Journal of Accounting, Auditing and Taxation

Vol. 3(2), pp. 032-041, October, 2019. © www.premierpublishers.org. ISSN: 0799-673X

Research Article
Factors Influencing the Level of Compliance with International
Financial Reporting Standards by Small and Medium Scale
Enterprises in Ondo State, Nigeria
Olowolaju, Philip Segun
Department of Accounting, Federal University of Technology, Akure, Nigeria
E-Mail: olowosegun2014@gmail.com

Compliance with International Financial Reporting Standards (IFRS) by Small and Medium-Scale
enterprises (SMEs) has become a topical issue in accounting research, and it has become
necessary in order to enhance the ability of SMEs to live up to international best business
practices. SMEs are pivotal to the growth and development of any nation's economy. Many
countries are opening their doors to foreign investments due to globalization and businesses are
expanding beyond their national borders. Therefore, there is a need for the SME sector in Nigeria
to be prepared and take advantage of this phenomenon for their growth by ensuring that their
financial reports comply with the disclosure requirements of IFRS. This study assessed the
factors that influence the levels of compliance with IFRS by SMEs in Ondo State, Nigeria. A cross
sectional survey of one hundred SMEs in Akure was conducted through structured questionnaire.
The data was analyzed using Single-Factor Descriptive Analysis, Weighted Mean Scoring,
Principal Component Analysis and Regression Analysis. The study found there was low level of
compliance by the SMEs in the study area and major factors influencing compliance are proper
accounting records submission of accounting statements to regulatory bodies and knowledge of
IFRS with mean ratings of 3.29, 3.27, 3.26 and 3.24 respectively. It concluded that there is need for
the SMEs in the study area to comply with the disclosure requirements of IFRS in order to improve
their capitalization and profitability. It is recommended that Financial Reporting Act in Nigeria is
reviewed to make compliance of SMEs with IFRS mandatory and that Financial Reporting Council
should ensure proper capacity development to enable SMEs compliance.

Keywords: Financial statement, financial reporting, compliance, information, profit, auditor, small and medium enterprises

INTRODUCTION

Most developing countries, including Nigeria, have since
shown interest in the promotion of SMEs due to failure of
past industrial policies which were anchored on large
capital emphasis on self-reliant approach to development;
and the discovery that dynamic and the growth of SMEs
can contribute substantially to a wide range of
development objectives. The classification of business into
small, medium or large involves subjective and qualitative
judgement (Scoles, Westhead & Burrows, 2008). World
Bank (2013), defined SMEs is based on the size of the
enterprise in terms of the total number of employees with
or without total assets value. SMEs and large firms can be
differentiated based on the aforementioned criteria. It is
difficult to develop a general definition of a small business
concern because the economies of countries differ and
people take on particular standards for special uses,
different institutions and nations use different standards to
define SMEs (Eniola, Entebang & Sakaritu, 2015).
However, the definition of SMEs can be viewed from
different perspectives, depending on the organisation or
country. In view of the significant roles that SMEs play in
different countries that standardization of the financial
reporting system becomes a necessity.
Accounting Standards and other forms of regulation help
to ensure that entities adopt similar accounting treatments
for similar items and account for similar transactions in the
same way over time; this makes it possible to compare the
financial statements of different entities and to compare an
entity’s performance for the current year with its

Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria
Olowolaju PS 033
performance in previous years. Without regulation,
management would adopt whichever accounting treatment
that pleases them and sometimes management would
deliberately mislead users of financial statements.
Over time, different countries have developed their own
national standards to regulate the accounting systems
peculiar to their environment but the increase globalization
has made the adoption of international accounting
standards a necessity. According to Beier (2008),
increasing integration of international markets have
caused companies around the world to look for ways of
doing their business in a manner that conforms to
international corporate best practices. This brings us to the
issue of convergence. Convergence of accounting
standards refers to the goal of establishing a single set of
accounting standards that would be used internationally.
This can also be referred to as the international
harmonization of accounting standards. Harmonization of
accounting would result in all companies anywhere in the
world reporting financial position and financial
performance in the same way with the belief that this would
lead to greater market efficiency through the quality of the
information and make raising finance cheaper and easier.
According to Schutte and Buys (2011), the inconsistent
accounting practices found in different parts of the world
have historically fascinated accounting researchers over
the years. Small and Medium Enterprises (SMES) are not
left out. Financial record maintenance practices of these
small and medium-scale enterprises (SMEs) are seen to
lack credibility. Meanwhile investors, especially foreign
ones find it difficult to rely on them. This poses a challenge
to SMEs in most developing countries. Small and Medium
Enterprises play an important role in the economic growth
and sustainability of every economy
The main reason for developing accounting standards for
SMEs is to provide a framework that generates relevant,
reliable and useful information, which should provide high
quality and understandable accounting standards suitable
for SMEs (Abbas and Graham, 2011). The adoption of
IFRS for SMEs was scheduled to start in Nigeria by 2014
however, there has been a lot of militating factors that do
not allow most of the SMEs to comply with the
requirements of IFRS for SMEs in the preparation of their
financial statement. This study assessed the factors that
influence compliance with IFRS by SMES
MATERIALS AND METHODS
Objective of Financial Statements
The objective of a general-purpose financial report is to
provide financial information about the reporting entity that
is useful to present and potential investors and creditors in
making decisions. The two primary objectives of financial
statements prepared under IFRS are economic decision-
Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria
making and stewardship. According to the IASB
Framework, the users of financial statements include
present and potential investors, employees, lenders,
suppliers and other trade creditors, customers,
governments and their agencies and the public. The
objectives of financial statements are met by the main
financial statements, which are statement of financial
position, statement of profit or loss and other
comprehensive income, statement of cash flows,
statement of changes in equity and supporting notes to the
accounts, which provide additional details.
Fundamental qualitative characteristics
The IASB Conceptual Framework describes fundamental
qualitative characteristics and enhancing qualitative
characteristics. The fundamental qualitative
characteristics are relevance; and faithful representation.
The qualitative characteristics that enhance the usefulness
of information that is relevant and a faithful representation
are comparability; verifiability, timeliness; and
understandability.
Relevance is referred to as the capability of making a
difference in the decisions made by users in their capacity
as capital providers (Van Beest, Braam & Boelens, 2009.
Financial reports represent economic phenomena
(economic resources, claims against the reporting entity
and the effects of transactions and other events and
conditions that change those resources and claims) by
depicting them in words and numbers. A faithful
representation is complete, neutral and free from error
(Ruslana, 2013). Comparability enables users to identify
and understand similarities in and differences among
items. Information about a reporting entity is more useful if
it can be compared with similar information about other
entities and with similar information about the same entity
for another period. Comparability refers to information
being comparable through time and across entities. To
achieve comparability, like transactions and events should
be accounted for similarly by an entity, over time for that
entity, and by different entities (Abbas & Graham, 2011).
Consistency is related to comparability but is not the same.
Consistency refers to the use of the same methods for the
same items, either from period to period within a reporting
entity or in a single period across entities. Consistency
helps to achieve the goal of comparability.
According to Ruslana (2013), verifiability lends credibility
to financial information by providing assurance that
information faithfully represents the economic phenomena
it purports to represent. Verifiability means that different
knowledgeable and independent observers could reach
consensus that a particular depiction is a faithful
representation (Nikolai, 2010). Information should be
available to decision makers before it loses its capacity to
influence decisions. Having relevant information available
sooner can enhance its capacity to influence decisions,
and a lack of timeliness can rob information of its potential

