PricewaterhouseCoopers launches new Pocket Book on International Financial Reporting Standards for SMEs

Pictured launching the new PwC Pocket Book on Financial Reporting for small and medium-sized entities are (l-r): Fiona Hackett (Senior Manager, PwC Ireland), Tom Fitzpatrick (President, Institute of Chartered Accountants in Ireland (ICAI)) and Irene O'Keeffe (Partner, PwC Ireland).

PricewaterhouseCoopers (PwC) today launches its new pocket book on the proposed new International Financial Reporting Standards for SMEs. It provides a practical and easy to read summary of the new reporting requirements for small and medium-sized entities.

Recent proposals made by the UK Accounting Standards Board (ASB), would mean that UK and Irish Generally Accepted Accounting Principles (GAAP), as we currently know it, would cease to exist and be replaced by new International Financial Reporting Standards (IFRS) for SMEs for a large number of Irish private entities. With the ASB’s consultation just issued it is now timely for companies to consider how this would impact on their financial statements. The magnitude of the task facing preparers and users of financial statements should not be under-estimated and it would be prudent for all stakeholders to start to consider the consequences and perhaps to get involved in the ASB’s consultation process.

The new standard is intended to apply to entities that do not have public accountability and that publish general purpose financial statements for external users. Entities are deemed to have public accountability it they have debt or equity instruments traded in an active market, are in the process of issuing debt or equity instruments for trading in a public market or hold assets in a fiduciary capacity for a broad group of outsiders. Preparing financial statements in accordance with IFRS for SMEs would see a significant number of UK and Irish entities coming to terms with a very different look and feel for their financial statements. There are also a number of areas where presentation requirements and measurement principles under IFRS for SMEs are very different to UK and Irish GAAP.

For example under the new IFRS for SMEs a complete set of financial statements will include a statement of cash flows. A number of UK and Irish entities are currently exempt from preparing a cash flow statement.

Additionally, where an entity has derivative financial instruments or an investment in quoted shares, under the new IFRS for SMEs they would be required to measure such instruments at fair value with changes generally recognised in profit or loss. This would represent a significant change for entities that currently do not have to apply the provisions of FRS 26, Financial Instruments: Recognition and Measurement.

Irene O’Keeffe, IFRS for SMEs Partner, PwC, commented:

“Conversion to the new standard will involve a significant amount of work for a large number of private companies in Ireland but should lead to enhanced cross-border comparability, as well as consistency of accounting frameworks within multi-national groups.

"Companies should start planning and working on the basis that the ASB will require adoption of IFRS for SMEs in Ireland by 2012. The year 2012 may seem a long way off but companies should start thinking about the changes now. The opening balance sheet for December 2012 year ends will be as at 1 January 2011, which means that related conversion decisions need to be looked at in 2010.”

Launching the pocket book, Tom Fitzpatrick, President, The Institute of Chartered Accountants in Ireland commented;

"This standard will have a significant impact on the financial reporting landscape for private companies in Ireland. The PwC guide will prove useful for companies transitioning to the IFRS for SMEs. It will help them to consider the impact the standard will have on their financial statements and supporting business systems”

ENDS

Notes to Editor:

1) The pocket book is well timed for those wanting to know more about the IFRS for SME’s following the Accounting Standards Board (ASB) discussion paper issued last week which proposed to base the future of Irish and UK accounting for most Irish private companies on the IFRS for SMEs a simplified version of International Financial Reporting Standards (IFRS).

2) The IASB have defined “public accountability” as;

“Accountability to those existing and potential resource providers and others external to the entity who make economic decisions but are not in a position to demand reports tailored to meet their particular needs.”

An entity is deemed to have “public accountability” if;
It has debt or equity instruments traded in a public market,
It is in the process of issuing debt or equity instruments for trading in a public market, or
It holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses, e.g. banks, credit unions, insurance companies, investment banks and mutual funds.

3) [IFRS for SMEs would also introduce a number of new and detailed disclosure requirements for UK and Irish entities. For example there are no exemptions from disclosing transactions with other group companies under IFRS for SME’s, unlike FRS 8, Related Party Disclosures, which provides exemptions in certain situations]

[Additionally IFRS for SME’s introduces a requirement to disclose information about significant judgements made by management in applying an entity’s accounting policies and information about the key assumptions concerning the future, and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.]

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