the iasb project on accounting standards for smes

1© 2006 IASC Foundation, all rights reserved.© 2006 IASC Foundation, all rights reserved.

The IASB Project on The IASB Project on Accounting Standards Accounting Standards for SMEsfor SMEsPaul PacterPaul PacterIASB Director of Standards for IASB Director of Standards for Small and Medium-sized Small and Medium-sized EntitiesEntitiesWorld Advanced Program in World Advanced Program in Accounting and Auditing Accounting and Auditing RegulationRegulation28 March 200628 March 2006


Why SME Standards Are NeededWhy SME Standards Are Needed IASB has never said its standards IASB has never said its standards

(IFRSs) are aimed only at large (IFRSs) are aimed only at large listed companies.listed companies. But, as a practical matter: Main But, as a practical matter: Main

adopters have been listed adopters have been listed companies.companies.

Few countries have pushed full Few countries have pushed full IFRSs down to SMEs.IFRSs down to SMEs.


Why SME Standards Are NeededWhy SME Standards Are Needed Why global GAAP for listed Why global GAAP for listed

companies?companies? The The accounting confusionaccounting confusion that that

results from dozens of results from dozens of national GAAPs in a global national GAAPs in a global financial market is a financial market is a disservice disservice to investors, creditorsto investors, creditors, and , and others who use corporate others who use corporate financial statements.financial statements.

Benefits to capital markets.Benefits to capital markets. Benefits to companies.Benefits to companies.


Why SME Standards Are NeededWhy SME Standards Are Needed Even for unlisted SMEs, financial Even for unlisted SMEs, financial

statements that are statements that are understandable across borders understandable across borders are needed:are needed: Banks make loans across Banks make loans across

national boundaries and national boundaries and operate multi-nationally.operate multi-nationally.

Vendors from other countries.Vendors from other countries. Credit rating agencies.Credit rating agencies. Overseas customers.Overseas customers.


IASB’s Preliminary ViewsIASB’s Preliminary Views IASB deliberated SME IASB deliberated SME standards during standards during second half of 2003 and second half of 2003 and early 2004:early 2004:Reached some Reached some preliminary views preliminary views on the approach.on the approach.

Discussion Paper Discussion Paper June 2004.June 2004.

120 responses.120 responses.


January 2005 DecisionsJanuary 2005 Decisions Board discussed responses Board discussed responses

in late 2004. In Jan. 2005 in late 2004. In Jan. 2005 made tentative decisions:made tentative decisions:1.1. Clear demand for IASB SME Clear demand for IASB SME

standards.standards.2.2. Focus on non-publicly Focus on non-publicly

accountable entities that accountable entities that publish general purpose publish general purpose financial statements for financial statements for external users. No external users. No quantified “size test”.quantified “size test”.


January 2005 DecisionsJanuary 2005 Decisions3.3. Each jurisdiction should Each jurisdiction should

develop detailed guidelines on develop detailed guidelines on which entities are eligible to which entities are eligible to use.use.

4.4. Board will consider recognition Board will consider recognition and measurement and measurement simplifications – based on user simplifications – based on user needs and cost/benefit.needs and cost/benefit.


January 2005 DecisionsJanuary 2005 Decisions5.5. ““Mandatory fallback” to full Mandatory fallback” to full

IFRS if the SME standard does IFRS if the SME standard does not address an issue – Yes.not address an issue – Yes.

6.6. ““Optional fallback” to full IFRS Optional fallback” to full IFRS if SME standard is different if SME standard is different from full IFRS – No.from full IFRS – No.

7.7. Clear disclosure that SME Clear disclosure that SME standards are being followed, standards are being followed, rather than full IFRSs – Yes.rather than full IFRSs – Yes.


January 2005 DecisionsJanuary 2005 Decisions8.8. Organise SME standards by Organise SME standards by

topic, with cross-references to topic, with cross-references to the numbered IASs/IFRSs.the numbered IASs/IFRSs.

9.9. Add preparers and users to Add preparers and users to Working Group. Working Group. [Done][Done]

10.10. Conduct round tables with Conduct round tables with preparers and users. preparers and users. [held on [held on 13-14 October 2005]13-14 October 2005]


IASB Definition of SMEIASB Definition of SME Small and medium-sized entity:Small and medium-sized entity: Does not have public Does not have public

accountability:accountability: Not publicly traded.Not publicly traded. Not financial institution.Not financial institution. Not essential public service.Not essential public service. Not economically significant in Not economically significant in its home country.its home country.

Publishes general purpose Publishes general purpose financial statements for external financial statements for external users.users.


Recognition and Measurement Recognition and Measurement QuestionnaireQuestionnaire

1 April 2005:1 April 2005: Brief questionnaire was sent Brief questionnaire was sent

to all DP respondents, SAC, to all DP respondents, SAC, Working Group, and posted for Working Group, and posted for public response. public response.

To identify recognition and To identify recognition and measurement issues for measurement issues for discussion at round tables.discussion at round tables.

101 responses received.101 responses received.



Recognition and measurement Recognition and measurement means:means: Some items recognised as assets Some items recognised as assets

and liabilities under full IFRSs and liabilities under full IFRSs might not be recognised by SMEs.might not be recognised by SMEs. Example: Deferred taxes.Example: Deferred taxes.

