The banks in the UAE are likely to ease their lending criteria in 2011 for the small and medium enterprises (SMEs), who form the backbone of the country's economy, said a study.

The study, conducted by Jitendra Chartered Accountants, evaluated 1,000 companies across key sectors – industry and manufacturing, garments, IT, consumer products, chemicals, food and dairy, retail, hotels – and studied the impact of new accounting standard ‘IFRS for SMEs’.

The lending will come as a major boost to SMEs, who form the majority. It is estimated that 98.5 per cent of the companies in the UAE are defined as SME using the Dubai SME definition, the study added.

“Banks in the UAE will be at ease to lend to SMEs in 2011 and going forward considering that these companies will have to shift to the latest ‘IFRS for SMEs’ accounting principles," said Jitendra Gianchandani, chairman of Jitendra Chartered Accountants, at the launch of its ‘IFRS for SMEs’ pocket book.

Saed Al Awadi, CEO of Dubai Exports was the chief guest at the function organised by Jitendra CA. Dubai Exports, an agency of the Dubai Department of Economic Development, is mandated to increase the effectiveness of domestic firms in foreign markets.

Speaking on the occasion, Al Awadi said: “IFRS for SMEs is a significant improvement in the reporting environment of the sector. The full IFRS imposes a regulatory burden on SMEs which is unnecessary as well as being expensive."

"The adoption of this standard will ensure that SMEs are able to increase their reporting efficiency. In this respect that the Pocket Book is a good source of information regarding the standard and I am sure that SMEs will make effective use of this publication," he added.

Gianchandani pointed out that banks were comfortable to lend to private companies that presented their financial numbers in IFRS for SME format as against Full IFRS, which is mainly for public listed companies.
 
"From the SME point of view, they do not have clarity about different accounting standards such as US GAAP, IAS and IFRS and they are not aware which one to follow in the absence of accounting body in the UAE," he explained.

“Large companies have to report higher levels of transparency owing to regulations. But small companies are not answerable to regulators or stakeholders – be it securities commission, stock exchanges, shareholders, or promoters – and hence they have poor levels of financial disclosure and transparency,” the expert said.

These SMEs end up with heavy load of book keeping, time and effort and heavy costs of maintaining their balance sheets and training staff due to frequent changes in those standards and yet lose out on financing opportunities,” Gianchandani added.

It has been widely accepted that the UAE needs its own professional body for accountants to increase monitoring and lead a debate about unifying standards across the country.

The lack of unified standards across the UAE ‘can result in inconsistencies’ that lower the quality of financial information. Besides, international companies who want to partner with SMEs too find it difficult to analyze the financial numbers of UAE firms, leading to delays and backing off from partnerships or takeovers.

IFRS for SMEs is a simplification of the full IFRS. The latest standard helps SMEs produce reliable and transparent financial records to banks thereby facilitating the extension of credit facilities.

Ashok Sawlani, chairman of Textile Merchants Group (Texmas) was the guest of honor at the function.

“Small merchants need deep support especially during crucial crisis times. IFRS for SMEs has been introduced at the right time and I am sure merchants will take full advantage of this. Of course they will require training and guidance to learn the ropes,” he noted.

Taking cue, Gianchandani said the Jitendra Chartered Accountants was planning to launch a full-fledged training academy to educate and train clients and the business community on the new development in accounting standards and its implications.

"Talks are also on to start training programs for practicing accountants to train them on IFRS for SMEs," he added.-TradeArabia News Service