ESMA comments on the potential widening of the scope of the IFRS for SMEs

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20 Feb, 2013

The European Securities and Markets Authority (ESMA) has published to its website a second comment letter to the IASB on its comprehensive review of IFRS for SMEs. In the first letter ESMA asked the IASB to continue to prohibit all financial institutions from using IFRS for SMEs. In the second letter ESMA is asking the IASB not to allow publicly traded entities listed on a regulated market to use the IFRS for SMEs.

After submitting the first comment letter in December 2012, ESMA has come to "understand that some interested parties argue that governments and regulatory authorities in each individual jurisdiction should be able to decide whether publicly traded entities should be able to use the IFRS for SMEs, a set of accounting standards developed for private companies whose equity and debt instruments are not traded in a public market."

ESMA believes there are significant drawbacks related to introducing a subset of listed companies on regulated markets that apply less stringent accounting principles than other companies listed on the same markets. According to ESMA this would lead to:

  • a lesser degree of investor protection in combination with potentially increased risks,
  • the believe that the size of a company is an indicator for the complexity of transactions it engages in,
  • a higher cost of capital as a result of less transparency,
  • a potential loss in market confidence.

Please click for access to ESMA's full comment letter on the ESMA website.

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