The influence of accounting regulation simplification on the financial reporting of micro entities – the case of Croatia

Figures & data

Table 1. Criteria for the classification of micro, small and medium entities as recommended by the EU and the EU accounting directives.

	Number of employees	Revenues (€)	Total asset (€)
2013. medium	250	40,000,000	20,000,000
small	50	8,000,000	4,000,000
micro	10	700,000	350,000
2011. medium	250	40,000,000	20,000,000
small	50	10,000,000	5,000,000
micro	10	700,000	350,000
2005. medium	250	50,000,000	43,000,000
small	50	10,000,000	10,000,000
micro	10	2,000,000	2,000,000
1996. medium	250	40,000,000	27,000,000
small	10	7,000,000	5,000,000

Source: Small and Medium Practices Committee; (2006) Micro-Entity Financial Reporting: Perspectives of Preparers and Users. New York: IFAC; Proposal of a Directive repealing and replacing the Accounting Directives 78/660/EEC and 83/349/EEC Directive (2011); Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (2013).

Table 2. EU member states that have introduced micro-entities in the national legislation.

EU member state	Classification criteria for micro entitiesnumber of employees/the amount of revenue/total assets
Czech Republic, Germany, Hungary, Poland, Slovenia	10 / $2.6 m / $2.6 m
Denmark	10 / $1.7 m / $0.7 m
Estonia	10 / $0.8 m / $0.4 m
Romania	10 / - / -

Source: IFAC. (2006). Micro-entity financial reporting: Perspectives of preparers and users, Small and Medium Practices Committee, IFAC, New York cited from: Dečman, N. (2012). Financial reporting specificities of micro entities, Proceedings of 3rd International Conference “Vallis Aurea” Focus on: Regional Development, Polytechnic of Pozega, Croatia and DAAAM International Vienna, Austria, 0199–0205.

Table 3. Contents of the guide for micro-sized entities applying the IFRS for SMES (2009).

IFRS for SMEs	Contents	Guide section	Contents
IFRS for SME 1	Small and Medium-sized Entities	Guide Section 1	Intended scope of this Guide
IFRS for SME 2	Concepts and Pervasive Principles	Guide Section 2	Concepts and Pervasive Principles
IFRS for SME 3	Financial Statement Presentation	Guide Section 3–8	Financial Statement Presentation
IFRS for SME 4	Statement of Financial Position
IFRS for SME 5	Statement of Comprehensive Income and Income Statement
IFRS for SME 6	Statement of Changes in Equity and Statement of Income and Retained Earnings
IFRS for SME 7	Statement of Cash Flows
IFRS for SME 8	Notes to the Financial Statements
IFRS for SME 9	Consolidated and Separate Financial Statements	Guide Section 9	Consolidated and Separate Financial Statements
IFRS for SME 10	Accounting Policies, Estimates and Errors	Guide Section 10	Accounting Policies, Estimates and Errors
IFRS for SME 11	Basic Financial Instruments	Guide Section 11 and 12	Financial Instruments
IFRS for SME 12	Other Financial Instruments Issues
IFRS for SME 13	Inventories	Guide Section 13	Inventories
IFRS for SME 14	Investment in Associates	Guide Section 14 and 15	Investment in Associates and Joint Ventures
IFRS for SME 15	Investment in Joint Ventures
IFRS for SME 16	Investment Property	Guide Section 16	Investment Property
IFRS for SME 17	Property, Plant and Equipment	Guide Section 17	Property, Plant and Equipment
IFRS for SME 18	Intangible Asset other than Goodwill	Guide Section 18	Intangible Asset other than Goodwill
IFRS for SME 19	Business Combinations and goodwill	Guide Section 19	Business Combinations and goodwill
IFRS for SME 20	Leases	Guide Section 20	Leases
IFRS for SME 21	Provisions and Contingencies	Guide Section 21	Provisions and Contingencies
IFRS for SME 22	Liability and Equity	Guide Section 21	Liability and Equity
IFRS for SME 23	Revenue	Guide Section 23	Revenue
IFRS for SME 24	Government Grants	Guide Section 24	Government Grants
IFRS for SME 25	Borrowing Costs	Guide Section 25	Borrowing Costs
IFRS for SME 26	Share-based payment	Guide Section 26	Share-based payment
IFRS for SME 27	Impairment of Assets	Guide Section 27	Impairment of Assets
IFRS for SME 28	Employee Benefits	Guide Section 28	Employee Benefits
IFRS for SME 29	Income Tax	Guide Section 29	Income Tax
IFRS for SME 30	Foreign Currency Translation	Guide Section 30	Foreign Currency Translation
IFRS for SME 31	Hyperinflation	Guide Section 31	Hyperinflation
IFRS for SME 32	Events after the End of the Reporting Period	Guide Section 32	Events after the End of the Reporting Period
IFRS for SME 33	Related Party Disclosures	Guide Section 33	Related Party Disclosures
IFRS for SME 34	Specialised Activities	Guide Section 34	Specialised Activities
IFRS for SME 35	Transition to the IFRS for SMEs	Guide Section 35	Transition to the IFRS for SMEs

