The International Accounting Standards Board (IASB) has published the third edition of the International Financial Reporting Standards (IFRS) for small and medium sized enterprises (SMEs) Accounting Standard.
This marks the completion of its second comprehensive review.
This revised standard reflects improvements made to full IFRS Accounting Standards, ensuring financial reporting remains relevant and proportionate for smaller businesses, while incorporating targeted modifications.
The IFRS for SMEs Accounting Standard is a self-contained standard designed for entities without public accountability that publish general-purpose financial statements.
The Institute of Chartered Accountants in England and Wales (ICAEW) explained: “Despite its title, many entities not considering themselves small or medium-sized could fall within its intended scope,
“While UK companies cannot adopt this standard, much of UK GAAP is broadly based on it, influencing the UK’s financial reporting framework.”
IASB chair Andreas Barckow said: “The update to the IFRS for SMEs Accounting Standard will improve the information provided to users of SMEs’ financial statements while maintaining the simplicity of the Standard.”
Recent changes to IFRS Accounting Standards, including new standards, prompted the revised SMEs Accounting Standard to enhance alignment with IFRS Accounting Standards.
It incorporates targeted modifications to remain relevant, simplified, and with appropriate cost-benefit considerations for SMEs.
One significant update is the revision of Section 23 Revenue from Contracts with Customers, aligning with IFRS 15.
The updated Section 23 introduces a five-step model for revenue recognition and new requirements for complex contracts with customers.
Beyond revenue recognition, the third edition introduces several updates to improve alignment with IFRS Accounting Standards.
Section 2 Concepts and Pervasive Principles aligns with the IASB’s Conceptual Framework for Financial Reporting, issued in 2018.
Section 9 Consolidated and Separate Financial Statements has adopted a unified control assessment model, replacing the two previously used frameworks. This change aims to enhance consistency and comparability in financial reporting.
Sections on Basic Financial Instruments and Other Financial Instrument Issues have been combined into Section 11 Financial Instruments, introducing principles for easier classification and new requirements for financial guarantee contracts.
Section 12 Fair Value Measurement is added, setting out requirements for measuring fair value and disclosing information, aligning with IFRS 13 Fair Value Measurement.
Section 19 Business Combinations aligns with IFRS 3 Business Combinations, updating the definition of a business and introducing new measurement requirements.
The third edition is effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.
ICAEW corporate reporting faculty technical manager Georgina Chalk said: “We welcome this latest edition of the IFRS for SMEs Accounting Standard. The updates will bring greater consistency and better financial information for users. However, we encourage the IASB to prioritise lease accounting in future updates to further enhance alignment with IFRS Accounting Standards.”
