MİNİSTRY OF EDUCATION OF THE REPUBLIC OF

AZERBAIJAN

AZERBAIJAN STATE UNİVERSITY OF ECONOMICS

SABAH CENTER

IV year student of S18_01_402/2 group

Naghiyev Fakhri Ayaz to get
a bachelor's degree in "Accounting and Audit"

« Features of accounting, analysis, and audit of financial results in

SMEs »
on the subject

GRADUATION WORK
Head of Sabah Group: Doc., Ph.D. Aida Guliyeva

Supervisor: Ph.D. Tahmasib Huseynov

Bakı - 2021
 ACKNOWLEDGMENTS

To begin, I'd like to express my gratitude to the Ministry of Education of the

Republic of Azerbaijan for providing us with the opportunity to receive up-to-date
English language education in "SABAH" groups.

Then, I want to express my gratitude to members of the staff of the “UNEC”

and “SABAH” groups, especially our dean, PhD. Aida Guliyeva, for her guidance,
assistance, and immense inspiration during our educational journey and student life
since the beginning of our course. And at last, I'd want to thank Ph.D. for his
assistance. Tahmasib Huseynov, my supervisor (scientific leader), for his patient
encouragement, assistance, suggestion, and support during the course of this project.
I'm grateful to have a boss like Tahmasib Hüseynov, who really cared about my job
and politely answered all of my questions and concerns during this period.

Lastly, I would still like to thank others who have inspired myself to to
completion the paper.

1
 Abstract
Small to medium-sized businesses play an important part in the economic
growth of countries and regions around the world (Small and Medium Enterprises).
SMEs contribute significantly to world commerce and economic growth in addition
to addressing the daily needs of the bulk of the population of virtually all
countries/territories. Besides which, SMEs employ the vast majority of the people in
the number of places and regions.
One of the most significant barriers that SMEs encounter when launching or
extending their operations is a lack of financial resources. They improve their
chances of accessing financial capital by keeping accurate records and producing
meaningful financial statements. In order to promote foreign investment, SME
reporting must also adhere to environmental regulations and rules, such as those
established by the Financial Accounting Standards Board. In reaction to the rapid
increasing globalisation and the interrelatedness of global capital markets,
international accounting standards (IASs) are becoming too complex, weighty, and
costly for several Small and medium enterprises to apply successfully.
ISAR was the first association of professionals to offer SMEs easy-to-follow
accounting and financial reporting standards. ISAR has most prominently succeeded
in reforming the commonly held belief that "one size fits all." Further, then technical
accounting information, ISAR's ultimate goals in addressing this problem have been
to develop a competitive SME market, generate jobs, promote investment, increase
production capacity and trade, and achieve balanced and inclusive economic
development.

2
Contents
Abstract.........................................................................................................................2
Introduction...................................................................................................................3
CHAPTER I..................................................................................................................5
Define SMEs and the economic potential. Existing worldwide international
accounting and financial reporting principles and standards………………………..5
1.1 SMEs and their role in the economy.......................................................................5
1.2 Difficulties experienced by the SME sector and ISAR’s Accounting and Financial
Reporting Guidelines for
SME…………………………………………………………………………………..6
CHAPTER II...............................................................................................................15
Theoretical and technical foundations for accounting, auditing, and analyzing the
institution's financial statements…………………………………………………….15
2.1 Fundamentals of auditing the financial performance of an organization and
challenges of implementation of international requirements......................................15
2.2 Methodological aspects of accounting, audit, and analysis of financial results of
SMEs………37
Conclusions.................................................................................................................43
REFERENCES............................................................................................................47

3
 Introduction
States members of the United Nations have long recognized the vital role of a
vibrant private sector in achieving trade and economic growth targets, as well as the
relevance of successful, globally harmonized accounting reports and corporate
reporting in this regard. ISAR was founded by the United Nations Economic and
Social Council in October 1982 with the goal of encouraging accurate and
comparative accounting and reporting by businesses all over the world. ISAR has
worked on a number of accounting and reporting challenges over the years, resulting
in high-quality and comparable corporate reporting focused on globally recognised
principles and codes, allowing for more balanced and equitable economic
development.
ISAR was motivated to understand the unique accounting and reporting needs
of SMEs as the number and sophistication of IASs grew. The seventeenth session of
ISAR officially began deliberations on this subject in July 2000. They were printed in
the United Nations' six official languages. ISAR has released a revamped and
modified version of the SMEGA level 3 in 2009. ISAR was a pioneer in this field,
and its work has had a global impact, especially in advocating a three-
stepped approach to financial management, which again was released in 2011 as that
of the Financial Statements for Small and Medium Sized businesses by the
International Federation Of Accountants. ISAR asked the UNCTAD secretariat,
among other things, to begin compiling input on the realistic application of the
revised SMEGA level 3 at its twenty-sixth session. ISAR also recommended that the
UNCTAD secretariat perform studies on SMEs' operational application of the IASB's
IFRS for SMEs in order to facilitate the exchange of perspectives from around the
world.
As a continuation of this research, this report is planned to include an overview
and analysis of the current state and recent growth trends in accountants and auditors
for SMEs, especially micro-enterprises. It delves into the role of SMEs in the
economy, the rate at which the International Financial Reporting Standards (IFRS)
4
for SMEs are being implemented, the fundamental issues of microenterprises,
supervision and enforcement issues, audit guidelines, and capacity-building needs in
this market. It also makes legislative guidelines for dealing with realistic compliance
issues. Because this publication was published, there have been several updates; most
of it has been would include; furthermore, other content that has occurred since 2013
has indeed been excluded.
Data was collected using a desk-top analysis methodology based on a
questionnaire submitted to practicing accounting organizations (PAOs) in different
jurisdictions. Appendix A contains the questionnaire, descriptions of the strategy, and
detailed answers. The survey included organizations from 42 countries/territories
(appendix B). A literature review (appendix D) was undertaken in addition to the
questionnaire to cover topics such as SME reporting consumer requirements, costs
and benefits of the IFRS for SMEs, selected reports on the application of the IFRS for
SMEs, access of SMEs to financing, and basic needs of microenterprises.
According to the findings of this analysis, ISAR's work on accounting by
SMEs, especially the three-tiered approach to meeting the accounting and financial
reporting needs of companies, has had a major global impact and is now generally
adopted. It also implies that many jurisdictions have accepted the IFRS for SMEs as a
generic international system and standard. However, there is a wide range of
accounting systems for SMEs, which raises difficulties in terms of comparability and
accuracy of such records. The study also emphasizes the importance of capacity-
building in this field, as survey participants observed that a lack of awareness of
international principles and requirements was a common difficulty encountered in
achieving proper IFRS compliance for SMEs, as was a shortage of trained
professional accountants employed in this field.

5
 CHAPTER I

Define SMEs and the economic potential. Existing worldwide international

accounting and financial reporting principles and standards
1.1 SMEs and their role in the economy
Despite their small scale, SMEs contribute significantly to the national ecosystems of
countries all over the world. In most nations, they constitute the majority of
businesses, provide the majority of the workforce, and contribute significantly to
revenue generation.
SMEs can regulate country’s economy. Major percentage of economy depends
on SMEs. Country can regulate their work with own regulation system. It can change.
Liberal and protectionist system is mostly used system. Local SMEs have to compete
with foreign factories and increase productivity. When government apply
protectionist system it increase entrepreneur’s production and make them more
competible. Then government apply liberal system and build competitive market.
This market more productive than others. Since there is a high demand from both
international and domestic SMEs.
Government support SMEs with several things. Subsidiaries are example to it.
The main goal of subsidiaries is increase productivity of SMEs. It will increase
supplys and as a result demands. It will increase money circulation and country’s
economy.
Even so, one of the challenges in deciding their precise intervention in the
economy is the question of classification, which includes a concept of small and
medium enterprise. Many nations lack these concepts, and if they do exist, they are
not consistent across jurisdictions. This means that it might be impossible to precisely
compare the number of organizations in any of the categories throughout nations, or
even to calculate precise figures of this sector worldwide in terms of jobs, exposure to
GDP, income generated, and so on.
Analysis into small and medium scale enterprises has repeatedly shown a
positive link here between sector's growth and the country's economy overall. “On a
variety of metrics, along with the role of SMEs to wages, revenue, and value-added,
6
SMEs account for more than half of the overall share in most countries, thus
constituting a dominant share of all businesses in each economy. It is indeed worth
mentioning that the proportion of SMEs in most developing economies is increasing
by these orders of magnitude.

