Small and Medium-Sized Entities

Date recorded:

The Board discussed a definition of a small and medium-sized entity. The staff proposed the following definition:

The International Accounting Standards Board does not determine which entities should apply International Financial Reporting Standards (IFRS) or which entities should apply International Financial Reporting Standards for Small Entities (IFRSSE). Those are matters to be decided by national governments, securities regulators, stock exchanges, and accountancy bodies.

The IASB has developed the IFRSSE with the intention that they are suitable for entities that do not have public accountability. The IFRSSE would not be suitable for entities that have public accountability; IFRSs are intended for them. An entity has public accountability if it meets any one of the following criteria:

  • 1. It has issued equity or debt securities that trade in a public securities market.
  • 2. It is in the process of issuing equity or debt securities in a public securities market.
  • 3. It is a financial institution that holds funds in trust for a broad group of outsiders, such as a bank, insurance company, securities brokerage, pension fund, mutual fund, or investment banking entity.
  • 4. It is intensely rate regulated by the government for public policy reasons,such as a public utility company.
  • 5. It is of national economic significance in the country in which it is domiciled.
  • 6. It is majority owned by a government or government agency.
  • 7. It is a subsidiary of an entity that meets one of the above criteria.

The Board agreed to incorporate a paragraph that would state that entities may only claim compliance with the standard if they comply with all its requirements and they do not have public accountability. In addition the Board agreed that entities within the scope of this standard could prepare financial statements in compliance with full IFRS.

The Board agreed to include a paragraph describing what is meant by public accountability based on the principles in the Canadian standard. The indicators should be reworded as examples based on the principle. The Board agreed to delete indicators 6 and 7. Indicators 1 to 5 would be retained, with some wording changes.

The Board agreed, in addition, that only entities whose shareholders agree unanimously would be eligible to apply the standard.

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