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IFRS-for-Small-SME

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IFRS-for-Small-SME

Preface to the IFRS for SMEs

The IASB


  1. The International Accounting Standards Board (IASB) was established in 2001 as part of the International Accounting Standards Committee (IASC) Foundation. In 2010 the IASC Foundation was renamed the IFRS Foundation.
  2. The governance of the IFRS Foundation rests with 22 Trustees. The Trustees’ responsibilities include appointing the members of the IASB and associated councils and committees, as well as securing financing for the organisation.
  3. The objectives of the IASB are:
    1. to develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting Standards based on clearly articulated principles. These Standards should require high quality, transparent and comparable information in financial statements and other financial reporting to help investors, other participants in the various capital markets of the world and other users of financial information make economic decisions.
    2. to promote the use and rigorous application of those Standards.
    3. in fulfilling the objectives associated with (a) and (b), to take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings.
    4. to promote and facilitate the adoption of its Standards.
  4. Approval of Standards and related documents, such as, Exposure Drafts and other discussion documents, is the responsibility of the IASB.

Full International Financial Reporting Standards (full IFRS)

  1. The IASB achieves its objectives primarily by developing and publishing Standards and promoting their use in general purpose financial statements and other financial reporting. Other financial reporting comprises information provided outside financial statements that assists in the interpretation of a complete set of financial statements or improves users’ ability to make efficient economic decisions. The term ‘financial reporting’ encompasses general purpose financial statements plus other financial reporting.
  2. Full IFRS sets out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements. They may also set out such requirements for transactions, events and conditions that arise mainly in specific industries. Full IFRS is based on the Conceptual Framework, which addresses the concepts underlying the information presented in general purpose financial statements. The objective of the Conceptual Framework is to facilitate the consistent and logical formulation of full IFRS. It also provides a basis for the use of judgement in resolving accounting issues.

General purpose financial statements


  1. The IASB’s Standards are designed to apply to general purpose financial statements and other financial reporting of all profit-oriented entities. General purpose financial statements are directed towards the common information needs of a wide range of users, for example, shareholders, creditors, employees and the public at large. The objective of financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful to those users in making economic decisions.
  2. General purpose financial statements are those directed to general financial information needs of a wide range of users who are not in a position to demand reports tailored to meet their particular information needs. General purpose financial statements include those that are presented separately or within another public document such as an annual report or a prospectus.

The IFRS for SMEs


  1. The IASB develops and issues a separate Standard intended to apply to the general purpose financial statements of, and other financial reporting by, entities that in many countries are referred to by a variety of terms, including small and medium-sized entities (SMEs), private entities and non-publicly accountable entities. That Standard is the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). The IFRS for SMEs is based on full IFRS with modifications to reflect the needs of users of SMEs’ financial statements and cost-benefit considerations.
  2. The term small and medium-sized entities as used by the IASB is defined and explained in Section 1 Small and Medium-sized Entities. Many jurisdictions around the world have developed their own definitions of SMEs for a broad range of purposes including prescribing financial reporting obligations. Often those national or regional definitions include quantified criteria based on revenue, assets, employees or other factors. Frequently, the term SMEs is used to mean or to include very small entities without regard to whether they publish general purpose financial statements for external users.
  3. SMEs often produce financial statements only for the use of owner-managers or only for the use of tax authorities or other governmental authorities. Financial statements produced solely for those purposes are not necessarily general purpose financial statements.
  4. Tax laws are specific to each jurisdiction, and the objectives of general purpose financial reports differ from the objectives of reporting taxable profit. Thus, financial statements prepared in conformity with the IFRS for SMEs are unlikely to comply fully with all of the measurements required by a jurisdiction’s tax laws and regulations. A jurisdiction may be able to lessen the ‘dual reporting burden’ on SMEs by structuring tax reports as reconciliations from the profit or loss determined in accordance with the IFRS for SMEs and by other means.

Authority of the IFRS for SMEs


  1. Decisions on which entities are required or permitted to use the IASB’s Standards rest with legislative and regulatory authorities and standard-setters in individual jurisdictions. This is true for full IFRS and for the IFRS for SMEs. However, a clear definition of the class of entity for which the IFRS for SMEs is intended—as set out in Section 1 of the Standard—is essential so that:
    1. the IASB can decide on the accounting and disclosure requirements that are appropriate for that class of entity; and
    2. the legislative and regulatory authorities, standard-setters and reporting entities and their auditors will be informed of the intended scope of applicability of the IFRS for SMEs.

A clear definition is also essential so that entities that are not small or medium-sized entities, and therefore are not eligible to use the IFRS for SMEs, do not assert that they are in compliance with it (see paragraph 1.5).

Organisation of the IFRS for SMEs


  1. The IFRS for SMEs is organised by topic, with each topic presented in a separate numbered section. Cross-references to paragraphs are identified by section number followed by paragraph number. Paragraph numbers are in the form xx.yy, where xx is the section number and yy is the sequential paragraph number within that section. In examples that include monetary amounts, the measuring unit is Currency Units (abbreviated as CU).
  2. All of the paragraphs in the IFRS for SMEs have equal authority. Some sections include appendices of implementation guidance that are not part of the Standard but, instead, are guidance for applying it.

Maintenance of the IFRS for SMEs


  1. The IASB expects to propose amendments to the IFRS for SMEs by publishing an omnibus Exposure Draft periodically, but not more frequently than approximately once every three years. In developing those Exposure Drafts, it expects to consider new and amended full IFRS Standards as well as specific issues that have been brought to its attention regarding application of the IFRS for SMEs. On occasion, the IASB may identify an urgent matter for which amendment of the IFRS for SMEs may need to be considered outside the periodic review process. However, such occasions are expected to be rare.
  2. Until the IFRS for SMEs is amended, any changes that the IASB may make or propose with respect to full IFRS do not apply to the IFRS for SMEs. The IFRS for SMEs is a stand-alone document. SMEs shall not anticipate or apply changes made in full IFRS before those changes are incorporated into the IFRS for SMEs unless, in the absence of specific guidance in the IFRS for SMEs, an SME chooses to apply guidance in full IFRS and those principles do not conflict with requirements in the hierarchy in paragraphs 10.4–10.5.
  3. The IASB expects that there will be a period of at least one year between when amendments to the IFRS for SMEs are issued and the effective date of those amendments.

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