Deferred Tax Accounting for SMEs: Modified Income Statement Approach

Purpose: Accounting for income tax under International Financial Reporting Standards (‘IFRS’) is dealt with in IAS 12 Income Taxes. It is often said that users of financial statements do not find information produced in accordance with IAS 12 useful. This is a serious problem because for many businesses tax is one of the largest expenses. In some cases, preparers find the requirements of IAS 12 difficult to apply in practice. Its requirements are said to be unclear, and preparers sometimes question the relevance and understandability of the information that is provided in accordance with the standard. The IFRS for SMEs currently require use of balance sheet approach for accounting of deferred taxes. In India, the Institute of Chartered Accountants of India (ICAI) – the apex standard-setting body in India, is formulating revised accounting standards for SME’s in India. This article examines an alternative to the balance sheet approach which is less complicated and easy to implement.[Reviewer1] [AB2] Methodology: This article proposes a new method i.e. Modified Income Statement Approach. This method is a mix of income statement approach and balance sheet approach, as it requires recognition of deferred taxes using temporary difference approach but calculated using income statement and the other comprehensive income (in effect, Comprehensive income statement). Modified Income Statement Approach requires comparison of tax expense with the underlying related income and expenses so that they are recognized in the same period. In doing so, it also considers income and expenses recognized in the income statement as well as the Other Comprehensive Income. Hence, this approach is more of temporary difference approach but applied by using income statement method. It covers all items of timing differences and most items of temporary differences. The SMEs have less complicated structures and transactions. Also, in many countries, including India, there exists no concept of tax balance sheet. Hence, it would be worthwhile to ease-out the deferred tax accounting for SMEs. The hypothesis is that application of modified income statement approach can result in similar outcome as the balance sheet approach.Findings: A survey of 50 top companies in India was conducted. The results show that 60% of the companies would have recognized the same deferred tax asset/ liability under both the methods i.e. modified income statement approach and balance sheet approach. Balance 40% had some minor differences, but such transactions may be less frequent for SME. On an average, the impact of using modified income approach as against balance sheet approach is a mere 4%. The only items not covered by the modified income statement approach as against the balance sheet approach are Fair valuation of assets/ liabilities on business combination, Compound financial instrument and the existence of undistributed profits of subsidiaries, branches, associates and joint arrangements[Reviewer3] .[AB4] Unique contribution to theory, practice and policy: [Reviewer5] [AB6] To balance out the cost and benefits of implementing an accounting standard as per the framework, it is critical that SME’s use a simpler and less complicated method which is easy to understand and implement. Modified income statement approach is easy to apply and not complicated or technical to understand. In India, companies are used to calculating deferred tax using income statement approach. Hence, this will be a small change from the existing approach, while achieving the objectives of the balance sheet approach. Hence, modified income statement approach seems to be an appropriate method for SMEs.

Control of Oppressive Interest Rates and Charges by Banks and the Relationship between Landlords and Tenants - The Urgent Imperative for Statutory Protection

Purpose: The purpose of the work is to examine the ways by which the court and legislature can control critical interest rates on loan bargains and legislation can be used to exercise/impose a significant legal control over the relationship between landlords and residential/occupiers.Methodology: The paper adopts the doctrinal research methodology/ approach of reviewing cases and statutes and international instruments in aiming at a valid conclusion. Emphasis were placed on statutes and case laws as primary sources. Relevance was as well placed on journal, articles, text books, internet materials, among others as secondary materials.Findings: The paper finds that many Nigerians will be exposed to unmitigated hardship and suffering during this era of covid-19 pandemic as a result of lockdown and restrictions imposed by the government in the effort and measures to contain and curb the spread of the coronavirus. Unique contribution to theory, policy and practice: The paper urges the government to adopt as a primary political objective- the use of legislation to ameliorate the plight of Nigerians in the loan bargain sector and in the residential (housing) sector. In this regard, the paper contributes to practice and policy of government by using law as an instrument of social engineering

FACTORS THAT AFFECT TAX COMPLIANCE AMONG SMALL AND MEDIUM ENTERPRISES (SMES) IN LUSAKA, ZAMBIA

Purpose: Tax is an important stream of revenue for government’s development projects. However, tax compliance among SMEs is poor. Therefore, this study was conducted using SMEs in Lusaka, Zambia to evaluate and rank the factors that encourage non-compliance with tax obligation by SMEs.Methodology: The data analysis was done with the help of the statistical package for service solution (SPSS) and this hypothesis was tested with Microsoft Office Excel 2007 using the one sample z-test computed from the figures obtained in the summary statistics table.Findings: It was found that high tax rates and complex filing procedures are the most crucial factors causing non-compliance of SMEs. Other factors like multiple taxation and lack of proper enlightenment affect tax compliance among the SMEs interviewed only to a lesser extent.Unique contribution to theory, practice and policy: It is recommended that SMEs should be levied lower percentage of taxes to allow enough funds for business development and better chances of survival in a competitive market. The government should also consider increasing tax incentives such as exemptions and tax holidays as these will not only encourage voluntary compliance but also attract investors who are potential viable tax payers in the future.

