The relationship between compliance to accounting regulations and the cost of credit finance: a study on non-listed firms in the Kenya financial sector

Abstract

This research projects discusses the extent in which current developments in accounting regulations have been embraced by non-listed firms in the Kenya financial sector and the effects of the same in solving major problems of corporate financing among small and medium enterprises. The study is a descriptive research which involved gaining insights about the level of compliance with mandatory and voluntary aspects of accounting regulations from a sample of 93 non-listed firms in different subsectors like; Banking, Insurances, SACCOs and Stock brokerage firms among others. Most of the firms were more compliant with mandatory aspects of accounting regulations like accounting disclosure requirements of the respective Government Regulatory Agencies, Companies act and IAS1. The level of compliance with voluntary accounting regulations tested like IAS 39 on valuation and disclosures of financial assets and liabilities and IFRS 7 on disclosures requirements for firms’ exposure to risk was generally very low. Firms not listed in NSE are generally not motivated to achieve high levels of compliance with accounting pronouncements of IFRSs and IASs mainly because they perceive these regulations as a preserve of big public firms. ICPAK should take the challenge of enlightening Small and Medium sized Entities on the strategic benefits on achieving high levels of compliances to entire accounting regulatory framework respective to the firm since by doing so to mandatory aspects of accounting regulations alone, they risk suffering from the perceptions of information asymmetry and other adverse consequences associated with low quality accounting information such as limited access to external finance.