The International Financial Reporting Standards (IFRS) has become a global financial reporting language with over 140 jurisdictions having adopted the Standards or permitting the use of the same. The full IFRSs are primarily adopted by entities that have public accountability, for example, listed companies and their subsidiaries.
In addition to the full IFRSs, the International Accounting Standards Board (IASB) has also published IFRS for SMEs, which is a self-contained Standard designed to meet the needs and capabilities of small and medium-sized entities. These standards may be used by entities that do not have public accountability. An entity has public accountability if:
a) its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or
b) it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks. If an entity holds assets in a fiduciary capacity as an incidental part of its business, then it is not necessarily publicly accountable.
Differences between full IFRS Standards and IFRS for SMEs…
IFRS for SMEs retains many of the accounting principles of full IFRS, however it simplifies those principles that are generally less relevant for SMEs. In addition, IFRS for SMEs significantly reduces the volume and depth of disclosures required by full IFRS. This makes the disclosures more user-friendly for SME stakeholders.
The simplifications compared to full IFRS can be classified into the following categories:
· some topics are omitted because they are not relevant to typical SMEs;
· some accounting policy options are not allowed because a more simplified method is available to SMEs;
· many of the recognition and measurement principles have been simplified; and
· substantially fewer disclosures are required.
· There are areas in full IFRS such as earnings per share, segment reporting, interim financial reporting which are omitted from IFRS for SMEs.
· Full IFRS requires interest directly attributable to the acquisition, construction, or production of qualifying assets to be capitalised. Under IFRS for SMEs, all interest is expensed.
· Full IFRS does not require goodwill and indefinite lived intangible assets to be amortised but they must be tested for impairment annually. IFRS for SMEs requires goodwill and all intangible assets to be amortised over the useful life of the asset or a term not exceeding 10 years if useful life cannot be determined. In addition, goodwill and intangible assets are tested for impairment only when an indicator of impairment exists.
IFRS 9 Financial Instruments replaced IAS 39 Financial Instruments: Recognition and Measurement for accounting periods beginning on or after 1 January 2018. The IFRS for SMEs Standard includes an option for entities to apply the recognition and measurement requirements of IAS 39 that applied immediately prior to the effective date of IFRS 9.