usefulness. Some information may continue to be timely
long after the end of a reporting period because some
users may continue to consider it when making decisions.
An essential quality of the information provided in financial
statements is that it is readily understandable by users. For
this purpose, users are assumed to have a reasonable
knowledge of business and economic activities and
accounting and a willingness to study the information with
reasonable diligence. However, information about
complex matters that should be included in the financial
statements because of its relevance to the economic
decision-making needs of users should not be excluded
merely on the grounds that it may be too difficult for certain
users to understand (Alexander, Britton & Jorissen, 2017).
SMEs need the financial information for decision making,
as such the financial statements must be understandable
by managers of SMEs
Elements of financial statements
According to the IASB Framework, there are five elements
of financial statements. They are assets, liabilities and
equity, for reporting financial position and income and
expenses for reporting financial performance. According to
Elumilade (2010), an asset is a valuable productive
resource owned or employed in the business. This means
any resource owned by an entity that is capable of
providing future benefits to the entity. An asset is
recognized in the statement of financial position when
there is an increase in future economic benefits relating to
an increase in an asset or a reduction in a liability, which
can be, measured reliably (Mirza, Holt and Orrell, 2008). A
liability is recognized when it is probable that an outflow of
resources that embody economic benefits will result from
the settlement of a present obligation, and the amount of
the obligation can be measured reliably (Mirza, Holt and
Orrell, 2008). Income increased the economic benefits
during the accounting period, in the form of inflows or
enhancements of assets or decreases of liabilities that
result in increase in equity other than those relating to
contributions from equity participants (Abbas and Graham,
2011). Expenses are recognized in the statement of profit
or loss when a decrease in future economic benefit arises
from a decrease in an asset or an increase in a liability,
which can be measured reliably.
Empirical Review of Literature
Hodgdona, Tondkar, Harless and Adhikari (2008) stated
that compliance with IFRS is a contentious issue. Cairns
(1999) documented nine categories of firm’s compliance
with IFRS, ranging from full compliance to ‘unqualified
description of differences. Cairns (1999) found that some
companies use a mixture of IFRS and home country
generally accepted accounting principles (GAAP), while
others use IFRS with stated exceptions. According to
Jordan and Odysseus (2004), the characteristics that
influence compliance with IFRS include the company’s
size, leverage, profitability, field of activity, and the size of
Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria
J. Acc. Aud. Tax. 034
external audit firm. Other factors include the size of the
capital market in which the company operates and whether
the company is listed or unlisted. Hope et al. (2006)
empirically documented that countries with weaker
investor protection mechanisms are more likely to adopt
IFRS, and therefore concluded that IFRS represents a
vehicle through which countries can improve investor
protection and make their capital markets more accessible
to foreign investors.
The usefulness of the International Financial Reporting
Standards for Small and Medium Enterprises (IFRS for
SME) in drawing up the financial statements of small
businesses was the focus of research conducted by John
and Healeas (2000) which was assisted by the Association
of Certified Chartered Accountants. The general
conclusion was that the IFRS for SME’s represented a
simplified version of existing standards with minor
amendments, more than 700 pages of regulations being
reduced to 76 pages. Although this was welcomed by
many as a step in the right direction, others felt that it failed
to recognize the fact that small companies are not scaled-
down versions of larger ones, and should not be treated as
such. Based on broad discussion of SMEs and common
standards for SMEs worldwide, the International
Accounting Standard Board (IASB) introduced an
International Financial Reporting Standard (IFRS)
designed for use by small and medium-sized entities
(SMEs) on July 9, 2009 (International Accounting
Standards Board, 2010). The introduction of IFRS
specifically for SMEs was necessitated by many
challenges faced by these entities in adopting full IFRS in
financial reporting, the main challenge being the excessive
disclosure requirements, based on a cost-benefit analysis
for SMEs. In a study conducted by Jordan and Odysseus
(2004) on the application of IFRS in Greece SMEs, they
stated that the application of IFRS will provide a robust set
of rules common to all companies, thus constraining the
incident of creative accounting which is a situation
whereby the figures in the annual accounts are
manipulated to influence investors’ behavior
Nigeria-ROSC (2011) Information on “compliance gaps”
demonstrates weaknesses of corporate financial reporting.
The review of published financial statements, conducted
by the ROSC Team, revealed compliance gaps, between
applicable accounting standards and actual practice. The
review mainly involved an examination of 40 sets of
financial statements of major listed companies against a
checklist of selected disclosure requirements of the
relevant IAS/IFRS in the checklist. The review also
involved interviews with experienced corporate
accountants, practicing auditors, academics, members of
professional bodies, and regulators. The exercise showed
non-compliance with important disclosure requirements.
The review focused mainly on the disclosure
requirements; no attempt was made to examine the books
of account of the companies and/or audit working papers
in order to dig deep into the recognition and measurement
issues
Olowolaju PS 035