1.2 Difficulties experienced by the SME sector and ISAR’s Accounting and
Financial Reporting Guidelines for SME

Small business owners face many challenges that are implicit in the scale of the
business. Any of the issues that small companies face around the world include:
1. The "One-Man Band" Problem - Due to a lack of appropriate supervision,
the manager is entitled to multitask and perform a variety of tasks. This is primarily
attributable to a shortage of funds to employ an adequate and competent management
group. Since the essence of the industry requires entities and workers to multitask, a
diverse set of expertise is needed for performance.
2. Lack of financing - According to several polls, there is a lack of debt and
equity funding to support the small business owner's operations, especially during the
start-up process. Despite the fact that there are several sources of commercial and
construction financing available, small business owners often lack the protection or
the expertise needed to access the funding. Due to a lack of qualifications, inadequate
economic plans and research projects are produced, which are expected by market
funders. In 2007, the SME Market Research report, focused on email inquiries from
245 participants, revealed that nearly 30% of SMEs needed further detail on
providing financing for the sector. Furthermore, nearly 35% of participants said they
needed better financing and banking facilities.
3. Inadequate industry awareness - Frequently, the company owner fails to do
analysis on the good or service being advertised. As a result, the owner is unsure of
the impact that market factors, such as the behavior of a rival, would have on his
investment decisions.

7
 In certain cases, SMEs face certain difficulties:
1. There is a lack of entrepreneurship schooling that trains citizens to work in
the small company industry.
2. Apartheid widened the gap among urban and industrial places, raising the
expense or threat of just doing enterprise.
3. Blacks' ownership of land rights were limited, making it impossible for them
all to obtain properties that might act as leverage for loan funding.
4. Bantu Education limited options for acquiring technological and vocational
skills important for effective management of small enterprises.
5. Segregation relegated the bulk of slaves to hometown regions devoid of
appropriate business conditions.
(Department of Trade and Industry, 1995, p11)
Financial statements are the economic outcomes of an organization's economic
existence, expressed as benefit or loss. The financial effect is an economic result that
reflects an increase or decline in income that is expressed by the sum of the money
supply collected in the exchange of the production and business operations of an
enterprise, association, corporation, etc. The financial outcome is the final stage in a
particular period of the organization's operations. The financial performance of an
organization is directly related to the quality of commodity development processes
and their execution, and it also serves as a prerequisite for the next step of the
organization's operations. The greater the income performance indices, the more
appealing the company is for investment operations, and the higher its commercial
operation in the manufacturing, financial, and societal factors.
For any company, the production of a financial benefit means the
acknowledgment of the final effects of its operations by the market and the customer,
or the idea of extracting the full benefit from the selling of goods, jobs, or services
provided by the corporation. The financial result for the company owner or creditor is
a percentage of the income extracted in their favor, which is spread to them after the
appropriate taxes have indeed been paid. The successful budgetary outcome for the
8
state is reflected by tax collected to the federal and provincial budgets. The
significant net effect of the company, planned for its promising development and
social formation, is the whole balance of benefit after taxation and the allocation of
dividends to company owners, interest to lenders.
A variety of variables are identified in the economic research in the review of
the causes that involve variations in the financial metrics of the company in one path
or another. These influences become the guiding forces, causes, and circumstances of
all organizational processes.
These considerations can be categorized according to a variety of features, for
instance, according to the intensity of their effect on the outcome of the enterprise's
economic operation, they are categorized:
Major - certain variables that have a significant effect on the success indicator
secondary - those which do not have a significant impact;
Objective factors are those that are not affected by people's wills and desires,
while subjective measures are those that are affected by people's wills and desires.
External factors are those that are unrelated to the operations of a specific
entity, while internal influences are those that are closely related to the operations of
the project.
Factors that apply to all industries of the economy;
Specific factors - those impacting a specific sector or company;
Factors that are constant and changeable;
Extensive (statistical development) and concentrated variables (use of
reserves).
They are classified into quantitative and qualitative variables, complex and
basic factors, directly and indirectly, factors, and observable and non-measurable
variables, based on the strength of their effect on financial performance.
The effect of such factors as environmental and climatic, socio-economic,
development, and economic factors is analyzed in order to achieve the most complete
and impartial image in the analysis of the financial outcome. Global, political,
9
business, technical, and foreign influences all have an effect on the external world.
Any of the factors mentioned may have an impact on the institution's well-being and
pose a real challenge to its operations.
Given the present economic climate, it is fair to assume that the effectiveness
of financial statements is largely measured by the amount of profit gained. Benefit, in
the current understanding, is a measure of an enterprise's operation, which
summarizes the growth of the enterprise's volume and competitiveness, the arrival of
new productive and sustainable goods and services on the market, an improvement in
the current output of products, a decrease in the enterprise's cost portion, and so on.
Benefit determines the foundation for future economic growth, but it should be
remembered that profit is more than just a financial result; it is also a critical
component of financial capital. Benefit plays reproductive, stimulation, and delivery
activities and characterizes the extent of economic operation and financial well-being
of the company based on the degree of membership. However, assessing the efficacy
of this measure alone is insufficient.
To measure financial performance, it is also important to compare the benefit
and output asset metrics that were used to replicate it, Specifically, to evaluate the
feasibility of financial activities. Profitability, in a general context, is one of the
numerical key metrics of an organization's financial success and represents any
benefit earned in the course of commercial and economic activities.
It should be remembered that considering their value, benefit, and profitability
metrics do not thoroughly represent the enterprise's financial performance and the
opportunities for improvement. In a broader context, a series of reports on the
condition of an industry may be combined into a general economic study of
operations.
Expenditures from ordinary operations i.e. costs associated with the
manufacturing of goods, production of work, and services; and other expenses, i.e.
expenses that are not relevant to the organization's core functions, are categorized
into expenses from ordinary activities, i.e. costs associated with the manufacture of
10
products, the performance of work, and services. Operating expenditures include the
costs of purchasing and distributing goods, as well as the costs of marketing and
selling them.
The enterprise's accounting strategy includes a formula for reflecting revenue
and costs for accounting and tax accounting purposes, as well as the mechanism for
producing a financial result and writing off expenses. The key accounts for the
accrual and write-off of income and expenditure, as well as the representation of the
financial outcome, are described in the Working Chart of Accounts.
As discussed earlier, SMEs constitute the largest number of companies
worldwide. In emerging and developed markets, in general, SMEs are seen as
significant drivers of jobs and economic development. As a result of the knowledge
asymmetry, they face a variety of challenges, including poor managerial capabilities,
unskilled labor, and insufficient access to finance. Throughout the informal economy,
too, a significant portion of small and micro enterprises are left with no financial
information. As a result, the loss of SMEs in the formative days is big.
Accounting and monitoring, in this respect, may play an important role in
assisting SMEs' growth by reducing the issue of information asymmetry. With
straightforward statistics for lenders, they are best placed to evaluate the borrower's
risk level. Furthermore, accounting and reporting is a valuable method for SMEs'
owners and/or administrators, given they have the requisite skills to grasp the facts
and make appropriate management decisions in terms of capital distribution,
assessing the amount of funding available, and so on.
Access to financial services is vital for the survival and growth of SMEs. The
Financial Services Authority forecasts a $2.1 billion to $6.5 billion deficit for
developing-country micro - enterprises and SMEs. According to Deloitte and the
International Finance Corporation, at least 3 key issues must be addressed to close
this gap: the development of a much more inclusive enabling environment to promote
finance for this kind of business; the need for enhanced economic facilities; and the
types of initiatives private industry organizations would have to create to fulfill such
11
enterprises' demands in terms of economics.
Auditing and accounting practices, credit rating schemes, leverage and
bankruptcy laws, and a well-functioning transactions and arbitration scheme are all
part of the financial mechanism. When the financial system is strengthened, the
absence of clarity and regulatory risks that raise the risk of borrowers are minimized.
The accuracy of financial reports has a substantial good association with access
to financial services, while knowledge asymmetry has a strong negative relation with
financial inclusion. Even so, expected vulnerability is not substantially related to
financial access. The interaction between financial report trust and overall risk is
unfavorable, implying that high financial report quality associated with increased risk
would result in limited access to finance. Businesses that have evaluated financial
records are less likely to be refused credit than those that do not, and firms that have
deductibility income reports benefit from reduced return on capital.
In light of this, UNCTAD's survey asked participants from nations around the
world which were adopting the IFRS for SMEs if, in their view, planning financial
reports in compliance with the standard had enabled Small and medium enterprises'
access to financial services. According to the findings of this survey, the majority of
respondents (83%) believe that planning financial statements for SMEs using IFRS
has improved SMEs' access to finance. Even so, several participants confirmed that
IFRS for SMEs rules such as land valuation at expense had a detrimental effect on
Small and medium enterprises' access to financial services. Participants have
mentioned that financial inclusion is not solely determined by the accounting system.
Also it relies mostly on credit record of the Small and medium enterprises, the credit
record of its stockholders, and other contextual factors not covered by the accounting
system. However, it was widely understood that the provision of a suitable
accounting system and the appropriate implementation would allow financial services
to properly grasp the company and its borrower to borrow its responsibilities.
Benefit and loss are the primary metrics of an enterprise's efficiency. Profit
denotes the economic effect that the corporation has achieved as a result of its
12
operations. Receiving a benefit denotes a surplus of profits over costs, thus receiving
a deficit denotes the same. Following the collection of mandatory fees and royalties,
the corporation determines how to distribute revenues. It may be used to increase
demand, science, and technological advancement, or at the discretion of management.
Accounting for financial statements has the purpose of providing complete and
credible facts about benefits earned, losses paid, and the final financial report.
The key responsibilities in this accounting field are as follows:
1. Ensuring the proper implementation of primary accounting records for
revenue and expenditures;
2. Maintaining the completeness and promptness of analysis of the accounting
of activities to produce income, expenses, and final financial results;
3. Maintaining the financial statements' conformity with data from digital and
computational accounting.
4. Ensure the correctness of income tax computation by ensuring consistency
with formalized accounting transactions with applicable laws.
The gradual restructuring of Europe's accounting in line with the International
Financial Reporting Principles (hereinafter IFRS) raises the importance of concerns
concerning the formation of financial statements in accordance with Europe and
international standards. The IFRS scheme provides norm 18 "Revenue," which
specifies the mechanism for accounting for revenue from the selling of products and
the provision of services. Revenue is determined on the basis of the arrangement
between the company and the buyer and is assessed at equal value, including
discounts. Whether items and services are traded for equivalent goods and services,
revenue is not inferred. However, if the goods or service is not the same as the object
being exchanged, this trade will produce income. In this case, income is calculated
using the fair market value of the bought goods and services.
“In order to determine whether the major costs and benefits associated with the
property are passed to the buyer, the laws of IAS 18 “Revenue ”require an analysis of
the contract terms. Much of the time, the transition of risks and benefits happens at
13
the same time as the transfer of lawful rights or ownership to the purchasing party.
However, this is not always the case. If the purchaser maintains substantial risks
associated with the land, the deal is not recognized as a sale and no income is
recognized, according to the rules of this standard."
The aim of laws are to create a connection between the income defined by tax
and accounting records. IFRS 12's goal is to offer accurate information to consumers
who are involved in both present and prospective tax transactions. Users are most
interested incorrect income tax reports and it is important for them to determine the
effect of the tax on potential asset reimbursement and liability resolution.
Financial performance is the most important measure in the system of metrics
used for a systematic study of business productivity. However, their essence is
defined ambiguously by individual scholars, and the metrics are diverse and loosely
substantiated, making them impossible to use in the study of enterprises' economic
activities.
There are various points of view among scientists about the essence and
indicators of financial results, as well as various approaches to their determination,
which is reflected in the depth of research and analysis of a number of issues
concerning enterprise financial results in studying the dynamics of profit and
profitability indicators, the influence of factors on the amount of profit and the level
of profit.
Decisions on product availability, demand, and marketing are taken based on
data from small and medium-sized businesses' financial reports.
ISAR has been tackling a wide range of accounting and auditing concerns since
its inception in 1982, only with aim of encouraging accurate and comparative
financial as well as non disclosure by businesses around the world.
Inside the late 1990s, UNCTAD member countries began to raise the question
of Small and medium enterprises' financial reporting and accounting requirements at
ISAR sessions. It was becoming clear that IASs is becoming too nuanced and
weighty for SME owners to implement effectively. Through ISAR's consultations on
14
emerging topics, the quest for clear, browser accounting and auditing standards for
SMEs gained traction. At ISAR's eighteenth meeting in July 2000, the subject was
elevated towards the forefront. ISAR was indeed a global leader in tackling this
difficult issue, especially given that a longitudinal reporting method was not a widely
accepted concept more than a decade earlier.
ISAR recommended a three-tiered system to satisfy the financial reporting
requirements of Small and medium enterprises, as seen below:
Tier 1: This tier extended to publicly held listed companies whose shares were
of great public concern (PI). Such businesses will be expected to follow the IASB's
financial reporting and accounting requirements.
Tier 2: This extended to large business companies that did not offer public
securities and had no major PI. ISAR created a single set of requirements based on
the IASs provided by the IASB, but containing only criteria for the most commonly
observed transactions. This level also allowed the option of adhering to the entire
collection of IASs and IFRSs standards board.
Tier 3: This stage extended to the smallest companies, which were frequently
landlord and employed few people. The suggested method is a straightforward
payables economic model that is closely related to money transfers. Regulatory
authorities could provide a temporary exception to newly created companies or
newcomers to the formal sector to use accrual method.
Defining the distinctions between some of the three layers necessitated
understanding of the economy wherein the businesses operate. ISAR proposed that a
framework of at least three layers be implemented. Each member State that wanted to
use this method had to decide how these thresholds were described, taking into
consideration the current economic, constitutional, and public conditions, especially
the individual State's business framework.

