Commission consults on the International Financial Reporting Standard for SMEs
17 November 2009
The aim of this consultation is to gain an understanding of EU stakeholders' views on the IFRS for SMEs issued by the IASB. The Commission is especially interested on comments from the users of accounts, such as business, banks and investors.
The IFRS for SMEs is a 230-page standard tailored to the needs and capabilities of smaller businesses. Many of the principles in full IFRS for recognising and measuring assets, liabilities, income, and expenses have been simplified; topics not relevant to SMEs have been omitted; and the number of required disclosures has been significantly reduced. It is a "stand-alone" standard with the exception of one "fallback" option to full IFRS; that is an option to use IAS 39 to recognise and measure all financial instrument transactions, but their disclosure must be in accordance with the IFRS for SMEs, not IAS 32 or IFRS 7.
The Standard can be used by any entity that does not have public accountability. Listed companies and financial institutions are publicly accountable and are precluded from using it. Subsidiaries of listed companies will be able to use the Standard provided they themselves are not publicly accountable.
The Standard is arranged into 35 chapters. These cover:
(1) Concepts and pervasive principles – These are drawn from the "Framework" that exists in full IFRS. The principles underpin the accounting treatments required by the Standard, and where a transaction or arrangement is not addressed within the Standard a preparer should refer to them in deciding how it should be accounted for.
(2) The financial statements that should be presented – these are (i) a statement of financial position (balance sheet), (ii) a statement of comprehensive income and an income statement (profit and loss account), (iii) a statement of changes in equity (reserves statement), (iv) a cash flow statement.
(3) The detailed guidance on how to account for particular arrangements and transactions - Accounting treatments are outlined for most issues addressed by full IFRS, except for those particularly relevant to listed entities, such as segmental reporting, interim reporting and earnings per share disclosures. There is a "mixed measurement" model within the Standard, in that historic cost is required for certain transactions, fair value is required for others and sometimes a choice is allowed. For instance, property, plant and equipment, acquired intangible assets and most basic financial instruments are valued on a cost basis. Holdings of quoted equities, complex financial instruments (such as convertibles, options, forwards and swaps), investment property, and biological assets (growing crops or livestock) are measured on a fair value basis. Investments in associates and joint ventures may be measured at cost, fair value (or equity accounted). Where a fair value measurement is required but cannot be established without undue cost or effort an alternative measure of cost is generally permitted. A more detailed summary of the Standard is given in the Appendix to this consultation paper.
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