International Financial Reporting Standard for Small and Medium-sized Entities

Date recorded:

Staff presented four documents for Board review:

  • a marked draft of an exposure draft of an IFRS for SMEs, reflecting changes to the draft discussed in September 2006,
  • an exposure draft of implementation guidance comprising illustrative financial statements and disclosure checklist [these are similar to the Draft ED available on the IASB Website],
  • a draft basis for conclusions [not available to Observers], and
  • a draft invitation to comment [not available to Observers].

The Board discussed those documents and made the following decisions.

Exposure Draft

  • Permit SMEs to use a liquidity presentation on their balance sheet.
  • Do not require an SME to make special disclosures relating to amendments to the IFRS for SMEs that have been adopted but are not yet effective.
  • Replace the term 'net realisable value' with 'selling price less costs to complete and sell'.
  • Clarify in the financial instruments section that ancillary costs incurred in connection with the arrangement of borrowings should be reflected in calculating the effective interest rate (that is, they should not be charged to expense in their entirety at the time of the borrowing).
  • Add guidance on the appropriate accounting when an entity moves from full IFRSs to the IFRS for SMEs.
  • With regard to hedge accounting, require simplified effectiveness testing rather than the 'shortcut method' under which ineffectiveness is not measured or recognised.
  • In the section on first-time adoption of the IFRS for SMEs, include all of the exemptions in IFRS 1 from retrospective restatement. Also add guidance on designation of financial instruments to be measured at amortised cost or at fair value through profit or loss, where the IFRS for SMEs allows such designation.

Illustrative financial statements and disclosure checklist

  • Staff should consider whether any of the disclosures currently presented in the illustrative notes might be more clearly presented on the face of the financial statements.
  • Identify one or more persons to do a final 'cold review' of the illustrative financial statements.

Basis for conclusions

  • Explain the Board's approach to deciding which disclosures in full IFRSs could be eliminated for SMEs
  • Acknowledge the encouragement of the Standards Advisory Council to undertake the project
  • Explain that addressing the needs of SMEs is part of the IASB's mission as set out in the IASC Foundation Constitution
  • Explain the hierarchy for choosing an accounting policy when the IFRS for SMEs does not specifically address a transaction, other event or condition.

Invitation to comment

  • Add a general question on the volume of proposed disclosures
  • Where full IFRSs allow accounting policy options, the IFRS for SMEs include only the simpler option, and the other option(s) are available to SMEs by cross-reference to the full IFRS. Add a question about whether the Board has chosen the appropriate options to include in the IFRS for SMEs.
  • Add a general question on whether the transition guidance is adequate both for an entity that is moving from national GAAP to the IFRS for SMEs and for an entity that is moving from full IFRSs to the IFRS for SMEs.
  • Add a general question on cross-references to full IFRSs that are in the IFRS for SMEs.
  • Clarify that in making recognition and measurement simplifications, the Board's criteria were user needs and cost-benefit considerations.
  • Add a question about whether the few remaining circumstances in which items of income and expense are recognised directly in equity should (with the exception of hedges of future cash flows) be eliminated, requiring instead that they be recognised in profit or loss.

Indicative Board vote

After discussion of the four documents, Board members indicated their support for issuing the Exposure Draft by a vote of 11 in favour, 1 against, and 1 preferring to review the pre-Ballot draft before deciding. Comment deadline is expected to be 30 June 2007. The Board asked the staff to prepare a pre-ballot draft.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.