15
 CHAPTER II

Theoretical and technical foundations for accounting, auditing, and analyzing the
institution's financial statements
2.1 Fundamentals of auditing the financial performance of an organization and
challenges of implementation of international requirements

The reporting process "Profit and Loss Statement" has been renamed
"Financial Results Statement," as specified in the Federal Law "On Accounting,"
marking a major step toward the integration of European and international accounting
structures. As part of the upcoming reporting (financial) records, the "summary of
banking statements," together with the income statement as well as an addition to it,
must be sent.
The IASB's formulation of the IFRS was intended to address the needs of stock
holders in public firms, and therefore includes disclosures suitable for public
companies.
Recognizing that Small and medium enterprises will not have the same
information demands as major corporations, the IASB created the IFRS for SMEs, a
hold financial statement requirement aimed at addressing the needs of Small and
medium enterprises' financial statement customers, who are “more oriented on
evaluating shortened free cash flow, flexibility, and financial stability.” Another goal
of designing the IFRS for SMEs was to lessen the pressure of complying with IFRSs
on those SMEs who suggested that the costs of preparing financial statements
utilizing IFRSs exceed the negatives to them.
In both the United States and Russia, the cost of products sold is measured in
the same manner. The same is true with gross profit (gross income or loss). It should
be remembered that, while this way of measuring benefit before tax is the same in
Russia and the United States, there are certain differences in calculating not only the
proceeds from the selling of goods but also the purchase price. According to foreign
and American standards, for example, the cost of products produced is recorded at the
cost of manufacture and does not include general expenses. They minimize the
16
financial performance from corporate operations, etc., by deducting sale and general
operational expenditures.
In the United States, the declaration of financial results accounts for unusual
profits and losses in the net profit from routine operations (net of taxes).
Extraordinary profits and damages occur as a result of extraordinary events such as
natural disasters, new legislative mandates, and so on. However, phenomena such as
earthquakes that occur in a seismically active area may not be deemed extraordinary
because they are not uncommon. Following the inclusion of exceptional gains and
losses in the income statement, net income is adjusted by subtracting (adding) the
benefit (loss) arising from the total effect of the policy adjustment (less tax).
There are three categories of changes in foreign country accounting:
improvements in forecasts, changes in accounting practices, and correction of errors.
The accounting procedure may be updated by the company's decision or whether new
requirements are adopted. When an organization updates at least one of its accounting
practices, the company must amend the accounting for the previous periods that were
impacted by the changes, according to American standards. The overall
(accumulated) effect is described as the difference between using the old and new
methods and is expressed in the report for the year in which the transition occurred.
They are seen in the study reduced by the amount of revenue. The accrual of
depreciation in fixed assets and adjustments in accounting procedures for inventories
are two examples of accounting policy changes. As accounting figures change (for
example, when using the straight-line write-off approach for accounting for capital
assets, only the expected operation life varies), the organization only makes changes
to the current year's reports, leaving past years' reporting untouched. At the same
time, it is common for shifts in forecasts to have an effect on future times.
These changes are not individually listed net of tax in the declaration of
financial results but are indicated by things that have caused these changes. The
consequences of such modifications are essentially seen in the annotations to the
comments. Errors are corrected in the time to which they pertain. When an
17
inconsistency from a prior year is discovered in the reporting year, it is viewed as an
alteration from a previous date. It is expressed in the report for the financial year as
an improvement to the starting amount of the cumulative net retained earnings record.
Since entering these figures into the income statement, the net benefit and net profit
per share are estimated.
SMEs, according to the IASB, are organisations that:
1.Do not have democratic accountability;
2.And release overall income reports for foreign consumers. Holders who are
just not interested in the management of the company are instances of foreign
customers, as are current and prospective borrowers, and ratings agencies.
Besides that, an agency is held accountable to the public if and only if the
following conditions are met:
1. Its securities or equity securities are exchanged in a market place or are
being issued for selling in a market place (a domestic or international stock exchange
with an over sector, excluding local and international markets).
2. As one of its main businesses, it keeps properties in a fiduciary capacity for
a diverse community of outsiders. Banks, credit unions, brokerage firms, stock
brokers/dealers, money market funds, and financial institutions are also examples of
this.
According to the foreword to IFRS for SMEs, numerous jurisdictions across
the world have created their own meanings of SMEs for a variety of reasons, like
prescribing financial reporting responsibilities. Those national or regional meanings
also contain quantifiable parameters based on income, properties, staff, or other
variables. The word "SME" is sometimes used to refer to or contain very small
organisations, regardless of whether they release overall income reports for external
consumers.
Specific institutional and policy authorities and conventional in each state
make decisions about which agencies are allowed or approved to use IASB standards.
Even so, a precise statement of the category of entity in which the IFRS for Small and
18
medium enterprises is designed – as set out in article 1 of the IFRS – is required such
that (a) the IASB may agree on the reporting and auditing provisions that are
acceptable for that class of entity, and (b) legislative and regulatory bodies,
conventional, accounting organizations, and their inspectors can be aware of the IFRS
for SMEs. A consistent meaning is therefore needed so that organisations which are
not SMEs and thus ineligible to be using the IFRS for SMEs do not claim to be in
line with it. According to the ISAB, listed entities and commercial banks do not use
the norm.
In comparison to complete IFRSs and several national commonly agreed
accounting standards, IFRSs for SMEs are far less nuanced in several ways:
1. Topics that are irrelevant to Small and medium enterprises are excluded.

