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IASB issues finalised amendments to the IFRS for SMEs

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21 May 2015

The International Accounting Standards Board (IASB) has published amendments to its 'International Financial Reporting Standard for Small and Medium-sized Entities' (IFRS for SMEs). The amendments are the result of the first comprehensive review of that standard, which was originally issued in 2009. They affect 21 of the 35 sections of the standard (not counting consequential amendments) and the glossary, however, most of the changes are rather minor. The amendments are effective for annual periods beginning on or after 1 January 2017 with earlier application permitted.

Background

On 9 July 2009, the IASB had issued the International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs). This standard was meant to provide simplifications to the requirements in full IFRSs that reflect the needs of users of SMEs' financial statements and cost-benefit considerations. Compared with full IFRSs, it is less complex as topics with no relevance to SMEs are omitted, policy choices are reduced, requirements in full IFRSs are simplified and disclosures are reduced.

In order to balance keeping the requirements of the IFRS for SMEs broadly in sync with those in full IFRSs on the one hand and reducing the burden stemming from regular changes to the literature on the other, the IASB had decided that the IFRS for SMEs should be subject to a review approximately once every three years. The Board had also decided that not necessarily all changes made to full IFRSs during that period would be copied to the IFRS for SMEs; rather, a change in full IFRSs would cause the Board to consider whether (and, if so, how) the current version should be amended.

 

The 2012-2014 review cycle

In conformity with its stated intent to review the IFRS for SMEs on a three years basis, the IASB commenced its first review in 2012. The review was initiated with the publication of a Request for Information (RfI) to solicit views from constituents as to which topics the IASB should consider for amendment. In parallel, the Board consulted its SME Implementation Group (SMEIG). The Board deliberated the feedback at its meetings in March to June 2013 and concluded not to suggest a major overhaul of the existing version, given that the standard is still fairly new and has just been implemented by many entities. Therefore, the IASB suggested only limited amendments to the 2009 version IFRS for SMEs in an Exposure Draft published in October 2013.

 

An overview of the changes to the IFRS for SMEs

The vast majority of the changes concern clarifications to the current text and, hence, will not constitute changes to the way entities account for certain transactions and events. A tabular overview of the sections affected by the amendments is reproduced below (the table does not list consequential amendments).

Three amendments are however of larger impact:

  • The standard now allows an option to use the revaluation model for property, plant and equipment as not allowing this option has been identified as the single biggest impediment to adoption of the IFRS for SMEs in some jurisdictions in which SMEs commonly revalue their property, plant and equipment and/or are required by law to revalue property, plant and equipment;
  • the main recognition and measurement requirements for deferred income tax have been aligned with current requirements in IAS 12 Income Taxes (in developing the IFRS for SMEs, the IASB had already anticipated finalisation of its proposed changes to IAS 12, however, these changes were never finalised); and
  • the main recognition and measurement requirements for exploration and evaluation assets have been aligned with IFRS 6 Exploration for and Evaluation of Mineral Resources to ensure that the IFRS for SMEs provides the same relief as full IFRSs for these activities.

 

Section Amendments
1 — Definition of an SME

Clarification with regard to publicly accountability and clarification with regard to the use of the IFRS for SMEs in the parent's separate financial statements added

2 — Concepts and pervasive principles Added guidance on the 'undue cost and effort' exemption
4 — Statement of financial position

Requirement to present investment property measured at cost less accumulated depreciation and impairment separately on the face of the statement of financial position added and relief from requirement to disclose certain comparative information provided

5 — Statement of comprehensive income and income statement

Clarification with regard to the single amount presented for discontinued operations added and alignment with changes made to IAS 1 on reclassifications

6 — Statement of changes in equity and statement of income and retained earnings Alignment with changes made to IAS 1 on OCI components
9 — Consolidated and separate financial statements Clarifications on consolidation, guidance on dealing with different reporting dates, clarifications on disposal of subsidiaries, option to to account for investments in subsidiaries, associates and jointly controlled entities in separate financial statements using the equity method, and amended definition of 'combined financial statements' added
11 — Basic financial instruments Several clarifications and 'undue cost and effort' exemption regarding the requirement to measure investments in equity instruments at FV added
12 — Other financial instruments issues Clarifications on the scope of this section and clarifications regarding hedge accounting added
17 — Property, plant and equipment Alignment with changes made to IAS 16 on classification of spare parts, stand-by and servicing equipment, exemption regarding the use of cost of the replacement, and option to use the revaluation model for property, plant and equipment added
18 — Intangible assets other than goodwill Modified requirement that useful life of intangible should not exceed 10 years when entities are unable to reliably estimate the useful life
19 — Business combinations and goodwill Several minor amendments constituting clarifications, added guidance, and addition of an undue cost or effort exemption regarding the requirement to recognise intangible assets separately in a business combination
20 — Leases Clarifications added as to what arrangements (do not) constitute a lease
22 — Liabilities and equity Some guidance, exemptions as well as alignment with full IFRSs regarding IFRIC 19 and IAS 32 added
26 — Share-based payment Several clarifications added and scope aligned with IFRS 2
27 — Impairment of assets Clarification regarding applicability to assets from construction contracts
28 — Employee benefits Clarification added and disclosure requirements on accounting policy for termination benefits removed
29 — Income taxes Alignment of key principles with IAS 12 as regards recognition and measurement of deferred tax and 'undue cost and effort' exemption regarding requirement to offset income tax assets and liabilities added
30 — Foreign currency translation Scope clarified
33 — Related party disclosures Definition of 'related party' aligned with IAS 24
34 — Specialised activities Certain disclosure relief for biological assets added and the main recognition and measurement requirements for exploration and evaluation assets aligned with IFRS 6
35 — Transition to the IFRS for SMEs Several changes to IFRS 1 incorporated and wording simplified
Glossary Some definitions amended and five new terms added

 

Dissenting opinion

One board member expressed a dissenting opinion regarding the Board's decision to make reporting of non-cash distributions at fair value subject to an undue cost or effort exemption (exemption added to Section 22 — Liabilities and equity). This board member is concerned that the undue cost or effort relief will deprive financial statement users of relevant information about the value of assets distributed to owners. Although the IFRS for SMEs includes a number of undue cost or effort exemptions, this board member believes that exemptions should only be granted if the costs clearly outweigh the benefits to users of having the information.

 

Effective date

Entities reporting using the IFRS for SMEs are required to apply the amendments for annual periods beginning on or after 1 January 2017. Earlier application is permitted.

 

Additional Information

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The IASB notes that a complete revised version of the IFRS for SMEs will be issued in the next few months.

 

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.