Small and medium enterprises (SMEs) are the important factor for increasing the country's economic growth. Since the accounting standard of financial equity without public accountability (SAK-ETAP) has been adopted per January 2010, it is really challenging for the SMEs in their businesses. This study tries to test empirically the effect of internal and external factors on the SMEs’ understanding towards SAK-ETAP. It also tests the effect of the SMEs understanding towards SAK-ETAP on tax compliance with the self assessment as the intervening variable. This study uses primary data in which the data collection was done using questionnaires distributed to 130 respondents of SMEs in Sidoarjo and Surabaya cities. The test analysis was done by means of crosstab, independent sample test, and regression. It shows the personal factors have significant effect on the SMEs understanding towards SAK-ETAP. Among the findings, it was also found that the different perception is due to the incomprehensive understanding towards the regulation. Thus, the understanding of SAK-ETAP has no effect yet on the tax compliance. This is due to their habit of using the third party for making financial report and tax compliance as well as the feeling that the tax compliance is considered coercive.