Kazakhstan: options for the reform of financial reporting for SMEs and the potential adoption of IFRS for SMEs
As part of the Joint Economic Research Program (JERP), the CFRR has published a report summarizing the options for continuing the reform of financial reporting for small- and medium-sized enterprises in Kazakhstan.
Financial reporting by SMEs in Kazakhstan: Current status and policy options
The report describes the current framework for financial reporting in Kazakhstan and, in particular, how well it meets the requirements of SMEs. It compares the reporting framework in Kazakhstan with international moves to simplify and rationalize financial reporting for SMEs. These developments have to balance the conflicting objectives of making financial reporting more formal in order to improve the access of SMEs to external finance and of easing the financial reporting requirements of SMEs in order to reduce their costs of doing business. The report finds that international policy-makers are generally moving towards reducing financial reporting requirements on small and micro companies.
The report makes several recommendations for change to the financial reporting framework in Kazakhstan to make reporting requirements more appropriate to different types of business and, especially, SMEs. It suggests that the definition of public interest entities (PIEs, which are required to use the full IFRS) be limited so that it covers only the most important entities and that a distinction be made between SMEs and micro entities. Once this step had been taken, the reportâ€™s authors consider that it would be a good policy option for Kazakhstan to move to using the IFRS for SMEs reporting standard for large non-public interest entities and medium-sized enterprises (but not small and micro entities) rather than continuing to maintain and use Kazakh National Financial Reporting Standards (KNFRS). This would reduce the costs of maintaining separate national standards and also make it easier for firms to adapt their financial reporting to full IFRS as they grow and become PIEs. For small and micro-entities the report suggests revising and simplifying the relevant KNFRS and aligning it with the requirements set by tax rules. According to the available estimates, there are approximately 14,000 large and medium sized entities, and approximately 170,000 small and micro-entities in Kazakhstan.
However, implementing such a change would be challenging and would require significant capacity building and training of local accountants, auditors and tax inspectors in the new standard. The report proposes a set of policy changes and capacity-building measures which would need to be carried out for the successful reform of SME financial reporting.
The government of Kazakhstan has welcomed the report and is currently considering how to implement its recommendations.
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