ACCA Financial Management (F9) Certification Practice Exam

What type of companies are likely to be defined as Small and Medium-sized Entities (SMEs)?

1. Publicly listed companies

2. Unquoted private companies

3. Government-owned enterprises

4. Micro businesses

The correct answer is: Unquoted private companies

The classification of Small and Medium-sized Entities (SMEs) typically includes unquoted private companies due to their size and organizational structure. SMEs are generally characterized by having a limited number of employees and a capped turnover or balance sheet total, distinguishing them from larger publicly listed companies that operate on a much bigger scale and are accountable to shareholders and regulators. Unquoted private companies meet the criteria often outlined by various regulatory bodies, which include having fewer employees, lower revenue thresholds, and limited transparency requirements compared to their public counterparts. By definition, SMEs play a significant role in the economy, providing employment opportunities and driving innovation while being less burdened by complex reporting and regulatory obligations. Other options, such as publicly listed companies, are generally too large to be considered SMEs, as they must comply with strict financial reporting and governance standards. Government-owned enterprises often operate independently of commercial pressures and are typically not categorized as SMEs. Micro businesses, while related in concept, are usually smaller than SMEs and could fit into a separate category within the broader framework of small enterprises, focusing specifically on very small business operations. Thus, unquoted private companies are the most representative of the SME classification within the given context.