The IASB has published its long-awaited exposure draft IFRS for small and
At 255 pages, with another 81 for implementation guidance, it is longer than
our UK FRSSE. But it has many similar features. It is self-contained, all in one
book, with a separate chapter for each topic. It is an abbreviated expression of
IFRS, with fewer required disclosures. Crucially, there is no requirement to use
the full IFRS rules for transactions where the accounting is not specified.
But although the title says SMEs, in reality it is targeted at non-publicly
accountable entities. That means unlisted entities not holding assets in a
fiduciary capacity, which publish accounts for external users, such as
creditors, lenders and owners who are not management.
The IASB was thinking of entities with 50 employees. This is not the EU
definition of SME, where medium-sized companies relate to maximum quantitative
thresholds such as £22m turnover and 250 employees. But it is a better cut,
because the profile of ownership is a more important distinction than pure size
Internationally, the call for the IFRS for SMEs came from countries hoping
that IASB could deliver a set of internationally recognised rules that their
small entities could use. But the length and complexity of these rules will be
far beyond the 10-employee ‘micro-entities’ that many had in mind. So they will
The IFRS for SMEs is bolder than FRSSE in simplifying measurement rules.
Financial assets are at cost or fair value through P&L. Development costs
are expensed. Biological assets are fair valued only if that is readily
determinable. But other awkward fair value requirements remain, such as
intangibles in business combinations.
Even UK small entities will find IFRS for SMEs complex, and consider that its
fair value accounting and other IFRS complexity involves costs greater than the
benefits to the accounts users. They would probably prefer to stay with familiar
FRSSE. Given the choice, many medium-sized companies may well come to the same
So is there any market in the UK for the IFRS for SMEs? An
internationally-recognised set of accounting standards that is simpler than full
IFRS might be attractive to a larger private company with international
affiliations in its shareholders, lenders, suppliers, customers or joint
venturers. Such a company might see the benefits as outweighing the costs of
implementation. So there may be a place in UK GAAP for it.
Brian Shearer is a financil reporting specialist at
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