Cover Paper (Agenda Paper 30)

In September 2022, the IASB published Exposure Draft Third edition of the IFRS for SMEs Accounting Standard (the ED). The ED was open for comment for 180 days, which ended on 7 March 2023.

At this meeting, the IASB:

• Decided whether to make changes to the proposed amendments in the ED for the clarification of the definition of public accountability
• Discussed the feedback received from comment letters and outreach events on the ED and provide views on which issue to seek advice from the SME Implementation Group (SMEIG)

Feedback from comment letters on Exposure Draft—Proposed amendments to the IFRS for SMEs Accounting Standard (Agenda Paper 30A)

This paper summarised the feedback from 70 comment letters that the IASB received on Questions 1-11 and 15 of the Invitation to Comment (ITC) in the ED, which asked about the proposed amendments to the IFRS for SMEs Accounting Standard. Respondents generally provided overall support for the proposed amendments in the ED except:

• There was mixed feedback on the proposal to clarify the definition of public accountability and many respondents (large minority) expressed concern that the proposed amendments are subjective
• Most respondents disagreed with the proposals for impairment of financial assets measured at amortised cost. Most of these respondents supported retaining the incurred loss model for all financial assets measured at amortised cost
• Many respondents (a small majority) disagreed with the proposal to delete paragraph 28.19, which provides measurement simplifications for defined benefit obligations

For each question in the ITC the staff asked for IASB members’ views on which issues to seek advice from the SMEIG.

Feedback from comment letters on Exposure Draft—Topics for which amendments were not proposed (Agenda Paper 30B)

This paper summarised the feedback from comment letters on Questions 12-14 of the ITC in the ED, which asked about topics that the IASB considered but for which amendments to the IFRS for SMEs Accounting Standard were not proposed. In summary:

• Most agreed with the proposal to consider alignment with IFRS 16 in a future review of the Standard
• Most supported the introduction of an accounting policy option to recognise intangible assets arising from development costs (that meet the specified criteria in IAS 38)
• Most supported the removal of paragraph 22.7(a), which requires an entity to present the amount receivable from unpaid issued equity instrument as an offset to equity in the statement of financial position

For each question in the ITC the staff asked for IASB members’ views on which issues to seek advice from the SMEIG.

Outreach feedback summary (Agenda Paper 30C)

This paper summarised the feedback from outreach events (undertaken by staff and IASB members) on the ED. The staff asked if the IASB have any comments on the feedback from outreach events.

IASB discussion

Agenda Papers 30A-30C were discussed together. IASB members were pleased with the responses received from diversified stakeholders, which are detailed and useful. IASB members were also pleased with the level of support received for the ED given the complexity and the number of changes that were proposed.

IASB members agreed with most of the issues proposed in Agenda Paper 30A and 30B for the staff to seek advice from the SMEIG. Some IASB members noted the questions prepared to seek SMEIG advice may be too generic. Some IASB members suggested that the staff reword the questions so they are specific (for example, ask the SMEIG whether specific guidance should be added instead of asking whether more guidance should be added). IASB members suggested that the staff focus on issues that the SMEIG can help with and prioritise those issues when meeting with the SMEIG.

Most IASB members suggested that the staff not seek advice from the SMEIG on IFRS 16 given the ED did not propose amendments to align the IFRS for SMEs with IFRS 16. Some IASB members suggested that the staff reduce the number of questions to be asked. Lastly, IASB members suggested the staff seek advice from the SMEIG on where some of the guidance should be located and how it will be used.

No decision was made.

Definition of public accountability (Agenda Paper 30D)

The purpose of this paper was to ask the IASB to:

• Consider feedback on the proposed clarification to the definition of public accountability in paragraphs 1.3 and 1.3A of the ED
• Decide whether the definition of public accountability in the IFRS for SMEs Accounting Standard needs clarification

The staff recommended the IASB should:

• Confirm the proposed amendment to paragraph 1.3(b) of the Standard to list banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks as examples of entities that often meet the second criterion of public accountability
• Make the same amendment to the description of public accountability in the forthcoming Standard Subsidiaries without Public Accountability: Disclosures
• Relocate the guidance in paragraph 1.3A of the ED from the body of the Standard to both the Basis for Conclusions on the Standard and the IFRS for SMEs educational modules (in Module 1 Small and Medium-sized Entities) and:
  • State explicitly that this guidance provides further direction on the application of paragraph 1.3
  • Add ‘and’ to clarify that an entity with public accountability would likely have the characteristics in both paragraphs 1.3A(a) and (b)
• Further clarify in the Preface to the IFRS for SMEs Accounting Standard the role of the local legislative and regulatory authorities in individual jurisdictions in applying the definition of public accountability (for example as suggested in paragraph 41)
• Consider other suggestions for guidance when updating the IFRS for SMEs educational modules

IASB discussion

All IASB members welcomed the proposed amendment to paragraph 1.3(b) to list banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks as examples of entities that often meet the second criterion of public accountability. All IASB members agreed to make the same amendment to the description of public accountability in the forthcoming Standard Subsidiaries without Public Accountability: Disclosures.

Some IASB members expressed concerns that only changing the location of paragraph 1.3A of the ED would not be enough as the feedback received noted that paragraph 1.3A is subjective and could lead to different interpretations of the definition of public accountability, and therefore the intended scope of the Standard. They suggested that paragraph 1.3A of the ED should be removed from the Standard completely and instead be used as a specific example in the Basis for Conclusions to the Standard and the IFRS for SMEs educational modules.

IASB decision

8 of the 14 IASB members agreed with the staff recommendation to relocate the guidance in paragraph 1.3A of the ED.

8 IASB members suggested to remove paragraph 1.3A of the ED from the Standard completely to avoid unintended consequences.

Only a few IASB members supported the staff recommendation to have further clarification of the role of the local legislative and regulatory authorities in individual jurisdictions in applying the definition of public accountability in the Preface.

11 IASB members voted in favour of adding further clarification in the Basis for Conclusions. Some IASB members also suggested to have this clarification in the education modules.

All IASB members agreed to consider other suggestions for guidance when updating the IFRS for SMEs educational modules.