Umobong (2015) examined the impact of IFRS on the Table 1: Return on questionnaire for the study
market performance of food and beverages manufacturing Industrial Copies of the Number Total
firms in Nigeria. The performance variables selected for Sectors questionnaire retrieved percentage
this study included Price Earnings Ratio, Earnings per administered for analysis
Share, and Dividend Yield. The findings from this study (%)
based on the comparative analysis of the pre and post Hospitality 33 31 86.1
IFRS era using the t-test indicated that the difference Oil and Gas 39 29 74.3
between market performance of the pre and post IFRS Property and 36 25 69.4
periods were not significant. This according to Umobong Investment
(2015) is a suggestion that a weak correlation exists Sales 42 31 86.1
between IFRS adoption and the market performance of Pharmaceuticals 36 24 66.7
beverage manufacturing firms in Nigeria. Contrary to this Manufacturing 39 27 69.2
finding, the study of Abata (2015) on the impact of IFRS Construction 45 38 97.4
adoption on the financial reporting practices in Nigeria Agricultural 30 26 72.2
revealed that the adoption of IFRS brought about Total 300 231 77
increased comparability and better decision making
among banks in the country since quantitative difference Level of Compliance with IFRS by SMEs in the study
in the financial reports prepared under the Nigerian GAAP Area
and the IAS/IFRS were found to be statistically significant.
Table 2 shows the level of compliance of the studied
The survey method was used in collecting data for the enterprises with different aspects of IFRS for SMEs. It
study. This includes the use of structured questionnaires. shows that 41.1% had between 51-75% level of
The study covered SMEs in Ondo state. Ondo State which compliance with IAS1, 41.6% of them showed between 51-
is the major cocoa producing state and one of the oil 75% level of compliance with IAS2, 30.3% of them showed
producing states in Nigeria, it also has a lot of mineral 0-25% level of compliance with IAS 8, and 26.4% showed
deposits and has a concentration of industrial and between 0-25% level of compliance with IAS 16. In
commercial activities. The target population of study were addition, 35.5% of the enterprises showed 0-25% level of
SMEs that were incorporated and registered with compliance with IAS 18, 43.3% of them showed 51-75%
Corporate Affairs Commission (CAC) and remit their taxes level of compliance with IAS 19, and 33.3% of them
to Federal Inland Revenue Service (FIRS. A sample of 100 showed 0-25% level of compliance with IAS 38. This result
SMEs in the manufacturing sector was selected for the indicates that there is generally low level of compliance of
study using sample size determination developed by SMEs with IFRS in the study area. The reason could be
Bartlett, Kotrlik and Higgins (2001). The instrument that attributed to the low rate (15.2%) of professionally qualified
was used to collect the data for this study was the accountants that are working in the enterprises.
structured questionnaire. The questionnaire was
structured to elicit information on factors that influence Table 2: Level of compliance with IFRS
compliance with IFRS. Both descriptive and inferential IFRS for SMEs 0%- 26%- 51%- 76%-
statistics were employed to address objective of the study. Standards 25% 50% 75% 100%
Single Factor Descriptive Analysis such as frequency (%) (%) (%) (%)
distribution tables, percentages, weighted mean scoring, IAS 1: Presentation of 24.7 10.8 41.1 23.4
factor analysis and regression analysis were used in the financial statements
analysis of the data collected for the study. IAS 2: Inventories 23.8 17.7 41.6 16.9
IA S 8: Accounting 30.3 16.5 32.9 20.3
policies, estimates and
RESULTS AND DISCUSSIONS errors
IAS 16: Property, plant 26.4 14.3 40.7 18.6
The target population for this study was the business and equipment
owners, business managers and accountants. Three IAS 18: Intangible asset 35.5 12.6 39.8 12.1
hundred (300) copies of the questionnaire were other than goodwill
administered on one hundred SMEs as shown in Table 1 IAS 19: Employee 24.7 12.6 43.3 19.5
Out of this number, 231 copies were retrieved valid copies benefits
of the questionnaire. This represents responses from 89 IAS 38: Impairment of 33.3 22.5 32.9 11.3
SMEs and a response rate of 77% in the study area. This assets
response rate is acceptable since majority of the
questionnaires administered were retrieved. Table 3 shows the IFRS mean disclosure scores for the
enterprises in the study area. The IFRS disclosure
variables are arranged according to their positions as
determined by the weighted mean values. The mean
disclosure score (MDS) in the study area was generally
Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria
 J. Acc. Aud. Tax. 036

