IFRS for SMEs: Understanding Key Concepts and Applications

IFRS for Small and Medium-Sized Entities (SMEs)

What are *not* the IASB's Objectives?

To strive for worldwide use of International Accounting Standards instead of national accounting standards.

What is the Primary Function of the IASB?

To develop and publish IFRS and strive for their worldwide use in general-purpose financial statements and other financial reporting.

What is the Primary Objective of IFRS?

IFRS sets out recognition, measurement, presentation, and disclosure requirements dealing with transactions and other events and conditions that are important in general-purpose financial statements.

What are the Major Differences Between IFRS and US GAAP?

Compared to US GAAP, IFRS are more principles-based, objective-oriented, and with emphasis on professional judgment.

Which Indicators are Used by the European Commission to Define SMEs?

• Total value of the balance sheet
• Net turnover
• The average number of employees during the financial year

Which Categories of Entities Can Use IFRS for SMEs?

• Subsidiaries not listed on the stock exchange
• Subsidiaries without public accountability and whose parent uses full IFRS

The Objective of General Purpose Financial Statements Prepared in Accordance with the IFRS for SMEs is:

To inform economic decision-making by a broad range of users that are not in a position to demand reports tailored to their needs (e.g., investors, creditors).

Which Examples of Entities Have Public Accountability?

1. An entity operates two businesses from its premises - banking and retail clothing. Its banking operation takes deposits from the general public in return for a promise to pay customers the capital plus a return interest for every deposit received from them. The entity uses the funds generated in its banking operation to partially fund its retail clothing operations.
2. An entity's shares are not listed on a stock exchange but do trade 'over-the-counter' and the over-the-counter market is subject to government regulation, though to a lesser degree than the stock exchange.
3. An entity's shares are traded on one of the secondary securities markets in the European Union (EU) that are not 'regulated markets' for the purposes of applying the EU's IAS Regulation (i.e., EU law does not require the entity to use full IFRS).
4. The ordinary shares of an entity's parent are listed on a stock exchange.

Which Examples of Entities *Do Not* Have Public Accountability?

An entity that does not have public accountability voluntarily (i.e., it is not required to do so) prepares its financial statements in compliance with the requirements of the IFRS for SMEs. The entity sends the financial statements to the entity's primary suppliers, bankers, and non-manager owners. The entity makes an explicit and unreserved statement of compliance with the IFRS for SMEs in the notes.