DipIFR Syllabus C. Presentation and additional disclosures - IFRS for SME - Introduction - Notes ^{1 / 3}

The principal aim when developing accounting standards for small-to medium-sized enterprises (SMEs) is to provide a framework that generates relevant, reliable and useful information, which should provide a high-quality and understandable set of accounting standards suitable for SMEs. 

The only real users of accounts for SMEs are:

1. Shareholders

2. Management

3. Possibly government

IFRS for SMEs is a self-contained standard, incorporating accounting principles based on existing IFRS, which have been simplified to suit SMEs.

If a topic is not covered in the standard there is no mandatory default to full IFRS.

Topics not really required for SMEs are excluded and so the standard does not address the following topics:

• Earnings per share 

• Interim financial reporting

• Segment reporting

• Insurance (because entities that issue insurance contracts are not eligible to use the standard)

• Assets held for sale

Good news!

The standards are relatively short and get the preparers to think.

IFRS for SMEs therefore contains concepts and pervasive principles, any further disclosures may be needed to give a true and fair view.

It will be updated once every 2 or 3 years only.

What is a SME?

There is no universally agreed definition of an SME. 

As there are differences between firms, sectors, or countries at different levels of development.

Most definitions based on size use measures such as number of employees, balance sheet total, or annual turnover. 

However, none of these measures apply well across national borders. 

Ultimately, the decision regarding who uses IFRS for SMEs stays with national regulatory authorities and standard-setters. 

These bodies will often specify more detailed eligibility criteria. 

If an entity opts to use IFRS for SMEs, it must follow the standard in its entirety – it cannot cherry pick between the requirements of IFRS for SMEs and the full set.

Different users entirely

FRS users are the capital markets. So, quoted companies and not SMEs. 

The vast majority of the world's companies are small and privately owned, and it could be argued that full International Financial Reporting Standards are not relevant to their needs or to their users. 

It is often thought that small business managers perceive the cost of compliance with accounting standards to be greater than their benefit. 

Because of this, the IFRS for SMEs makes numerous simplifications to the recognition, measurement and disclosure requirements in full IFRS.

Examples of these simplifications are:

• Goodwill and other indefinite-life intangibles are amortised over their useful lives, but if useful life cannot be reliably estimated, then 10 years.

• A simplified calculation is allowed if measurement of defined benefit pension plan obligations (under the projected unit credit method) involve undue cost or effort.

• The cost model is permitted for investments in associates and joint ventures.