The IFRS for SMEs Accounting Standard Update is a staff summary of news, events and other information about the IFRS for SMEs® Accounting Standard and related SME activities. The staff summary has not been reviewed by the International Accounting Standards Board (IASB).
This edition of the IFRS for SMEs Accounting Standard Update includes:
- an update on the IASB’s redeliberations of proposals in the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard (2022 Exposure Draft);
- an overview of the second comprehensive review of the IFRS for SMEs Accounting Standard (the Standard); and
- an overview of the revised Section 23 Revenue from Contracts with Customers in the third edition of the Standard.
Redeliberation of proposals in the 2022 Exposure Draft
At its July 2024 and September 2024 meetings, the IASB finished redeliberating the proposals in the 2022 Exposure Draft and in the Addendum to the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard, respectively.
The IASB also gave permission to start the balloting process for the third edition of the Standard. In preparing a draft of the third edition of the Standard, the IASB identified some sweep issues.
The IASB considered these sweep issues in its October 2024 and November 2024 meetings. Table 1 summarises the IASB’s tentative decisions in October 2024 and November 2024.
A summary of all the IASB’s tentative decisions on the project is also available.
Table 1—IASB’s tentative decisions to amend its proposals in the 2022 Exposure Draft
| Topic | IASB meeting | IASB's tentative decision |
|---|---|---|
| Statement of Comprehensive Income and Income Statement | October 2024 |
|
| Business Combinations and Goodwill |
|
|
| Transition to the third edition of the Standard | November 2024 |
|
An overview of the second comprehensive review of the IFRS for SMEs Accounting Standard
The IASB is close to completing the second comprehensive review of the IFRS for SMEs Accounting Standard. Figure 1 sets out the timeline of the review. Table 2 sets out the three consultation documents the IASB published. The IASB also carried out fieldwork and engaged with stakeholders.
Figure 1—Timeline of the second comprehensive review
Table 2—The IASB’s consultation documents
| Document | Objective |
|---|---|
| Request for Information Comprehensive Review of the IFRS for SMEs Standard |
The IASB sought views on whether and how to update the Standard to reflect changes in full IFRS Accounting Standards within the scope of the review. |
| Exposure Draft Third edition of the IFRS for SMEs Accounting Standard |
The IASB developed proposals based on feedback on the Request for Information.
|
| Addendum to the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard |
The IASB developed proposals to reflect two recent amendments to full IFRS Accounting Standards. |
Overview of the third edition of the Standard—Topic of the quarter—Spotlight on revised Section 23 Revenue from Contracts with Customers
The IASB expects to issue the third edition of the Standard in February 2025. This edition will reflect improvements the IASB has made in full IFRS Accounting Standards in the scope of the second comprehensive review.
In this edition of the newsletter, we spotlight the revised Section 23 Revenue from Contracts with Customers of the third edition of the Standard.
Why is the IASB changing the revenue requirements for SMEs?
Currently, the revenue requirements in the Standard are based on IAS 11 Construction Contracts and IAS 18 Revenue. In 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, replacing IAS 11 and IAS 18.
IFRS 15 introduced more comprehensive and robust requirements for revenue recognition, measurement and disclosure. The requirements provide users of financial statements with more useful information about revenue compared with the requirements in IAS 11 and IAS 18. The IASB considered feedback on the Request for Information and decided that basing the revenue requirements for SMEs on IFRS 15 would result in similar improvements to how SMEs account for revenue. Therefore, the IASB decided to change the current revenue requirements for SMEs by aligning the Standard with IFRS 15 in the second comprehensive review.
How is the IASB changing the revenue requirements for SMEs?
The IASB is changing the revenue requirements for SMEs by revising Section 23 Revenue of the Standard so it is based on the principles in IFRS 15. The section will be rewritten and renamed Revenue from Contracts with Customers.
The IASB has simplified the requirements from IFRS 15 to reflect the fact that SMEs generally have simpler contracts with customers and fewer resources than companies applying full IFRS Accounting Standards. The simplifications were developed based on feedback from both those preparing financial statements in accordance with the Standard and with IFRS 15. The feedback included the results of fieldwork with accounting practitioners and feedback from the Post-implementation Review of IFRS 15. The simplifications include:
- using simple, concise language that is consistent with the language SMEs use when discussing contracts with customers;
- limiting the amount of judgement and information required from SMEs applying the revised Section 23; and
- omitting topics the IASB concluded were not relevant to SMEs.
What are the main features of the revised Section 23?
Recognition and measurement requirements
The core principle of the revised Section 23 is that an entity is required to recognise an amount of revenue that depicts the goods or services the entity has transferred to customers and reflects the consideration the entity expects to be entitled to in exchange for those goods or services.
To recognise revenue, an entity applies the five steps summarised in Table 3.
Table 3—The five-step model
| Step | Description |
|---|---|
| Step 1 | Identify the contract(s) with a customer—a contract is an agreement between two or more parties that creates enforceable rights and obligations. |
| Step 2 | Identify the promises in the contract—a contract includes obligations to transfer goods or services to a customer. If those goods or services are distinct, the obligations are ‘promises’ and accounted for separately. |
| Step 3 | Determine the transaction price—the transaction price is the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring goods or services promised to a customer. |
| Step 4 | Allocate the transaction price to the promises in the contract—an entity typically allocates the transaction price to each promise based on the relative stand-alone selling price of the distinct good or service in each promise in the contract. |
| Step 5 | Recognise revenue when (or as) the entity fulfils a promise—an entity recognises revenue when (or as) the entity fulfils a promise by transferring control of the good or service in the promise to the customer. |
Alongside the five steps summarised in Table 2, the revised Section 23 will include requirements on how to account for features found in more complex contracts with customers, such as:
- contract modifications;
- customer options for additional good or services;
- principal versus agent considerations; and
- sales with right of return.
Disclosure requirements
The disclosure requirements in the revised Section 23 will result in entities providing users of financial statements with information about the amount, timing and uncertainties arising from contracts with customers.
Specifically, the revised Section 23 will require an entity to provide information about:
- revenue recognised from contracts with customers, including the disaggregation of revenue into appropriate categories;
- contract balances, including the opening and closing balances of trade receivables, contract assets and contract liabilities;
- promises in contracts with customers, including the nature of the goods or services the entity has promised to transfer and when the entity typically fulfils its promises;
- significant judgements made in applying the requirements; and
- assets recognised from the costs to fulfil a contract with a customer.
