Small and Medium Enterprises
Small and medium-sized entities, contributes significantly to the UK economy .However SME’s in UK are not distinguished on the basis of size, revenues and employee number and is defined as one which do not have public accountability, and publish general purpose financial statements for external users (Vandana Goel). The various external users which use the financial statements of SME’s are-
Banks for giving loans to SMEs.
Vendors dealing with SMEs use it to make decisions about credit and price.
Credit rating agencies to gradate SMEs.
Customers use it to do business with SMEs
Shareholder’s use it to know about the condition of the business.
Why is common IFRS needed for SME’s?
The Small and medium enterprises also need a common accounting procedure which could be comparable .The reasons for the requirement of a common accounting procedure for SME’s are:
SME’s for their functioning requires loans from banks and banks relies on financial statement in making lending decision, establishing rate of interest and time period for loans.
The use of financial statements is also established for vendors before buying things from the buyers there financial capabilities need to be judged.
Financial statements are also required by credit ratings agency across the world. These reported figures help in rating.
For suppliers located out of the country a standard financial statements is helpful and it ables to anticipate a feasible long-term business relationship.
A common statement would help in comparison across business by investors.