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Comprehensive review of the IFRS for SMEs

Date recorded:

Request for Information feedback summary (Agenda Paper 30)

The IASB published Request for Information (RFI) ‘Comprehensive Review of the IFRS for SMEs Standard' on 28 January 2020 which was open for comments for 270 days.

The purpose of this agenda paper is to provide a summary of feedback on the RFI gathered during the consultation period.

The Board has received 66 comment letters, mainly from accountancy bodies and standard-setting bodies.

Overall stakeholders expressed support for the IFRS for SMEs Standard to be based on full IFRS Standards. Users of SMEs financial statements generally have a neutral point of view on alignment with full IFRS Standards. Many stakeholders recommended the Board consider:

  • including ‘cost and benefits’ in the alignment principles in deciding whether and how to align the IFRS for SMEs Standard with new IFRS Standards, amendments to IFRS Standards and IFRIC Interpretations; and
  • simplifications to the requirements in full IFRS Standards, including a reduction in the number of disclosures and simplified language, without affecting the faithful representation of information in financial statements prepared applying the IFRS for SMEs

The paper also contains feedback on the specific questions asked in the RFI.

The staff recommend the Board ask the SME Implementation Group (SMEIG) to:

  • discuss a comprehensive summary of feedback on the RFI; and
  • develop a set of recommendations for the Board on the next steps in the second comprehensive review of the IFRS for SMEs

If the Board agrees with the staff recommendation, the staff plan to provide a comprehensive summary of feedback on the RFI at the February 2021 SMEIG meeting.

Board Discussion:

Board members asked what the ‘stable platform’ means on page 18 of the agenda paper: whether it is related to the reasonableness of framework that the IFRS for SMEs Standard align to or whether it is related to the stable frequency of the amendment. The staff explained that the stable platform is in relation to the frequency of the amendment.

Board members enquired about the ‘mixed views’ on retaining the three categorises of joint arrangements and aligning the definition of joint control on page 24 of the agenda paper. Staff explained that the mixed views are in relation to how the questions were set up for the RFI. Most of the stakeholders support the alignment without too many comments. However, there are different comments and views for the three categories of the joint arrangements. Staff mentioned that they will perform a more detailed analysis on those comments received.

Board members suggested that the staff should ask for Board feedback based on the received comments from the stakeholders not on their personal views.

Some Board members expressed concerns on whether the responses are sufficient to provide recommendations. For example, the majority of comment letters were received from accountancy bodies and standard-setting bodies, only 6 out of total 66 comment letters were received from preparers.

Staff explained that the few responses from preparers are due to SMEs structures, as they do not have an established internal system to allow them to respond to comment letters. They rely on their auditors, accountants and accountancy bodies to communicate the feedback.

Board members mentioned the IFRS for SMEs Standard is widely used in some jurisdictions. For those jurisdictions, 95% of SMEs accounts preparers work with auditors, accountants or accountancy bodies to submit the comments. In some jurisdictions, their auditors actually prepare the SMEs accounts. There are wider issues as there is a lack of infrastructure for SMEs to submit the feedback.

Some Board members mentioned the user survey and interview was helpful to obtain information although fewer comments letters were received from users.

Board members suggested perhaps costs and benefits should be added as an additional alignment principle given the many comments in relation to costs and benefits from the stakeholders.

Some Board members suggested an in-depth-analysis from the staff of the comments received from stakeholders. For the SMEIG, it will be good to have the recommendations with users’ needs in mind. However, there should not be justification for every single recommendation only by cost and benefits. Board members would like to see how staff make the decision for the recommendations. The reasoning and analysis behind is the key to make the recommendations.

Board members are pleased to see the overall feedback and the focus area they identified seems right. Overall, there are some very positive messages. However, Board members also mentioned some hesitations. For example, on costs and benefits and simplifications. The Board needs to know the details and need to know if there are some particular questions and issues, which should be highlighted to the Board.

Some Board members also pointed out some of the feedback from the stakeholders may not be acceptable to the Board from the standard-setting perspective. For example, for financial guarantee contracts, there may not be any scope for simplification. Some of the recommendations need to be clearer as to what simplifications are proposed and why they are encouraged to consider. In other areas, the simplification may not be useful to the users. The staff need to have clear objectives and questions for SMEIG when developing the recommendations.

The staff need to be clear how they arrive at the recommendations. For example, how they process the information and what they add to the information.

The staff also need to be clear on whether and when to align.  It is useful to have specific examples, as it is difficult to conclude based on the general recommendations.

In summary, Board members were supportive of the staff recommendation to ask the SMEIG to:

  • discuss a comprehensive summary of feedback on the RFI; and
  • develop a set of recommendations for the Board on the next steps in the second comprehensive review of the IFRS for SMEs

When asked to vote, all Board members voted in favour of the staff recommendation.

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