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South Africa chooses its own way of reducing the financial reporting burden for micro entities

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31 Aug 2012

In a move to reduce the financial reporting burden for micro entities, the South African Institute of Chartered Accountants (SAICA) has developed guidance for applying the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) to micro entities.

The guidance does not make any changes to the IFRS for SMEs and does also not cut out the sections of the standard that are not applicable to a typical micro entity. Instead, the new guide is in the form of an easy-to-use electronic toolkit that comprises a user checklist, an application guide with practical examples, illustrative financial statements, and a disclosure checklist.

South Africa was the first country in the world to adopt the Exposure Draft on the IFRS for SMEs for use by local companies, when it was issued by the IASB in 2007. The intention of the early adoption of the standard at the time was to provide immediate relief for small and medium sized entities. The new guide is now intended to further simplify and reduce the cost to prepare financial statements for micro entities.

Only recently, the IASB staff announced in a similar move that it will develop guidance suitable for micro-sized entities that are applying the IFRS for SMEs. The IASB staff will use the IFRS for SMEs to identify requirements that are necessary for most micro-sized entities. Guidance will then be developed based on those requirements and without changing the principles for recognising and measuring assets, liabilities, income, and expenses. This will then lead to a document in its own right (albeit with cross-references the to the IFRS for SMEs for matters not dealt with).

Reducing the financial reporting burden for micro entities is a world wide issue regardless of whether the application of the IFRS for SMEs is not allowed, permitted or mandatory. In December 2011, the European Parliament voted to reduce the financial reporting burden for micro entities by allowing Member States to radically simplify the way in which micro-entities prepare their accounts. In March 2012, accounting for small (or micro)-sized entities in different jurisdictions was a topic at the International Forum of Accounting Standards Setters (IFASS) in Kuala Lumpur where a report of a survey on the financial reporting framework for these entities prepared by the Korean Standard setter was discussed.

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