IFRS for SMEs – the accounting standard that actually makes sense

You may have heard in the press that the International Accounting Standards Board (IASB) recently released a new IFRS for SMEs standard. This new standard now acknowledges what most have been arguing for some time – full IFRS (which is what our Australian accounting standards are identical to), was never intended for the non-listed company market.

The new standard, released on 9 July 2009, provides a substantially simplified set of internationally recognised accounting principles for entities such as privately held businesses (PHBs), some sectors of government and many not-for-profits (NFPs). Unlike full IFRS, which was developed primarily for listed companies, the new standard has been designed for, and will benefit, those other entities that operate locally and internationally.

More importantly IFRS for SMEs generally takes a cost approach rather than a complicated “fair values” approach. Better yet, the new standard is about one tenth of the length of full IFRS, with the number of potential disclosure items nearer to 300 than the current 3,000.

Even much smaller businesses will benefit from looking at IFRS for SMEs, because it contains a package of consistent and integrated rules that will enable comparisons with other organisations.

The timing of the application of IFRS for SMEs in Australia is yet to be finalised. It is expected that the Government will support the AASB in seeking comment on who the IFRS for SMEs standard should apply to. A standard is expected to be released on or before mid 2010, which will allow earlier adoption for 30 June 2010 balance dates, with mandatory application via the Corporations Act.

The only stumbling block delaying release of an Australian standard is the question as to how far down the scale it should apply to. Currently full IFRS is required for listed companies (publicly accountable) and reporting entities that are typically large companies who may wish to list in the future or who compete against major corporates for funding.

For non-reporting entities that are currently not producing full IFRS financial standards, debate centres on whether IFRS for SMEs is sufficiently simplified to allow adoption without undue cost or effort. This will be the subject of the AASB’s exposure draft due in the next couple of months. IFRS for SMEs is designed for those producing general purpose financial reports (reporting entities). The AASB will seek feedback on whether this is also suitable for non-reporting entities producing special purpose financial reports.

Grant Thornton is able to advise on your specific circumstances to determine whether it is worth considering adoption of the IFRS for SMEs standard.


Author: Carmen Ridley, July 2009

Want advice or more information on this topic?
Contact the author by email at cridley@grantthorntonvic.com.au

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