opponents of the IFRS for Private Entities have been well defined
for some time – simplified standards are not simple enough. New
research from The Accountant drawn from a survey of 42
institutes around the world finds vastly different responses to the
The first quarter of 2009 promises to be an interesting time for
small- to medium-sized entities. The International Accounting
Standards Board (IASB) is set to release IFRS for Private Entities
(IFRS for PEs), a controversial standard that aims to make it
easier for non-listed entities to report in a global language,
balancing the costs and benefits of internationally recognised
The Accountant has conducted research into sentiments
surrounding the proposed standard by surveying 42 accounting
institutes in 35 countries worldwide (for country-by-country
response see Research: IFRS for private entities).
The survey found support for the standards often depends on how
evolved a country’s standard setting process is.
The IASB says IFRS for PEs will be derived from full IFRS with
appropriate modifications based on the needs of users of private
entity financial statements and cost-benefit considerations.
However, there is widespread support for a stand-alone document,
with minimal references to IFRS. A stand alone document is seen as
easier to understand and simpler to use.
IASB deputy chair Tom Jones says the new IFRS for PEs will be
“terrific” if the board manages to simplify issues around pensions,
depreciation, amortisation and financial instruments in
One issue still to be resolved is the name of the standards,
which has already changed once from the original IFRS for SMEs.
Jones is confident it will be widely adopted. He names Denmark,
Australia, Latin America and Africa as strong candidates, despite a
lack of enthusiasm in some European countries, including
traditional detractors such as Germany and France who have highly
developed local standards for private entities and are highly
unlikely to adopt the new standard.
There appears to be few developing nations with local standards
for private entities. Those using full IFRS for all entities,
including South Africa, Zambia, Bangladesh and Uganda, support a
simplified financial reporting standard to reduce the complexity.
Countries using local standards, such as Mexico, see little need
for the new standard.
South Africa has been a test case for the new standard after it
took the unusual step of adopting the full text of the IFRS for
SMEs exposure draft outright, issuing a Statement of GAAP for SMEs,
based on the exposure draft, in October 2007.
The South African Institute of Chartered Accountant has
subsequently made representations to the IASB on issues it has
encountered in implementation of the exposure draft for
consideration in preparation of the final standard.
The increasing mobility of cross-border business is one of the
main reasons for support of the proposed standard, especially in
The Institute of Chartered Professional Accountants of Kenya
says business is increasingly global and financial reporting needs
to be international to enhance the comparability of entities.
The Order of Chartered Accountants of Tunisia agrees the
introduction of IFRS for PEs will increase comparability,
opportunities for finding business partnerships and locating
Still too complex
While many developing countries support the moves to reduce the
complexity of international standards, many of the main critics
from developed markets believe IFRS for PEs remains too
For example, French institute Compagnie Nationale des
Commissaires au Comptes says the standard is still much too
complex, including issues regarding the recognition or
derecognition of financial instruments; share-based payments;
revenue recognition; finance lease; grants; post-employment
benefits; the split of financial liabilities between equity and
liability; the accounting for derivatives; and the recognition of
deferred tax assets and liabilities.
The US currently applies US GAAP to all companies and has
decided not to simplify US GAAP for small to medium-sized
The recent SEC roadmap moving public companies towards using
IFRS by 2011 does not affect SMEs. National Association of State
Boards of Accountancy (NASBA) president David Costello says there
are no concrete plans to adopt IFRS, though there could be an
impetus for change.
“If two sets of standards are in place in the US, emerging
companies who decide to seek public funding may be saddled with a
costly convergence process in order to move from the ‘small
company’ GAAP to ‘public company’ GAAP,” Costello says.
Countries such as Sweden and the UK are considering how the
standard could be integrated into their current structures.
The UK Accounting Standards Board is considering introducing
three tiers of reporting in the UK. Tier 1 will be full IFRS for
all quoted and publicly accountable entities, Tier 3 will be the
local standard for smaller entities and Tier 2 will be for everyone
else and would apply the IFRS for Private Entities.
The board stresses these are tentative decisions and will only
be adopted after public consultation.
Gaining consensus around a global standard for PEs remains a
distant goal for the IASB. While developing economies are eager to
introduce and adopt the upcoming standard, some developed markets
warn efforts to reduce complexity have not gone far enough.
The controversy over IFRS for Private Entities may be a long way
BY THE NUMBERS
IFRS for Private Entities
Proposed release: Early 2009
Of 42 institutes from 35
countries surveyed to see
if they will adopt IFRS for Private Entities:
8 to adopt soon after release
8 to eventually adopt
11 unlikely to adopt
Source: The Accountant