SBRINT
Syllabus C. Reporting The Financial Performance Of A Range Of Entities C10. Reporting Requirements of SMEs

C10ab. IFRS for SMEs - Main Differences to full IFRS

Syllabus C10ab)

Discuss the key differences in accounting treatment between full IFRS and the IFRS for SMEs.

Discuss and apply the simplifications introduced by IFRS for SMEs.

Main Changes

Financial statements

  • Full IFRS:

    A statement of changes in equity is required, presenting a reconciliation of equity items between the beginning and end of the period.

  • IFRS for SMEs:

    Same requirement. 

    However, if the only changes to the equity during the period are a result of profit or loss, payment of dividends, correction of prior-period errors or changes in accounting policy, a combined statement of income and retained earnings can be presented instead of both a statement of comprehensive income and a statement of changes in equity.

Business combinations

  • Full IFRS:

    Transaction costs are excluded under IFRS 3 (revised). 

    Contingent consideration is recognised regardless of the probability of payment.

  • IFRS for SMEs:

    Transaction costs are included in the cost of investment. 

    Contingent considerations are included as part of the cost of investment if it is probable that the amount will be paid and its fair value can be measured reliably.

Expense recognition

  • Full IFRS:

    Research costs are expensed as incurred; development costs are capitalised and amortised, but only when specific criteria are met. 

    Borrowing costs are capitalised if certain criteria are met.

  • IFRS for SMEs:

    All research and development costs and all borrowing costs are recognised as an expense.

Non-current assets and goodwill

  • Full IFRS:

    For tangible and intangible assets, there is an accounting policy choice between the cost model and the revaluation model. 

    Goodwill and other intangibles with indefinite lives are reviewed for impairment and not amortised.

  • IFRS for SMEs:

    The cost model is the only permitted model. 

    All intangible assets, including goodwill, are assumed to have finite lives and are amortised.

Intangible Assets

  • Full IFRS:

    Under IAS 38, ‘Intangible assets’, the useful life of an intangible asset is either finite or indefinite. 

    The latter are not amortised and an annual impairment test is required.

  • IFRS for SMEs:

    There is no distinction between assets with finite or infinite lives. 

    The amortisation approach therefore applies to all intangible assets. 

    These intangibles are tested for impairment only when there is an indication.

Investment Property

  • Full IFRS:

    IAS 40, ‘Investment property’, offers a choice of fair value and the cost method.

  • IFRS for SMEs:

    Investment property is carried at fair value if this fair value can be measured without undue cost or effort.

Held for Sale

  • Full IFRS:

    IFRS 5, ‘Non-current assets held for sale and discontinued operations’, requires non-current assets to be classified as held for sale where the carrying amount is recovered principally through a sale transaction rather than though continuing use.

  • IFRS for SMEs:

    Assets held for sale are not covered, the decision to sell an asset is considered an impairment indicator.

Employee benefits – defined benefit plans

  • Full IFRS:

    The use of an accrued benefit valuation method (the projected unit credit method) is required for calculating defined benefit obligations.

  • IFRS for SMEs:

    The circumstance-driven approach is applicable, which means that the use of an accrued benefit valuation method (the projected unit credit method) is required if the information that is needed to make such a calculation is already available, or if it can be obtained without undue cost or effort. 

    If not, simplifications are permitted in which future salary progression, future service or possible mortality during an employee’s period of service are not considered.

Income taxes

  • Full IFRS:

    A deferred tax asset is only recognised to the extent that it is probable that there will be sufficient future taxable profit to enable recovery of the deferred tax asset.

  • IFRS for SMEs:

    A valuation allowance is recognised so that the net carrying amount of the deferred tax asset equals the highest amount that is more likely than not to be recovered. 

    The net carrying amount of deferred tax asset is likely to be the same between full IFRS and IFRS for SMEs.

  • Full IFRS:

    No deferred tax is recognised upon the initial recognition of an asset and liability in a transaction that is not a business combination and affects neither accounting profit nor taxable profit at the time of the transaction.

  • IFRS for SMEs:

    No such exemption.

  • Full IFRS:

    There is no specific guidance on uncertain tax positions. 

    In practice, management will record the liability measured as either a single best estimate or a weighted average probability of the possible outcomes, if the likelihood is greater than 50%.

  • IFRS for SMEs:

    Management recognises the effect of the possible outcomes of a review by the tax authorities. 

    It should be measured using the probability-weighted average amount of all the possible outcomes. 

    There is no probable recognition threshold.