GAP Analysis for IFRS for SMEs and IFRS

Alfred StrollaFounder and CEO, STROLLA LLP

It was first in 2009, the International Accounting Standards Board (IASB) introduced the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). The objective of IASB was to develop a reporting framework that meets the needs of Entities that are required to publish financial statements for external users. The initiative was taken by IASB as this regulatory framework can be beneficial for entities and jurisdictions for which the full application of IFRS are too complex to adopt.

IFRS for SME is a result of a five-year development process with extensive consultation of SMEs worldwide and with recent changes updated until 2015.

There are many jurisdictions around the world who have developed their own definitions and characteristics of SMEs for a broad range of purposes including prescribing financial reporting obligations. Often such national or regional definitions include quantified criteria based on Entity’s revenue, assets, employees or other factors. Frequently, the term SMEs is used to mean or to include very small entities without regard to whether they publish financial statements for external users.

The IFRS for SMEs is intended for use by small and medium-sized entities (SMEs). According to IFRS for SMEs, small and medium-sized entities are entities that do not have public accountability and publish financial statements for external users. The Standard then explains the terms “external users”, by giving examples of owners of the business, existing and potential creditors, and credit rating agencies.

Entities with public accountability are those who have their debt or equity instruments traded in a public market or 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). Further, entities who holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses (most banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks would meet this second criterion) are considered to have public accountability. Therefore such entities cannot use IFRS for SMEs.

IFRS for SMEs does not prescribe a limit on the size of an entity that may use the IFRS for SMEs provided that it does not have public accountability.