Accounting Standards for Small and Medium-sized Entities
The Board noted that tomorrow is the deadline for comments on the IASB's Discussion Paper Preliminary Views on Accounting Standards for Small and Medium-sized Entities and that no decisions would be taken at this meeting. The staff noted that as a result of this project certain potential improvements to full IFRSs have been identified. The Board decided that such items should be catalogued and dealt with at some time in the near future.
The Board spent much of the time discussing who the target market is for the SME standards - with considerable differences of opinions. Some believe that SME standards should be for companies that have local GAAP reporting requirements but that cannot follow full IFRSs due to the sophistication of the standards. Others believe SME standards should apply to any company that does not have public accountability, which would include large unlisted companies as well as those more traditionally thought of as SMEs. This debate is fundamental to the project and will have to be discussed at a future meeting after reviewing comment letters on the discussion paper.
The Board discussed two broad approaches to the format and content of IASB Standards for SMEs:
- IASB Standards for SMEs should primarily be a reorganisation of all of the principles in the IFRSs to make the standards more useful to SMEs. An SME that wishes to asset that its financial statements conform to IASB Standards for SMEs would be required to follow all, or virtually all, of the recognition and measurement principles in all IFRSs. However, because some of those principles are not likely to be relevant for many SMEs, the IASB Standards for SMEs might put the less relevant material in one or more appendixes or might omit the material entirely, with a requirement to look to the IFRS if an issue confronting an SME is addressed there. The SME standards would contain appropriate references back to the IFRSs.
- IASB Standards for SMEs should be a self-contained and reduced version of IFRSs that includes those recognition and measurement principles of relevance to the majority of SMEs. In some cases, the principles in the IASB Standards for SMEs might differ from those in IFRSs. There would not be references back to full IFRSs, or mandatory or optional 'fallbacks'.
Both approaches would start with extracting the principles from IFRSs. They would differ in the extent to which all of the recognition and measurement requirements of IFRSs would apply to SMEs. They would also differ in degree of detail.
To date the staff has prepared and presented to the Board 13 preliminary SME versions of IFRSs. Development of those standards has followed the first approach above more closely than the second.
At this meeting, the staff presented to the Board an approach by which the IASB Standards for SMEs would include only broad principles (based on black letter principles in IFRSs) plus any critical guidance, with a general reference back to the full IFRSs. The IASC Foundaiton's Education Department would publish, concurrently with the relatively brief IASB Standards for SMEs, guidance that is expressly tailored for SMEs, including the relevant material from the IFRS that has been omitted in the SME version of the standard. Staff presented two examples of this approach to the Board based on IAS 29 and IAS 41.
The Board concluded that any decision about these approaches in is premature and should await analysis of the comments on the Discussion Paper. Staff agreed to prepare a preliminary analysis for consideration at the Board's October 2004 meeting. The Chairman said he would appoint a subcommittee of the Board to review the comment letters and make a recommendation about the approach.