Comprehensive Review of the IFRS for SMEs (IASB only)

Date recorded:


The objectives of this discussion (which followed discussions during the March - May 2013 IASB meetings) were to discuss:

  1. the revised draft of Section 29 Income Tax;
  2. seven additional issues raised outside of the IASB’s Request for Information (RFI) where the Staff is proposing changes.

The following timetable is anticipated for the comprehensive review of the IFRS for SMEs:

  • third quarter of 2013 – the IASB issues an exposure draft
  • first half of 2014 – the IASB publishes final revisions to the IFRS for SMEs
  • target date in 2015 – effective date of revisions.

Meeting with the Advisory Council (AC) - debrief 

The meeting took place on 10 June 2013 and the following three issues were discussed:

  1. use of the IFRS for SMEs by publicly accountable entities;
  2. dealing with changes to full IFRSs during reviews of the IFRS for SMEs and
  3. frequency of reviews of IFRS for SMEs.

It was reported that AC agreed with the Board’s views on all of the above issues. The issue of the frequency of the reviews was highlighted specifically, i.e. the AC and the Board believed that the reviews should be performed with the frequency of five years.

No decisions were made during this debrief.

Revised draft of Section 29 Income Tax  

The original Section 29 was based on the IASB’s March 2009 ED of IAS 12 rather than on the actual IAS 12. At its April 2013 meeting, the IASB tentatively decided that because the 2009 ED was not finalised, the new Section 29 should be aligned with IAS 12, taking into account appropriate modifications in the light of user’s needs and cost-benefit considerations for SMEs.

In summary, the Staff has mainly aligned Section 29 with IAS 12. The draft of the revised Section with detailed explanations of what has and has not been aligned, including reasons, was provided in the Agenda papers.

During the June meeting, the Board did not discuss the Section or the amendments in detail.

One Board member questioned whether it was appropriate to leave some pieces of the IAS 12 guidance out (e.g. definition of a tax base), as it was one of the most complex IFRS areas. The Staff indicated that the excluded guidance was not considered important and they aimed to keep the Section simple.

There was a short discussion about the government grants being within or outside of the scope of Section 29. The draft of the revised section did not provide a specific scope exemption, however Section 24 deals with the government grants. It was proposed to have a specific scope exemption for government grants in the revised Section 29.

There was an overall agreement to proceed with the revised Section 29 as drafted, taking into account the specific scope exemption for government grants.

Additional seven issues outside of RFI

The Staff presented the following issues together with the proposed amendments:

  1. Offsetting deferred tax assets and liabilities – the Staff recommended to modify Section 29 to clarify that the offset would not be required if significant detailed scheduling was required in order to simplify requirements of the IFRS for SMEs.
  2. Subsidiaries acquired with an intention to sell – the Staff proposed to clarify the wording saying that the exemption from consolidation applied to all subsidiaries acquired with the intention of sale or disposal within one year. (At the moment the text talks about ‘a subsidiary’.)
  3. Leases with an interest rate variation clause linked to market interest rates – under current IFRS for SMEs a lease with an interest rate variation clause linked to market interest rates (e.g. LIBOR) is within the scope of Section 12 Other Financial Instrument Issue. The Staff proposed that these leases should be within the scope of Section 20 Leases.
  4. Accounting for the liability element of a compound financial instrument – at the moment the liability component is always accounted for using the amortised cost method even when, had it been a stand-alone instrument, it would have been accounted for at FVTPL under Section 12. The Staff proposed to ratify this by saying that the liability component of a compound instrument should be accounted for consistently with the overall guidance on financial liabilities.    
  5. Group share-based payments – the Staff proposed to incorporate the IASB’s amendments to IFRS 2 Group Cash-settled Share-Based Payment Transactions (issued in 2009) that clarified that the scope of IFRS 2 and the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving goods or services.  
  6. Transactions in which the entity cannot identify specifically some or all of the goods or services – IFRS 2.13A deals with scenarios where the goods or services received by the entity appear to have a lower fair value than the value of the equity instruments granted (or liability incurred) by the entity. Currently IFRS for SMEs deals with similar situations but only for government-mandated plans. The Staff proposed to ratify this but saying that the situations were not restricted to government-mandated plans.
  7. Measurement of employee share options – currently the IFRS for SMEs requires use of option pricing models for share options. Some people believed that the use of the option pricing models was too difficult for entities that were not publicly traded. The Staff believed that other valuation techniques, e.g. use of intrinsic value, may provide some relief.

The Board agreed with the Staff proposals in respect of the first six issues without any discussion.

There was some discussion about Issue 7 Measurement of employee share options (please see above). In respect of Issue 7 several Board members believed that there should not be any special measurement relief for SMEs. If some further guidance could be provided it should be provided in education materials. When put to vote, the majority of the Board members agreed not to proceed with the measurement relief.  

The Board agreed with all Staff proposals/suggested amendments in respect of the first six issues and decided not to proceed with Issue 7.

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