28 May 2021
Planned Reforms to the SME Standard
The SME standard is intended for use by businesses which are not publicly accountable and who publish accounts for general use by external parties. Last year, the International Accounting Standards Board (IASB) launched a consultation on proposed updates to the IFRS for SMEs (Small- and Medium-Sized Enterprises). Following a review of the responses, the board has agreed to push forward with these updates and reforms to the SME standard. Read on to find out more...
Reforms in consideration by the SME Implementation Group
The SME Implementation Group (SMEIG) has two main responsibilities, which are:
- to consider questions raised regarding the application and implementation of the IFRS for SMEs and to create educational materials or Q&As in response to these questions which are publicly available in a timely manner
- make recommendations to the board on any need for amendments to, issues on the application and implementation of the IFRS for SMEs, as well as approved new and amended IFRS standards which have taken place since the SME Standard was issued or last amended.
There is still much discussion to take place over the coming months for which alignment with IFRS standards will be the starting point. To determine how that alignment should take place, the board will also consider the relevance to SMEs, faithful representation, which includes an assessment of costs and benefits and the simplicity of IFRS standards. Discussions will also take place around which sections of the standard will need to be adjusted to reflect any new requirements in IFRS standards that are not currently part of the SME standard. A significant change is likely to be around IFRS 16, Leases. In particular:
- Streamlining the requirements for recognition and measurement regarding variable lease payments, discount rates and lease terms.
- The disclosure requirements of section 20 and,
- Simplifying the language.
Most members of the SMEIG have agreed that the board should be looking to carry out further work to understand what practical challenges are faced by SMEs in implementing and applying IFRS 16 before any final decision is taken about aligning the SME standard with IFRS 16. Once the proposals have been finalised then the IASB will issue an exposure draft, although the timescales for this are not yet clear.
The Institute for Chartered Accountants in England and Wales (ICAEW) also notes that as well as IFRS 16, the requirements of the following new IFRSs are not currently incorporated into the IFRS for SMEs:
- IFRS 9 Financial Instruments
- IFRS 15 Revenue from Contracts with Customers and,
- IFRS 17 Insurance Contracts
There are also elements of older IFRSs which are not part of the SME standard's requirements. An example is IFRS 10 Consolidated Financial Statements, which sets out a single consolidation model and identifies control as the consolidation basis for all entity types. The SME Standard reflects IAS 27 Consolidated and Separate Financial Statements instead, which IAS 10 superseded. As a result of this and some other differences which ICAEW have identified, there is a significant disparity between the IFRS for SMEs and full IFRSs.
There were some considerable changes to the SME Standard after the last review in 2015, and therefore it is likely that further adjustments will follow once this review has been concluded. With the ever-changing financial landscape, the SME IFRS, and indeed all IFRSs, require constant review and consultation to maintain the consistent approach to accounting for which the Standards are in place.
In the meantime, those who plan to or are considering adopting the SME IFRS are advised to review the educational materials that have been published by the IFRS Foundation with assistance from SMEIG. These can be found online.
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