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 the October 2023 IASB meeting, the IASB continued its redeliberations of the proposals in the ED.

This paper was not discussed.

Proposed revised Section 23 Revenue from Contracts with Customers (Agenda Paper 30A)

This paper provided a summary of the feedback on the revised requirements for revenue proposed by the IASB in its ED, a staff analysis of respondents’ concerns about the proposals in the ED, the staff suggestions for responding to the issues raised by respondents and a staff recommendation on whether to proceed with the overall proposal in the ED.  

Staff recommendation

The staff recommended that the IASB proceed with revising Section 23 of the IFRS for SMEs Accounting Standard to reflect the principles in IFRS 15. The recommendation differs from the IASB’s original proposal to revise Section 23 to align it with the principles and language used in IFRS 15.

IASB discussion

Some IASB members raised concerns about simplifying the language from IFRS 15 may change the meaning of specific requirements in IFRS 15. This could lead to different accounting treatments that diverge from the principles of IFRS 15. The staff clarified that the simplification of the language is targeted at topics which are not clear in IFRS 15. The staff will bring a list of topics for IASB members to consider (i.e. consider whether the language could be simplified).

Some IASB members noted that IFRS 15 uses language that covers all possible scenario which is not easy to read when applying the requirements to simple contracts. It also creates barriers for SMEs to apply the IFRS 15 principles. Therefore, they supported the staff’s recommendation to simplify the language.  

Some IASB members agreed that the IFRS for SMEs Accounting Standard should be a self-contained standard that applies to simple arrangements and therefore, they agreed with the staff to develop the simplifications.

IASB decision

13 IASB members voted in favour of the staff recommendations (1 IASB member was absent).

Simplification of the control model in Section 9 Consolidated and Separate Financial Statements (Agenda Paper 30B)

The purpose of this paper was to consider feedback on the proposals in the ED on the simplification of the control model in Section 9 of the IFRS for SMEs Accounting Standard and decide whether to amend the control model in Section 9 of the ED.

Staff recommendation

The staff recommended that the IASB retain and update the rebuttable presumption in paragraph 9.5 of the Standard and update the disclosure requirement in paragraph 9.23(b) of the Standard to use the wording in IFRS 12:7(a).

IASB discussion

Some IASB members challenged the staff on the rebuttable presumption in paragraph 9.5 of the Standard. They also suggested that the staff should consider whether the disclosure requirement in paragraph 9.23(b) of the Standard should use the wording in IFRS 12:9(a) for significant judgements and assumptions made in determining that an entity does not control another entity although it holds more than half of the voting rights of the other entity. This is instead of using IFRS 12:7(a) which covers significant judgements and assumptions and entity has made (and changes to those judgements and assumptions) in determining whether it has control of another entity (i.e. an investee as described in IFRS 10:5-6).

IASB decision

The 13 IASB members present voted in favour of the staff recommendation to retain and update the rebuttable presumption in paragraph 9.5 of the IFRS for SMEs Accounting Standard.

No decision was made in relation to the disclosure requirement in paragraph 9.23(b) of the Standard. The staff will bring back another paper with the updated disclosure requirement in paragraph 9.23(b) of the Standard for the IASB to consider.

Recognition of development costs (Agenda Paper 30C)

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

• Consider feedback on development costs (a topic that the IASB considered but for which amendments were not proposed in the ED)
• Decide whether to amend the recognition requirements for development costs in the IFRS for SMEs Accounting Standard

Staff recommendation

The staff recommended that the IASB amend the Standard to introduce an accounting policy option that permits an SME to recognise intangible assets arising from development costs that meet the criteria in of IAS 38:57(a)-(f).

IASB discussion

Some IASB members supported the staff recommendation to introduce an accounting policy option that permits SMEs to capitalise development costs that meet the requirement in IAS 38:57 and agreed with the staff’s analysis that recognising an intangible asset for development costs could result in reliable and more relevant information for users of these SMEs’ financial statements.

Some IASB members disagreed with the staff recommendation. They considered that SMEs do not have the resources to assess whether a project is commercially viable on an ongoing basis and, furthermore, capitalisation of only a portion of the development costs does not provide useful information.

