 0.0% 11.7% 8.1%
About the same (3) 29.4% 39.5% 41.9% 38.3% 36.9%
Higher (4) 25.7% 15.8% 31.2% 27.3% 25.6%

Much higher (5) 3.7% 6.6% 5.4% 3.9% 4.7%
No response 4.6% 0.0% 3.2% 1.6% 2.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 23.989
(p-value) 0.02
II. Costs for control and documentation of the criteria
Much lower (1) 2.8% 1.3% 0.0% 0.0% 1.0%
Lower (2) 3.7% 1.3% 0.0% 1.6% 1.7%
About the same (3) 15.6% 22.4% 17.2% 11.7% 16.0%
Higher (4) 33.9% 28.9% 43.0% 48.4% 39.7%
Much higher (5) 20.2% 25.0% 20.4% 24.2% 22.4%
No response 4.6% 0.0% 3.2% 1.6% 2.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 19.432
(p-value) 0.079
III. Usefulness for providing information to external users of financial statements
Much lower (1) 6.4% 5.3% 2.2% 3.9% 4.4%
Lower (2) 7.3% 13.2% 5.4% 16.4% 10.8%
About the same (3) 22.0% 30.3% 25.8% 21.1% 24.1%
Higher (4) 23.9% 11.8% 28.0% 33.6% 25.6%
Much higher (5) 6.4% 14.5% 12.9% 7.0% 9.6%
No response 4.6% 0.0% 3.2% 1.6% 2.5%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 23.821
(p-value) 0.022

costs for applying the revaluation model for intangibles. Further analysis shows
that respondents’ judgements are significantly associated with the economic size
of the entity (see Table 15).
Table 16. Evaluation of the capitalisation of development costs compared to the

recognition as expense
Required assessment: Please assess the capitalisation of development costs compared

to the recognition of development costs as expense with regard to the following
criteria: (n 5 406)
8– 32 33– 50 51 –100 .100
Much lower (1) 2.8% 6.6% 3.2% 4.7% 4.2%
Lower (2) 4.6% 6.6% 5.4% 7.8% 6.2%
About the same (3) 27.5% 32.9% 28.0% 35.2% 31.0%

Higher (4) 19.3% 30.3% 32.3% 26.6% 26.6%
Much higher (5) 11.9% 6.6% 7.5% 8.6% 8.9%
No response 2.8% 0.0% 2.2% 1.6% 1.7%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 7.722
(p-value) 0.806
Much lower (1) 1.8% 2.6% 0.0% 0.8% 1.2%
Lower (2) 1.8% 3.9% 0.0% 0.8% 1.5%
About the same (3) 16.5% 21.1% 17.2% 14.8% 17.0%
Higher (4) 29.4% 30.3% 37.6% 42.2% 35.5%
Much higher (5) 16.5% 23.7% 20.4% 24.2% 21.2%
No response 2.8% 1.3% 2.2% 1.6% 2.0%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 11.595
(p-value) 0.479
Much lower (1) 6.4% 5.3% 1.1% 3.9% 4.2%
Lower (2) 2.8% 10.5% 8.6% 10.9% 8.1%
About the same (3) 17.4% 19.7% 18.3% 20.3% 19.0%
Higher (4) 24.8% 26.3% 34.4% 36.7% 31.0%
Much higher (5) 8.3% 11.8% 7.5% 8.6% 8.9%
No response 2.8% 3.9% 2.2% 2.3% 2.7%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 11.345
(p-value) 0.500
better. The categories ‘no response’ and ‘impossible to say’ were not included for calculating the
Chi-square test statistic.
Another issue is the capitalisation of development costs vs. expensing

