IASB Responds to Demand with Publication of IFRS for Small, Medium-Sized Businesses

Responding to strong international demand from developed and emerging economies, the International Accounting Standards Board (IASB) has issued an International Financial Reporting Standard (IFRS) designed specifically for use by smaller private businesses, which make up an estimated 95 percent of all companies.

The standard, which has been five years in the making, is designed to ease the reporting burden on private small and medium-sized entities (SMEs) through a cost-benefit approach, while at the same time meeting the needs of those who use private company financial reports. 

Specifically, IFRS for SMEs simplifies principles in the full IFRSs for recognizing and measuring assets, liabilities, income and expenses, and eliminates topics that are not applicable to smaller companies.  The number of required disclosures has been significantly reduced.

Calling IFRS for SMEs a “major breakthrough for companies throughout the world,” IASB Chairman Sir David Tweedie notes that smaller companies will now “have a common high quality and internationally respected set of accounting requirements.  We believe the benefits will be felt in both developed and emerging economies.”

In particular, the new standards:

• Improve comparability
• Enhance overall confidence
• Reduce the costs involved with maintaining standards on a national basis
• Provide a platform for growing businesses that are preparing to enter public capital markets, where application of full IFRSs is required

In announcing the standards, IASB indicated that it addressed the demand for a “rigorous and common set of accounting standards” for SMEs that is much simpler than full IFRSs.  That stance was echoed by the findings of a new survey by Deloitte & Touche LLP that there is growing interest among smaller companies in a separate accounting standards for private and public companies.

More than half of the smaller companies that participated in the survey indicated they believe there should be separate accounting standards.  Smaller companies with less than $100 million in revenues were more supportive of separate standards, with 55 percent believing there should be separate standards.

The Deloitte survey also indicated that interest in separate accounting standards would grow with more education on IFRS and its perceived overall benefits for private companies.  Forty-three percent of respondents selected "no" or "don't know" when asked about awareness of the IASB project on IFRS for smaller companies.

“Some private companies are still not aware of the IASB's efforts in addressing the needs of private companies," said D.J. Gannon, partner and leader of Deloitte's IFRS Center of Excellence.  "Private companies that adopt IFRS for SMEs stand to benefit from simplified reporting requirements, greater comparability of performance for investors, lenders and other financial statement users and a reduced burden of financial statement preparation."

IFRS for SMEs is separate from full IFRSs and is therefore available for any jurisdiction to adopt, whether or not it has adopted the full IFRSs. It is also for each jurisdiction to determine which entities should use the standard.  It is effective immediately on issue.  The complete IFRS for SMEs can be downloaded free of charge from http://go.iasb.org/IFRSforSMEs. 
 

Also in this month's issue:

Reducing the Cost, Burden of Internal Controls through Automation

Interview Experiences Survey