Source: According to IFRS for SMEs and a Guide for Micro-sized Entities Applying the IFRS for SMEs (2009).

Table 4. Abridged balance sheet and profit and loss account for micro entities.

Balance sheetfor micro entities	P&L accountfor micro entities
A. Subscribed capital unpaid	A. Net turnover
B. Formation expenses	B. Other income
C. Fixed assets	C. Cost of raw materials and consumables
D. Current assets	D. Staff cost
Total assets	E. Value adjustments
A. Capital and reserves	F. Other charges
B. Provisions	G. Tax
C. Non-current liabilities	H. Profit or loss
D. Current liabilities
Total sources of assets

Source: Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated statements and related reports of certain types of undertakings.

Figure 1. Necessity to simplify regulations for micro entities – respondents’ opinions.

Source: Authors’ calculation.

Figure 2. The influence of the proposed simplifications in financial reporting on the cost reduction – respondents’ opinions.

Source: Authors’ calculation.

Table 5. Chi-square tests of differences between respondents who agree and disagree with the statement that accounting rules should be simplified for micro entities (N = 271).

The preparation of abridged financial statements	Chi-square value	df	P
Chi-square test	24,372^a	2	0.000
Number of responses	235
The reduction of disclosure requirements	Chi-square value	df	P
Chi-square test	26,222^a	2	0.000
Number of responses	231
Exemption from general publication requirements	Chi-square value	df	P
Chi-square test	12,170^a	2	0.002
Number of responses	228
Exemption from obligation to prepare annual report	Chi-square value	df	P
Chi-square test	16,143^a	2	0.000
Number of responses	226
Exemption from obligation to present ‘prepayments and accrued income’ and ‘accruals and deferred income’	Chi-square value	df	P
Chi-square test	9,066^a	2	0.011
Number of responses	217
Cost model application without the estimation of fair value in financial statements preparation	Chi-square value	df	P
Chi-square test	10,414^a	2	0.005
Number of responses	217

Source: Authors’ calculation based on empirical research results.

Table 6. Chi-square tests about statistically significant differences between the respondents who agree and those who disagree that specific simplification in regulation would affect the cost reduction with the statement that simplification would affect the quality of the information base for decision-making in micro entities (N=271).

The preparation of abridged financial statements	Chi-square value	df	P
Chi-square test	3,713^a	2	0.156
Number of responses	227
Reduction of disclosure requirements	Chi-square value	df	P
Chi-square test	2,627^a	2	0.269
Number of responses	224
Exemption from general publication requirements	Chi-square value	df	P
Chi-square test	7,891^a	2	0.019
Number of responses	221
Exemption from obligation to prepare annual report	Chi-square value	df	P
Chi-square test	5,640^a	2	0.060
Number of responses	219
Exemption from obligation to present ‘prepayments and accrued income’ and ‘accruals and deferred income’	Chi-square value	df	P
Chi-square test	3,931^a	2	0.140
Number of responses	211
Cost model application without the estimation of fair value in financial statements preparation	Chi-square value	df	P
Chi-square test	5,895^a	2	0.052
Number of responses	211

Source: Authors’ calculation based on empirical research results.

IFAC. (2006). Micro-entity financial reporting: Perspectives of preparers and users, Small and Medium Practices Committee, IFAC. Retrieved February 8, 2014, from http://www.iasplus.com/en/binary/ifac/0612smemicro.pdf

 Google Scholar

Dečman, N. (2012). Financial reporting specificities of micro entities, Proceedings of 3rd international conference “Vallis Aurea” focus on: regional development, Polytechnic of Pozega, Croatia and DAAAM International. Vienna, Austria.

 Google Scholar

IFRS Foundation. (2013). Guide for micro-sized entities applying the IFRS for SMEs (2009). London: IFRS Foundation Publications Department.

 Google Scholar