International Accounting Standards Board (IASB) chairman David
Tweedie has warned the global standard setter will not develop
international standards for micro-sized entities despite a growing
wave of concerns about the complexity of IFRS for SMEs and its
suitability for smaller entities.
The controversial IFRS for SMEs, which has been proposed as an
exposure draft, has been labelled too complicated for micro-sized
entities by a new International Federation of Accountants (IFAC)
Small and Medium Practices (SMP) Committee report. This follows
repeated calls by developing nations for the global standard setter
to simplify the standard or create another one aimed at micro-sized
In a recent interview, Tweedie told TA he believes the
standard is too complicated in some parts, but stressed it is up to
national regulators to apply the standard to the size of company
they feel is appropriate.
“It’s not up to us to say who is small in your jurisdiction,” he
explained. “You apply it to whom you think is small. I think it is
still too complicated, but in a way we wanted to just get the thing
out, because we’ve been discussing this for two and a half years.
So we’ll get comments back and I think it will probably be further
Drawing the line
Although IFRS for SMEs is only 15 percent of the size of full IFRS,
Tweedie accepts it is still too large for some smaller entities. He
said the IASB cannot set standards for everyone and emphasised
there are no intentions to develop IFRS for micro-sized
“If they’re talking about mum and dad chip shops, we’re not setting
standards for them. We’re not trying to go all the way down here.
They don’t even audit companies here [in the UK] below a certain
level,” he said.
“We have no immediate plans [to look at a micro-sized standard]. We
got into [developing IFRS for SMEs] because we were asked to. Some
of the board didn’t want to do it, they just wanted to focus on
multinationals and forget the rest. But there was a lot of demand
from emerging economies to do something for them. What they were
after was something that is based on international standards, as
these are, and slash the disclosures, just put in the new
principles, cut a lot of the examples out and the whole thing has
shrunk. If some of the countries don’t want to use it, it doesn’t
bother us. However, [full] IFRS is different.”
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The IFAC report, ‘Micro-Entity Financial Reporting: Some Empirical
Evidence on the Perspectives of Preparers and Users’, explores the
suitability of the standard for entities with fewer than ten
employees by drawing on the feedback of users and preparers of
micro-sized entity financial reports in Italy, Kenya, Poland,
Uruguay and the UK.
Participants who supported the development of a separate set of
accounting guidance for micro-entities felt that two levels should
be developed: a concise version that would be easy for business
owners to follow and understand; and a more technical version for
preparers of financial statements. In addition, there was support
for some form of attestation, such as a statement made by a
professional accountant, to be attached to the financial reports of
The report found that significant differences
emerged between the business environments of the UK and Kenya. In
the UK, the Financial Reporting Standard for Smaller Entities meant
guidance on the preparation of small listed companies was readily
available and these respondents were reluctant to support another,
third tier of international regulation. However, in Kenya, IFRS
have been the main source of accounting regulation for all entities
since 1999 and there is no financial reporting guidance available
for small entities, fuelling a need for a new standard for
In the other countries, support depended upon the extent to which
the standard was accepted by taxation authorities.
IFAC SMP Committee senior technical manager Paul Thompson told TA
he isn’t convinced of the need for a micro-sized entities IFRS. “My
personal view is that what the micro entities are really looking
for is not necessarily a financial reporting standard but some form
of financial management package to help the owners better
understand the finances of their organisations. I’m not sure
whether for a typical micro entity there are not many external
users. When you look at the costs and benefits of it, I’m not sure
whether the really small fry should be producing general purpose
financial statements,” he said.