Second comprehensive review of the IFRS for SMEs Standard

Date recorded:

Cover Paper (Agenda Paper 30)

In January 2020, the IASB published Request for Information (RFI) Comprehensive Review of the IFRS for SMEs Standard. The comment period ended on 27 October 2020.

After reviewing the feedback received in response to the RFI, the IASB tentatively decided to develop an Exposure Draft (ED) for amendments to the IFRS for SMEs Accounting Standard using the alignment approach.

At its May 2021 meeting, the IASB started deliberating specific sections of the IFRS for SMEs Accounting Standard that could be aligned with new requirements in IFRS Accounting Standards in the scope of the review.

At this meeting, the IASB deliberated:

  • Whether to include additional guidance on the definition of public accountability in the IFRS for SMEs Accounting Standard
  • Transition requirements for amendments to the Standard arising from new IFRIC Interpretations and amendments to full IFRS Accounting Standards
  • Additional possible simplifications to requirements of IFRS 15 Revenue from Contracts with Customers in aligning Section 23 Revenue of the IFRS for SMEs Accounting Standard with IFRS 15 and sweep issues relating to the IASB’s tentative decisions to align Section 23 with IFRS 15
  • The due process for publishing the ED

Towards an Exposure Draft— Guidance on public accountability (Agenda Paper 30A)

This paper discussed whether to include additional guidance on the definition of public accountability in the IFRS for SMEs Accounting Standard and, if finalised, the new Standard Subsidiaries without Public Accountability: Disclosures (draft Standard).

Staff recommendation

The staff recommended that the IASB:

  • Does not retain the guidance on public accountability in Module 1 Small and Medium-sized Entities within the IFRS for SMEs Accounting Standard nor, if finalised, the draft Standard Subsidiaries without Public Accountability: Disclosures
  • Instead makes the full guidance on public accountability in Module 1 separately available on the IFRS Foundation website as educational material supporting the draft Standard, if finalised

IASB discussion

A majority of IASB members supported the staff proposal given the view that introducing mandatory guidance could disrupt the current application of the IFRS for SMEs Accounting Standard and the IASB has not received significant concerns on the need to clarify the definition of public accountability within the IFRS for SMEs Accounting Standard.

Some IASB members would like the guidance to be incorporated into the Standard.

However, given there is no compelling need for the guidance to be included in the IFRS for SMEs Accounting Standard or the draft Standard Subsidiaries without Public Accountability: Disclosures, 8 out of 10 IASB members voted in favour of the staff’s recommendation.

Towards an Exposure Draft—Additional simplifications to IFRS 15 Revenue from Contracts with Customers (Agenda Paper 30B)

This paper discussed:

  • Possible simplifications to the requirements of IFRS 15 Revenue from Contracts with Customers in aligning Section 23 Revenue of the IFRS for SMEs Accounting Standard with IFRS 15, in addition to those discussed at the February 2022 IASB meeting
  • Sweep issues that are consequential to the amendments to Section 23 that the IASB tentatively decided to propose at its February 2022 meeting

Staff recommendation

  • The staff recommended the IASB propose amendments to the IFRS for SMEs Accounting Standard to align Section 23 of the IFRS for SMEs Accounting Standard with IFRS 15, with simplifications for:
  • Customer options for additional goods or services (Recommendation 1)
  • Principal versus agent considerations (Recommendation 2)
  • Warranties (Recommendation 3)
  • Licensing (Recommendation 4)
  • The staff recommended the IASB not introduce into Section 23 disclosure requirements based on paragraphs 89, 90, 93 and 97 of the Exposure Draft Subsidiaries without Public Accountability: Disclosures but to propose amendments to Section 23 to require an SME to disclose:
    • Revenue recognised from contracts with customers disaggregated into categories
    • When the SME typically satisfies its performance obligations
  • The staff recommended simplifications for below 2 sweep issues:
    • Allocating discounts and variable consideration
    • Allocating variable consideration
  • The staff also recommended the IASB to revisit the tentative decision it made in February 2022, and to propose amendments to Section 23 to require, rather than permit, an SME to account for a promise to transfer a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer as a separate performance obligation, in line with the requirement of IFRS 15 (i.e. without any simplification)

IASB discussion

  • Recommendation 1: All IASB members voted in favour of the staff’s recommendation
  • Recommendation 2: IASB members suggested that the ED should not add indicators in IFRS 15 as requirements under Section 23 of the IFRS for SMEs Accounting Standard. If the IASB wants to keep those indicators visible in the IFRS for SMEs Accounting Standard, this could be done using examples, using or mapping existing examples in IFRS 15. The staff agreed to add examples in the ED using existing IFRS 15 Illustrative examples. All IASB members voted in favour of the staff’s recommendation
  • Recommendation 3: All IASB members voted in favour of the staff’s recommendation
  • Recommendation 4: Some IASB members suggested adding examples to demonstrate the implementation. All IASB members voted in favour of the staff’s recommendation
  • All IASB members voted in favour of the remaining staff recommendations

Towards an Exposure Draft—Transition to the third edition of the IFRS for SMEs Accounting Standard (Agenda Paper 30C)

This paper discussed:

  • Transition requirements relating to IFRIC Interpretations and amendments to IFRS Accounting Standards
  • Guidance for the first-time adopters of the IFRS for SMEs Accounting Standard

Staff recommendation

The staff recommended the IASB propose transition requirements in the IFRS for SMEs Accounting Standard as set out in Appendix A to this paper, to be included in Appendix A to the Standard in circumstances in which these requirements differ from the default approach of fully retrospective application.

IASB discussion

IASB members supported the approach and the detailed changes proposed by the staff.

All IASB members voted in favour of the staff’s recommendation.

Due process and permission to begin the balloting process (Agenda Paper 30D)

This paper:

  • Summarised the due process steps taken to date
  • Recommended the length of the comment period for the ED to be 150 days
  • Requested permission for the staff to begin the balloting process for the ED
  • Asked if any IASB member plans to dissent from the proposals in the ED

IASB discussion

IASB members suggested the comment period be extended to 180 days from September 2022, when the ED is planned to be published, to give SMEs an extra month to respond to the ED, in particular for December year-ended SMEs. The longer comment period will benefit some jurisdictions that need to translate the ED to their local language. Supporters for the 180-day comment period also mentioned that the level of the changes made to the IFRS for SMEs Accounting Standard requires more time for users and preparers to consider.

Some IASB members expressed concern that the extra 30 days may significantly delay the process and the 150-day comment period is already longer than the normal 120 days.

9 out 10 of IASB members agreed the length of the comment period for the ED to be 180 days.

All IASB members were satisfied that the IASB has complied with the applicable due process steps and that the staff should begin the balloting process for the ED.

None of the IASB members indicated an intention to dissent from the proposals in the ED.

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