Financial Statements of the SMEs and their Role in Providing the Security of Business Transactions Financial Statements of the SMEs and their Role in Providing the Security of Business Transactions

Abstract Small and medium enterprises are a crucial element of the European economy, which is confirmed by statistical data, according to which such companies constitute 99% of all the enterprises in the European Union, employ two thirds of all the people employed in the enterprise sector and have a significant share in GDP as it amounts to 60%. The increasing globalization and the development of the information and communication technologies result in the growing number of business partners an average enterprise will have and consequently in the bigger number of commercial transactions completed. These transactions will be carried out at a distance more often. The degree financialization of the economy also increases. Commercial transactions are always accompanied by a certain risk which contractors try to minimize by analyzing the economic and financial standing of their business partners. The financial statements of its business partners have a crucial role in this process. These reports present the assets and financial condition of an enterprise as well as its financial results and because of that they become kind of an identity document for a company. Decisions based on such analysis are right as long as the financial reports are reliable and integrity prepared. The European Commission noticed this problem and it introduced International Financial Reporting Standards and International Financial Reporting Standards for SMEs. Small and medium enterprises should prepare their financial statements -in accordance with the national or international standards. The international standards are more laborious but they are easier to compare by foreign contractors. On the other hand they give a chance to establish wider business contacts. The decision on which entities are required or permitted to use these standards depends on the legislative and regulatory authorities of each country