them, for which the ED-IFRS for SMEs Sec. 17.14 provides an option. Our
findings (Table 16) show that on average 39.9% of the entities expect (much)
higher and 19.0% at least the same benefits for external users when capitalising
development expenditures compared to expensing them as incurred. A total of
35.5% of the respondents conceive the benefits for internal management and
control purposes to be higher for capitalisation than for expensing and 31.0%
see no difference. Only a few entities assess lower benefits for external
(12.3%) and internal (10.4%) information purposes when capitalising develop-
ment expenditures rather then recognising them as an expense. These findings
must be contrasted with the evaluation of the costs incurred by the required
measures of documentation and control. A total of 56.7% of the respondents
associate with the capitalisation of development expenditures (much) higher
costs than for the expense model. However, quite a high proportion of more
than 20% of the entities state that they are unable to make the required judge-
ment, which may indicate a quite high degree of difficulty the respondents had
with the question.
Size effects are not significant. Our results indicate that the benefits for external
and internal purposes receive an equally positive evaluation across all size clus-
ters. Even entities of the small size cluster express higher or at least the same
benefits for the capitalisation model compared to the expense model (see Table
16). Only a few entities (9.2% of the entities of the cluster with 8– 32 million
EUR sales and 14.8% of the entities of the largest size cluster (.100 million
EUR)) assess lower benefits for external users when capitalising development
costs. With increasing size the proportion of entities expecting higher costs
with the application of the capitalisation model than with the expense model is
also rising (see Table 16), however, the results are not significant.
For deferred taxes the survey reveals astonishing results. In contrast to the
general opinion that the recognition of deferred taxes is associated with high
costs for the preparers without resulting in sufficient benefits for the users,
29.3% of the respondents expect a (very) high benefit from the accounting for
deferred taxes as required by the ED-IFRS for SMEs Sec. 28 (which was
explained in the questionnaire) for external information purposes. Only 25.4%
of the SMEs in our sample express a low or no benefit (see Table 17). Concerning
the usefulness for internal management purposes, 26.6% mention a (very) high
benefit, however, the proportion of respondents stating no or a low benefit is
34.4% larger. Further analysis shows that size effects are only significant for
the assessment regarding the usefulness of deferred taxes for external financial
statement users. In the group of entities with annual sales of more than 100
million EUR the number of entities in favour of deferred taxes is larger than in
the whole sample (see Table 17).
As shown above (see Table 10), the survey reveals that construction contracts
do have considerable relevance for SMEs. The entities that did answer in the
questionnaire that they do have construction contracts (n ¼ 163) were asked to
evaluate the percentage of completion (PoC) method, as proposed in ED-IFRS
for SMEs Sec. 22 in comparison to the completed contract method (which is
the required method under German GAAP). Table 18 shows the evaluations.
Table 17. Evaluation of the requirement to recognise deferred taxes

Required assessment: Please assess the required recognition of deferred taxes
according to the ED-IFRS for SMEs with regard to the following criteria: (n 5 406)
33–50
8 –32 million 51 –100 .100
million EUR EUR million EUR million EUR All
None (1) 18.3% 26.3% 20.4% 20.3% 20.9%
Low (2) 9.2% 14.5% 17.2% 14.1% 13.5%
Moderate (3) 21.1% 11.8% 20.4% 22.7% 19.7%
High (4) 17.4% 23.7% 19.4% 29.7% 22.9%

Very high (5) 4.6% 2.6% 3.2% 3.9% 3.7%
No response 2.8% 1.3% 2.2% 2.3% 2.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 9.394
(p-value) 0.669
None (1) 8.3% 9.2% 7.5% 3.1% 6.7%
Low (2) 2.8% 2.6% 4.3% 3.9% 3.4%
Moderate (3) 17.4% 14.5% 17.2% 20.3% 17.7%
High (4) 28.4% 32.9% 31.2% 40.6% 33.7%
Very high (5) 12.8% 22.4% 20.4% 21.9% 19.2%
No response 2.8% 1.3% 2.2% 2.3% 2.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 8.314
(p-value) 0.760
None (1) 16.5% 22.4% 9.7% 9.4% 13.8%
Low (2) 7.3% 9.2% 15.1% 14.1% 11.6%
Moderate (3) 20.2% 21.1% 23.7% 22.7% 21.9%
High (4) 18.3% 19.7% 22.6% 36.7% 25.4%
Very high (5) 1.8% 7.9% 4.3% 3.1% 3.9%
No response 2.8% 1.3% 2.2% 2.3% 2.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 21.700
(p-value) 0.041

test statistic.
Most of the participants evaluate a higher benefit of the PoC method for both,
external information purposes (48.5%) and internal purposes (50.3%). However,
65.6% of the respondents are afraid of higher costs that are associated with the
Table 18 Evaluation of the PoC method in comparison with the completed contract
method for construction contracts
Required assessment: Please assess the recognition of the contract revenues by

reference to the stage of completion of the contract activity at the end of the reporting
period (percentage of completion method) compared to the revenue recognition only
after completion of the entire contract (according to German GAAP): (n 5 163)
8 –32 33 –50 51–100 .100
Much lower (1) 6.0% 5.7% 5.4% 7.3% 6.1%
Lower (2) 8.0% 14.3% 10.8% 2.4% 8.6%