2. While complete IFRSs allow for accounting policy options, IFRS for SMEs
only allow for the simplest option;

3. Many guidelines for identifying and calculating properties, liabilities,

revenue, and expenditures are simplified in full IFRSs;
4. Significantly less statements are made;
5. The criteria are written in simple, easily transferable language.

6. To alleviate the load on SMEs much more, updates to the IFRS for SMEs
are restricted to each and every 3 years.
When the IASB released IFRS for SMEs in 2009, it stated that it would
conduct a preliminary thorough analysis of the standard to allow the IASB to
examine the first two years of implementation practice and determine whether any
changes were required. Business owners was using the Ifrs standards in 2020 and
2021. As a result, the first systematic review began in 2012 and is presently being
carried out by the IASB.
The IASB also indicated that, after the initial analysis, it planned to
recommend changes to the IFRS for SMEs each three years. The Small enterprises
Implementation Group, an independent committee to the IASB, is providing feedback
19
in the systematic review of both the IFRS for SMEs, with suggestions for future
amendments.
The task of the SMEIG is to encourage and monitor the implementation of the
Accounting Standards (IFRS) for SMEs around the world. The SMEIG is mainly in
charge of two activities:
1. Evaluate compliance issues presented by IFRS for Small and medium
enterprises users, determine which ones warrant published implementation guidance,
find a consensus about what that guidance should be, produce draft guidance in the
form of responses to questions that will be made publicly accessible to relevant
parties on a periodic manner, and seek IASB approval to release the Q&As. The
Q&As was meant to provide non-mandatory advice to using the IFRS for SMEs in
considering basic accounting issues.
2. Evaluate and offer suggestions to the IASB about the need to update the
IFRS: (a) for compliance concerns that the Q&As cannot resolve; (b) for new and
revised IFRSs which have been introduced since the IFRS for Small and medium
enterprises was published or last updated.
In Italy, the report on financial results for SMEs is distinguished by a low level
of knowledge transparency, since tax law has a heavy impact on the development of
its indices - this is the key characteristic of the Italian report on financial results.
Companies in Italy declare the bare minimum of income in order to minimize their
tax burden. Accounting and financial management are often used to satisfy regulatory
standards for the bulk of small to medium-sized businesses, rather than to control the
company's operations.
Expenses are shown in the report based on the extent of their occurrence. In
France, the financial results statement represents the gross production achieved for
the reporting year as well as the costs associated with its composition in the light of
components. Because of the supremacy of the French financial results statement, it is
easy to track the distribution and use of value-added.
The challenge of aligning Azerbaijan's accounting regulation regime with IFRS
20
standards is critical. The EU and WTO members are assisting in broadening the
number of businesses needed to file financial statements in compliance with IFRS.
Their activities are geared toward encouraging the development of reports that are
understandable to all global consumers. As a result, not only Azerbaijan but also a
number of European countries, are pursuing the integration of national reporting
systems with IFRS.
As a result of the above, it follows that the experience of foreign countries in
the formation of information on financial results in reporting is of practical and
theoretical interest; however, for its application in Azerbaijan accounting practice, it
is necessary to take into account as much as possible the peculiarities of the
development and formation of the Azerbaijan economy at the preselection stage.
And, in order to implement the policy of national accounting system integration with
IFRS, the accounting system must be well-thought-out and cautious.
One of the most difficult subjects in the world of SMEs news is audit and
confirmation of SMEs financial statements. In this regard, the World Association of
Accounting Professionals and the Professional Practice of Internal Auditing
Committee (a core internationally accepted selector of regulatory requirements) have
stated their aim to expand their capacity to deliver high-quality services in order to
meet the needs of SMEs and small & mid companies. These two organizations have
introduced a series of initiatives aimed at addressing SME audit issues, including a
focus on serving the PI and a focus on SMEs' realistic needs.

And according to British standards institution, a simpler entity has essential

features such as:
a) Ownership frequency and power in a limited number of entities (often a
single party – either an ordinary person or some other corporation who controls the
firm as long as the owner holds the necessary product quality);
b) At least one of the ability to follow:
(1) Simple or straightforward transactions;

21
 (2) Simple record-keeping;
(3) Few lines of service and few products inside company lines;
(4) Several control procedures;
(5) Couple management levels with liability for a diverse set of controls;
(6) Few workers, many with specific roles.
These situational characteristics are not comprehensive, and smaller groups do
not necessarily display any of them.
In accordance with the move to ISA, it is important to put the documents
governing those aspects of audit operation in line with them in the near future,
namely:
1. audit services list;
2. issues about auditors' and auditor organizations' ethical ethics;
3. technical guidelines for carrying out an audit in line with universal auditing
standards;
4. characteristics in audits of small commercial entities;
5. Internal and external quality management of audit systems and other audit-
related operations.
The principle of audit activity creation aims to ensure and improve the
efficiency of audit services, as well as to reduce information risk for interested
consumers of accounting information.
After 2017, these requirements have been implemented as a standard for all
auditor self-regulation organizations. When doing external quality assessments of
work, audit agencies, and auditors, they can be used to determine the quality of the
audit of the accounting (financial) records of organizations conducted by audit
organizations and individual auditors.
When auditing audit companies and individual auditors who performed audit
operations, the following criteria may be used to determine the consistency of their
work:
Grade 1 indicates that no major violations were discovered;
22
 Grade 2 indicates that significant recoverable violations were discovered;
Grade 3 indicates that significant fatal violations were discovered.

The audit of an auditing agency or an individual auditor that did not perform
audit operations would result in one of the following conclusions: no major violations
were identified or serious removable violations were identified.
If no major deficiencies were discovered during the investigation, the audited
auditing agency (individual auditor) would be given a certificate indicating that
external quality monitoring of work was successfully completed. The self-regulatory
association of auditors will release an extract from the decision of a specialist body
for the execution of external quality management of work based on the findings of an
unscheduled investigation and in the case of major breaches during a scheduled
inspection.
When audit companies and auditors perform an audit of accounting (financial)
accounts, the accuracy of their work will be assessed in compliance with the specified
uniform standards.
Furthermore, the evaluations and types of findings reached when those
conditions are met, as well as the types of documentation released based on
inspection results, have been decided. After 2017, these requirements have been
implemented as a standard for all auditor self-regulation organizations.
In the event that the auditing agency (individual auditor) did not carry out (did
not carry out) audit operations within the audited time, a conclusion of a certain kind
is given based on the findings of external quality management of such an audit
organization's function (such an individual auditor).
Based on the findings of an unscheduled external check of the audit
organization's standard (individual auditor), an abstract from a specialist body's
judgment for the application of external regulation of job quality is provided.
The primary philosophical benefit of ISAs is that they suggest an
internationally consistent approach to auditing, which means:

23
 1. The trust in audit efficiency by local and international investors, capital
markets (the world's largest stock exchanges endorse the submission of financial
statements audited in compliance with ISA by global issuers), lenders, and other
consumers. ISAs are globally recognized auditing principles of high consistency. As
a result, performing an audit in accordance with all ISA specifications presupposes
meeting the audit standard fairly required by consumers. Investors, especially foreign
investors, want to see a declaration in the auditor's report that the audit was carried
out in compliance with ISA. Users "trust" audits performed in accordance with ISA
more and, as a result, making more confident economic decisions based on financial
statements audited in accordance with ISA.

