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Lecture Notes w10.docx

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LECTURE 9 – SMALL AND MEDIUM SIZED ENTITIES Definition  Should possess three basic features o It must be measurable and observable o It must be congruent with the perceptions of financial markets o It must be meaningful Qualitative Definition  Organisational structure, market influence and management features o Has a small share of its market o Not the capacity to influence the market  If it does this, it is unlikely to be an SME.  Eg. Woolworths and Coles can change the supermarket industry but Foodworks or IGA cannot  Managed by owners or part-owners in a personalised way o Lacks a formal segregation of duties and a separation of management and ownership o Eliminates the agency problem and information asymmetry problem as owner’s are integrally part of the business  Independent o Owner-managers free from outside control to operate business as they see fit Quantitative Definition  Common measures include: o Number of employees o Total assets o Sales turnover  Control variables used in capital market studies – accounting measures  Advantage over qualitative evaluations o Gross domestic product o Economic changes o Comparisons between countries Legal Structures  Forms in Australia are: o Sole trader o Partnership o Proprietary company  Small businesses in Australia o 45 % are companies  Many choose this due to the limited liability option  UK businesses o 2.52 million with no employees Australia  Small business o Fewer than 20 people  Categories of small business  Nonemploying  Micro-businesses  Other small businesses  Medium business o 20 or more but fewer than 200 people  Large business o Employing more than 200 people National Jurisdictions  International financial reporting standards for small- and medium-sized entities (IFRS for SMEs) o Definitions differ from country to country o Own tax laws o Comply to measurements o Standard recommends  Dual reporting burden Characteristics of SME Sector  Significant influence on the way in which is IASB and the AASB choose to go in terms of adopting standards  Floated under the bar for a long time – only in the last 30 years have people acknowledged their role in the economy  Growing realisation of the importance of SME sector  Certain characteristics: o Specialised products and services  Niche market organisations that large companies will not provide due to costs o Organisational structure o Financial structure  Allows them to be more flexible  Ideal position to perform functions not feasible in large businesses, government or the not-for-profit sector Economic Significance  Employment opportunities  Innovation  Support for largerfirms Australia  Providing jobs growth by generating more than half the jobs growth  Operating in regional areas  Creating opportunities for women o Not only an Australian issue – however, this can be seen clearly in Boost Juice. It was begun by two women. Industry Characteristics  Two broad categories: o Traditional or established  Micro-enterprises o New  Fuelled by innovation and entrepreneurship Australian Perspective  Owner-manager is personally responsible for preparing financial information o Legal structure o Financial control  Legal requirements o ATO o ASIC  Goods and service tax (GST) o Reporting changed in 2000  Regulatory burden upon small businesses Users of SME Financial Statements  Difference between small and large corporations Small Large Use by owner-manager only Used by external parties Interested in specific reports General purpose financial reports Statutory Requirements  Corporations Act imposes accounting and financial reporting requirements o Unlisted company is classified as at least two of the following:  Gross operating revenue < $10 million for year  Gross assets < $5 million end of year  Fewer than 50 employees at end of year o Other conditions o Means that SME’s are looking at three different types of regulatory frameworks and also requires differential reporting.  Need to be conscious of all of these Developing International Accounting Standards for SMEs  Question of international reporting standards for SMEs to the discussion table by o Australia – concerns due to sector neutrality of accounting standards o New Zealand o Members of EU – long period of dis
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