About the same (3) 18.0% 34.3% 29.7% 29.3% 27.0%
Higher (4) 32.0% 17.1% 29.7% 41.5% 30.7%
Much higher (5) 20.0% 28.6% 16.2% 14.6% 19.6%
No response 8.0% 0.0% 5.4% 2.4% 4.3%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 10.649
(p-value) 0.559
Much lower (1) 0.0% 0.0% 2.7% 0.0% 0.6%
Lower (2) 4.0% 0.0% 2.7% 2.4% 2.5%
About the same (3) 24.0% 25.7% 21.6% 17.1% 22.1%
Higher (4) 26.0% 37.1% 32.4% 36.6% 32.5%
Much higher (5) 28.0% 37.1% 29.7% 39.0% 33.1%
No response 8.0% 0.0% 5.4% 2.4% 4.3%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 6.921
(p-value) 0.863
III. Sensitivity of the information provided
Much lower (1) 0.0% 0.0% 5.4% 0.0% 1.2%
Lower (2) 4.0% 2.9% 5.4% 0.0% 3.1%
About the same (3) 26.0% 25.7% 29.7% 39.0% 30.1%
Higher (4) 34.0% 40.0% 35.1% 43.9% 38.0%
Much higher (5) 14.0% 28.6% 16.2% 9.8% 16.6%
No response 10.0% 0.0% 5.4% 2.4% 4.9%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 16.719
(p-value) 0.336
IV. Usefulness for providing information to external users of financial statements
Much lower (1) 2.0% 0.0% 8.1% 4.9% 3.7%
Lower (2) 4.0% 5.7% 5.4% 2.4% 4.3%
About the same (3) 26.0% 31.4% 24.3% 34.1% 28.8%
(Continued)
Table 18. Continued

8–32 33 –50 51–100 .100
Higher (4) 24.0% 31.4% 24.3% 41.5% 30.1%
Much higher (5) 16.0% 25.7% 27.0% 7.3% 18.4%
No response 10.0% 0.0% 5.4% 2.4% 4.9%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 11.322
(p-value) 0.502
Chi-square statistic.
PoC method compared to the completed contract method, and 54.6% state that
the information required to provide is more sensitive than using the completed
contract method. A quite low rate of ‘impossible to say’ answers indicates that
most of the respondents who deal with construction contracts feel capable to
evaluate the two accounting methods.
An analysis of the different size clusters indicates that the answers are more or less
comparable across the different clusters and that therefore size effects are not significant.
Another accounting treatment whose assessment does not seem to be largely
influenced by the economic size of the responding entity is the measurement of
defined benefit plan liabilities for employee benefit contracts. The value of a
defined benefit plan liability is based on actuarial methods and factors such as
salary increases, interest rates and actuarial assumptions and as a result might
vary with changes of those factors. In the survey, 278 entities answered that
defined benefit plans are relevant for them. Asked about the evaluation of the
timely measurement of the defined benefit liabilities as required under the ED-
IFRS for SMEs (Sec. 27), 33.1% of those entities expressed a (very) high, and
still 25.2% a moderate, benefit for external recipients of financial statements
(see Table 19). Another 25.1% did only see low or no benefit for external
users. With respect to internal purposes most of the respondents (30.9%) don’t
see any or only a little benefit; however, 28.1% note a moderate and 27.7% a
(very) high benefit. A majority of the answering entities (47.9%) state (very)
high costs of this method to account for defined benefit plans, 28.1% estimate
moderate and 11.8% little or no cost.
The influence of the actuarial adjustments, the so-called actuarial gains and
losses, which have according to the ED-IFRS for SMEs to be recognised directly
in the income statement, on the volatility of profit and loss was evaluated simi-
larly. A total of 38.5% expect a (very) high impact on the volatility of earnings,
24.8% expect a moderate and 20.8% of very little or no impact.
Size does not seem to have a significant influence on the described evaluations.
Table 19. Evaluation of the accounting for employee benefits