2. a shared view of the audit process among all those involved. The ISA is a
compilation of documents that are freely accessible in both English and the languages
of the countries that have implemented the ISA in their respective jurisdictions.
Regardless of the limited specifics of the ISA requirements that might be introduced
in some jurisdictions, financial statement users and other interested parties of either
jurisdiction may achieve a decent temperature of understanding of the needs and
processes on the basis of which the auditor performed the audit of the financial
reports of the interest by referring to the text of the ISA. their topic;

3. The opportunity to compare audit reports across businesses and continents.

For audit results of organizations to be comparable, for example, for the purpose of
evaluating or reviewing audit results, financial statements of companies in specific
markets, states, countries, and so on, the audit of those companies should be
performed in accordance with standardized standards. The ISA proposes this single
audit system.
Furthermore, it should be noted that the International Federation of
Accountants' process for the creation, adoption, and improvement of ISA is based on
a well-thought-out and transparent mechanism that ensures active participation in the
process and input from the International Federation of Accountants' Advisory

24
Committee, as well as national standards development. Drafts of new ISAs and
revisions to ISAs are released on the website of the International Federation of
Accountants, along with a call for input from interested parties, and final versions of
ISA papers are supplemented by "Basis for Conclusions" based on the comments
received. The World Association of Accounting professionals website contains
agendas, notes, synopses, and voice recordings from meetings of the Global
Standards on Internal audit Advisory Council and Verification Activities.
As an added benefit to the ISA, authoritative international organizations and
bodies such as the World Bank, the Basel Committee on Banking Supervision, the
World Federation of Exchanges, and the International Association of Securities
Commissions have voiced their support for using the ISA as the framework for
auditing. The Quality Management Plan, the Financial Action Taskforce, and the
European Union World economic Forum are all examples of international
organizations.
One of the most functional benefits of ISA is the inclusion of cross-references,
which are contained in the texts of ISA or in footnotes in them and enable the auditor
to prioritize the implementation of a specific requirement during the audit, while in
FPSAD there are no cross-references because it is not appropriate to make cross-
references in regulatory documents existing in Europe.
The practical benefits of ISA include a risk-based approach to auditing, which
essentially consists of three stages:

1) risk management by conducting risk assessment procedures; identifying and

assessing threats;

2) responses to detected and evaluated risks by designing and carrying out

additional (subsequent) audit procedures.

3) forming an opinion by assessing the sufficiency and appropriateness of audit

evidence and releasing an auditor's report Auditors can perform investigations more
reliably and consistently by using a risk-based approach. The auditor's understanding
25
of the verified object's business risks increases the likelihood of discovering
significant false statements of evidence in the documentation.
The auditor shall decide the materiality of the possibility of actual
misstatement in order to conduct audit procedures to identify the risks of material
misstatement and to evaluate the type, timing, and scope of future audit procedures. If
false statements are less than the materiality criterion for the financial reports for
everybody in the entity's particular situations, the auditor may also determine the
carrying amount or levels applicable to these different types of corporate costs, cash
accounts, or reports. The auditor may also create a threshold at which misstatements
are evidently negligible. Both of these numbers, as well as the reasons for measuring
them in the sense of a specific engagement, should be reflected in the auditor's
documentation, as should any misstatements found, showing whether they have been
corrected and the findings of whether the uncorrected misstatements are material.
For the applicability and relevance of international auditing standards (ISAs) to
SMEs audits, IFAC considers two major PI factors. First and foremost, regardless of
the type of the entity being audited or the complexity of the company performing the
audit, the importance of delivering an audit of financial statements combined with a
single standard degree of conformity must be remembered. The second thing to
remember is the security needs of SMEs in terms of benefits and costs, as well as
whether an investigation, an alternative protection scheme, or no protection is
needed.
On only one hand, ISAs acknowledge that such factors could be meaningless in
the sense of a particular audit. IFAC, on the other hand, states that waivers from
audit, or even some sort of assurance, have already been proposed or implemented in
a number of areas as a method of decreasing the alleged administrative pressure
imposed by law or regulation on SMEs. Many of these requirements are targeted
toward micro businesses as opposed to medium-sized businesses. This, however, is
not always in the entity's or the general public's best interests. Small firms account for
a substantial proportion of overall corporations working within some
26
countries/territories – in certain major economies, more than 90% – and therefore a
lack of credibility in these organizations' financial reporting may have a huge impact
on the economy of those countries/territories. It's important to weigh the benefits and
costs of changing the audit clause, particularly when it comes to exempting SMEs
from any sort of guarantee.
True misrepresentations, potential misrepresentations (differences related to the
manager's opinion on financial accounting or the execution of accounting rules that
the auditor finds unreasonable), and expected misstatements determined by the
accountant as a consequence of neuroticism are all acceptable distinctions for the
auditor. On the basis of the sample, distortions are defined. Although the ISA
considers various alternatives for baselines for deciding materiality values and
different methods of measuring them, they do not have any standardized estimation
technique since the materiality concept is dependent on the auditor's professional
judgment.
A new format for the auditor's report is being adopted in compliance with ISA
700 (Revised), which applies to all listed entities and all other entities.
Thus, whether the auditor issues a qualified opinion or an adverse opinion in
compliance with ISA 705 (Revised), including a summary of the matter that gave rise
to the amended opinion in the Basis for Qualified Opinion (Adverse Opinion) clause,
assists prospective users in understanding and identifying certain situations as they
occur.
As a result, discussing this matter separately from the other key audit matters
mentioned in the Key Audit Matters section separates it correctly in the auditor's
report. However, whether a qualified or unfavorable opinion is shared, the
introductory language of the Key Audit Matters section may be updated.
When the auditor gives a qualified or unfavorable view, knowledge about other
audit matters may remain relevant for expected consumers to get a clearer
understanding of the audit; thus, the criteria for defining key audit matters apply.
However, when an adverse judgment is expressed when the auditor concludes that
27
misstatements, separately or in general, are substantial and systemic in the financial
statements:

1. Based on the importance of the concerns offer ascent to the negative attitude,
the auditor can determine that all other matters are not audit quality concerns and
represent this reality in the Key Audit Matters section;

2. Where one or more subjects other than that offer ascent to the negative
attitude are defined as key audit matters, it is especially important that the description
of such other auditing standards be included in the Key Audit Matters section.
Serious risks relating to incidents or circumstances that could call into question
the entity's ability to proceed as a going concern in compliance with ISA 570
(Revised) are key audit matters by definition. In such cases, though, these issues need
not be discussed in the Main Audit Matters portion of the auditor's report. Instead, in
accordance with ISA 570 (Amended), the accountant should address these concerns
in variables In order Determined to Assess Current section and include a link to the
chapter in the Key Investigation Concerns chapter.
When the auditor has an Emphasis on the Matter and Other Matter sections in
the auditor's report, those sections are shown separately from the Main Audit Matters
section. Where a subject is classified as a key audit matter, the use of such clauses
does not override the definition of a single key audit matter as required by ISA 701.
ISA 706 provides further guidelines on the relationship between main audit matters
and Emphasis of Subject and Other Matter (revised).
If the auditor declines to give an opinion on the financial statements, the
auditor's report does not need to include a Key Audit Matters section as required by
ISA 701 or the Other Information section as required by ISA 720. (Revised). Such
declaration of key audit matters, other than those circumstances that lead to a
disclaimer of the opinion, which imply that the financial statements are usually more
credible in relation to those matters than would be acceptable in the circumstances
and would be contrary to disclaiming an opinion on the financial statements as a

28
whole.
As a result, Azerbaijan's move to ISA is a significant step toward enhancing
the reliability and accuracy of audits performed by Azerbaijanian auditors, as well as
increasing interest in audit outcomes among consumers of financial statements and
society as a whole. Because of the continuing disparities between Azerbaijan
accounting and reporting laws and IFRS, on the one hand, and domestic and
international auditing practices, on the other, the move to direct implementation of
ISA would inevitably necessitate some steps, not just in the areas of technical
preparation and retraining of auditors, and external quality management.
The inconsistencies in the current version of the auditor's report are major, but
they are also due to improvements in the auditor's report's pages. The Key Audit
Matters section, which is entirely new to the auditor's report, is the only exception.
Challenges of implementation of international requirements
According to the UNCTAD survey, while a region may have accepted the
IFRS for SMEs, it would not have applied them. Just 13 (76%) of the 16 nations that
implemented the IFRS for SMEs stated that they were adopting the standard.
Information on the challenges faced by regions during implementation is useful
to share with other nations that are yet to recognize or submit the IFRS for SMEs.
Respondents were also questioned about the significance of the suggested
difficulties, which included a lack of understanding of international norms and
practices, a shortage of qualified accountants working in this industry, a shortage of
trained auditors working in this market, and language barriers. Respondents were
often asked if they had any other concerns.
The shortage of qualified accountants employed in the sector, the shortage of
trained auditors engaged in manufacturing, and a lack of knowledge of global norms
and procedures are the three major reasons given for difficulties faced during the
implementation of ifrs for small and medium enterprises. Once again, language
barriers got the least support.
Other major factors listed by respondents include: the IFRS consolidation
29
clause for SMEs is problematic due to a lack of accounting practice in SMEs and
brings little value to them; detailed income; residual values and portion approach for
property, warehouse, and facilities (PPE); straight lining of leases; and accounting for

longer payment terms.

