IFRS For Smaller Entities Published
On July 9, the International Accounting Standards Board (IASB) issued an International Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs). SMEs are estimated to represent more than 95 per cent of all companies. The standard is the final outcome of a five-year process that involved extensive consultation with SMEs throughout the world.
The IFRS for SMEs is a self-contained standard of about 230 pages tailored for the needs and capabilities of smaller businesses. Many of the principles in full IFRSs for recognizing and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted (e.g. earnings per share, interim reporting, etc), some accounting policy options available under full IFRS are eliminated for SMEs (e.g. the revaluation model for property and equipment and intangible assets), and the number of required disclosures has been significantly reduced.
Some of the recognition and measurement simplifications for SMEs include amortizing all intangible assets, even those with indefinite lives, over an estimated useful life (i.e. rather than testing for impairment each period). When a life cannot be estimated, a ten-year useful life should be used. Other simplifications involve financial instruments, investments in joint ventures, and share-based payments.
To further reduce the reporting burden for SMEs revisions to the IFRS will be limited to once every three years.
Currently, in many countries in which full IFRS has been mandated, it is required only for public entities. Such is currently the case in the U.S., with SEC mandating conversion to IFRS by 2014. In many countries, IFRS is optional for non-public entities. But the complexity of full IFRS has been an obstacle for some non-public entities. The new, less complex, version of IFRS is likely to be a welcome alternative for non-public entities worldwide.