The International Accounting Standards Board (IASB) will be
presented with a report recommending close to 100 changes to its
draft IFRS for SMEs following a working group meeting in London
In almost all cases, the changes are simplifications, IASB director
of standards for SMEs Paul Pacter told TA. There are 63
paragraphs in the draft report that the working group on accounting
standards for SMEs will present to the IASB at its May meeting, and
many of these paragraphs include subparagraphs.
One example of a recommendation that, if accepted, will mean
significant simplification is the amortisation of all intangibles,
including goodwill, subject to an impairment test. “That’s very
significant because no matter what perspective [the working group
members] had, whether they were lenders or preparers of financial
statements or public accountants or others, they were unanimous in
saying the impairment test by itself is too complex for SMEs,”
Pacter said. “They were actually worried that SMEs might not
recognise reductions in value of intangibles unless you forced them
Another significant recommendation shared by the majority of the
group was the inclusion of only one cross-reference to full IFRS –
that SMEs should be permitted to use IAS 39 instead of Section 11
of the proposed IFRS for SMEs. Aside from that, the working group
agreed that IFRS for SMEs should be a standalone document.
The group concluded, however, that all accounting policy options
available to full IFRS should also be available to SMEs; but only
the simpler option should be included in the body of the standard.
The group suggested the more complex options should appear in a
separate appendix, which companies could choose to use or not
depending on the jurisdiction. “Even there, the working group
recommended simplifications from how the complex option is
presented in full IFRS. So even the complex ones would be
simplified,” Pacter said.
One area where no consensus was reached was a title for the
simplified standards. The majority of the group supported the
IASB’s proposal that the standards should be intended for
non-public interest entities and also that there should be no size
test. However, they were divided as to suitable name to replace
IFRS for SMEs.
There was some contention on the use of the term SMEs as it
specifies size, whereas some non-public interest entities are
significantly larger than some public interest entities. Some group
members, such as Henri Fortin from the World Bank, argued in favour
of the current title. “This is a fundamental question about who
this standard is for,” Fortin said. “[Describing a company as] private is very US. I think it is a matter of size and I believe
the boundaries should be left for the jurisdiction to decide. It’s
a simplified set of standards – that’s it.”
Consolidation was another topic that sparked lengthy discussion.
The exposure draft proposes that whenever there is a parent and
subsidiary relationship, [SMEs] must produce consolidated financial
statements, but the draft working group report recommends
consolidation should be required only in some limited
circumstances. Another topic where there was no majority
recommendation was income taxes although many agreed the current
approach is too complex.
What’s in a name?
Among other recommendations, the international working group
devised a list of alternative names for IFRS for SMEs. They
• IFRS for non-publicly accountable entities
• IFRS for non-public interest entities
• IFRS for private entities
• IFRS for private companies
• IFRS for smaller entities
• IFRS for private interest entities
• IFRS for unlisted entities
• IFRS for limited interest entities