low. The disclosure variables according to their rank is IAS Table 3: IFRS Disclosure Index
1, with the highest MDS of 2.63, IAS 19 (2.58), IAS 2 IFRS for SMEs Standards MDS Rank
(2.52), IAS 16 (2.52), IAS 8 (2.43), IAS 18 (2.29), and IAS IAS 1: Presentation of financial statements 2.63 1
38 had the lowest MDS of 2.22. This result shows that, IAS 19: Employee benefits 2.58 2
though the IFRS disclosure level in the study area is low, IAS 2: Inventories 2.52 3
IAS 1 had the highest compliance level, while the least was IAS 16: Property, plant and equipment 2.52 3
IAS 38. This result is at variance with that of listed IA S 8: Accounting policies, estimates and 2.43 5
companies in Nigeria. Adeyemi (2005) showed that listed errors
Nigerian companies comply with accounting standards IAS 18: Intangible asset other than goodwill 2.29 6
reasonably well. However, the level of compliance of both IAS 38: Impairment of assets 2.22 7
the SMEs and listed companies in Nigeria is very much
less than the international benchmark of 91%. The listed Compliance Factors in the Study Area
companies in Nigeria comply with IFRS better than the Table 4 also shows the mean ranking of the factors that
SMEs because it is a major requirement by their regulatory influence compliance with IFRS in the study area. The
agency or the Securities and Exchange Commission in the factors according to their ranking are adequately trained
disclosure of their annual financial reports; where a penalty accounting personnel with the highest mean score of 3.29,
would come into effect for non-compliance. International proper accounting records keeping (3.27), submission of
comparability of financial statements is one of the main accounting statements to regulatory body (3.26),
advantages of compliance with IFRS and this could lead to knowledge about IFRS (3.24), and profitability (2.93).
international investments for SMEs (Okafor and Ogiedu, Others are company size (2.92), auditor type (2.90),
2011). industry type (2.85), ownership structure (2.83), size of
audit firm (2.78), leverage (2.74), and company age (2.67).

