Журнали

Практика МСФЗ 22 липня, 2019
7
IF

IFRS for SMEs: “ there should be alignment in terms of accounting principles”

Today, our interlocutor, Paul Thompson, Director of the European Federation of Accountants and Auditors of Small and Medium Enterprises (EFAA). Mr. Thompson is also a member of the SME Implementation Group, an advisory body to the International Accounting Standards Board, and a member of the Advisory Board on the Business Schools Industry of Nottingham (IAB). Paul Thompson is known as a passionate enthusiast for the development of the global accounting profession.

-A
A+

 

Paul Thompson, Director of the European Federation of Accountants and Auditors of Small and Medium Enterprises (EFAA)

 

  IFRS for SMEs are permitted or required for use in 86 jurisdictions. According to your estimates, how willingly do SMEs choose IFRS for SMEs, if there is an alternative?

Many business leaders and accountants, just like members of the general public, do not like change per se. It typically means extra work and a disruption to our routine and the familiar. Many jurisdictions and companies have accepted this and felt it worth the effort transitioning to IFRS for SMEs. Some have not, for reasons ranging from the perception it is still too complex, especially for micros, through to concerns around the governance of the IFRS and IASB. The IFRS for SMEs is widely used but there’s still much work to be done especially in the EU where only the UK uses a modified version of it. There is no globally recognized alternative. Readers might be interested to know that irrespective of whether SMEs choose to use IFRS or IFRS for SMEs EFAA research ‘The Trickle Down Effect - IFRS and accounting by SMEs’ at http://www.efaa.com/cms/upload/efaa_files/pdf/Publications/Articles/EFAA_Trickle_Down_WEB.pdf has revealed how IFRS accounting treatment has infiltrated national GAAPs such that SMEs end up having to account for things in a way that was perhaps only really intended for larger listed companies.  

What are the considerations when deciding to adopt IFRS for SMEs?

I encourage readers to read why the IFRS Foundation developed the standard and why SMEs should use it at https://www.ifrs.org/supporting-implementation/supporting-materials-for-the-ifrs-for-smes/2009-development/ especially the short video at https://www.ifrs.org/supporting-implementation/supporting-materials-for-the-ifrs-for-smes/ The latter link also takes you to a comprehensive suite of implementation material, including training modules here https://www.ifrs.org/supporting-implementation/supporting-materials-for-the-ifrs-for-smes/modules/ which I think includes Russian language material. This material may convince SMEs they have access to the material they need to properly implement the IFRS for SMEs.

What problems (difficulties) do enterprises most often face when switching to using IFRS for SMEs?

The challenge in transition to using IFRS for SMEs depends on what accounting framework they are switching from and how easily can they access expertise on IFRS for SMEs. If they presently use full IFRS then relatively easy as the IFRS for SMEs is in effect a simplification of the full IFRS.  If from a national accounting standard, and one that has little in common with full IFRS, then this might be a significant challenge. Also critical to the transition is access to affordable and expert advice from those familiar with full IFRS or IFRS for SMEs. Changing accounting framework is not just a matter of getting conversant with the technical content of the new framework it’s also about managing the process of change. In the first instance this demands that all those involved understand why the need to change, including the merits of the IFRS for SMEs which the video referred above addresses, and are committed to successful implementation.  As I said above the IFRS Foundation have a comprehensive suite of implementation material, including training modules here https://www.ifrs.org/supporting-implementation/supporting-materials-for-the-ifrs-for-smes/modules/ which I think includes Russian language material. This material may convince SMEs they have access to the material they need to properly implement the IFRS for SMEs.

IFRS for SMEs is not immediately updated to take account IFRS amendments or new IFRSs issued since the last Comprehensive Review of the IFRS for SMEs. Is this a problem?

The IASB completed its initial comprehensive review of the IFRS for SMEs Standard in May 2015. Based on the feedback received, and the fact that the IFRS for SMEs Standard is still relatively new, the Board issued limited amendments. The Board has now commenced a second comprehensive review. It is likely that this review will herald much greater changes to the IFRS for SMEs as there have been many significant changes to the full IFRS in the recent few years. Periodic review of the IFRS for SMEs, rather than making constant changes to align with full IFRS, ensures that the IFRS for SMEs is relatively stable, something SMEs welcome.

Let me start with a few general remarks on the issue of alignment with full IFRS. I think there should be alignment in terms of accounting principles and treatments between IFRS and IFRS for SMEs. There may be cases where that is not suitable for a number of reasons – lack of relevance to SMEs (e.g. earnings per share (EPS)), lack of relevance to their users (for example extensive disclosure requirements), short-term delays to allow SMEs the benefits of the experience of adoption of a new IFRS, or too complex/costly for SMEs considering the benefits (valuations, disclosures). Alignment of itself may yield limit benefits but full IFRS may provide a source of potential improvements to IFRS for SMEs. IFRS is being constantly shaped by a rigorous process of global research, discussion and debate. IFRS for SMEs does not benefit directly from this process but could gain indirectly by periodic review that says, “which of these changes to IFRS might improve the IFRS for SMEs”.

