SmE IFRS

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An IFRS for SMEs has clear benefits for investors, lenders and those seeking to raise finance through the transparency afforded by a consistently applied global set of financial reporting standards. Such benefits are not confined to the financial statements of entities with securities traded on public capital markets. The IFRS for SMEs was published in July 2009. It is a matter for authorities in each territory to decide which entities are permitted or even required to apply IFRS for SMEs

One aim of the IFRS for SMEs is to provide a standard for entities in countries that have no national GAAP. IFRS for SMEs will provide an accounting framework in such countries for entities that are not of the size nor have the resources to adopt full IFRS.

Another aim is to provide countries that already have an established national GAAP with an alternative, IFRS standard that will be recognised and understood across different territories. This will ease transition to full IFRS for growing entities once they become publicly accountable. The volume of accounting guidance has been reduced by more than 85 per cent compared with the full IFRS. Much of the implementation guidance in full IFRS has been omitted, together with the detailed explanation and requirements relating to the more complex circumstances not usually applicable to SMEs. The IFRS for SMEs does not just reduce disclosure requirements; it also simplifies the recognition and measurement requirements – for example, in connection with financial instruments. When there is a policy choice, the IFRS for SMEs generally adopts the simpler option. IFRS for SMEs is written so that it is complete in itself and contains all the mandatory requirements for SME financial statements.

The term ‘small and medium-sized entities’ has different meanings in different territories. The definition in the context of the IFRS for SMEs is entities that do not have public accountability and publish general purpose financial statements. Every entity has some form of accountability, if only to its owners and the local tax authorities. Public accountability is defined to cover entities with or seeking to have securities traded in a public market or that hold assets in a fiduciary capacity as their main business activity. The definition is therefore based on the nature of an entity rather than on its size.

Where a transaction is not addressed by the IFRS for SMEs, management is expected to use judgement to determine its accounting policy. If such a transaction is covered in full IFRS, management may refer to the appropriate international standard if it wishes but is not required to do so by the IFRS for SMEs.

For further information please access the following link:
http://www.iasb.org/IFRS+for+SMEs/IFRS+for+SMEs.htm