Required assessment: Please assess the accounting requirements for defined benefit
plans according to ED-IFRS for SMEs with regard to the following criteria
8–32 33 –50 51– 100 .100 million
million EUR million EUR million EUR EUR All
I. Usefulness of timely measurement of the defined benefit liabilities for internal
decision-making and management purposes
None (1) 6.7% 8.0% 11.3% 11.3% 9.7%
Low (2) 18.3% 28.0% 19.4% 20.8% 21.2%
Moderate (3) 38.3% 20.0% 24.2% 28.3% 28.1%
High (4) 21.7% 16.0% 21.0% 21.7% 20.5%

Very high (5) 5.0% 12.0% 6.5% 6.6% 7.2%
No response 5.0% 10.0% 4.8% 3.8% 5.4%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 8.792
(p-value) 0.721
II. Influence of changes of the defined benefit liabilities on volatility of profit or loss
None (1) 3.3% 8.0% 4.8% 4.7% 5.0%
Low (2) 13.3% 18.0% 12.9% 17.9% 15.8%
Moderate (3) 23.3% 24.0% 29.0% 23.6% 24.8%
High (4) 30.0% 22.0% 24.2% 28.3% 26.6%
Very high (5) 15.0% 10.0% 9.7% 12.3% 11.9%
No response 6.7% 12.0% 4.8% 3.8% 6.1%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 4.501
(p-value) 0.973
III. Costs for the company
None (1) 6.7% 4.0% 3.2% 0.9% 3.2%
Low (2) 8.3% 12.0% 8.1% 7.5% 8.6%
Moderate (3) 33.3% 26.0% 30.6% 24.5% 28.1%
High (4) 28.3% 26.0% 29.0% 44.3% 34.2%
Very high (5) 15.0% 16.0% 11.3% 13.2% 13.7%
No response 5.0% 10.0% 4.8% 3.8% 5.4%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 11.251
(p-value) 0.508
IV. Usefulness of timely measurement of the defined benefit liabilities for providing
information to external users of financial statements
None (1) 15.0% 10.0% 12.9% 6.6% 10.4%
Low (2) 10.0% 22.0% 14.5% 14.2% 14.7%
Moderate (3) 26.7% 24.0% 24.2% 25.5% 25.2%
High (4) 25.0% 16.0% 21.0% 33.0% 25.5%
(Continued)
Table 19. Continued

8–32 33–50 51– 100 .100 million
million EUR million EUR million EUR EUR All
Very high (5) 8.3% 10.0% 6.5% 6.6% 7.6%
No response 5.0% 10.0% 6.5% 3.8% 5.8%
100.0% 100.0% 100.0% 100.0% 100.0%
Chi-square 10.907
(p-value) 0.537
The reported Chi-square test statistic indicates no significance of p-values of 0.01, 0.05 and 0.10 or
Chi-square test statistic.
In summary, our findings are quite ambiguous. Accounting methods that were
ranked by more entities as advantageous than as disadvantageous for external
information and management purposes are: revaluation of property, plant and
equipment if a market price exists, revaluation of intangibles, capitalisation of
development costs and the application of the PoC method. Although these
accounting methods were considered to be useful for internal and external pur-
poses, most respondents also expect (much) higher costs when applying these
methods. An accounting method that a majority of entities regard to be (much)
more costly and at the same time is more frequently associated with (much)
lower benefits than with (much) higher benefits for internal and external purposes
is the revaluation of property, plant and equipment if the fair value needs to
be estimated. This accounting method therefore seems to be not very suitable
for SMEs. The results are ambiguous for deferred taxes and the timely measure-
ment of defined benefit liabilities. Though many entities expect (much) higher
costs when applying these methods, the resulting benefits are less clear. Account-
ing for deferred taxes and defined benefit plans are rated by more entities as
advantageous than as disadvantageous for external information purposes,
whereas the evaluations for internal purposes were the reverse. Size effects
appear for the revaluation of property, plant and equipment, the revaluation of
intangible assets and accounting for deferred taxes suggesting a need for
further differentiation.
7. Discussion and Conclusion

