The International Accounting Standards Board (IASB) published International Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs) – providing guidance for roughly 95% of all companies.
IFRS for SMEs, initially titled IFRS for Private Entities, is a self-contained standard consisting of 230 pages tailored for the needs and capabilities of smaller businesses. In comparison, the full set of IFRS is about 2500 pages and U.S. GAAP is about 25,000 pages.
“Full-blown IFRS will not work for all companies,” said Thomas J. Groskopf, CPA, a director with Barnes, Dennig & Co. in Cincinnati and a member of the AICPA/FASB joint Public Company Financial Reporting Committee (PCFRC). He spoke at the OSCPA Members Summit on June 30 in Columbus.
Of the potential areas of concern Groskopf addressed was the lack of detail. “We are a rules-based nation. We need the detailed rules,” Groskopf said regarding the 230-page document.
Specific differences with IFRS for SMEs from full IFRS include:
- Simplifying many of the principles for recognizing and measuring assets, liabilities, income and expenses
- Omitting topics not relevant to SMEs
- Reducing the number of required disclosures
The IASB's definition of an SME hinges on whether or not the entity has “public accountability.” Section 1 of IFRS for SMEs, defines SMEs as entities that:
(a) Do not have public accountability [defined below], and
(b) Publish general purpose financial statements for external users. Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies.
For purposes of this standard, the IASB states an entity has public accountability 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. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks.
IFRS for SMEs (including the basis for conclusions, illustrative financial statements, and a presentation and disclosure checklist) can be downloaded free of charge from the IASB’s Web site.