Thursday, 10th November 2011IFRS for SMEs:

A Simpler and more useful Alternative?

On 9 July 2009, the International Accounting Standards Board ("IASB") released the International Financial Reporting Standards ("IFRS") for Small-and-Medium-Sized Entities ("SMEs") or IFRS for SMEs.  Along with the standard, the IASB released implementation guidance, such as illustrative financial statements and disclosure checklists.

IFRS for SMEs is a self-contained, stand-alone product that is separate from the full set of IFRS; it is a modified and simplified version of the full IFRS which was developed to cater to the needs of SMEs, provided that they produce general purpose financial statements and do not have public accountability.

What are "general purpose financial statements"?

General purpose financial statements provide to a wide range of users common information, for decision making, about the financial position, performance and cash flows of an entity. Users may include but are not limited to lenders, creditors, investors, employees and governments.

Which entities have public accountability?

According to the IASB, an entity has public accountability when:

• its debt or equity instruments are traded in a public market or the entity is in the process of issuing such instruments for trading in a public market;
• it holds assets in a fiduciary capacity for a broad group of outsiders such as banks, insurance companies, brokers and dealers in securities, pension funds and mutual funds.

It is important to note that the IFRS for SMEs does not discriminate against an entity based on its size. Therefore, "large" entities which produce general purpose financial statements and do not have public accountability may be allowed to adopt and apply IFRS for SMEs.

Below are some advantages and disadvantages of using IFRS for SMEs:

If you would like further information about IFRS for SMEs, such as guidance about whether your entity can adopt and apply IFRS for SMEs or details regarding transitioning to IFRS for SMEs, contact Nigel MacPhail, Audit Director, at nmacphail@bakertillybvi.com or at +1 284 494 5800 ext 222.