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CRIEFF Discussion Paper Number 0701

Practitioner Views on Financial Reporting for Smaller Entities

Gavin C. Reid and Julia A. Smith

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This paper has four purposes.  First, to establish the policy background leading to a special financial reporting standard for small firms (FRSSE), aimed at reducing compliance costs.  An indirect policy implication of this was that small firms would be stimulated, for example, in terms of start-up rate, performance (including survival, profitability, and growth), and contribution to employment and innovation within the economy.  Second, to consider the implications for FRSSE itself on compliance costs, and to ask what forms they may take. Third, to analyse new evidence on adopters and non-adopters of the FRSSE.  Fourth, to cast this new evidence into a cost effectiveness framework, to judge whether adopters who are engaged in upgrading of skills, to implement the FRSSE, have attained net benefit, compared to non-adopters, in so doing.  The conclusion is that significant net benefit has indeed accrued to adopters.

JEL Classifications: G32, M13, M41

Keywords: Small firms, financial reporting, compliance costs, cost-effectiveness.