The International Accounting Standards Board (Board) has published a Request for Information asking for comments on its approach to updating the IFRS for SMEs® Standard—the simplified accounting standard for small and medium-sized entities.

The objective of the Request for Information is to seek views on whether and how to align the IFRS for SMEs Standard with full IFRS Standards, which are the Standards developed for publicly accountable entities and currently required in more than 140 jurisdictions.

What is the IFRS for SMEs Standard?

The IFRS for SMEs Standard is intended for entities that are not publicly accountable and publish general-purpose financial statements for external users. It is based on IFRS Standards with modifications to reflect the needs of users of SMEs’ financial statements and cost-benefit considerations. The IFRS for SMEs Standard is required or permitted in more than 80 countries and is used by millions of companies.

An entity is publicly accountable if:

(a) its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or

(b) it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses—most banks, credit unions, insurance companies, securities brokers or dealers and mutual funds and investment banks would meet this second criterion.

Future direction of the IFRS for SMEs Standard

The Board is asking whether the IFRS for SMEs Standard should remain aligned with IFRS Standards. Some stakeholders think it should, whereas others believe it should be updated only for the explicit and specific requirements of SMEs.

The Board’s approach to the review is to treat alignment as the starting point. In adopting this approach, the Board has applied three principles to decide whether and how to align the IFRS for SMEs Standard with IFRS Standards:

  • Is the topic relevant to SMEs?
  • Can the requirements of full IFRS Standards be simplified?

Do the outcomes faithfully represent the transaction in words and numbers?

The fact the Board is undertaking a comprehensive review does not necessarily mean that it will make significant changes. The Board will consider all changes to the IFRS for SMEs Standard on their merits within the context of the capabilities of SMEs and the needs of users of their financial statements.

These principles have guided the Board on the questions it has asked in its Request for Information, published in January 2020. The Request for Information seeks views on whether the principles provide the Board with a useful framework.

The Board has asked for:

  • views on aligning the IFRS for SMEs Standard with IFRS Standards in the scope of the review;
  • views on leaving the IFRS for SMEs Standard unchanged; or
  • further information.

Aligning the IFRS for SMEs Standard with IFRS Standards 

IFRS Standard

What the Board is asking for views on

2018 Conceptual Framework for Financial Reporting

  • Aligning with the 2018 Conceptual Framework
  • Making consequential amendments to other sections of the IFRS for SMEs Standard
  • Retaining the concept of ‘undue cost or effort’

IFRS 10 Consolidated Financial Statements

  • Aligning the definition of control with IFRS 10
  • Retaining and updating the presumption that an entity controls an investee if it has direct power over that investee solely from voting rights
  • Not introducing the requirement that investment entities measure investments in subsidiaries at fair value through profit or loss

IFRS 9 Financial Instruments

  • Supplementing the list of examples in Section 11 with a principle for the classification of financial assets based on contractual cash flow characteristics
  • Aligning the impairment model with the simplified expected credit loss impairment model
  • Whether requirements on hedge accounting are needed and if so, whether to retain the current requirements
  • Whether the fallback to IAS 39 is used and if so, whether to update the fallback to IFRS 9
  • Aligning requirements for financial guarantee contracts issued by an entity with IFRS 9

IFRS 11 Joint Arrangements

  • Aligning the definition of joint control with IFRS 11
  • Retaining the three categories of joint arrangements (operations, assets and entities), and retaining the accounting requirements for those categories, including the accounting policy election for jointly controlled entities

IFRS 3 Business Combinations

  • Whether to include requirements for step acquisitions and if so, whether to include requirements aligned with IFRS 3 (2008)
  • Align recognition of acquisition costs
  • Align measurement of contingent consideration—
  • fair value, subject to undue cost or effort exemption
  • Align the definition of a business
  • Retain current requirements for recognition of intangibles

IFRS 16 Leases

  • Aligning with IFRS 16 to require a single lease accounting model
  • Aligning recognition exemptions for short-term leases and leases of low-value assets
  • Adding simplifications for:
    • the discount rate;
    • determining and reassessing the lease term; and
    • subsequent measurement (reassessment of lease liability)
  • Retaining existing finance lease disclosures

IFRS 15 Revenue from Contracts with Customers

  • Requesting further information on three possible approaches for aligning with IFRS 15:
    • Alternative 1—Update Section 23 to align the outcomes with IFRS 15;
    • Alternative 2—Rewrite Section 23 to align it with IFRS 15; and
    • Alternative 3—Wait until the next Comprehensive Review of the IFRS for SMEs Standard.
  • Providing transitional relief, if the Board proceeds with Alternative 1 or Alternative 2

IAS 19 Employee Benefits

  • Aligning the recognition requirements for termination benefits with IAS 19

IFRS 13 Fair Value Measurement

  • Aligning the definition of fair value with IFRS 13
  • Aligning the guidance on fair value measurement with IFRS 13 so the fair value hierarchy incorporates the principles of the IFRS 13 fair value hierarchy, and include examples that illustrate application of the hierarchy
  • Relocating the definition, guidance and disclosure requirements to Section 2 of the IFRs for SMEs Standard


The Board is also seeking views on whether and how to align the IFRS for SMEs Standard with the amendments to IFRS Standards and IFRIC Interpretations set out in the Request for Information.

Whether and how to align the IFRS for SMEs Standard with amendments to IFRS Standards and IFRIC® Interpretations

Questions on new topics and other matters

Finally, the Board is seeking views on topics that are not addressed in the IFRS for SMEs Standard and whether the Standard should be aligned with IFRS Standards on these subjects. It is also asking about specific topics that stakeholders have raised.

IFRS Standard or Topic

The Board is asking for …

IFRS 14 Regulatory Deferral Accounts

  • Views on not aligning with IFRS 14

Cryptocurrency

  • Whether holdings of cryptocurrency and issues of cryptoassets are prevalent

Simplifications when measuring a defined benefit obligation

  • Whether entities apply the simplifications allowed by paragraph 28.19 and if so, whether they have difficulties in applying the simplifications

Other topics not addressed by the IFRS for SMEsStandard

  • If there are topics not addressed by the Standard which it should address

Additional matters

  • Additional issues from stakeholders

 

The Request for Information can be accessed on the IFRS Foundation’s website .
Responding to the Request for Information

Stakeholders can submit responses to the Request for Information in one of three ways :

  1. a comment letter;
  2. a comment letter using the optional response document; and
  3. the survey

The deadline for responses is 27 October 2020.

What happens next?

When the Board has received all feedback and discussed recommendations, it will decide whether to issue an exposure draft that sets out the details of all proposed changes. An exposure draft will also be open for public comment.

Supporting resources

The IFRS Foundation provides resources to support implementation of the IFRS for SMEs Standard including training modules, presentations, Q&As and guidance for micro-sized entities. All materials are available on the IFRS Foundation’s website. A list of helpful links is provided below:

Darrel Scott

Darrel Scott became a member of the International Accounting Standards Board (Board) in October 2010, having previously been a member of the IFRS Interpretations Committee and a member of what is now called the IFRS Advisory Council. He was reappointed to the Board to serve a second term in 2015.

Prior to joining the Board, Mr Scott was chief financial officer of FirstRand Banking Group, one of the largest financial institutions in South Africa. He was responsible for both financial reporting under IFRS Standards and regulatory reporting under the Basel II Accords.

He is chairman of the Board’s SME Implementation Group.

Mr Scott studied accounting at the University of the Witwatersrand, South Africa.