Costs of implementation, information infrastructure problems, people issues,
recognition of transient discrepancies for deferred tax, lack of preparation and up-to-
date expertise, and the transition from national norms to international standards, and
the IFRS for SMEs, still seem too difficult and expensive for SMEs, were among the
other explanations listed by respondents.
In the implementation of IFRS for SMEs, translation issues do not seem to be a
problem. According to the International Accounting Standards Board, full
translations are available in French, German, Croatian, Czech, Arabic, Armenian,
Albanian, Bosnian, Chinese, Italian, Japanese, Kazakh, Macedonian, Mongolian,
Khmer, Lithuanian, Portuguese, Romanian, Russian, Spanish, Serbian, Turkish, and
Ukrainian. The IFRS Foundation is considering translations in Afrikaans, Georgian,
Kyrgyz, and Turkmen, among others.
At its June 2013 conference, the IASB completed its technical consultations for
the systematic analysis of the IFRS for SMEs. At its summit held July 23, 2013, the
IASB authorized the staff to start the process of voting the aspirational description.
On 3 Oct 2013,26 the International accounting standards board released an
aspirational description of potential IFRS for SMEs amendments based on the
original systematic analysis. The deadline for submissions was March 3, 2014.
In Dec. 2014, the IASB completed its consultations on the IFRS for Small and
medium enterprises reforms and directed its workers to begin the vote counting phase
for those changes. The revisions were made in May/June of this year.
After evaluating the input obtained during the initial thorough analysis, the
IASB formulated the necessary three modifications to the IFRS for SMEs, among
many other minor changes:

30
 1. Enable the use of the accruals concept for land, plant, and equipment in
article 17 – land, plant, and equipment;

2. Align the key deferred income tax identification and calculation criteria with
IAS 12 – Taxes On income;
3. Align the primary identification and assessment criteria for exploration and
evaluation properties with IFRS 6 – land development and evaluation.
For fiscal years starting on or around January 1, 2017, SMEs will be expected
to use the current edition, including the amendments. Basis to know is allowed as
long as all modifications are implemented at the very same time.
Participants to UNCTAD's survey were asked if they agreed with this strategy
and if they planned any other developments in this respect. Of those who responded
to this issue, 27 (96%) suggested that they agreed with the IASB's approach.
Respondents suggested that cost of capital of value should be permitted, that
clarity of the clauses are liabilities for dismissal compensation was required, and that
reassessment of fixed assets, income stream, and intangible assets must be permitted
when asked what other changes to the IFRS for SMEs is anticipated. According to
one respondent, changes to the IFRS for SMEs were needed to increase financial
details on the efficiency of SMEs. Another nation suggested that the IFRS for SMEs
be changed to include microenterprises.
While the US accepted the IASB's method, it was noted that acceptance of the
IFRS for SMEs in the US by non-public entities may be encouraged by resolving
some technical details of the model that are troublesome for US entities, such as:
1. Enabling the use of the LIFO system of cost accounting for taxation
purposes – that really is, enabling whether compliance is necessary by statute or
regulation;

2. Clarifying the understanding on whether a parent should submit parent-only

income reports and assert IFRS enforcement for SMEs.
These suggestions are related to the need for SMEs to obtain financing.

31
Adopting strategies that improve the cash flow would be beneficial for SMEs.
In its reply to the IASB IFRS Request Around the World study, Ireland
highlighted the distinctions among FRS 102 and also the IFRS for SMEs. This
demonstrates that Ireland posted the following changes:
Section 17 now includes a revaluation provision for PPE, and Section 18 now
includes a revaluation option for some intangible properties.

1. Section 18 now has a provision for capitalizing construction expenses where

those conditions are met.

2. In section 18, the expectation of a ten-year life span for amortizable

intangible properties, including goodwill, was amended when a realistic calculation
of amortization over upwards of five years could not be made;

3. A new segment option was introduced to capitalize interest rates on qualified

securities.

4. Partnership accounting is expected for mixes of entities controlled by the

very same individuals.
5. Non-cash dividends to owners are not required to be calculated at market
value.

6. The possibility of using accounting system for grant money was included.

7. A timing gap approach, instead of a transient variance approach, is expected

for postponed income taxes.

8. For all biological properties, a historical cost model is allowed.

9. Several other amendments were made to enable accounting treatments that

existed in FRSs at the implementation date to comply with IFRS introduced by the
European Union.
The preceding shows that where nations around the world implement

32
adjustments to the IFRS for SMEs, such adjustments are important, indicating a need
for additional work in this region.

To ensure that financial reporting requirements for SMEs are adopted and
implemented in a high-quality manner, a country/territory must have an oversight and
compliance mechanism. Participants to UNCTAD's survey from nations around the
world that have implemented the IFRS for SMEs were also asked if there was an
agency in charge of adopting the IFRS for SMEs and what its features were.
Seven of the fifteen respondents (47%) who answered this question suggested
that an agency is in charge of execution. According to the responses, various
jurisdictions have addressed tracking the enforcement of the IFRS for Small and
medium entrepreneurs in different ways. The plurality of responses suggested that it
was a PAO's duty, and that the organization must validate this by its regular
monitoring procedures.
In terms of infrastructure, participants were asked to rate a proposed list of the
key fields of financial statements for Small and medium enterprises and
microenterprises that need to be improved. According to the results, capability
building should prioritize IFRS preparation for SMEs, the development of more
trained accountants for this field, and the development of a regulatory structure for
microfinance institutions reporting. The point about ‘More supervision by
policymakers is required' received some support as well.
Income statement suggestions for small and midsize enterprises and/or
entrepreneurs from respondents show the need for more exaggerations, the need to
connect reporting to the taxation system, hence the need for international bodies or
industries to have their own systems. Revaluations, according to one respondent, are
essential.
In this respect, the trade-off between additional simplifications that may affect
SMEs' funding opportunities and cost reductions that may result from using
streamlined accounting systems may be a problem that requires further analysis.
Respondents, on the other hand, emphasized the importance of ongoing education
33
and cooperation. A awareness deficit was identified, and therefore the need for
financial statement planning instruction, as well as a weak understanding of the value
of financial reports, are problems that must be tackled.
Other guidelines included audit exemptions for SMEs and increased
accounting education. One respondent suggested that SMEs and microenterprises
concentrate on financial operations rather than financial statements. Accounting
systems and applications can be used by SMEs and microfinance to reduce
information costs. A special guidance for microenterprises was deemed beneficial.
According to one participant, the IFRS for SMEs is always too difficult for micro -
enterprises.
In this regard, it is worth noting that the IFRS Foundation organizes local train-
the-trainers seminars in collaboration with regional technical associations and global
development organizations such as the World Bank to create capacity for IFRS
implementation for Small and medium enterprises, especially in developed and
emerging economies.
A research by Garca introduces a UNCTAD training course that was pre -
tested in South america to reduce the funding deficit faced by micro, nano, and
medium - sized enterprises. The program's goal is to assist these businesses in
producing improved financial information in order to increase their access to
financing.
As previously stated, ISAR described a range of challenges that SMEs faced in
implementing accounting principles provided by numerous standard-setting
organizations, both national and regional, in 2000. ISAR established its SMEGA 3
guidance for micro - entrepreneurs to address the needs of certain businesses who do
not manufacture particular income reports (and therefore are not expected to meet the
needs of a diverse set of users).
SMEGA 3 recommends that the smallest companies, which are often landlord
and have few staff, use a straightforward accruals-driven accounting methodology
regarding international principles but closely related to cash transactions. The
34
matching principle will be used in basic accruals-based accounting. In SMEGA level
3, the calculation theory is historical expense. SMEGA level 3 has a set of
streamlined accounting policies that also include instructions on how to prepare the
financial statement and balance sheet. The guideline is intended to assist a
microentity in preparing general-purpose income reporting using the IFRS for SMEs
guidelines. SMEIG assisted in the development of the document. The guide only
includes the IFRS for SMEs requirements that are most likely to be needed for a
standard micro entity, with no changes to the rules for defining and measuring assets,
liabilities, sales, or expenses. It also provides supplementary instructions and
diagrams to help a micro-entity apply the IFRS for SME values.
As a result of applying the guidelines, an entity's notes to financial reports and
auditor's report will lead to compliance with the IFRS for SMEs since this guidance
would not change the IFRS for Small and medium enterprises provisions.
The guideline is designed to be used by a microentity covered by the IFRS for
SMEs. Common-purpose financial reports are financial statements which are
designed to satisfy the general financial reporting requirements of a broad variety of
customers that are unable to request records that are customized to their detailed
information requirements. Microentities also create financial statements solely for the
use of the ownermanagers or tax authorities or other regulatory authorities. Financial
statements prepared specifically for such reasons do not qualify as particular financial
statements.
The guideline does not have a quantitative definition of a microentity. A
jurisdiction may elect to do so, or it may include additional markers of standard
variables to determine that the guide can be included in that jurisdiction. A
microentity, as per the guide, is typically a very small entity with basic transactions
which has the below common characteristics:
1) Few jobs and frequently handled by the owner;

