IFRS for SME is a solution in response to international demand from both developed and emerging economies for a rigorous and common set of accounting standards for smaller and medium-sized businesses that is much simpler than full IFRSs.
IFRS for SMEs will:
- Provide improved comparability for users of accounts
- Enhance the overall confidence in the accounts of SMEs
- Reduce significant costs involved of maintaining standards on a national basis.
An SME financial statement does not require complete IFRS and as IFRS was designed to meet the needs of equity investors in companies in public capital markets, they cover a wide range of issues, contain a sizeable amount of implementation guidance and include disclosures appropriate for public companies.
Financial statements of SME does not need the above, but, require a more focused on assessment of short-term cash flows, liquidity and solvency. The objectives of developing IFRS for SME were to meet user needs while balancing costs and benefits from a preparer perspective.
The IFRS for SMEs is derived from full IFRSs with appropriate modifications based on the needs of users of SME financial statements and cost-benefit considerations.
Most of the principles in full IFRS for identifying and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced. To further reduce the reporting burden for SMEs revisions to the IFRS will be limited to once every three years.
The IFRS for SMEs will also provide a platform for growing businesses that are preparing to enter public capital markets, where application of full IFRSs is required.
The IFRS for SMEs is separate from full IFRSs and is therefore available for any jurisdiction to adopt whether or not it has adopted the full IFRSs. It is also for each jurisdiction to determine which entities should use the standard. It is effective immediately on issue.
The publication of IFRS for SMEs is a major breakthrough for companies throughout the world. For the first time, SMEs will have a common high quality and internationally respected set of accounting requirements. The benefits will be felt in both developed and emerging economies.