EFFECT OF RISK EVALUATION ON PERFORMANCE OF FINANCIAL INSTITUTIONS

Purpose: The purpose of the study was to determine the effect of risk evaluation on performance of financial institutions.Methodology: The study used explanatory research design. The study used stratified random sampling to select respondents from target population comprising of managers of 46 commercial banks, 52 Micro Finance institutions (MFIs) and 200 SACCOs and a sample size of 239 respondents obtained. Data was collected using questionnaires. Descriptive statistics was presented, while inferential statistics was done using Pearson product moment correlation.Results: There was a positive influence of risk evaluation [r = .813, p<.05] on the performance of financial institutions was obtained. The risk evaluation positively influenced the performance of financial institutions. The risk evaluation had positive relationship with performance of financial institutions (P<0.05). The null hypothesis HO3 stating that there is no significant effect of risk evaluation on performance of financial institutions was rejected. This indicates that for each increase in the risk evaluation, there is 0.821 increase in performance of financial institutions.Unique contribution to theory, practice and policy: The study has established the importance of ownership structure as a system of corporate governance that significantly moderates the relationship between risk management practices and performance of financial institutions can exploit various risk management practices identification, analysis, evaluation and monitoring should be enhanced so as to bring efficiency in the performance of financial institutions. These may be achieved through establishment and implementation of risk identification, analysis, evaluation and monitoring policy framework which will significantly influence performance of financial institutions and enhance shareholder capabilities to evaluate all risks that can hinder the financial institutions from achieving their set objectives

FINANCIAL RISK MANAGEMENT STRATEGIES AND THE GROWTH OF MICROFINANCE SECTOR IN KENYA

Purpose: The purpose of this study was to investigate how financial risk management strategies lead to growth of MFI sector in Kenya.Methodology: The study adopted a correlation survey research design. The population of this study was fifty seven (57) MFIs. The sampling frame was the list of MFIs provided in the AMFI website www.amfikenya.com. A sample of thirteen (17) MFIs was selected using the random sampling approach. A questionnaire and an interview schedule were the main data collection tools. Qualitative data was analyzed using content analysis whereas the quantitative data was analysed using Statistical Package for Social Sciences (SPSS) where descriptive and regression analysis were conducted to determine the relationship between enterprise risk management strategies and growth of MFIs.Findings: The findings indicated that MFIs had effective financial risk management strategies such as effective credit risk management practices, liquidity risk management practices, interest risk management practices and price risk management practices. In particular, MFIs took into consideration the conditions, characters, capacity, collateral and capital of borrowers. Strict debt collection practices were widely adopted by MFIs. In addition, the concept of Know Your Customer (KYC) policy, seem to have been adopted by MFIs. The relationship between financial risk management strategies and growth was positive and significant. It also shown that sources of funds for MFIs include external sources and internal sources and the most frequently used source of funds are bank loans. The use of banks loans may present various risk exposures to MFIs, the most significant being interest rate risk. However, the ability of MFIs to source funds from various sources indicates that MFIs can apply the pecking order by first exploiting internal sources of funds since they present a lower financial risks and then move on to external sources. However, despite the financial risk exposure accompanied by leverage from external sources, MFIs may also benefit as they may experience higher growth driven by the leverage. It was also found that MFIs had put in place a number of good practices that had emerged to promote responsible and inclusive lending. These include loan size limits, standardized (simple) loan terms, zero tolerance on delinquency, group-based lending. This finding implies that MFIs have put in place effective credit risk management policies which are part of an overall financial risk management strategy. The existence of effective financial risk management practices may have influenced the growth of MFIsUnique contribution to theory, practice and policy: The study recommends that the MFIs to continue practicing effective financial management practices as this would improve the growth of MFIs.

ASSESSMENT OF FINANCIAL MANAGEMENT CHALLENGES FACING THE MICRO AND SMALL ENTERPRISES (MSES) IN KENYA: A CASE OF MERCHANDIZING MSES LOCATED IN NAIROBI RIVERROAD AREA

Purpose: This study was an assessment of the financial management challenges facing MSEs in Kenya in the case of merchandizing MSEs located along River Road.Methodology: A descriptive survey research design was adopted. The target population was all the 210 MSEs located along river Road in Nairobi. The study used systematic random sampling. All the MSEs were numbered and included in the sampling frame. One MSE out of every five MSE was picked at random thus resulting to a sample size of 42 which was 20% of the population. Data was collected using a questionnaire, analyzed by use of descriptive statistics and findings presented using charts and graphs.Results: Findings in this study indicated that the financial management challenges facing MSEs were in the area of trade credit management, inventory management, debtors’ management and cash management. It was concluded that indeed MSEs were facing a serious challenge in financial management.Unique contribution to theory, practice and policy: It was recommended in this study that business incubation projects should be set up to impart financial knowledge to MSE owners. It was suggested that a correlation or a regression analysis should be carried out as an area of further study in order to ascertain the influence of financial management training and MSE success/growth. Such a study would inform the formulation of government policy aimed at promoting the growth of the MSE sector

