Critically assess the proposals to introduce a specialised IFRS for SMEs and briefly outline the problems that still have to be resolved before a final standard is published later this year.
Since the early 1970’s, International Financial Reporting Standards (IFRS) have been in place in order to meet the needs of companies whose securities trade in public capital markets. In recent years, these full IFRS have been adapted by small and medium entities (SMEs), in tandem with some SMEs using other outdated or different accounting standards. In recognition of these concerns, the International Accounting Standards Board (IASB), which develops IFRSs, proposed to develop a “set of internationally recognised accounting standards, but ones less complex than full IFRS.” (ICAEW, 2007).
In developing SME IFRS, the IASB outlined five objectives of SME standards listed below:
(1) To provide high quality, understandable and enforceable accounting standards suitable for SMEs globally
(2) To focus in meeting the needs of users of SME financial statements
(3) Building SME IFRSs in the same conceptual framework as IFRS
(4) To reduce the financial reporting burden on SMEs that want to use global standards
(5) To allow an easy transition to full IFRSs for those SMEs that become publicly accountable (IASB, 2004, P5)
These objectives are also stated in the IASB press release stating that, “by removing choices for accounting treatment, eliminating topics that are not generally relevant to SMEs and simplifying methods for recognition and measurement... a self-contained set of accounting standards that would allow investors for the first time to compare SMEs f ...