Measuring the Barriers in Adoption of IFRS for SMEs in Developing Economies: An ISM-MICMAC Approach

Present study explores various macroeconomic determinants, which have a direct or indirect impact on the implementation of international financial reporting standards (IFRS) for small and medium enterprises, especially in emerging economies like India. Based on the identification of variables/measures from existing literature, the study further used multi-criteria decision-making approach's interpretive structural modeling (ISM) and MICMAC analysis using driving and dependence powers to frame hierarchy-based model of barriers in IFRS adoption. The paper has developed an interrelationship among 11 identified variables using ISM methodology and found that a full set of IFRS (Factor 1) forms the base of the completely proposed model, as per expert input, with all other factors relating to it either directly or indirectly. While common law system (2), taxation compliances (5), and professional education (4) are weak factors, which depend upon strong factors, the study found strong factors, that is, full IFRS (Factor 1), institutional factors (Factor 8), access to foreign capital (Factor 3), and complexity (Factor 6). Additionally, four factors, such as implementation costs or cost benefit analysis (Factor 9), inadequate infrastructure (Factor 11), firm size and internationalization (Factor 7), and perception of accountants (Factor 10), are identified as linkage variables. Further, using dependent and driving powers of identified variables were analyzed with the help of MICMAC analysis. The present work will be helpful to academicians, practitioners, and various concerned stakeholders in the relevant field.

JEL Classification: M 40, M 41, M 48