What is IFRS for SMEs?

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By Anneke Fourie 

Anneke Fourie

On 9 July 2009, the International Accounting Standards Board (IASB) issued the IFRS for SMEs. This is the first set of international accounting requirements developed specifically for small and medium-sized entities (SMEs). It has been prepared on IFRS foundations but is a stand-alone product that is separate from the full set of International Financial Reporting Standards (IFRSs). The IFRS for SMEs has simplifications that reflect the needs of users of SMEs’ financial statements and cost-benefit considerations. Compared with full IFRSs, it is less complex in several ways:

  • Topics not relevant to SMEs are omitted.
  • Where full IFRSs allow accounting policy choices, the IFRS for SMEs allows only the easier option.
  • Many of the principles for recognising and measuring assets, liabilities, income and expenses in full IFRSs are simplified.
  • Significantly fewer disclosures are required.
  • The standard has been written in clear, easily translatable language.

Who can use the IFRS for SMEs?

The term ‘small and medium-sized entities’ has different meanings in different territories or countries. The definition in the context of the IFRS for SMEs is:

  • entities that do not have public accountability and
  • publish general purpose financial statements.

Every entity has some form of accountability, if only to its shareholders and to SARS. Public accountability is defined to cover entities with or seeking to have securities traded in a public market or that hold assets in a fiduciary capacity as their main business activity (Most banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks would meet this second criterion). The definition is therefore based on the nature of an entity rather than on its size.

SMEs are estimated to represent well over 95 per cent of all companies in both developed and developing countries. The majority of financial statements in South Africa are compiled by implementing the IFRS for SMEs as a financial reporting framework.

Where a transaction is not addressed by the IFRS for SMEs, management is expected to use judgement to determine its accounting policy. If such a transaction is covered in full IFRS, management may refer to the appropriate international standard if it wishes but is not required to do so by the IFRS for SMEs.

South African companies act and IFRS

Both IFRS and the IFRS for SMEs are permitted.

All entities apart from public companies, state owned companies and certain non-profit companies are allowed to apply the IFRS for SMEs.

Company Financial Reporting Standard
State owned companies Full IFRS, but in the case of any conflict with any requirements in terms of the Public Finance Management Act, or other applicable national legislation, the latter prevails
Public companies listed on an exchange Full IFRS, but in the case of any conflict with the applicable listing requirements of the relevant exchange, the latter prevails
Public companies not listed on an exchange Full IFRS or IFRS for SMEs¹
Profit companies, other than state owned or public companies, whose public interest score for the particular financial year is at least 350. Full IFRS or IFRS for SMEs¹
Profit companies, other than state owned or public companies:

(a) whose public interest score for the particular financial year is at least 100 but less than 350; or

(b) whose public interest score for the particular financial year is less than 100, and whose statements are independently compiled.

Full IFRS or IFRS for SMEs or SA GAAP
Profit companies, other than state owned or public companies, whose public interest score for the particular financial year is less than 100, and whose statements are internally compiled There is no prescribed Financial Reporting Standard
Non-profit companies that are required in terms of regulation 28 (2)(b) to have their annual financial statements audited Full IFRS, but in the case of any conflict with any requirements in terms of the Public Finance Management Act, or other applicable national legislation, the latter prevails
Non-profit companies, other than those contemplated in the first row above, whose public interest score for the particular financial year is at least 350. Full IFRS or IFRS for SMEs¹
Non-profit companies, other than those contemplated in the first row above

(a) whose public interest score for the particular financial year is at least 100, but less than 350; or

(b) whose public interest score for the particular financial year is less than 100, and whose financial statements are independently compiled.

Full IFRS or IFRS for SMEs¹ or SA GAAP²
Non-profit companies, other than those contemplated in the first row above, whose public interest score for the particular financial year is less than 100, and whose financial statements are internally compiled. There is no prescribed Financial Reporting Standard – it is determined by the company

Can a trust apply the IFRS for SMEs?

There is no legal requirement for a trust to prepare financial statements. There might however be an obligation to prepare financial statements in the trust deed.

Trusts are governed by the Trust Property Control Act and trustees should be wary of adding additional unnecessary requirements to the trust deed.

It would however be advised that trusts keep proper record of the trust assets whether in excel or a simple accounting program.

Interestingly, all trusts are required by the Master to appoint an auditor/accountant despite there being no such requirement in the Trust Property Control Act.

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