Background: Indonesian Banks noted that only 22% of SMEs have access to bank credits, and one of the main obstacles that they do not have is a good financial administration and management system. The aim of this study is to determine the perception and understanding of SMEs in compiling financial report in accordance with the Financial Accounting Standards for SMEs to facilitate in obtaining capital from the banks so as to improve the competitiveness of SMEs. Materials and Methods: The data is obtained from the perception SMEs owners in some cities at East Java Indonesia, using survey as primary data. Data analysis was done using Partial Least Square to test the confirmatory factor analysis and T-test to test to determine the effect between variables, and interviews were conducted to strengthen the results of the study. Results:The test results show that the entire outer loading construct indicator has a loading value more than 0.5, thus meeting convergent validity. The discriminant validity result shows that the root square value of AVE is greater than 0.5. It is reliable because composite reliability values are above 0.7. For the inner models of Q-Square is greater than 0, it can be interpreted that the latent predictor and the model can be estimated to be estimated. The results of the t-test show that the level and background of education, age, and size of the company influence the perception of SMEs about the importance of financial report. Information and socialization about financial report affect the perception and understanding of SMEs indicated by the T-test value of 23.725. Company age and size, credit terms, and collateral credit have a significant effect on bank credit, but the quality of financial statements has no effect on bank credit as indicated by the T-test of 0.291 because financial reports are generated by SMEs have not been tested and have not been able to reflect the real reality of SMEs. Conclusion: The implementation of financial accounting standards for SMEs is still not felt by SMEs hampered due to the low perception and understanding of SMEs toward the prevailing accounting standards so that socialization is needed. The banking sector must provide learning to SMEs about the terms of credit provision through quality financial reports.
Keywords: financial accounting standard for SMEs, financial reporting, perception, 1. Introduction