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International news: April 2023

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Published: 04 Apr 2023 Update History

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This month’s news from across the globe takes a look at where corporate reporting in Europe is heading, and finds growing support for changes to the IFRS for SMEs in the UAE.

Europe

Where is corporate reporting in Europe heading?

A topical question and one that was posed by the European Financial Reporting Advisory Group (EFRAG) during its 21st anniversary celebrations late last year. Notwithstanding an extremely challenging macroeconomic environment, the answer at a political level would seem to be squarely focused on the rapidly evolving framework for sustainability reporting. The work in this area has been intense, with EU countries – and companies – grappling with how to implement the Corporate Sustainability Reporting Directive, the Commission working to ensure adoption into law of the first set of European Sustainability Reporting Standards (ESRS) by the summer and EFRAG moving ahead with the development of the second set of mostly sector specific ESRS.

Standing back from this whirlwind of activity, many in the reporting world are also reflecting on the key question of how financial and sustainability reporting interact. To help address the issue, EFRAG is setting up an advisory panel on the connectivity between financial and sustainability reporting to support a related upcoming research project. Members of the advisory panel are expected to share perspectives and practical experience regarding connectivity matters and to help EFRAG identify, assess and prioritise connectivity themes, identify good reporting practices and develop possible approaches to enhancing connectivity.

In comparison, the intensity of activity on the financial reporting front has been minimal but by no means zero. Positive endorsement advice has been issued including on amendments to IFRS 16 Leases. Meanwhile, a consultation has been held on EFRAG’s draft assessment of the amendments to IAS 1 Presentation of Financial Statements relating to non-current liabilities with covenants and a final comment letter has been sent to the International Accounting Standards Board (IASB) on proposed amendments to IAS 12 Income Taxes in relation to the OECD International Tax Reform – Pillar Two Model Rules. Outreach activities have also taken place on a number of issues including the IASB’s efforts to improve the structure and content of primary financial statements and in relation to an EFRAG’s discussion paper on accounting for variable consideration from a purchaser’s perspective (open to feedback until late spring 2023). Academic studies on the theory and practice of discounting and on companies’ disclosures of information on intangibles have also been published.

Susanna Di Feliciantonio, Head of European Policy, ICAEW

Middle East

Support for proposed changes to the IFRS for SMEs

Small and medium-sized entities (SMEs) play a significant role in many economies around the world as primary drivers of job creation, productivity and economic growth. It is the same in the United Arab Emirates (UAE) – according to the Ministry of Economy, SMEs represent more than 94% of the country’s total operating companies, employ around 86% of the private sector’s workforce and contribute close to 40% to national GDP.

Recognising SMEs as the backbone of its economy, the UAE government has established several initiatives to enhance the performance and contribution of the sector, particularly to improve sources of funding. These include the National SME Programme, UAE SME Council, Operation 300bn (the UAE’s industrial strategy), Khalifa Fund and Dubai SME. More recent initiatives have focused on facilitating the entry of local SMEs into new international markets.

Such internationalisation emphasises the importance of adopting a globally recognised accounting standard for such entities; an option available in the form of The IFRS for SMEs Accounting Standard. Currently, 87 jurisdictions require or permit the use of The IFRS for SMEs, including many countries in the Middle East. 

While applying the IFRS for SMEs is not mandatory in the UAE, the benefits of adopting it compared to full IFRS Accounting Standards are significant due to the reduced reporting requirements, making the financial statements easier to read for the stakeholders involved. It also brings greater transparency and consistency of financial statements across regions. When financial statements are comparable around the world, it becomes far easier to make informed financial analyses and decisions, especially regarding SME investment or expansion.

The comment period on the Second Comprehensive Review of the IFRS for SMEs Accounting Standard has recently closed. Reflecting developments made to full IFRS Accounting Standards, while keeping the Standard suitable for small and medium-sized entities, the proposals include simplified requirements based on IFRS 15 Revenue from Contracts with Customers among other amendments.

As a professional in practice, I support the IASB’s commitment to maintaining The IFRS for SMEs and aligning it with full IFRSs, to the extent they are relevant to SMEs. The proposed amendments will add clarity without changing the intended scope of the standard, especially regarding the definition of public accountability. I support the inclusion of IFRS 15’s five-step revenue recognition model as it provides greater clarity compared to previous requirements. I also support the IASB’s decision not to align the standard with IFRS 16 Leases as I believe it is too costly and practically difficult to implement for SMEs. 

Samir Bitar FCA, Middle East Board Chairman, Mazars Group

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