2) Low to modest amounts of sales and total assets;

35
 3) Is not:
1. Invest in subsidiaries, affiliates, or partnerships;

2. Keep or issue specific financial products; and

3. Issue bonds or stock rights to employers or third individuals in return for

products or services.
In many cases, Europe has been ahead of the curve when it comes to financial
statements. It became one of the first nations to follow the IASB's IFRSs, and then in
2019 introduced the draft IFRS for SMEs as a model for use by local corporations to
provide instant relief for limited investment corporations underneath the Corporate
Rules Ordinance. In 2012, Europe has created an electronic microentity guide,
concentrating solely on regulations that will be more relevant to a small company.
The framework is a form of program guidance developed specifically to help
microentities conform with the IFRS for Small and Medium Etrepreneurs. The guide
is intended to assist sole proprietorships, associations, close businesses, and
corporations with such a PI score of less than 100 points (although it can also be
beneficial for managers with a PI rating from between 100 to 350 pts) by reflecting
on the most relevant policies to their industry.
The Public accountants lately conducted a questionnaire survey to determine
the opinions of auditors and consumers of microentity financial statements on the
application of IFRSs, especially the IFRS for Small and medium enterprises, and how
the process as outlined in the framework could be made even easier for small and
micro - enterprises. Furthermore, these systems could be used for other categories of
organizations such as corporations, sole proprietorships, trusts, and colleges, and
these organizations could apply object accounting practices unless legal provisions
demand otherwise.
Among the results are:
1. Participants use IFRSs and object accounting policies for fewer than 20% of
their microenterprise customers, whereas IFRS for Small and medium enterprises is

36
more commonly used. In Europe, GAAP is not commonly used.
2. While the IFRS for Small and medium enterprises is commonly used, sole
proprietorships, trusts, and partnerships are most likely to use a tax basis. In these
categories of organizations, IFRSs are only used sparingly.
3. In general, respondents consider small and microentity responsibilities to be
very helpful.
4. In general, respondents favor the historical expense model of accounting;
5. The retail convenience and the actual expenditure are both chosen as
accounting bases;
6. Approximately one-third of the survey would be involved in using a
recommended practice structure in a diverse range of entities, while the other third
would choose some kind of blueprint. It is clear that there is a need doesn't really
vary greatly from institution to institution.

These results could be helpful to the International Accounting Standards Board, that
recently released its Document for Micro-sized Entities based on the same guidelines
as SAICA, namely, only as well as in the guideline policies that are more relevant to
a small enterprise.
According to the questionnaire findings, the majority of nations do not even
have a microfinance activities monitoring system. In some circumstances, however
neither American Government nor South Africa decide what structure an agency can
use. South Africa, for instance, requires a person with a PI score of less than 100 to
use a system "as defined by the organization." In the United States, companies can
use a "or systematic basis of reporting."
An “other systematic basis of finance” may be a legal framework of reporting
(for instance, a framework of reporting used by insurance providers underneath the
regulations of a government insurance committee), income-tax-basis income reports,
money and customized income reports, or income reports produced using specific
criteria with significant support in financial reporting.
While the matching principle is not a hold fundamental premise in the New
37
Standard, it is stated where the Conceptual Framework relates to the identification of
expenditures in the financial statements based on a direct relationship between both
the costs incurred and the receiving of particular revenue goods. The principle warns
that using the matching principle in this Conceptual Structure would not allow for the
identification of balance-sheet products that do not follow the meaning of assets or
liabilities.
The questionnaire results reveal a wide range of approaches to money planning
for small businesses. The most recent edition of A Reference for Micro-sized
Organizations is now available. The IASB's application of the IFRS for SMEs that
result in more acceptance by nations, resulting in further consistency in strategies to
financial statements in the microfinance institutions arena.

2.2 Methodological aspects of accounting, audit, and analysis of financial results

of SMEs

The financial report document is used in the accounting (financial) statements

and is compiling for all commercial companies without delay.
Based on the above, it is possible to infer that the report on financial statements
(OFR) is one of the most important accounting records that is produced by all
commercial entities, without exception.
The OFR includes reports on the organization's revenue and expenditures, as
well as its financial statements for the current year and the prior year's same period.
The OFR, like many other types of financial statements, is prepared in Europe, in
Europe's currency.
Such receipts recognized as revenue from ordinary activities by the company
depending on the essence of its transactions, the type of benefit, and the provisions
for receipt.
Accounting income can be recognized by a company by the results of work, the
distribution of services or the selling of goods with a longer processing time as soon
as the work, program, or commodity is ready or upon completion of the work, supply
38
of the service, or general manufacturing of products.
Proceeds from the selling of sales (goods), proceeds from the performance of
function (provision of services), and the like, amounting to five percent or more of
the organization's net revenue for the reporting year, are shown separately for each
category (clause 18.1 of PBU 9/99).
Remember that the cost of goods, works, and services sold requires the
following ordinary expenses:
1.expenses associated with the manufacture of products, the purchase of goods,
the performance of work, and the provision of services;
2. Costs incurred in gaining permission to use the results of mental thought (in
organizations whose primary business is awarding those privileges for a fee);
3.expenses associated with the provision of property for rent (in organizations
whose subject of activity is the provision of such property for rent).
4. expenses attributable to membership in the capital contribution of other
entities (in companies which subject of operation is membership in the fund
requirement of many other groups)
5. other expenses based on their purpose, terms of execution, and
organization's activities.
Amortization expenses and charges for the rehabilitation of real property for
administration expenses financial reasons; rent for basic banking property; wage
costs This line shows diluted profits (loss) per share, which represents the possibility
of a reduction in simple benefit (boost in loss) per equity in the coming fiscal quarter.
Only joint-stock partnerships will be able to complete this sequence.
Around the same time, one of the most pressing issues is the proper preparation
of the IFRS declaration of financial reports, which must be prepared for all
organizations reporting in compliance with international requirements. The
declaration of financial statements thoroughly reflects the performance of the
company's business operations over the reporting period. Unlike European financial
reporting guidelines, the IFRS declaration of financial reports is likely to provide
39
more comprehensive material.
The following details must be included in the study, according to the standards:
the firm's revenues from sales and other revenues from its core business; the results
of the company's operating activities; the firm's financing costs; the firm's share of
financial results of related organizations, as well as from a joint business of which the
firm is one of (as well as the debt approach should be used to pay for such a shared
company); the company's expenses. Financial reports from the core activity of the
organization; facts about emergencies that have occurred at the enterprise, as well as
how they impacted the company's business; minority stake in the company; final
results of the company as a whole for the reporting period (profit or loss).
Furthermore, for the most complete deciphering of the results of economic
operations, businesses are permitted to include other material in the declaration of
financial results if appropriate. It is important for the organization's accounting
department to provide a simple algorithm for creating reports. It can be expressed in
general as follows:
stage 1: Gather and review details about the company's profits and
expenditures.
stage 2: revise the benefit and expenditure category classifications within the
context of IFRS;
stage 3: enter the requisite corrections;
stage 4: decode the content of the company's operating benefit metric in the
light of the key expense elements;
stage 5: Create IFRS-compliant financial results document that details all of the
main components.

The variation of a company's profits and expenditures is greatly determined by

influences such as the course of production, the type of activities undertaken, and so
on. Based on these considerations, it is objectively impractical to do a universal
gradation for particular revenue and expenditure classes. Simultaneously, IFRS
requirements include certain parameters that companies must meet when grouping
40
certain profits and expenditures of an enterprise.