Table 4: Factors influencing compliance with IFRS and Mean Ranks

Factors Strongly Disagree Agree Strongly Mean Rank
disagree (%) (%) (%) agree (%) Score
Adequately trained accounting personnel 3.0 6.9 47.6 42.4 3.29 1
Proper accounting records keeping 5.6 4.8 46.8 42.9 3.27 2
Submission of financial statements to regulatory 2.2 7.8 51.9 38.1 3.26 3
body
Knowledge about IFRS 3.0 8.7 49.4 39.0 3.24 4
Profitability 8.7 10.4 60.2 20.8 2.93 5
Company size 6.5 13.9 61.5 18.2 2.92 6
Auditor type 10.4 13.0 51.9 24.7 2.90 7
Type of industry 8.2 15.2 60.2 16.5 2.85 8
Ownership structure 9.5 10.0 68.8 11.7 2.83 9
Size of audit firm 6.5 26.0 50.2 17.3 2.78 10
Leverage 9.5 22.1 53.7 14.7 2.74 11
Company age 9.5 26.4 52.4 11.7 2.67 12
Factors influencing Compliance with IFRS by SMEs Eigenvalues exceeding 1, explaining 52.055%
(Component 1: 6.247) and 14.108% (Component 2: 1.693)
The 12 items (variables) in Table 4 were subjected to
of the variance respectively as shown in Table 6. This
Principal Component Analysis (PCA). Prior to performing
means that the two components explained a total of
the PCA, the suitability of data for factor analysis was
66.164% of the variance. Table 7 shows the Component
assessed. Inspection of the correlation matrix (Table 5)
Matrix, which shows the unrotated loadings of each of the
revealed the presence of many coefficients of 0.3 and
items on the two components, showing that all of the items
above. The table suggests that factor analysis is
load on component 1, and four items do so on component
appropriate for the 12 items. Principal Component analysis
2.
revealed the presence of two components with

Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria
Olowolaju PS 037

Table 5: Correlation Matrix of Factors influencing compliance of SMEs with IFRS

RECORD
AUDTYP

PERSNL
OWNER

KNOWL
INDSTR

AUDSIZ
PROFIT

LEVRG

REQR
SIZE

AGE
Correlation OWNER 1
SIZE 0.665 1
PROFIT 0.535 0.656 1
LEVRG 0.575 0.595 0.629 1
AUDTYP 0.548 0.492 0.457 0.697 1
INDSTR 0.473 0.551 0.676 0.738 0.662 1
AGE 0.410 0.613 0.656 0.610 0.534 0.697 1
RECORD 0.339 0.435 0.603 0.479 0.306 0.466 0.461 1
PERSNL 0.346 0.448 0.455 0.433 0.439 0.342 0.488 0.659 1
KNOWL 0.334 0.435 0.408 0.435 0.440 0.422 0.417 0.557 0.767 1
REQR 0.111 0.283 0.280 0.295 0.300 0.294 0.344 0.520 0.744 0.703 1
AUDSIZ 0.231 0.282 0.257 0.286 0.441 0.276 0.536 0.186 0.472 0.390 0.467 1

Table 6: Component Matrix Table 4.11: KMO and Bartlett’s Test

Components Kaiser-Meyer-Olkin Measure of 0.860
1 2 Sampling Adequacy
LEVRG 0.799 -0.317 Bartlett’s Test of Approx. Chi- 1937.598
AGE 0.791 -0.143 Sphericity Square
PROFIT 0.780 -0.260 df 66
INDSTR 0.780 -0.333 Sig. 0.000
SIZE 0.757 -0.277
PERSNL 0.754 0.523
AUDTYP 0.736 -0.221
KNOWL 0.723 0.473
RECORD 0.699 0.235
OWNER 0.649 -0.406
AUDSIZ 0.535 0.288
REQR 0.600 0.685

Table 4.12: Total Variance Explained

Component Initial Eigenvalues Extraction Sums of Squared Loadings Rotation
Sums of
Squared
Loadings
Total % of Cumulative Total % of Cumulative Total
Variance % Variance %
1 6.247 52.055 52.055 6.247 52.055 52.055 5.590
2 1.693 14.108 66.164 1.693 14.108 66.164 4.548
3 0.984 8.203 74.367
4 0.713 5.938 80.305
5 0.642 5.352 85.657
6 0.386 3.218 88.875
7 0.278 2.316 91.192
8 0.266 2.214 93.406
9 0.237 1.979 95.385
10 0.233 1.944 97.328
11 0.197 1.643 98.972
12 0.123 1.028 100.000

Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria
 J. Acc. Aud. Tax. 038

To aid in the interpretation of these two components, Predictors of Level of compliance of SMEs with IFRS
Oblimin rotation was performed as shown in Table 4.8. The
rotated solution revealed the presence of simple structure, Standard Multiple Regression was used to assess the
with most variables loading substantially on both ability of four factors (auditor type, company age, firm
components. Under Pattern Matrix in Table 8, Industry, indices and industry indices) to predict the level of
Leverage, Owner, Profit and Company size loaded compliance of SMEs with IFRS in the study area. Auditor
strongest on component 1; while Requirement, Personnel, type and company age were included in the regression
Knowledge and Record loaded strongest on component 2. model because they were excluded from the (PCA)
Pattern Matrix shows the factor loadings of each of the grouped variables and the literature showed that they were
variables (Pallant, 2011), and this result suggests a two- very important in predicting the level of compliance with
factor solution. After a thorough look at the components, IFRS. Firm indices and industry indices were factors that
component 1 is labeled “industry indices” and component were results of factor analysis, while auditor type and
2 is named “firm indices”. Structure Matrix in the Table 4.8 company age were included in the regression analysis
provides the correlations between the variables and the because they had significant contribution to the regression
components with Leverage (0.859) loading strongest on model. Preliminary analyses were conducted to ensure no
component 1, and Personnel (0.916) loading strongest on violation of the assumptions of normality, linearity,
component 2. The interpretation of the two components multicollinearity and homoscedasticity. Table 9 shows the
was consistent with Essumang (2009), which studied result of the multiple regression analysis done to find out
compliance with IFRS. There was a moderately strong the predictors of level of compliance with IFRS. The result
positive correlation between the two factors (r = 0.501). shows that not much of the variance in the dependent
The result of this analysis supports the use of factor variable is explained by the regression model with
analysis in the analysis of factors that influence IFRS. coefficient of multiple correlation (Multiple R) = 0.440, and
coefficient of determination, R2 = 0.194 (see Table 9). The
Table 8: Pattern and Structure Matrix for PCA with Oblimin R2 as shown in Table 8 indicates the overall prediction of
Rotation of Two-Factor Solution the factors on the level of compliance with IFRS in this
Item Pattern Structure context. This indicates that the regression model explains
coefficients coefficients 19.4% of the variance in the level of compliance of SMEs
Compo- Compo- Compo- Compo- with IFRS in the study area, which is very low. The reason
nent 1 nent 2 nent 1 nent 2 for this low prediction of the model is due to the low level
INDSTRY 0.855 -0.014 0.848 0.414 of compliance of SMEs with IFRS in the study area. The
LEVRAGE 0.853 0.012 0.859 0.439 result also shows that (F=13.533, df = 4, p = 0.000), which
OWNER 0.829 -0.149 0.755 0.266 also implies that the result and regression model are
PROFIT 0.788 0.065 0.821 0.459 statistically significant at p<0.0001 and therefore there is
SIZE 0.787 0.037 0.806 0.431 significant relationship. The result is in line with the findings
AUDTYPE 0.721 0.086 0.765 0.448 of Essumang (2009), which found that these factors
AGE 0.689 0.194 0.787 0.539 significantly predict compliance with IFRS. In addition,
REQUIREMENT -0.203 0.995 0.295 0.893 Dumontier and Raffournier (1998) found that auditor type
PERSONEL 0.054 0.889 0.499 0.916 has significant relationship with level of compliance with
KNOWLEDGE 0.078 0.823 0.490 0.862 IFRS in support of the findings of this study.
RECORD 0.279 0.557 0.558 0.697
AUDSIZE 0.114 0.542 0.386 0.599

Table 9: Multiple Regression Analysis Results for Level of Compliance with factors
Model Unstandardized Coefficients Standardized Coefficients
t Sig. Remarks
B Std. Error Beta
Constant 0.533 0.349 1.529 0.128
Auditor Type 0.321 0.103 0.270 3.134 0.002** Significant
Company Age -0.327 0.115 -0.248 -2.848 0.005** Significant
Total Firm Indices 0.080 0.030 0.192 2.631 0.009** Significant
Total Industry Indices 0.086 0.041 0.219 2.103 0.037* Significant
Multiple R R2 Std. Error
0.440 0.194 0.955
Dependent Variable: Level of Compliance with IFRS; **Significant predictors (p<0.01); *Significant predictors (p<0.05)

