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Second Comprehensive Review of the IFRS for SMEs Standard

Date recorded:

Second phase of the review (Agenda Paper 30)

At its March 2021 meeting, the Board tentatively decided to develop an Exposure Draft of amendments to the IFRS for SMEs Standard using the alignment approach.

On this meeting, the Board started deliberating specific sections of the IFRS for SMEs Standard that could be aligned with IFRS Standards, amendments to IFRS Standards and IFRIC Interpretations in the scope of the review, and other topics.

SME preparer interview feedback summary (Agenda Paper 30A)

The purpose of the paper was to summarise feedback from additional outreach undertaken to help the Board decide on the proposed amendments for the IFRS for SMEs Standard.

Discussion

Board members discussed that the overriding message highlights the importance of the IFRS for SMEs Standard as a stable platform, which requires substantially fewer disclosures. The Board needs to keep the standard simple. Board members also discussed that based on the feedback, the challenges of applying the Standard include limited resources, lack of knowledge in application and difficulty in obtaining data from management.

In addition, respondents to the outreach proposed that the scope of the IFRS for SMEs Standard should be amended to allow publicly accountable entities such as small credit union and small banks to apply the Standard.

Board members discussed updating the guidance for micro-size entities and ensuring that the guidance in IFRS 16 on finance leases is included in the IFRS for SMEs Standard.

Board members discussed the challenges involved in relation to the required disclosures and suggested to discuss the accounting treatment that will be considered which will impact the content of the disclosures.

Towards an Exposure Draft—2018 Conceptual Framework (Agenda Paper 30B)

This paper discussed whether and how to propose amending the IFRS for SMEs Standard for the 2018 Conceptual Framework for Financial Reporting (2018 Conceptual Framework)

Staff recommendation

The staff recommended that:

  • the status of Section 2 of the IFRS for SMEs Standard will remain unchanged
  • the Board develop amendments to the IFRS for SMEs Standard to align Section 2 with the 2018 Conceptual Framework and introduce an override paragraph in Section 2 to emphasise that the specific requirements of the other Sections of the IFRS for SMEs Standard take precedence over the requirements in Section 2
  • the Board assess potential inconsistencies between a revised Section 2 and any other section of the IFRS for SMEs Standard
  • the Board retain the concept of ‘undue cost or effort’

Discussion and voting

Board members discussed whether a better approach would be to include the details of Section 2 as an appendix to the standard since it contains the basic definition and important concepts for understanding and application. Other Board members preferred the to include an overriding paragraph to explain the interaction of Section 2 and other sections within the Standard.

The Board suggested to include a parallel discussion from the measurement section in Section 2 which will help users to make a decision which measurement basis to use. They also discussed that in the definition section of the standard, especially when referring to the concept of reliability in the going concern assessment, it should be made clear whether it refers to faithful representation or measurement uncertainty. 

The Board also discussed that Section 2 should also include guidance regarding classification and aggregation. With regard to undue cost or effort, the Board recognised that further guidance needs to be included on this.

When asked to vote, 10 out of 13 Board members voted in favour of the staff’s recommendation that the status of Section 2 of IFRS for SMEs remain unchanged. 12 out of 13 Board members voted in favour of the remaining staff recommendation in the paper.

Towards an Exposure Draft—IFRS 9 Financial Instruments (classification and measurement of financial assets) (Agenda Paper 30C)

This paper discussed whether and how to propose amendments to the IFRS for SMEs Standard for the IFRS 9 classification and measurement requirements for financial assets.

Staff recommendation

The staff recommended the Board propose an amendment to the IFRS for SMEs Standard to supplement the list of examples in Section 11 with a principle for classifying financial assets based on their contractual cash flow characteristics.

Discussion and voting

Board members discussed that the recommendation came from applying the concept of relevance and simplicity which is helpful in circumstances when financial assets do not match the characteristics described in the examples in Section 11 of the Standard.

They also discussed that based on feedback received during outreach, users would like the Board to consider in their decision specifically the application of the ‘solely payments of principal and interest’ (SPPI) test which would be helpful for those financial assets which do not match the characteristics described in the Standard.

When asked to vote, 12 out of 13 Board members voted in favour of the staff recommendation in the paper.

 

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