According to IFRS, the company typically shows the following income groups
in the profit and loss statement: in The company usually shows the following income
groups in its profit and loss statement, in particular, according to IFRS: in the context
of the activities of the company (it is important to ensure that the mirror
classifications in relation to expenses are performed on the same Groups).
The compiler (accountant) is permitted by IFRS to assess the precise
composition of profits based on his own professional judgment. It is important, in
particular, to decide the degree of materiality of the content, that is, to what extent its
absence may cause the recipient of the reporting to have a misunderstanding about
the situation in the business. As a result, if the accountant assumes that some income
categories are relevant, they should be highlighted in the study, even if there is no
direct indication in IFRS. Reflecting a corporation's costs, the report must include
production costs in relation to the type of corporate operations (these are the group of
expenses that must be linked to the revenue groups assigned by the organization);
general and administrative costs of the corporation.
Form for creating a financial results statement. First and foremost, businesses
must recognize that there is no single type of income statement under IFRS. As a
result, the corporation is free to choose the system for producing the paper. The
requirements, on the other hand, include choices from which the company should
select. We are specifically about cost grouping, which can be accomplished in two
ways:
1. According to the essence of the costs (eg staff salaries, depreciation, etc.).
The costs are not broken down by the form of company in this option, but are
described in abstract classes based on their legal existence. In most cases, this choice
is appropriate for small businesses.
2. On the basis of cost functions. In this vein, the expenses from the firm's core
company, as well as other classes of expenses, are separated. This option is most
41
often seen in large companies where a gradation by feature is needed to provide an
analytical image of what is going on at the company. Users include the enterprise's
earnings in the final financial report and measure the outcomes of work. Profit is
calculated using main components such as revenue and expenditure. These elements
are deciphered in the statement of the financial statements. The estimated net
benefit/loss reflects the objective valuation of company profits by deducting
expenditures.
The net volume of benefit/loss in the business connects the income statement
and the statement of financial status. Furthermore, the level of income tax is the
second measure that connects the data from the two surveys. The sum owed at the
time the paper is created is reflected in the income statement, and you will trace the
joint settlements with the budget using the statement of financial status. The
competent creation of the OFR enables you to assess metrics in a timely way,
identifying the causes of benefit declines. This enables decisions on fund
redistribution to be made, as the primary aim of any company is to increase profits
while minimizing costs. However, regular supervision is needed to ensure there are
no critical reductions in sales, which may lead to bankruptcy. Since the net profit in
the study is the final measure of the supply of funds at the company, all management
decisions should be geared toward the proper allocation of the surplus in order to
achieve the maximum value. The proper preparation of the benefit and loss statement
in compliance with IFRS poses no major challenges to the accountant. It is critical to
obey the above algorithm correctly, and it is also crucial to remember that this report
is necessary for the formulation of a general image of the company, which would be
of benefit to both owners and prospective investors in the statement of financial
status.
The key indicator of the business's performance is its profitability ratio. An
analysis of financial statements is performed to confirm the accuracy of the
enterprise's financial results in accounting in accordance with the terms of the
applicable regulations.
42
 Indicators derived from Western measurement practice, such as EBIT and
EBITDA, are still commonly used in domestic processes. This measure of the
organization's financial results is in the middle, between gross and net profit. The
reduction of interest and taxes allows one to abstract from the financial base of the
company (the share of borrowed capital) and tax rates, allowing one to compare
various organizations on this indicator. EBIT is also mixed in with net benefit, which,
unlike EBIT, excludes revenue and costs from other activities.
An audit of financial statements, like all other field of accounting, consists of a
preparation stage and an execution stage. The planning stage, in turn, consists of
preliminary planning, developing a general plan, and developing an audit program.
Preliminary preparation is concerned with the auditor's formulation of a general
image of the company, the business situation, and potential features which should be
paid much attention to during the audit. This data must be corrected even though the
corporation has not been audited for the first year.
Financial reports are a critical metric for a business because they represent all
facets of the organization's operations. Internal services within a company cannot
always have quality control over the efficiency and correctness of the reflection of
financial statements in accounting and reporting; thus, external control - an impartial
audit - becomes very necessary, with the goal of increasing customer trust in the
BFO. Accounting and financial statements serve the function of providing consumers
with complete, reliable, and unbiased statistics on a corporate entity's financial status
and results for decision-making. As a result, an audit of the financial statements is
performed in order to ascertain the correctness of the enterprise's accounting
reflection of the financial results and to improve customer trust in this detail.

Conclusions
Entrepreneurship formation and production is one of the most important
43
considerations in building an ideal business climate during the transition to new
economic ties. According to research, in the world small and medium-sized
enterprises have developed a capacity. In other words, the present pace of growth of
small and medium-sized businesses refers to the early stages of the formation of a
commercial economy and is therefore far from reaching its maximum potential.
Simultaneously, considering the incompetence of its preference, there was a good
indicator in the development of SMEs in developing countries during the era of
economic transformations.

In order to manage and execute an efficient monitoring structure in every

organization, even small and medium-sized businesses, all forms of audit (domestic
and foreign audit) are needed. The independent audit's job is to do research and
review of current products in order to ensure the much more consistent and correct
income reports. Internal audit is responsible for participating in the operations of
internal management tools in order to enforce company policies and techniques in
accordance with relevant laws and regulations. Internal audit is a component of
effective supervision over the enterprise's monetary and fiscal operations; its extent,
function, and position in the monitoring system are dictated by the entrepreneur's
economic system, the nature of its operations, and the duties given by administration.
There are several accounting systems for Small and medium enterprises (for
instance, various international structures), and various nations have addressed the
concept of a Small and medium enterprise and microfinance institutions in various
ways. Some regions do not even have a concept of a Small and medium enterprise,
whereas some do not distinguish between SMEs and microenterprises. Because of the
broad variance in the qualitative criteria used among nations to classify these
categories of entities, the creation of a common concept seems challenging. What is
called a SME in Europe, for example, corresponds to a major organization in a
developed country/territory. As a result, businesses in this range in developed nations
are much more likely to encounter problems in complying with international
44
standards.
Some countries have adopted the International Accounting Standards Board's
IFRS for SMEs. Even so, as opposed to the acceptance of complete IFRSs, the
pattern appears to be weak. Cost concerns, a lack of requisite expertise and skills, and
the reality that they really have a sufficient regional GAAP in operation are cited by
counties that do not wish to follow the IFRS for SMEs. The International accounting
standards board recently completed its consultations and recommendations on IFRS
for Small and medium enterprises reforms based on feedback from its representatives
and other monitoring stakeholders. Even though the International accounting
standards board has agreed to make only minor changes because of IFRS for SMEs is
still in its early stages, it really has chosen to extend for use of the accruals concept
for land, facility, and facilities. This specific change will help to boost the balance
sheet in order to secure financing which can have a favorable effect on future
adoptions. Regions who have slightly implemented the IFRS for SMEs may discover
that these modifications are consistent with their very own global standard and may
wish to completely adopt the requirement. The final modifications were declared by
the IASB in Mart 2015. Earlier implementation is allowed as long as all
modifications are made at the same time.
In certain countries, the IFRS for SMEs is also an additional structure.
Additional problems exist in these situations, from both an educational standpoint
(different systems must be learned and developed) and from a consumer standpoint
(different businesses utilizing various platforms would be challenging to equate for
making investment decisions). States and territories who prefer to use regional GAAP
or where the IFRS for SMEs is an alternative mechanism must provide clear and
easily readable information about the gaps among their regional Accounting
principles and also the IFRS for SMEs.
Particular consideration should be given to the creation of differential
structures relevant to Small and medium enterprises and micro - entrepreneurs. In this
way, requirements can help to prevent imposing an undue pressure on micro -
45
entrepreneurs in terms of sophistication and work performance.
Respondents have noted a need for additional systemic building on accounting
for SMEs, such as clarification on roles, alignment, and available resources. The
survey results have revealed that there is no single solution to administrative
structures on accounts for Small and medium enterprises, such as setting,
implementing, overseeing, and enforcing SME requirements. Accounting standards
boards (or similar) to a PAO are examples of SME standard setting bodies. Similarly,
various countries have different entities in charge of regulating the requirements,
which in many instances, government departments such as with a central government,
a stock and exchange committee, or a supervision remain in charge of the these
operations.
The audit standards for Small and medium enterprise and microenterprises
records differ by country/territories. According to the poll, there is also some
consensus for SME audit standards to be substantially lower than audit requirements
for major organisations. In this context, the IAASB should give more attention to the
prospect of even more correspondingly reducing the burden of compliance with
maximum ISAs where Small and medium enterprises are expected to be investigated.
The research also found that capability is crucial in addressing the difficulties
of delivering the requisite level of Small and medium enterprise accounting and
auditing. This involves a need for more preparation and guidelines on SME
accounting practices, including adoption of the IFRS for SMEs. In this respect,
providing fewer systems for the same kind of company may aid in the education and
preparation of accountants and auditors, as well as support consumers .
In recent years, a host of good policies and activities have emerged. For
example, in collaboration with regional technical organizations and global
development organizations such as the United Nations, the IFRS Foundation
conducts national train-the-trainers seminars to create capability for the introduction
of the IFRS for SMEs, especially in developed and emerging economies. This
sessions can be more easily available. Such recent innovations include the
46
International Financial Company's Small and medium toolkit, which includes revenue
and expense models. It also is critical to create teaching materials and programs
based on UNCTAD's streamlined microfinance institutions accounting framework for
SMEGA stage 3.

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