Table 10: Significance of factors on the level of compliance of SMEs with IFRS
Sum of Squares df Mean Square F-Cal. F-Crit. Sig Remark
Regression 40.322 4 12.330 13.533 2.411 0.000 Reject Null Hypothesis
Residual 205.008 225 0.911
Total 254.330 229

Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria
Olowolaju PS 039
CONCLUSIONS AND RECOMMENDATIONS
Conclusion
This study assessed the factors that influence the
compliance of small and medium size enterprises with
International Financial Reporting Standards in Ondo State,
Nigeria. The factor analysis grouped the variables into two
components, with the two components explaining 66.16%
of the variance. The factor analysis grouped type of
industry the company belongs, leverage, ownership
structure and profitability in component 1 and was named
as ‘industry indices’; and grouped requirement to submit
financial statement to regulatory body, having adequately
trained accounting personnel, knowledge about IFRS and
keeping proper accounting records in component 2, which
was named ‘firm indices’.
The study sought for a relationship between the factors
and the level of compliance of SMEs with IFRS; hence
multiple regression analysis was conducted. Industry
indices, firm indices, type of auditor and company age
were the predictor variables, while the level of compliance
with IFRS was the dependent variable in the multiple
regression analysis. The model shows that there is
significant relationship between the level of compliance
with IFRs and the factors that influence compliance with
IFRS in the study area, with p = 0.000. The result shows
that the coefficient of determination (R2) was 0.194, which
implies that 19.4% of the variance in the level of
compliance with IFRS was explained by the independent
variables. The low value may be explained by the low level
of compliance observed in the study area. All the
independent variables were significant predictors in the
model at 95% confidence level. Auditor type contributed
the most (β = 0.27) to the model, followed by company age
(β = 0.248), then industry indices (β = 0.219) and firm
indices (β = 0.192).
From previous literature, this study identified and tested
factors that are associated with level of compliance with
IFRS. This means that the level of compliance of SMEs
with IFRS could enhance their ability to raise capital,
access loans with which to operate, improve their overall
financial strength and attract financial investment from
potential investors into their companies. Furthermore,
there could be a turnaround from the low level of turnover
and profitability observed in the study area if the SMEs
comply highly with the disclosure requirements of IFRS.
RECOMMENDATIONS
From the findings of this study, the following
recommendations are made to improve the level of
compliance of small and medium scale enterprises with
International Financial Reporting Standards in the study
area:
Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria
1. Steps should be taken to ensure legal and regulatory
requirements on auditing, accounting and financial
reporting of SMEs are enforced in the study area and
other states in the country, to boost the productivity of
SMEs and protect investments in these enterprises.
This recommendation might necessitate a review of the
existing Financial Reporting Act in Nigeria to include
SMEs.
2. Accountants and auditors of small and medium
enterprises should endeavor to acquire the required
training to help them audit IFRS/IAS financial
statements so as to ensure compliance.
3. Regulators, accounting professional bodies and
government should raise awareness among investors,
business owners, directors, managers and auditors to
improve the degree of compliance with financial
reporting requirements by SMEs.
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Accepted 23 July 2019
Citation: Olowolaju PS (2019). Factors Influencing the
Level of Compliance with International Financial Reporting
Standards by Small and Medium Scale Enterprises in
Ondo State, Nigeria. Journal of Accounting, Auditing and
Taxation, 3(2): 032-041.
Copyright: © 2019 Olowolaju PS. This is an open-access
article distributed under the terms of the Creative
Commons Attribution License, which permits unrestricted
use, distribution, and reproduction in any medium,
provided the original author and source are cited.

Factors Influencing the Level of Compliance with International Financial Reporting Standards by Small and Medium Scale Enterprises in Ondo State, Nigeria