CPA Clinic: Financial Reporting Tailored To SME Needs

What are the International Financial Reporting Standards for small and medium-sized companies?

The International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs) was published on 9 July last year by the International Accounting Standards Board.

They are designed to meet the financial reporting needs of entities that do not have public accountability and  publish general purpose financial statements for external users.

The full IFRS covers a wide range of issues with extensive implementation guidance and disclosure requirements for the purpose of protecting the interests of investors in the public capital markets. 

The common complaint amongst users of the financial statements of private entities is that they have no real need for the large amounts of information inside full-IFRS-compliant financial statements.

Users are in fact more concerned with liquidity and solvency issues.

Moreover, preparing full IFRS-financial statements has proved to be an expensive and painful burden for these private entities.  The IFRS for SMEs seeks to strike a balance between meeting user needs whilst balancing costs and benefits from a preparer’s perspective. 

Based on the needs and capabilities of SMEs, the IFRS for SMEs was modified from the full version. Listed below are the key differences:

·     Topics not relevant for SMEs are omitted (for example, earnings per

       share and segment reporting);

·     Some accounting policy options in  full  IFRSs are  not  allowed.

       Instead a simplified method is offered  to SMEs (for example,

       the revaluation model for property, plant and equipment, and for

        intangible assets);

·     Simplification of many of the recognition and measurement

       principles  that are in full IFRS;

·     Significantly fewer disclosures are required; and

·     Simplified redrafting.

The Accounting Standards Council (ASC) in Singapore is considering various implications from the adoption of the IFRS for SMEs in Singapore.

A focus group meeting was held on 8 March this year to seek feedback from potential affected parties. The ASC is also looking at issues such as whether a size test is necessary in the Singapore context, and what constitutes public accountability. The ASC is due to release the results of their discussion on these issues.

(CPA Clinic is joint initiative between ICPAS and The Straits Times. It features a monthly column in the Money section dispensing tips and advise relating to small medium enterprises. This article first published in The Straits Times on 14 April 2010.)