BusinessCorporate FinanceIASB draft leaves SMEs in the cold

IASB draft leaves SMEs in the cold

A global reporting standard for SMEs needs to be simple for it to succeed

One of the most important consultation documents of recent times went
critical at the end of last year. The International Accounting Standards Board
extended the consultation on its draft on reporting for small and medium-sized
enterprises until late November because of the weight of responses ­ and rightly
so.

In Europe alone, 99% of business entities are SMEs and it’s vital to consider
carefully the right reporting arrangements for what represents the main motor of
the economy. ACCA surveyed members in all five continents to gauge views on this
issue, given the global reach of international financial reporting standards.

So has the IASB has managed to get it right? The message is mixed. The
positive side first ­ the exposure draft is an important step forward and will
be welcomed in the countries that have been calling for a comprehensive
off-the-shelf standard they can adopt quickly.

The big problem is that the standard is viewed in many countries, including
the UK, with its long-standing and still-popular FRSSE ­ as applicable only to a
narrow band of larger ‘non-publicly accountable entities’. Many believe it’s
simply too complex for SMEs. The IASB’s view of SMEs are those businesses with
up to 50 staff, which leaves many effectively disenfranchised.

ACCA believes the global take-up would be much higher if significant
simplifications were made. Without such further streamlining, many countries
will not use the standard, choosing instead to retain or develop their own
national systems and thus entrenching a kaleidoscopic third tier of accounting.

This would be a missed opportunity to secure the commercial and public
interest advantages of global reporting standards for a swathe of companies
across the world. This would be a disappointment to those committed to both
reducing burdens on SMEs and furthering the spread of IFRS.

To be fair to the IASB, it has declared its intention to pursue a
simplification agenda. ACCA would prefer IFRS-based accounting to be applied
universally.

We still hope a truly SME-focused standard based on IFRS principles, but
without the elements unnecessary to that sector, emerges and is implemented as
widely as possible.

The draft, while having many good attributes, still needs considerable
simplification to achieve that.

Richard Aitken-Davies is deputy president of ACCA

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