Standards for Small and Medium-Sized Entities (SMEs)

Date recorded:

The staff noted a decision summary to date as follows:

  • D1. Full IFRSs should be regarded as suitable for all entities.
  • D2. As an alternative, IASB will develop a separate set of financial reporting standards that is suitable for those entities that meet the following two conditions:
    • a. the entity does not have public accountability [see D14 and D15] ; and
    • b. the entity is small as determined by the national jurisdiction in which it is based.
  • D3. The IASB standards for SMEs should:
    • a. reduce the financial reporting burden on SMEs that want to use IASB standards;
    • b. be built on the same conceptual framework as IFRSs;
    • c. allow easy transition to full IFRSs for those SMEs that grow or that choose to switch to full IFRSs; and
    • d. focus on meeting the needs of users of SME financial reports.
  • D4. Development of IASB SME standards should start by extracting the fundamental concepts from the IASB Framework and the principles and related mandatory guidance from IFRSs and related Interpretations.
  • D5. Any modifications to those concepts or principles must be based on the identified needs of users of SME financial statements and cost/benefit analysis.
  • D6. It is likely that disclosure and presentation modifications will be justified based on user needs and cost/benefit analysis. The disclosure modifications could increase or decrease the current level of disclosure.
  • D7. There would be a rebuttable presumption that no modifications would be made to the recognition and measurement principles in IFRSs. Such modifications can only be justified based on user needs and cost/benefit analysis.
  • D8. If IASB SME standards do not address a particular accounting question, full IFRSs would be a mandatory fallback.
  • D9. IASB SME standards should be published in a separate printed volume.
  • D10. IASB SME standards should follow the IAS/IFRS numbering system - that is:
    • SME-IAS 1, SME-IAS 2, etc. and SME-IFRS 1, SME-IFRS 2, etc.
    • Not reorganised by topic (such as integrated in a balance sheet-income statement line item sequence like the UK FRSSE).
  • D11. Each IASB SME standard should include a statement of objective and an executive summary at the beginning.
  • D12. Each IASB SME standard should explicitly mention the required fallback to full IFRS.
  • D13. The Board should describe the characteristics of SMEs for which it intends the standards. These characteristics should not prescribe quantitative "size tests" but rather consider qualitative factors such as public accountability. National jurisdictions should determine which, if any, entities should be permitted or required to follow IASB SME standards.
  • D14. An entity is publicly accountable if:
    • a. There is a high degree of outside interest in the entity from investors or other stakeholders.
    • b. The entity has an essential public service responsibility due to the nature of its operations.
    • c. A substantial majority of its stakeholders depends on external financial reporting as they have no other way of obtaining financial information about the entity.
  • D15. A business entity would be regarded as having public accountability if it meets any one of the following criteria:
    • a. It has filed, or it is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market.
    • b. It holds assets in a fiduciary capacity for a broad group of outsiders, such as a bank, insurance company, securities brokerage, pension fund, mutual fund, or investment banking entity.
    • c. It is a public utility or similar entity that provides an essential public service.
    • d. One or more of its owners has expressed objection to the entity's decision to use SME standards rather than full IFRSs (all owners, including those not otherwise entitled to vote, having been informed of that decision).
  • D16. Because the definition does not include a size test, the Board asked the staff to try to find a term other than "small and medium-sized entities" to describe the group of entities for which the IASB standards would be intended.

Some Board members expressed concern as to the use of the word "small" in D2(b). It was agreed to amend D2 to state that the IASB's SME standards would be suitable only for entities that do not have public accountability. The Board agreed to combine all scope concepts together.

Various changes to clarify who would be able to apply the standards were proposed.

The Board agreed to add the following objective to D3:

"To provide a single set of high quality, understandable, and enforceable accounting standards suitable for SMEs throughout the world."

The Board discussed the following question relating to decision D2: Must an SME choose either (a) the complete set of full IFRS or (b) the complete set of SME standards, and not be allowed to choose, principle by principle, some of the SME standards and some standards from full IFRS? The Board did not reach a tentative decision on this question.

The Board agreed to consultation with an informal user group to assess user needs. The Board also agreed to issue an Invitation to Comment on the tentative decisions to date. The Board suggested that examples be prepared for them to consider for inclusion in the comment document.

The Board considered examples of potential SME standards based on IAS 2 and IAS 10.

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