In this paper we considered the suitability of the proposed IFRS for SMEs for
entities of different size classes. The results of the study indicate that principal
agent conflicts resulting from the separation of ownership and control are,
albeit dependent on size, also prevalent in SMEs. These findings do not
support the general view that owners of SMEs are generally involved in manage-
ment. In contrast many SMEs (especially larger entities) have external
shareholders/owners for which financial statements are probably an important

source of information.
Our study also indicates that cross-border activities and the knowledge of IFRS
are size-sensitive issues. However, even smaller entities quite often have foreign
exports and imports and at least some in-house IFRS knowledge available. It
therefore appears that even smaller entities could benefit from providing interna-
tionally comparable accounting information to their stakeholders and thereby the
IASB’s initiative to develop an IFRS for SMEs. Despite these findings, the
majority of SMEs see only little or no need to provide internationally comparable
financial statements. This perception of a little need of internationally compar-
able financial information might explain – besides the perceived costs – the
reluctance of SMEs to apply IFRS so far. It can also be interpreted as an indi-

cation that SMEs do not consider their international suppliers and customers as
major users of their financial statements.
To limit the volume and complexity of the IFRS for SMEs the IASB con-
sidered addressing only those issues and transactions in the IFRS for SMEs
that are typically relevant for SMEs. This study shows that the sale of businesses,
discontinued operations, leases in which the entity acts as the lessor, share-based
payments, hedging transactions (except transactions to hedge exchange risks in
foreign currency positions and transactions to hedge interest rate risks), invest-
ments in listed associates and listed subsidiaries are accounting issues that
approximately three-quarters of the responding SMEs encounter only seldom
or are of little or no relevance to them. Since many of these accounting topics
are correlated with size and often even less relevant for smaller entities they
may give leeway for further reductions in complexity and volume of the proposed
IFRS for SMEs.
Regarding the evaluation of specific accounting methods of the ED-IFRS for
SMEs the study produces ambiguous results. An accounting method that seems
not very suitable for SMEs is the revaluation of property, plant and equipment
if the fair value needs to be estimated. A majority of entities regard this account-
ing method, albeit with size-based differences, to be (much) more costly and it is
more frequently associated with (much) lower benefits than with (much) higher
benefits for internal management and external information purposes.
In contrast, accounting methods for which the fraction of respondents associat-
ing (very) high benefits for external or internal information purposes exceeds those
expecting low or no benefits are: revaluation of property, plant and equipment if a
market price exists, revaluation of intangibles, capitalisation of development costs
and the application of the PoC method. Though some of the issues are size sensitive
these results hold for all size classes. However, despite the general positive evalu-
ation of benefits resulting from the application of these accounting methods in all
cases the majority of respondents also expect higher application costs.
Even more ambiguous are the results for deferred taxes and the timely
measurement of defined benefit liabilities. Though many entities expect
(much) higher costs when applying these methods, the resulting benefits are
heterogeneous. Accounting for deferred taxes and defined benefit plans are rated
by more entities as advantageous than as disadvantageous for external infor-
mation purposes, but the evaluations for internal purposes are the reverse.
With regard to the relevance of size the study shows that there are significant
differences between small and large entities with respect to facts that are related
to the structure of the entity and the entity’s business activities. These issues are:
the existence of non-owner managers on the board, the relevance of foreign
exports and imports as well as foreign subsidiaries and foreign competitors, the
knowledge of IFRS within the entity, the frequency of R&D projects, discontinu-
ing operations, acquisitions, different types of hedge transactions, and the
relevance of investments in non-listed companies and partnerships as well as
joint ventures. With regard to all these issues the respondents of small entities sig-
nificantly indicated lower levels of relevance or frequency etc. than respondents
of large entities. This means that with increasing size the way of how to do
business changes.
In contrast, the findings with regard to the assessment of the costs and benefits
of particular accounting methods are different. Here size effects are quite rare.
Significant effects can only be observed concerning the following assessments:
usefulness of the revaluation model for property, plant and equipment if the
fair value needs to be estimated for internal decision-making and estimation of
the related costs; usefulness of the revaluation model for intangible assets for
external users and internal decision-making as well as related costs, and the
usefulness of the requirement to recognise deferred taxes for external users.
In general, although with no provable significance, the findings of the study
lead to the assumption that small entities overestimate the benefits of accounting
methods and underestimate the related costs compared to large entities. This
might be explained by the fact that the level of accounting knowledge – in par-
ticular with regard to IFRS – seems to be lower in small entities than in large
ones.
Regarding the response category ‘impossible to say’ size effects appear. For
the questions regarding the evaluation of accounting methods this response
option was chosen much more often by small entities than by large ones. For
some questions the percentage of small entities choosing this response category
even exceeded 30% (see, e.g. Tables 16 and 17). This finding might relate to the
general knowledge of financial accounting in general and the IFRS in particular
which most likely increases with the size of the firm and the related increasing
normative requirements as well as the volume and complexity of accounting
problems that have to be tackled.
Furthermore, it is interesting to note that there is no constant decrease of the
‘impossible to say’ answer rate over the four size clusters. Almost in all questions
related to accounting methods the third size cluster (51 – 100 million EUR) shows
a higher rate of ‘impossible to say’ answers than the second one (33 – 50 million
EUR), whereas the second size cluster shows quite often lower rates than the
cluster of the largest entities. The reason for this non-linear decrease from the
‘small’ to the ‘large’ cluster is questionable. It may be that respondents in the

