Putting SME Financial Reporting Into Theoretical And Practical Perspective

The intention in this research note is to summarise, synthesise and extend elements of two theoretical perspectives on financial reporting by small and medium-sized enterprises (SMEs) drawn mainly from the literature of economics and finance - that supplied by neoclassical microeconomics as reflected in modern finance theory, and that provided by so-called Austrian economics. The aim is to sketch as succinctly as possible the likely financial reporting scenario for SMEs in a less than perfect world, with a particular concern for internal use of general purpose financial reports by owner-managers. The resulting portrayal establishes a conceptually sound but realistic backdrop against which to view SME financial reporting practices. Most importantly, it reinforces the point that owner-manager decisions regarding financial reporting are multifaceted, and not simply a dichotomous choice between two extreme positions.