A European Commission consultation on IFRS for
SMEs has found the majority of respondents in 19 EU member states
believe EU accounting laws should allow for the adoption of IFRS
However, the majority of respondents from the
EU’s two largest economies, Germany and France, as well as
those in Italy, Austria, Belgium and Slovakia said adoption should
not be allowed.
While full IFRS must be used for the
consolidated financial reports of all listed companies in Europe,
private companies apply national rules. These rules must comply
with the EC’s Fourth and Seventh Company Law Directives (the
Accounting Directives), but they vary widely.
The possible introduction of IFRS for SMEs is
highly political as private company reporting is often closely
linked with tax laws and other national legislation. Several
European countries also argue that IFRS for SMEs is too complex for
The European Financial Reporting Advisory
Group (EFRAG) recently identified six instances where the
requirements of IFRS for SMEs are incompatible with the EU
Accounting Directives (see below).
The EFRAG analysis was conducted at the
request of the EC, which is considering IFRS for SMEs as part of
its project to modernise EU private company accounting.
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The inconsistencies mean that technically IFRS
for SMEs cannot be used in Europe, but most commentators believe
the EC is unlikely to forbid individual member states from adopting
IFRS for SMEs despite the inconsistencies.
The EC could permit IFRS for SMEs in a variety
of ways, including by amending the directives or allowing for
preparers to deviate from the directives as long as they disclose
this in the financial report notes.
|areas where IFRS for SMEs is incompatible with
EU Accounting Directives (EFRAG)
|The prohibition to present or describe any items of income and
expense as ‘extraordinary items’ in the statement of comprehensive
income or in the notes
|The requirement to measure non-basic financial instruments at
|The requirement to presume the useful life of goodwill to
be 10 years if an entity is unable to make a reliable estimate of
the useful life
|The requirement to present the amount receivable from
equity instruments issued before the entity receives the cash or
other resources, as an offset to equity and not as an
|The prohibition to reverse an impairment loss recognised
|The requirement to recognise immediately in profit or
loss any negative goodwill