The International Accounting Standards Board (IASB) has issued an exposure draft outlining proposed changes to the IFRS for Small and Medium-sized Entities (IFRS for SMEs) as part of its second comprehensive review of an accounting standard that was first issued in 2009 and last amended in 2015. 

The IFRS for SMEs – although not available for use in the UK – is widely used in other jurisdictions. The standard is intended for use by entities that do not have ‘public accountability’ and that publish ‘general purpose’ financial statements. 

It is based on full IFRS Accounting Standards with modifications to reflect the needs of users of the financial statements of such entities and cost-benefit considerations. Despite the title of the standard, many entities that do not consider themselves to be small or medium-sized could be within its intended scope. 

The exposure draft proposes amendments to the IFRS for SMEs to reflect improvements that have been made to full IFRS Accounting Standards in recent years, simplified as appropriate to reflect the needs of SMEs and users of their financial statements. 

A number of substantial changes have been made to IFRS Accounting Standards in recent years, many of which are not reflected in the current version of the IFRS for SMEs. The exposure draft recommends incorporating simplified versions of the requirements of many recently issued or amended IFRS Accounting Standards into the third edition of the IFRS for SMEs. 

The proposals consequently set out major changes to the sections of the IFRS for SMEs dealing with concepts and pervasive principles, consolidated and separate financial statements, business combinations and goodwill, and revenue from contracts with customers. They would also add a new section on fair value measurement as well as making minor changes to other sections of the standard.

Some recent changes to IFRS Accounting Standards are, however, not reflected in the proposals. Most notably, the IASB has decided not to update the IFRS for SMEs to align it with IFRS 16 Leases at this time, as they feel that doing so would impose a workload on SMEs disproportionate to the benefit to users of their financial statements. These requirements may be incorporated into the IFRS for SMEs at a later stage. 

The IASB has also decided to defer consideration of alignment of the IFRS for SMEs with IFRS 14 Regulatory Deferral Accounts, as this standard may be replaced when their ongoing project on rate-regulated activities is completed.

Dr Nigel Sleigh-Johnson, Director of Audit & Corporate Reporting at ICAEW, commented: “While UK companies are not able to adopt the IFRS for SMEs, it nonetheless has some influence on our financial reporting regime as much of UK GAAP was based upon it. These proposals will likely have an impact on the Financial Reporting Council’s ongoing periodic review of FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland, and the exposure draft that they are expected to issue later this year. ICAEW will therefore be looking closely at the IASB’s proposals and responding to them in due course.” 

The exposure draft is accompanied by helpful documents providing a snapshot of what is a lengthy set of proposals and addressing a series of questions and answers. It is open for comment until 7 March 2023. 

Get in touch

If you have any comments on the IASB’s proposals, please contact laura.woods@icaew.com.