Institutional Capacity as a Mediating Mechanism between IFRS Implementation Inputs and Financial Reporting Quality: PLS-SEM Evidence from SMEs in Western Uganda

Abstract

Purpose: This article examines Institutional Capacity (IC) as the organisational transmission mechanism linking three IFRS implementation inputs - Accounting Systems Integration (ASI), Governance Practices (GOV), and Training and Resources (TR) to Financial Reporting Quality (RQ) among small and medium-sized enterprises (SMEs) in Western Uganda. Design/methodology/approach: The study used a cross-sectional, quantitatively dominant embedded mixed-methods design. Primary survey data were collected from registered SMEs in Mbarara City during March 2026. Of 250 targeted SMEs, 203 complete cases were retained for the final SmartPLS 4 model. PLS-SEM was used to assess the measurement model, direct paths, specific indirect effects, explanatory power, and approximate model fit.  Findings: ASI was the strongest observed predictor of IC (beta = 0.550), followed by GOV (beta = 0.378), whereas TR had a weak coefficient (beta = 0.038). RQ was positively associated with ASI (beta = 0.338), GOV (beta = 0.257), TR (beta = 0.199), and IC (beta = 0.224). The specific indirect effects through IC were 0.123 for ASI, 0.085 for GOV, and 0.008 for TR. The model explained 76.0% of the variance in IC and 77.7% of the variance in RQ (SRMR = 0.089; NFI = 0.966). The point estimate pattern is consistent with complementary partial mediation for ASI and GOV, while the mediated TR pathway is negligible. Because the final component-level bootstrap standard errors, p-values, and confidence intervals were not contained in the final dissertation output, formal mediation significance is intentionally not asserted. Originality/value: The study advances a capability-based interpretation of IFRS implementation by distinguishing implementation inputs from the institutional capacity through which they are converted into sustained reporting routines. In a resource- constrained SME setting, the results imply that systems and governance matter not only directly but also through their contribution to organisational capability.