The IFRS for SMEs Update is a staff summary of news, events and other information about the IFRS for SMEs® Standard and related SME activities. The staff summary has not been reviewed by the International Accounting Standards Board (Board).
This edition of the IFRS for SMEs Update includes:
Jenny Carter is Director, Accounting and Reporting Policy at the UK Financial Reporting Council (FRC).
The FRC sets the national accounting standards for entities that do not apply UK-adopted International Accounting Standards. Our main Standard is FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, which is based on the IFRS for SMEs Standard with some significant modifications. Part of my role in leading the FRC’s work on standards and related guidance in respect of corporate reporting is to ensure UK accounting standards are kept up to date. This is something I have worked on for a number of years, in different roles, and I was delighted to be appointed to the SMEIG to share my experience with the Board.
Although entities within the scope of the IFRS for SMEs Standard value stability in the Standard, it is necessary to carry out periodic reviews to ensure that the Standard remains up-to-date and addresses relevant new financial reporting issues and ideas. In February 2021 the SMEIG held a two-day virtual meeting to discuss the feedback on the Request for Information Second Comprehensive Review of the IFRS for SMEs Standard published in January 2020 and develop recommendations to enable the Board to decide on the project’s direction. The SMEIG is made up of nearly 30 members from around the world with a range of interests in reporting by entities within the scope of the IFRS for SMEs Standard. The meeting was great opportunity to share views and perspectives and hear about financial reporting issues in other jurisdictions.
One of the first things to discuss was the approach to alignment with IFRS Standards, as this is key in considering whether individual IFRS standards within the scope of the second comprehensive review should be reflected in the IFRS for SMEs Standard. Most SMEIG members agreed with the staff’s preliminary thoughts that the feedback provides evidence for the Board:
Having discussed the alignment approach and principles, a significant amount of time was then allocated to discussing many of the more significant changes to IFRS Standards that have been made in recent years, such as financial instruments, revenue and leasing, and after applying the principles, the extent to which they might be incorporated into the IFRS for SMEs Standard.
In March 2021, the recommendations of the SMEIG were discussed by the Board, which tentatively decided to move the project onto the standard-setting work plan and work towards publishing an Exposure Draft. I am looking forward to being able to discuss the project further at future meetings, as the project progresses.
At its May 2021 meeting, the Board discussed whether and how to propose amendments to Section 2 Concepts and Pervasive Principles and Section 11 Basic Financial Instruments of the IFRS for SMEs Standard.
The Board tentatively decided to propose:
The Board tentatively decided to propose an amendment to the IFRS for SMEs Standard, subject to the wording of the amendment, to supplement the examples in Section 11 with a principle for classifying financial assets based on their contractual cash flow characteristics. The principle would not change the existing examples in Section 11 and would only apply when an SME holds a financial asset that is not included in the examples listed in Section 11.
In the coming months, the Board will continue to discuss the specific sections of the IFRS for SMEs Standard that could be amended to reflect new requirements in full IFRS Standards that are not currently incorporated in the IFRS for SMEs Standard. Any amendments that the Board decides to propose will be included in an exposure draft which will be open for comment.
The staff provided a project update on the second comprehensive review of the IFRS for SMEs Standard at the May 2021 EEG meeting. The staff also asked for EEG members’ views on the four selected topics for which the IFRS for SMEs Standard could be aligned with full IFRS Standards, as discussed in the Request for Information.
The first topic sought views on not introducing the requirement in IFRS 10 Consolidated Financial Statements that investment entities measure investments in subsidiaries at fair value through profit or loss. EEG members expressed mixed views on this topic depending on their knowledge of the type of investments held by SMEs.
The second topic on which views were sought concerned the potential alignment of the IFRS for SMEs Standard with the simplified approach for the impairment of financial assets set out in IFRS 9. The EEG members who commented on this topic do not support such alignment. They said the simplified approach in IFRS 9 could be too complex and costly for SMEs.
The third topic was whether to retain the existing hedge accounting requirements in Section 12 Other Financial Instrument Issues or to align with IFRS 9. One EEG member expressed the view that Section 12 should not include hedge accounting requirements.
The final topic on which the views of the EEG members were sought was aligning the IFRS for SMEs Standard for issued financial guarantee contracts with IFRS 9. One EEG member disagreed with such an alignment; the member said that the requirements in Section 21 Provisions and Contingencies of the IFRS for SMEs Standard can be applied to such contracts.
In March and April 2021, the staff conducted 18 virtual meetings with preparers who apply the IFRS for SMEs Standard (or a standard based on the IFRS for SMEs Standard). The preparers—drawn from eight jurisdictions—shared their views on the Board’s approach to developing the IFRS for SMEs Standard.
The purpose of the outreach meetings with SME preparers was to obtain additional feedback about:
The overriding messages from SME preparers are:
A summary of the feedback from the SME preparer can be accessed here.
The Board and the SMEIG provide educational materials to support the adoption and implementation of the IFRS for SMEs Standard. These materials are available on the Project page and include:
The IFRS Foundation has also made available a package of 35 supporting modules to help who wish to learn more about the IFRS for SMEs Standard, particularly those who apply the Standard and users of financial statements that are prepared in accordance with the Standard.