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EFRAG conclusions on the IFRS for SMEs

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image
  • IFRS for SMEs (mid blue) Image

07 Jun 2010

The European Financial Reporting Advisory Group (EFRAG) has submitted to the European Commission its analysis of the IFRS for SMEs' compatibility with the EU Accounting Directives. EFRAG's advice consists of:

  • This letter also includes a description of the scope and limitations of the assessment.
  • A feedback statement explaining EFRAG's reasons for not considering requirements identified by EFRAG's constituents to be incompatible with the EU Accounting Directives.
  • A working paper including EFRAG's assessment of all the requirements of the IFRS for SME (the Working Paper). This 256-page working paper reviews the 230-page IFRS for SMEs paragraph by paragraph and identifies six requirements of the IFRS for SMEs that EFRAG believes are not compatible with the Directives (see box below).

EFRAG's conclusion is that the following requirements of the IFRS for SMEs are incompatible with the EU Accounting Directives:

  1. The prohibition to present or describe any items of income and expense as 'extraordinary items' in the statement of comprehensive income (or in the income statement, if presented) or in the notes (IFRS for SMEs par. 5.10)
  2. The requirement to measure financial instruments within the scope of section 12 of the IFRS for SMEs (non-basic financial instruments) at fair value (IFRS for SMEs par. 12.7 and 12.8) (see Appendix par. 8 - 18). (Par. 11.2 of the IFRS for SMEs includes an option for entities to choose to apply the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement. As the option does not refer to a specific version of IAS 39, EFRAG has not been able to assess whether this option would be compatible with the EU Accounting Directives or not. Accordingly, EFRAG has disregarded the option when assessing whether or not the requirements of the IFRS for SMEs regarding financial instruments are compatible with the EU Accounting Directives or not.)
  3. The requirement to presume the useful life of goodwill to be ten years if an entity is unable to make a reliable estimate of the useful life (IFRS for SMEs par. 19.23)
  4. The requirement to recognise immediately in profit or loss any negative goodwill (IFRS for SMEs par. 19.24)
  5. The requirement to present the amount receivable from equity instruments issued before the entity receives the cash or other resources, as an offset to equity and not as an asset (IFRS for SMEs par. 22.7(a))
  6. The prohibition to reverse an impairment loss recognised for goodwill (IFRS for SMEs par. 27.28)
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