second size cluster overestimated their accounting knowledge and the respon-
dents of the third are much more aware of their restricted knowledge and there-
fore choose the ‘impossible to say’ category in a more prudent way.
The findings of our study reveal the dilemma the IASB and other standard-
setters are regularly facing: cost-benefit trade-offs are not an issue capable of
precise resolution (McCahey and Ramsay, 1989). Due to the problems involved
in identifying and measuring the costs imposed on businesses by financial report-
ing requirements and the resulting benefit decisions concerning what kind of
concessions should be granted to which categories of entities often depend on
subjective cost-benefit judgements and therefore regularly end up being a politi-
cal choice because ‘conflict of interest, not theory or rationality, dominates this
issues’ (Abdel-Khalik, 1983, p. 2).
However, our study supports the argument that there is in general no significant
difference in the assessment of accounting methods between entities of different
sizes. This argument is essential to the major conviction of the IASB that all of
the IFRS are suitable for all types of entities without regard of their size and the
industry they belong to.
Our study contributes to the literature in several ways. It addresses a gap in the
literature relating to the usefulness of the proposed IFRS for SMEs for entities of
different size classes. It provides national regulators and managers of SMEs with
information on cost-benefit judgements of preparers assisting decisions on future
implementation of the IFRS for SMEs. The study supports the assumption that
economic size is related to the international exposure of an entity and the
relevance of particular accounting-related economic issues. However, it gives
little evidence that the size of an entity has an influence on the assessment
of the costs and benefits of accounting methods in general of the entity’s
management.
There are, of course, some limitations to our study. Apart from the typical
limitations associated with questionnaire surveys it must be considered that the
study reflects only the assessments of entities that met the chosen SME definition
and that were seated in Germany. The results therefore may be nationally and cul-
turally biased. A further limitation of the study relates to the influence of the cur-
rently existing regulatory framework in Germany on the responses provided.
Though the respondents were asked to answer the questions on accounting
methods by ignoring the currently existing framework we cannot completely
rule out that the knowledge of and familiarity with the existing regulatory frame-
work did unknowingly bias the responses.
Furthermore, our study is limited to the investigation of size impacts. There
may however exist other factors (like principal agent relationships, an entity’s
business strategy, organisational structure or financial situation, etc.) that may
also affect cost-benefit judgements relating to the application of accounting
methods. These aspects were not examined, but offer fruitful avenues for
future research.
Notes
1
According to the IASB, the IFRS for SMEs should meet the financial reporting needs of entities
that do not have public accountability and publish general purpose financial statements for exter-
nal users (ED-IFRS for SMEs 1.1). Publicly accountable entities are those which file, or are in the
process of filing, their financial statements with a securities commission or other regulatory
organisation for the purpose of issuing any class of instruments in a public market; or holds
assets in a fiduciary capacity for a broad group of outsiders (e.g. a bank, insurance entity, secu-
rities broker/dealer, etc.) (ED-IFRS for SMEs 1.2). However, the board had entities with 50
employees in mind, when the ED was developed; see BC46. The IASB leaves it to the national
regulators to define the scope of entities eligible to use the standard. This also allows national
regulators to use quantitative size criteria.
2
For a brief overview on the modifications of full IFRS reflected in the ED-IFRS for SMEs see
Epstein and Jermakowicz (2007).
3
The authors are very grateful to the GASC for its support of this study.
4
There is also a broad diversification in industry.
5
For simplification and understandability reasons the participants where asked whether they have
investments in other entities with an interest of 20– 50%, which is not totally identical to the
IASB’s definition of associates in ED-IFRS for SMEs 13.1.
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Does Size Influence the