Some IASB members agreed that allowing capitalising development costs provides relevant information to users of the financial statements when circumstances have changed from the research to the development stage. However, they also agreed with the issues that are associated with having an accounting policy option as that generally increases complexity and reduces comparability.

IASB decision

Only 6 of the 13 IASB members present voted in favour of the staff recommendations. Therefore, no changes will be made to the IFRS for SMEs Accounting Standard in relation to development costs.

Recognition of borrowing costs (Agenda Paper 30D)

The purpose of this paper was to ask the IASB to consider feedback on borrowing costs (a topic that the IASB considered but for which amendments were not proposed in the ED) and decide whether to amend the recognition requirements for borrowing costs in the IFRS for SMEs Accounting Standard.

The staff recommended that the IASB retain the recognition requirements for borrowing costs in the IFRS for SMEs Accounting Standard.

IASB discussion

Some IASB members believed that in the current high interest and high inflation environment, information in relation to borrowing costs are relevant to users of SMEs’ financial statements and whether an SME can capitalise certain borrow costs may impact its abilities to financing. Therefore, not allowing capitalisation of borrowing costs as part of the cost of a qualifying asset does not faithfully represent the financial position. They acknowledged, however, that the requirements may be burdensome for SMEs. Therefore, it should be an accounting policy choice.

Some IASB members agreed with the staff recommendation to retain the requirement to expense all borrowing costs because of cost-benefit reasons. They agreed with the staff analysis that retaining the Standard’s requirements would minimise costs of preparing financial statements for SMEs and maintain the simple application of the Standard. Also, to expense all borrowing costs, and thereby including all borrowing costs in one place in the statement of financial performance, makes it easier for users of an SMEs’ financial statements to assess an SMEs’ cost of debt and forecast cashflows.

IASB decision

10 of the 13 IASB members present voted in favour of the staff recommendation to retain the recognition requirements for borrowing costs in the IFRS for SMEs Accounting Standard.

Recent amendments to full IFRS Accounting Standards (Agenda Paper 30E)

The purpose of this paper was to ask the IASB whether to align the IFRS for SMEs Accounting Standard with any recent amendments to full IFRS Accounting Standards during this comprehensive review.

The staff recommended that the IASB:

• Incorporates IAS 7:44G, 44H(a), 44H(b)(i), (iii) and 44H(c) introduced by Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) in the third edition of the IFRS for SMEs Accounting Standard
• Does not align the IFRS for SMEs Accounting Standard with any other amendments to full IFRS Accounting Standards that have an effective date after 1 January 2020 and that were not considered in developing the ED

IASB discussion

One IASB member suggested to incorporate Lack of Exchangeability (Amendments to IAS 21) in the third edition of the IFRS for SMEs Accounting Standard as circumstances in which a currency is not exchangeable might be common for entities in some jurisdictions applying the IFRS for SMEs Accounting Standard. SMEs could have diverse views on the application of the Standard as there are no specific requirements for when there is a lack of exchangeability between two currencies.

Some IASB members supported to have Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) incorporated into the IFRS for SMEs Accounting Standard in addition to the IAS 21 amendments. However, they acknowledged that the inclusion of both amendments might trigger re-exposure of the ED. This is a separate issue from analysing costs and benefits of the inclusion and the staff needs to follow formal outreach procedures before those two issues can be incorporated into the IFRS for SMEs Accounting Standard. On balance, IASB members did not support the staff’s recommendation to incorporate recent amendments to full IFRS Accounting Standards in this comprehensive review without exposure and outreach.

Some IASB members did not see the urgent nature of adding the two amendments to the IFRS for SMEs Standard. Therefore, they disagree with the inclusion of those new requirements in this comprehensive review cycle of the IFRS for SMEs Accounting Standard.

IASB decision

All 13 IASB members present disagreed with the staff recommendation to incorporate the amendments to full IFRS Accounting Standards into in the third edition of the IFRS for SMEs Accounting Standard without exposure.

8 of the 13 IASB members present agreed with the staff preparing exposure drafts to propose incorporation of Support Lack of Exchangeability (Amendments to IAS 21) and Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) in the third edition of the IFRS for SMEs Accounting Standard and publish the exposure drafts with other issues may have identified through the redeliberation process that may require re-exposure.