IFAC Public Discussion

Introduction

On July 9, 2009 the final International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) (see http://www.iasb.org/IFRS+for+SMEs/IFRS+for+SMEs.htm) was issued by the International Accounting Standards Board (IASB). IFAC's SMP Committee, which has been closely following this project since its inception, issued a supportive press release (see http://www.ifac.org/MediaCenter/?q=node/view/658). The final standard marks the culmination of five years of development and its publication is widely regarded as highly significant.

As noted in the IFAC press release the task of implementing the standard will be considerable. The International Accounting Standards Committee (IASC) Foundation has recognized this and is developing training materials, expected to be available free of charge, to support its implementation (see http://www.iasb.org/Education/Resources/Training+material.htm).

It is hard to gauge the likely adoption of the IFRS for SMEs. In Europe while surveys point to a desire for convergence in SME financial reporting the European Commission has said little in support of the SME standard. FEE, however, like the IFAC, has welcomed its issue and encouraged member bodies to take a closer look. Meanwhile in the US the AICPA's recognition of the IASB as an accounting standards setter in 2008 has opened the door for US private companies to use IFRS. Interest in the new standard appears to be growing (see http://www.cpa2biz.com/content/media/PRODUCER_CONTENT/Newsletters/Articles_2009/CPA/Jan/PrivateEntities.jsp and http://blog.ifrs.com/2009/06/ifrs-for-small-and-mediumsized-entities.html). 

IFAC's SMP Committee has released a report on research into whether the proposed IFRS for SMEs is suitable for micro-entity financial reporting. The paper, Micro-Entity Financial Reporting: Some Empirical Evidence on the Perspectives of Preparers and Users, indicated that the proposed standard was too complex for micro-entities. Of course since this report the standard has been simplified further before being issued. 

The IFAC SMP Committee is seeking your views on the following:

1. What do you think of the IFRS for SMEs?
2. Do you believe the IFRS for SMEs will be suitable for micro-entities?
3. What support is needed to ensure effective implementation?

Dear Mr Hall

MICRO-ENTITY FINANCIAL REPORTING: SOME EMPIRICAL EVIDENCE ON THE PERSPECTIVES OF PREPARERS AND USERS

The adoption by Kenya of the Full IFRS Standards for all sizes of entities is impressive in terms of the investment required in education and training that must have been required to implement such an undertaking.  The report mentions (para 3.17) that the transition from Kenyan Standards to IFRSs was not a particularly smooth transition for all users.

The full implementation of IFRSs places administrative requirements on all the entities that are required to comply.  For larger companies that benefit from ‘economies of scale' the administrative costs of implementing IFRS are relatively small.  Conversely, for smaller Kenyan companies the administrative costs will be disproportionately higher, and may be potentially burdensome.  It appears that the Kenyan participants have identified a need for a new standard for micro-entities given:

• the application of the full IFRSs for all entities and where there is local enforcement
• the absence of standards equivalent to the UK's FRSSE.

Similarly, there may be other countries that would benefit from an accounting standard for micro-entities.

The AAT supports the development of international accounting standards for micro-entities, even if those standards are not universally adopted, because it:

• would help countries adopting those standards by reducing the administrative burden on preparers and entities  
• may help improve the economy by reducing an administrative burden that may act as a disincentive to entrepreneurs.

As you are aware, the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR), which was established by the United Nations Economic and Social Council, has developed the Accounting and Financial Reporting Guidelines for Small and Medium-sized Enterprises (SMEGA).  Pakistan has adopted the Full IFRSs for large entities and the SMEGA guidance for smaller entities, which seems to be a practical and sensible approach recognising that the needs of large entities are not necessarily the same as the needs of smaller entities or micro-entities.

Recognising that IFAC is aware of the UN's SMEGA guidelines, and assuming that IFAC does decide to develop international accounting standards for micro-entities, then we see that there may be some benefits in using the SMEGA guidelines as a starting point.

Yours sincerely

Aleem Islan

Technical Manager (Accounting)

Association of Accounting Technicians

140 Aldersgate Street, London, EC1A 4HY

t: +44(0)20 7397 3088

e: aleem.islan@aat.org.uk

w: aat.org.uk