Skip to content (Press enter)

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:

Redeliberation of proposals in the 2022 Exposure Draft

At its July 2024 meeting, the IASB completed its redeliberations of the proposals in the 2022 Exposure Draft. Subject to finalising its proposals in the Addendum Exposure Draft, the IASB gave permission for staff to start the balloting process for the prospective amendments to the Standard. The IASB plans to issue the third edition of the Standard in the first quarter of 2025.

The IASB also decided that the third edition of the Standard will be effective for annual reporting periods beginning on or after 1 January 2027.

The IASB considered the feedback on the proposals in the 2022 Exposure Draft from June 2023 to July 2024. A staff summary of the IASB’s tentative decisions on the project is available. Table 1 summarises the IASB’s tentative decisions in July 2024.

Table 1—IASB’s tentative decisions to amend its proposals in the 2022 Exposure Draft

Topic IASB's tentative Decision
Impairment of financial assets 
  • To withdraw the proposal to introduce an expected credit loss model for the impairment of some financial assets, retaining the incurred loss model for the impairment of all financial assets measured at amortised cost.
  • To add a requirement for an SME to disclose its analysis of financial assets by due date (ageing analysis).
Issued financial guarantee contracts 
  • To include intragroup financial guarantee contracts issued at nil consideration in the scope of Section 21 Provisions and Contingencies.
  • To keep other issued financial guarantee contracts in the scope of Part II of Section 11 Financial Instruments of the third edition of the Standard, which requires an SME to measure such contracts at fair value through profit or loss.
  • To add requirements to Section 21 that an SME disclose for intragroup financial guarantee contracts:
    • their nature and business purpose;
    • the maximum amount the SME would have to pay if that contract is called on; and
    • an indication of the uncertainties relating to the amount or timing of any outflow of resources under the contract.
Revenue from contracts with customers
  • To require that an SME, on initial recognition, measure basic financial instruments that are trade receivables at an amount determined by applying the proposed revised Section 23 Revenue from Contracts with Customers. This requirement would only apply if:
    • the contract does not constitute a financing transaction; or
    • the SME applies the exemption proposed in paragraph 23.59 of the 2022 Exposure Draft.
  • To add a definition of ‘transaction price’ (for a contract with a customer) that matches the description of the term proposed in paragraph 23.41 of the 2022 Exposure Draft.
  • To require that an SME use its expectation of the products that will be returned to account for sales with a right of return.

Redeliberation of proposals in the Addendum Exposure Draft

On 28 March 2024, the IASB published the Addendum Exposure Draft, which supplements the 2022 Exposure Draft. The Addendum Exposure Draft was open for comment for 120 days, which ended on 31 July 2024.

At the September 2024 IASB meeting, the staff presented advice from the SMEIG and feedback to the Addendum Exposure Draft. At this meeting, the IASB gave permission for staff to include the corresponding amendments to Section 7 Statement of Cash Flows and Section 30 Foreign Currency Translation in the balloting process for the third edition of the Standard. The amendments will have the same effective date as the third edition of the Standard (1 January 2027).

Table 2 summarise the IASB’s tentative decisions in September 2024.

Table 2—IASB’s tentative decisions confirming proposls in the Addendum Exposure Draft

Topic IASB's tentative Decision
Supplier finance arrangements
  • To finalise the proposed amendments to Section 7 of the Standard as set out in the Addendum Exposure Draft, but with some minor revisions to clarify that an SME would be required to disclose in aggregate for its supplier finance arrangements:
    • their key terms and conditions.
    • the carrying amounts and associated line items of the financial liabilities that are part of those arrangements and for which the suppliers have already received payment from the finance providers, unless it would be impracticable to do so. If it would be impracticable to make this disclosure, the SME would be required instead to disclose that fact.
  • To include the same transition reliefs for the amendments to Section 7 of the Standard as for amendments to IAS 7 Statement of Cash Flows.
Lack of exchangeability
  • To finalise the proposed amendments to Section 30 of the Standard as set out in the Addendum Exposure Draft with no changes. 

Overview of the third edition of the Standard—Topic of the quarter—Spotlight on revised Section 2 Concepts and Pervasive Principles

The objective of the second comprehensive review is to update the Standard to reflect improvements that have been made to full IFRS Accounting Standards (within the scope of the review) while keeping the Standard simple. The IASB developed the amendments to the Standard by applying the alignment approach. The alignment approach requires the IASB to use the principles of relevance to SMEs, simplicity and faithful representation to determine whether and, if so, how to align the Standard with full IFRS Accounting Standards.

In this edition of the newsletter, we spotlight the revised Section 2. The IASB did not apply the alignment principles when developing the revised Section 2 because these principles are not directly applicable. Instead, the IASB weighed the costs and benefits of updating Section 2 for the Conceptual Framework for Financial Reporting issued in 2018 (2018 Conceptual Framework).

Section 2 describes the objective of SMEs’ financial statements and sets out the concepts and basic principles underlying such financial statements. In the second edition of the Standard, Section 2 is based on the 1989 Framework for the Preparation and Presentation of Financial Statements, which was superseded by the 2018 Conceptual Framework.

Table 3 summarises the changes to the concepts and principles in the revised Section 2.

Table 3—Concepts and principles in the revised Section 2

Topic Concepts and principles in Section 2 of the third edition of the Standard
Status of Section 2 
  • Section 2 has equal authority to other sections in the Standard. Respondents to the Request for Information Comprehensive Review of the IFRS for SMEs Standard and some SMEIG members raised concerns about how to navigate potential inconsistencies between the revised Section 2 and other sections in the Standard.1 In response, the third edition of the Standard will state that the requirements in other sections of the Standard take precedence over the requirements in the revised Section 2.
‘Undue cost or effort’ exemption 
  • No changes have been made to the ‘undue cost or effort’ exemption.
New concepts on measurement, presentation and disclosure 
  • The third edition of the Standard will introduce principles that describe whether to use historical cost or current value to measure assets and liabilities based on which measure would provide useful information to users of an SME’s financial statements.
  • The third edition of the Standard will introduce principles that describe how to present and disclose information in financial statements, including when to classify income and expenses in the statement of profit or loss or in other comprehensive income.
Updated definitions and recognition criteria of assets and liabilities 
  • The third edition of the Standard updates the definitions of an asset and a liability.
  • The third edition of the Standard updates the criteria for including assets and liabilities in financial statements.

Derecognition
  • The third edition of the Standard introduces principles on when to remove assets and liabilities from financial statements.
Clarified concepts of prudence, stewardship, measurement uncertainty and substance over form
  • In the third edition of the Standard, the IASB will clarify the roles of prudence, measurement uncertainty and substance over form in an SME’s assessment of whether information is useful.
  • In the third edition of the Standard, the IASB will clarify why information used to assess stewardship is needed to achieve the objective of financial statements.

Update on the September 2024 SMEIG meeting

The SMEIG met on 3 September 2024. SMEIG members provided advice to the IASB on:

The IASB will use SMEIG members’ advice:

  • to plan outreach activities and to update the IFRS for SMEs Accounting Standard educational modules that will assist the implementation of the third edition of the Standard; and
  • to redeliberate the proposals in the Addendum Exposure Draft and Catch-up Exposure Draft.

The agenda papers for the meeting are available under the meetings tab on the SMEIG group page.

Breakout sessions on the third edition of the Standard at the WSS Conference

IASB members and staff provided a preview of the third edition of the Standard at the 2024 WSS Conference.

1 In January 2020, the IASB published the Request for Information Comprehensive Review of the IFRS for SMEs Standard as a first step in its second comprehensive review.