DipIFR Syllabus C. Presentation and additional disclosures - IFRS for SME differing Approaches - Notes ^{2 / 3}

Some argue having 2 sets of rules may mean 2 true and fair views

Local GAAP for SME?

An alternative could have been for GAAP for SMEs to have been developed on a national basis, with IFRS focusing on accounting for listed company activities. 

Then though, SMEs may not have been consistent and may have lacked comparability across national boundaries. 

Also, if an SME wished to later list its shares on a capital market, the transition to IFRS could be harder. 

List SME exemptions in the full IFRS?

Under another approach, the exemptions given to smaller entities would have been prescribed in the mainstream accounting standard. 

For example, an appendix could have been included within the standard, detailing those exemptions given to smaller enterprises.

Separate SME standard for each IFRS?

Yet another approach would have been to introduce a separate standard comprising all the issues addressed in IFRS that were relevant to SMEs.

User friendly

The standard has been organised by topic with the intention of being user-friendlier for preparers and users of SME financial statements

The standard also contains simplified language and explanations of the standards.

Easier transition to full IFRS

It is based on recognised concepts and pervasive principles and it allows easier transition to full IFRS if the SME later becomes a public listed entity. 

In deciding on the modifications to make to IFRS, the needs of the users have been taken into account, as well as the costs and other burdens imposed upon SMEs by the IFRS.

Cost Benefit

Relaxation of some of the measurement and recognition criteria in IFRS had to be made in order to achieve the reduction in these costs and burdens.

Stewardship not so important

Small companies pursue different strategies, and their goals are more likely to be survival and stability rather than growth and profit maximisation. 

The stewardship function is often absent in small companies, with the accounts playing an agency role between the owner-manager and the bank

Access to capital

Where financial statements are prepared using the standard, the basis of presentation note and the auditor's report will refer to compliance with IFRS for SMEs. 

This reference may improve SME's access to capital.

In the absence of specific guidance on a particular subject, an SME may, but is not required to, consider the requirements and guidance in full IFRS dealing with similar issues.

The IASB has produced full implementation guidance for SMEs.

IFRS for SMEs is a response to international demand from developed and emerging economies for a rigorous and common set of accounting standards for smaller and medium-sized enterprises that is much easier to use than the full set of IFRS.  

It should provide improved comparability for users of accounts while enhancing the overall confidence in the accounts of SMEs, and reduce the significant costs involved in maintaining standards on a national basis.