International reporting standards for smes in the framework of Basel II and analysing practices in Turkey

The extraordinary fast innovations experienced in information and communications technologies has enabled the global capital to flow from one country to another easily and, accordingly, the capital has targeted the markets in which the revenue is highest. However, financial crises have occurred since the liberalization of the capital has been permitted without required regulatory arrangements in the financial markets and, due to the spill over effect of such financial crises, local and global financial difficulties have arisen. The capital movements experienced after the 80s, due to the liberal economic policies applied on the globe, have brought great profits but also big losses originating from the financial crises faced due to the high risks and non-existence of sufficient legal arrangements. In relation, Basel II and International Financial Reporting Standards have been regarded as very important arrangements of international financial governing institutions for both to provide uniformity in all the regulations applicable globally and to prevent the re-occurrence of the faced global difficulties.It may be said that IFRS (International Financial Reporting Standards) and Basel II standards share the same targets. Both framework aim to establish a basic structure which will make the enterprise activities more transparent, provide information to the market participators which will increase the quality of their respective transparency decisions and enable the information required by auditing bodies to be in the desired qualities. This structure will standardize the international financial operations and, thus, will contribute importantly to the formation of the more trustable and transparent money markets.It should be kept in mind that the SMEs (Small and Medium size Enterprises) form the 98% of all the world economies and are the key elements of the real economy required to enable the financial stability. A specific importance should be given to SMEs by means of accordance with Basel II criteria and UFRS for SMEs that has been declared in July 2009 by the International Accounting Standards Board (IASB). In case the Turkish Commercial Code, in draft form, becomes law, the Turkish SMEs will enter a new period by means of according with the Basel II criteria and UFRS for SMEs criteria. In determination of the road map for SMEs, certain functions should be performed by the governing institutions, accounting/auditing profession bodies, chambers and SMEs themselves.This study covers the practices to be performed by the SMEs for to observe the UFRS for SMEs and Basel II criteria, the respective problems that may be faced in relation with such performance and solution recommendations.