Lewis W. Wilson Jr.
Post University College
This report will provide a brief summary on what the Impact of the IFRS on SME’s (Small and Medium sized Businesses) standards as it applies to small businesses. We will define the standard and its history of existence. We will briefly evaluate the advantages and disadvantages of the shortened version of the full IFRS and if it can be relied upon in the future for a growing entity that is not quite large or qualify to utilize the full IFRS standard. In conclusion we give our recommendation as to whether the standard is sufficient as it stands now to support Small businesses that are currently utilizing the IFRS for SME’s standards.
Impact of IFRS on SME’s
IFRS for SME's was established in 2009 by the IASB, the development process was very strenuous, and involved extensive consultation throughout the world. Currently the IFRS for SME’s standard is approximately 230 pages, and was specifically tailored and simplified to meet the needs and capabilities of smaller businesses of which would not benefit from utilizing the much larger Full IFRS standard.
Why IFRS for SME’s
A review and analysis of the FULL IFRS standards by professionals across the country revealed that there are many procedures that have been developed for large public companies and investors in the securities market. Additionally, it was noted that the small private companies do not have public securities therefore some of the requirements within the Full IFRS standards would no be relevant for small private companies. The research also revealed that even when they are relevant, the cost to these smaller organizations of some requirements would exceed the benefits. The question still arises what are the benefits of utilizing this watered down version of the Full IFRS? There are a number of potential benefits of adopting IFRS for SMEs, which I have provided the following:
a. reducing compliance costs;
b. making financial statements less complex and more user friendly;
c. improving access to international funding, currently a critical issue for many businesses;
d. Enhancing the comparability of financial statements.
As previously stated, the IFRS for SME's is has been specifically tailored to support smaller business, which means all topics that are not perceived to be relevant to SME's have been omitted, including a reduction in the number of required disclosures. A good example of this would be that Goodwill is amortized and only tested for impairment when there is a triggering event, and not subject for a full impairment test each year (as under Full IFRS). Additionally the development costs are expensed utilizing the IFRS for SME's, but if the organization was utilizing Full IFRS they would be capitalized. Of course there are several other key simplifications in the financial instruments, defined benefit obligations, cash flow presentation and the interest capitalization sections as well.
We know in business there is also a financial burden involved as well as personnel training. In addition, converting from local GAAP to either Full IFRS or IFRS for SME’s requires a commitment of management focus, resources and funding. Companies must also identify key…