To link to this article: http://dx.doi.org/10.1080/17449480903115779

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Does Size Influence the Suitability

BRIGITTE EIERLE & AXEL HALLER

Correspondence Address: Brigitte Eierle, University of Bamberg, Chair of International Accounting

1744-9480 Print/1744-9499 Online/09/020195–36 # 2009 European Accounting Association

2. Size as an Important Determinant for Accounting Differentiation

27 of the 4th EC-Directive size thresholds were introduced in member states to

requirements, in the literature often referred to as the ‘big GAAP/little GAAP

2.1. Benefit Considerations

(c) Size as a proxy for different user needs

(d) Size as a proxy for stakeholder structures

2.2. Cost Considerations

(b) Competitive disadvantage

2.3. Previous Empirical Studies

3. Research Questions, Methodology and Sample

sized-based differences in cost-benefit considerations further differentiation

(1) Do SMEs need internationally comparable financial statements?

(1) General questions regarding the entity.

We received 410 usable questionnaires, representing a response rate of 10.3%

Table 1. Questionnaire response rate

Table 2. Legal form of responding entities

Total 410 100

Table 3. Responding entities according to their annual sales

Annual sales n % of full sample

Table 4. Numbers of owners in relation to annual sales

Table 5. Existence of non-participating owners in relation to annual sales

Whether the accounting information needs to be internationally comparable

4. International Exposure of SMEs

Table 6. Cross-border activities

Moderate relevance (3) 10.1% 19.7% 18.3% 10.9% 14.0%

Table 7. Need to provide internationally comparable financial statement information in

Very high need (5) 0.9% 1.3% 2.2% 3.1% 2.0%

Table 8. Level of IFRS knowledge by respondents in relation to annual sales

it is important to know whether accounting-relevant economic issues differ

Table 9. Level of IFRS knowledge of employees in relation to annual sales

Very good knowledge (5) 0.0% 0.0% 2.2% 3.9% 1.7%

5. Relevance of Specific Accounting-Related Topics for SMEs

Table 10. Frequency of particular issues in SMEs

Impossible to say 1.8% 0.0% 1.1% 0.8% 1.0%

Table 10. Continued

Table 11. Frequency of particular hedge transactions

Very often (5) 0.0% 0.0% 3.2% 3.1% 1.7%

Table 11. Continued

Seldom (2) 8.3% 6.6% 7.5% 18.0% 10.8%

investment properties only 2.9% of the responding entities expressed a (very)

Table 12. Relevance of particular types of investments

Moderate relevance (3) 4.6% 3.9% 8.6% 14.1% 8.4%

Table 12. Continued

In summary the results reveal that three-quarters of the responding SMEs

Table 13. Amount of acquisitions during the last 10 years

100.0% 100.0% 100.0% 100.0% 100.0%

6. Cost-Benefit Assessment of Particular Accounting Treatments or

About the same (3) 24.8% 32.9% 18.3% 18.0% 22.7%

Table 14. Continued

III.a. Usefulness for providing information to external users of financial statements –

Higher (4) 25.7% 15.8% 31.2% 27.3% 25.6%

Table 16. Evaluation of the capitalisation of development costs compared to the

Required assessment: Please assess the capitalisation of development costs compared

About the same (3) 27.5% 32.9% 28.0% 35.2% 31.0%