Abstract

Research revealed that strong enforcement of accounting standards would improve the quality of financial reporting. As a result, information communicated by management to existing and potential shareholders should also improve. Proper financial reporting is however not necessarily an SME objective. Traditionally SME owners also fulfil a management function in the business. Moreover, little evidence exist that disclosure practices of SMEs are monitored. Notwithstanding these circumstances the IFRS for SMEs was developed for the SME sector worldwide. The relevance and adequacy of this accounting framework to the SME sector is therefore doubtful. This study compares current disclosure practices by South African SMEs against the IFRS for SMEs’ illustrative financial statements. Based on a sample of financial statements from the SME sector in South Africa our results suggest to what extent the illustrative financial statements is suitable for South African SMEs.

Key words: Accounting, generally accepted accounting practice, small and medium entities, international financial reporting standards.