I see the following advantages from aligning IFRS for SMEs with full IFRS:

  1. Better understanding by users of accounts, when they may be looking at accounts of listed companies using full IFRS or those without public accountability using IFRS for SMEs. As a starting principle radical differences between the two systems in the same country in how things are accounted for is undesirable, confusing and could lead to misunderstanding. It is also unnecessary in most cases as the accounting issues faced by the two categories of businesses will be the same.
  2. It is a burden for some users to manage different reporting bases, especially in terms of significant accounting treatments. For example, tax authorities, groups of companies, software providers etc.
  3. The training of existing accountants and the education of new entrants to the profession is made more complex and so costly as a result of very different systems in use.
  4. The transition of SMEs using IFRS for SMEs through to listed companies using IFRS would be easier but the numbers of these are probably relatively small and as such should not drive alignment.
  5. As noted above IFRS may represent best accounting practice and therefore alignment may improve the IFRS for SMEs.

And I see the following disadvantages of alignment:

  1. Some of the full IFRS require complex accounting solutions and extensive disclosures and these are difficult and costly for SMEs to apply especially micros domiciled in developing / emerging economies
  2. There may be topics and issues which are not relevant to the SMEs and the users of their accounts
  3. The pace of change in full IFRS may create disproportionate costs for SMEs and adoption of new treatments may benefit from the application experience of companies using full IFRS

In 2019, the campaign for the next comprehensive review of IFRS for SMEs was launched. What do you think needs to be changed (improved) primarily? To what extent should the IFRS for SMEs be changed to take account of the recent major new IFRSs?

From a European Union (EU) perspective it is important that the incompatibility of the standard with the EU Directives be resolved. While the EU does not recognize the standard in its regulation it is important that EU Member States and / or SMEs in Europe that wish to adopt or voluntarily use the standard can do so without fear of non-compliance with the Directives.

Here are my preliminary thoughts on key changes:

  1. IFRS 9 Financial Instruments - alignment with the general principles of IFRS9 would be helpful, especially the solely principal and interest definition for the amortized cost category. I am less keen to introduce the complexities of the fair value through other comprehensive income (OCI) models for debt and equity. The existing option to revert to IAS39 should be replaced by an option to apply IFRS9 and, if so, there may be a need for fewer changes.
  2. IFRS 15 Revenue from Contracts with Customers - alignment of general principles, especially for the 5-step approach, would be welcome. The IFRS for SMEs should not incorporate some of the complexity of IFRS15.
  3. IFRS 16 Leases - alignment of general principles is welcome. The practical expedients for small and short leases should be included for SMEs in a clear upfront way.
  4. IFRS 3 Business Combinations (2008) - the IFRS for SMEs is not aligned to IFRS in respect of recognition of separate intangible assets and the amortization of goodwill. There seems little reason to eliminate these divergences. The changes to the full fair value model are less likely to have a significant impact in SME combinations, and hence the write-off of acquisition costs may not be appropriate.
  5. IFRS 10 Consolidated Financial Statements - alignment of general principles, especially the definition of control is welcome.  The exemption for investment entities should be considered for the IFRS for SMEs standard.          
  6. IFRS 11 Joint Arrangements - alignment of the terminology / classifications of joint arrangements is important. For example, the IFRS for SMEs has a different meaning for ‘joint venture’ from IFRS11.  The existing accounting policy options in IFRS for SMEs for accounting for these arrangements should remain. Otherwise the principles of the measurement of the interests seem to be largely aligned.
  7. IFRS 12 Disclosure of Interests in Other Entities        - the IFRS for SMEs might benefit from enhanced disclosures about the nature of risks and extent of the interests in other entities including the concept of unconsolidated structured entities. This is a disclosure standard and so the reasons for alignment are less significant. The level of disclosures in IFRS12 reflect the public accountability of the reporting entities.
  8. IFRS 13 Fair Value Measurement - fair value is a required or an optional measurement basis in IFRS for SMEs. The main requirements of IFRS13 should be considered for the IFRS for SMEs. Though only marginally different the definition of fair value in IFRS for SMEs should be replaced by that from IFRS13. IFRS13 should remain a reference source for preparers applying fair value for SMEs.
  9. IAS 19 Employee Benefits - in 2011 the ‘corridor’ option was removed. I see no need to amend IFRS for SMEs which does not allow it.

How do you feel about the proposals of some to expand the scope of IFRS for SMEs?

I agree in principle to the idea of permitting some publicly accountable entities to apply the IFRS for SMEs standard. Many smaller publicly accountable companies continue to find the full IFRS challenging to use to such a degree that they question whether the benefits afforded by the resulting information set exceeds the costs of providing such information. I wonder whether the Board should consider narrowing the scope of what is deemed publicly accountable rather than permitting some publicly accountable entities from using the IFRS for SMEs. I would also caution against such entities ending up driving the content of the IFRS for SMEs, pushing it closer to full IFRS and making it too complex for those entities for which it was originally intended. I hope that one day the IFRS for SMEs become the base or core standard in the IFRS suite, perhaps simply call IFRS, and the full IFRS retitled IFRS for Publicly Accountable Entities.

If some publicly accountable entities, such as those whose securities are traded on a public market and / or hold assets in a fiduciary capacity, are allowed to apply the IFRS for SMEs standard then this should be subject to restrictions. We cannot have a free for all.

№ 7, 2019  (с. 27)
Вверх
Закрыть
Замовити зворотній дзвінок
Буде виконано оформлення передплати на обране видання
Телефон
Оформити
Повернутися
Закрыть
Вибачте, на обраний вами період передплата не здійснюється. Для того щоб задати своє питання телефонуйте на наші контактні телефони або скористайтеся формою зворотного зв'язку