Overview

On July 9, 2009 the IASB published an International Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs), namely its IFRS for SMEs. SMEs include all entities that are not publicly traded and that are not banks or similar financial institutions. SMEs are estimated to represent well over 95% of all companies in both developed and developing countries. The standard was the result of a five-year development process with extensive consultation of SMEs worldwide.

The IFRS for SMEs is a self-contained set of accounting standards of less than 300 pages (the full set of IFRSs is more than 3,000 pages). It is less complex in a number of ways: (i) topics not relevant for SMEs are omitted. Examples: earnings per share, interim financial reporting and segment reporting; (ii) where full IFRSs allow accounting policy choices, the IFRS for SMEs allows only the easier option. Examples: no option to revalue property, equipment, or intangibles; and requiring a cost model for investment property unless fair value is readily available without undue cost or effort; (iii) many principles for recognizing and measuring assets, liabilities, income and expenses in full IFRSs are simplified. For example, amortize goodwill; expense all borrowing and R&D costs; cost model for associates and jointly-controlled entities; and no available-for-sale or held-to-maturity classes of financial assets; (iv) significantly fewer disclosures are required (roughly a 90% reduction). (v) the Standard has been written in clear, easily translatable language; and (vi) to further reduce the burden for SMEs, revisions to the IFRS are expected to be limited to once every three years.

As of September 30, 2015, 72 jurisdictions of the 140 countries surveyed as part of the IFRS Foundation’s project to assess adoption of IFRS and the IFRS for SMEs globally, have confirmed that they permit or require the IFRS for SMEs and an additional 14 are currently considering adoption. 

For various reasons, the AcSB decided not to adopt the IFRS for SMEs in Canada. Instead the AcSB issued its Accounting Standards for Private Enterprises, being Part II of the CPA Canada Handbook – Accounting that is effective for annual financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier application is permitted. Although the IFRS for SMEs was developed by the IASB from its full IFRSs and Part II of the CPA Canada Handbook – Accounting was developed independently by the AcSB from Part V of the CPA Canada Handbook, they are similar in that the intent was the same, namely to create a simpler accounting framework for non-listed entities with significantly reduced disclosure requirements.

The AcSB’s core strategy for maintaining Part II of the CPA Canada Handbook involves assessing possible changes to Part II against established criteria, maintaining an annual improvements process and  ensuring that major changes take effect no more often than every two years.

On May 21, 2015, the IASB issued its first limited amendments to the IFRS for SMEs following a comprehensive review that was commenced in 2012. The most significant changes, which relate to transactions commonly encountered by SMEs, are: (i) permitting SMEs to revalue property, plant and equipment; and (ii) aligning the main recognition and measurement requirements for deferred income tax with IFRS. The majority of the amendments clarify existing requirements or add supporting guidance, rather than change the underlying requirements in the IFRS for SMEs. Entities reporting using the IFRS for SMEs are required to apply the amendments for annual periods beginning on or after January 1, 2017.  Earlier application is permitted provided all amendments are applied at the same time.

On May 2023, IAS 12 Income Taxes has been revised to incorporate the amendments issued by the International Accounting Standards Board (IASB). The amendments are introduced a temporary exception to the standards requirements at two levels: to recognize and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes, and targeted disclosure requirements for affected entities. Subsequently, the IASB concluded that the pillar two model rules (and the amendments to IAS 12) are also applicable to entities that applying the IFRS for SMEs and added to its work plan a narrow-scope standard-setting project to amend Section 29 Income Tax of the IFRS for SMEs.

1. For further details of relevant developments prior to this, please refer to our Deloitte Global section.