INFLUENCE OF CORPORATE GOVERNANCE ON THE LEVEL OF COMPLIANCE TO PROJECT INTERNAL CONTROLS IN UNDP FUNDED PROJECTS

Purpose: The purpose of this study was to determine the influence of corporate governance on the level of compliance to project internal controls in UNDP funded projectsMethodology: The study adopted a correlation survey research design. A questionnaire and an interview schedule were the main data collection tools. The preferred statistical tool for quantitative data analysis was Statistical Package for Social Sciences (SPSS) computer software. Qualitative data was analysed using content analysis. The study utilized descriptive and regression analysis to determine the relationship between factors contributing to adherence of internal controls and mechanisms and level of compliance to project internal controls in UNDP funded projects. The population of this study was all the 28 UNDP-Kenya staffsResults: The study findings indicated that the UNDP maintains proper governance system which in turn boosts her adherence to her Project Internal Controls mechanisms.Policy recommendation: The study recommended that Corporate Governance should also be keenly observed while managing NGOs

FACTORS INFLUENCING THE USE OF ACCOUNTING SERVICES BY SMALL AND MEDIUM ENTERPRISES IN KENYA

Purpose: The purpose of this study was to determine the factors influencing the use of accounting services by small and medium enterprises in KenyaMethodology: The study adopted descriptive research design. A survey was done to establish the factors among owners of SMES in Kenya. There are about 850 such establishments in Kenya of which a sample of 85 firms was taken using stratified random sampling. Data was collected by use of questionnaire method which had both structured and unstructured questions. It was analyzed mainly by use of descriptive statistics such as the mean and inferential statistics such as regression.Results: The study findings revealed that knowledge and competence of the respondents was poor, there was high competition among the SMEs, the respondents had low levels of compliance with accounting legislation and the SME growth was low. In addition, the study findings revealed that there that the SMEs did not use accounting services. The study found that there was positive and significant relationship between knowledge and competence, competition, legislation and SME growth in size.Policy recommendation: The study recommended that training be emphasized as it has an effect on the use of accounting services. There is need to for management to emphasize on use of qualified accountants in order to face the competition facing the SMEs, the management should emphasize on good and proper book keeping of financial records and the SMEs to use services of qualified accountants so as to enhance growth of the business.

ANALYSIS OF FACTORS AFFECTING TAX COMPLIANCE BY SMES IN KIAMBU COUNTY

Purpose: The purpose of this study was to determine factors affecting tax compliance by Smesin Kiambu CountyMethodology: The study adopted descriptive survey design and the research. The study population was 1084Smes in Kiambu County where a sample size of 325Smes was selected. Data was collected through structured and unstructured Questionnaires. Data was analyzed using Statistical Package for Social Sciences (SPSS) and results presented in frequency tables to show how the responses for the various questions posed to the respondents.Results: The study findings revealed that Non compliance opportunities, compliance cost, knowledge requirements and decision frames had a positive and significant effect on tax compliance. The study led to conclusion that the authorities had a weak capacity in detecting tax evasion, it was cheaper to bribe a tax official than pay full amount of tax, corrupt, fine and penalties deterred tax evasion and that degree of regulation deterred tax evasion, that tax system and rates affected the rate and amounts of tax evasion, nature and degree of regulations affected tax evasion, size and how the business was structured had a direct or indirect effect on tax evasion, location and focus of business affected tax evasion and that the type of business the tax payers were in affected tax evasion.Policy recommendation: The study recommended that the authorities should adopt high and modern technology to help in detecting tax evasion, proper measures should be emphasized on officials taking bribes, fines and penalties should be issued to those evading paying tax and that proper regulatory framework should be put in place to deter tax evasion and that the government should consider increasing tax incentives such as exemptions and tax holidays as these will not only encourage voluntary compliance but also attract investors who are potential viable tax payers in the future.

THE DETERMINANTS OF BANK CREDIT GROWTH AND CREDIT AGGREGATE BEHAVIOR DURING ALTERNATE BUSINESS CYCLES IN SOUTH AFRICA

Purpose: The purpose of this study was to Analyze of the Relationship between Business Cycles and Bank Credit Extension: Evidence from South Africa. The study sought establish the determinants of bank credit growth in South Africa and how the different credit aggregates behave during alternate business cyclesMethodology: This study adopted qualitative and quantitative research. The qualitative research involves structured interviews with influential or well informed people on the subject matter. The study is used to understand the key determinants of bank credit in South Africa and to appreciate how each of the credit aggregates behaves during alternate business cycles. The qualitative results are used to formulate questions of the structured survey questionnaire. The ANOVA and Pearman’s product correlation analysis techniques are used to assess relationship between variables.Results: Results revealed that, key determinants of commercial bank credit in South Africa as economic growth, collateral value, bank competition, money supply, deposit liabilities, capital requirements, bank lending rates and inflation. The quantitative results show that there is direct and positive relationship between bank lending behaviour and credit aggregates namely economic growth, collateral value, bank competition and money supply.Unique contribution to theory, practice and policy: It proposes practical policy prescriptions to address challenges currently facing South Africa. The other major contribution of this study is that it shall open new avenues for further research on determinants of bank credit growth in South Africa and how the different credit aggregates behave during alternate business cycles.