The adoption of international accounting standards by small and closely held companies: evidence from Bahrain

Abstract

This study examines the accounting practices and the degree of adoption of international accounting standards (IASs) by small and closely held companies in Bahrain. It finds that 86% (31) of the 36 companies responding to the questionnaire applied IASs and they considered IASs to be very relevant for them. All firms prepare balance sheets, and the majority prepares income statements and cash flow statements. They also duly audit these statements. The data collected also revealed that the quotient influence on whether or not a firm adopted IAS was exerted by their external auditors. External auditors exerted the greatest influence on getting firms to adopt IASs. Banks and company partners were the primary users of company financial statements; inventories, depreciation, disclosure on financial statements, and the presentation of current assets and liabilities. The main IASs followed by a majority of firms are those pertaining so. Some of the standards were considered totally irrelevant, contrary to the prevailing idea that adoption of IASs creates an information overload for small and closely held companies. The results of this study indicate that a majority of our respondents did not find that it was costly to adopt or interpret IASs. Those few firms that experienced some difficulties sought clarification from their external auditors. About 84% of those who adopted IASs strongly agreed that using IASs improves their organization's ability to financial assistance from the banking sector. Also, about 90% of the respondents fully agreed that IASs help to achieve the objectives and improve the effectiveness of financial reporting.