Simplified IFRS - tailor-made for non-listed entities

In the next few months, the IASB is due to release its final standard for SMEs (or ‘private entities’ or ‘non-publically accountable entities’ – all these names have been used by the Board during the development of the standard). It was once widely considered an impossible task to deliver a simpler set of standards attractive to private entities, and it has been a long time coming.

Small and medium-sized entities have been struggling with the question of whether or not to adopt IFRS for many years. In most cases, the answer has been ‘no’. This is because IFRS was developed for listed entities and did not fit the needs of non-listed entities’ (SMEs) or the users of their financial statements. Also, due to its complexity, the application of IFRS can be quite costly, and not all SMEs are prepared to pay large amounts for the conversion of their financial statements to IFRS, nor do they have sufficient knowledge to do the job in-house.  There are, however, some notable exceptions to this approach, such as Australia where IFRS applies in full to all companies, listed or otherwise.

But many SMEs have a clear need for standardised accounting rules and would prefer to adopt internationally harmonised rules rather than locally developed standards. Within Europe alone there are some 55 local accounting standards. Just imagine the challenge of compiling the consolidated accounts of a UK-based group with subsidiaries in Germany, Italy, Switzerland, the Netherlands, France and Bulgaria. All countries have their own set of reporting standards, all based on the 4th and 7th EU Directives, but all with different flavours and starting points. Much time and money could be saved if companies adopted one harmonised reporting standard. The differences between the new standard and many local accounting standards (in particular in the EU) have reduced, which seems likely to ease the adoption process.

The stand-alone standard is now almost final, following a process of preparation, deliberation, working group meetings and field tests. SMEs all over the world are invited to consider adopting it. However, the IASB has advised jurisdictions not to rush to make the standard mandatory in 2009; it recommends allowing time for companies and auditors to familiarise themselves with the contents and to plan their transition process.

The IASB hopes that ‘IFRS for Private Entities’ or ‘Simplified IFRS’ – the final title is to be announced soon – will offer increased comparability, more convenient cross-border acquisitions, improved relationships with overseas customers and improved negotiations with finance providers. It will be interesting to watch its take-up to see whether ‘small IFRS’ can achieve the same global acceptance as its bigger brother.

As always I'd be delighted to recieve feedback, either by commenting here or by email.

Comments

[Alecos Papadopoulos, CFO, Athens Greece]

The implementation of IFRS had a major side-cost: In-country aggregate sector data were lost -and it is not the case that the listed companies of each sector make up the bulk of the sector.
By implementing the "simplified IFRS", this loss will reverse. EU should make "simplified IFRS" mandatory, no later than for periods starting in 1/1/2011. The cut-off criterion is furthermore simple: all companies that have certified external auditors for their financial statements, and fall outside the scope of the full IFRS, should implement simplified IFRS.

[Marcellinus Wendra]

The real cost of making IFRS-type financial reporting is weighting againts the benefit of the report to the reader. In some country (esp. developping country) the SMEs are mainy comprised of unsophisticated, household type, survivalships kind of business. This kind of SME might not have enought reader for its financial reporting

Where in other countries, SME might have been for a long time a serious competitor of the large listed multinationals company. This type of company may enjoy greater benefit of quality financial reporting.

It is good to have a standard that could show better the potential and characteristic of SME. But one should put in mind not to sacrifice the quality reporting for the sake of "efficiency" in the SME.

[Shafi]

This is going to add yet another layer of specialization within the accounting profession which will make accounting profession the most difficult career option to pursue since you can't get CPA/ACCA unless you qualify on all accounting issues! May be it is time to issue accounting professional qualifications in specialized areas!