Impact of SMEs’ financial reporting practices on their creditworthiness in Zimbabwe.

Abstract

The purpose of this paper was to investigate and analyse how the financial reporting practices of the SMEs influence their ability to get funds from lending institutions. The study was grounded upon the mixed methods methodology. This methodology enabled the identification of both numerical and non-numerical consequences of the lack of financial reporting as a barrier to finance for SMEs. Explanatory Sequential design was used. Forty (40) owners representing different SMEs in diverse economic areas made up the studys population. A sample had to be chosen after the study population was chosen. Purposive or judgmental sampling was employed in this study. To obtain first-hand knowledge from the respondents, primary data was gathered through interviews, and questionnaires. Questionnaires were used to gather quantitative data while interviews were used for qualitative data. It was found out that most SMEs in Zimbabwe are failing to access credit facilities since they are not producing standard financial reports. Most respondents alluded that preparation of the financial statements is costly and would surely eat up upon the working capital of SMEs. As a recommendation, SMEs are encouraged to try to engage qualified Accountants who can interpret the IFRs for SMEs. More so the IASB should simplify the IFRs for SMEs such that the SMEs manage to make use of this crucial framework. The current position with financiers is that SMEs are failing to provide them the information they require. Therefore, there is need to upgrade the information systems and close the information gap that exists between the SMEs and the financiers.