Some assets, liabilities, income, Some assets, liabilities, income, and expenses might be measured and expenses might be measured differently by SMEs than under full differently by SMEs than under full IFRSs.IFRSs. Example: Premium or discount Example: Premium or discount

amortised straight-line rather amortised straight-line rather than effective interest method.than effective interest method.



28 June 2005:28 June 2005: Discussed responses with Discussed responses with

IASB’s Advisory Council and IASB’s Advisory Council and received views.received views.

29-30 June 2005:29-30 June 2005: IASB SME Working Group met.IASB SME Working Group met. Discussed responses.Discussed responses. Recommendations to the Recommendations to the

Board.Board.



26 September26 September Discussion with World Discussion with World

Standard Setters from over 40 Standard Setters from over 40 countries.countries.

13-14 October 2005:13-14 October 2005: Round-table discussions of Round-table discussions of

possible recognition and possible recognition and measurement simplifications.measurement simplifications.

43 groups participated.43 groups participated.


Draft Exposure DraftDraft Exposure Draft January 2006January 2006

IASB staff presented a draft IASB staff presented a draft ED to the Board. Preliminary ED to the Board. Preliminary discussion.discussion.

Working Group – 2 days Working Group – 2 days discussion of draft ED. Views discussion of draft ED. Views sent to Board.sent to Board.

February and March 2006February and March 2006 ED discussed by Board in ED discussed by Board in

detail.detail.


Draft Exposure DraftDraft Exposure Draft Comments about the draft ED:Comments about the draft ED:

Organised by topic.Organised by topic. 40 sections.40 sections. Each paragraph cross-Each paragraph cross-

referenced back to full IFRS.referenced back to full IFRS. Nearly all “black letter” Nearly all “black letter”

paragraphs from IFRSs are paragraphs from IFRSs are included.included. Except where there is cross Except where there is cross reference back to an IFRS.reference back to an IFRS.



Pervasive principles up front – Pervasive principles up front – look to in absence of specific look to in absence of specific standard.standard.

No “black-letter/grey letter” No “black-letter/grey letter” distinction.distinction.

Model financial statements.Model financial statements. 233 pages, but sections on 233 pages, but sections on

financial instruments, taxes, financial instruments, taxes, several others to be added.several others to be added. Full IFRSs now 2,400 pages.Full IFRSs now 2,400 pages.



ED developed by considering ED developed by considering needs of company with 50 needs of company with 50 employees and annual employees and annual revenue of approximately €10 revenue of approximately €10 million.million.

Which companies are required Which companies are required or permitted to use is up to or permitted to use is up to each individual jurisdiction.each individual jurisdiction.



Goals of:Goals of: High quality standards.High quality standards. Meet SME user needs.Meet SME user needs. Reduce preparer burden.Reduce preparer burden. Broadly consistent with full Broadly consistent with full IFRSs.IFRSs.

Global applicability.Global applicability.


Draft Exposure DraftDraft Exposure Draft Sections of draft ED:Sections of draft ED:

ININ Introduction Introduction11 Concepts and Pervasive PrinciplesConcepts and Pervasive Principles22 Financial Report of an SMEFinancial Report of an SME33 Balance SheetBalance Sheet44 Income StatementIncome Statement55 Statement of Changes in EquityStatement of Changes in Equity66 Cash Flow StatementCash Flow Statement77 Notes to the Financial StatementsNotes to the Financial StatementsModel Financial StatementsModel Financial Statements8 Consolidated Financial Statements8 Consolidated Financial Statements



99 Accounting Policies, Estimates, and Accounting Policies, Estimates, and ErrorsErrors

10 Financial Assets and Financial 10 Financial Assets and Financial Liabilities Liabilities

1111 Inventories Inventories1212 Investments in Associates Investments in Associates1313 Investments in Joint Ventures Investments in Joint Ventures1414 Investment Property Investment Property15 Property, Plant and Equipment15 Property, Plant and Equipment1616 Intangible Assets Other Than Intangible Assets Other Than

GoodwillGoodwill



1717 Business Combinations and Business Combinations and GoodwillGoodwill

1818 Rights and Obligations under Rights and Obligations under LeasesLeases

1919 Assets Held for Sale Assets Held for Sale2020 Provisions and ContingenciesProvisions and Contingencies2121 EquityEquity2222 RevenueRevenue2323 Construction ContractsConstruction Contracts2424 Government GrantsGovernment Grants2525 Borrowing CostsBorrowing Costs



26 Share-Based Payment26 Share-Based Payment27 Impairment of Assets27 Impairment of Assets2828 Employee Benefits Employee Benefits2929 Income Taxes Income Taxes3030 Financial Instruments – Additional Financial Instruments – Additional

IssuesIssues3131 Financial Reporting in Financial Reporting in

Hyperinflationary EconomiesHyperinflationary Economies3232 Foreign Currency Translation Foreign Currency Translation3333 Segment ReportingSegment Reporting



3434 Events After the Balance Sheet Events After the Balance Sheet Date Date

3535 Related Party DisclosuresRelated Party Disclosures3636 Earnings Per Share Earnings Per Share3737 Specialised Industries Specialised Industries3838 Discontinued Operations Discontinued Operations3939 Interim Financial Reporting Interim Financial Reporting4040 First-Time Adoption of IFRSs for First-Time Adoption of IFRSs for

SMEs SMEs


Next StepsNext StepsPlease understand that Please understand that

these dates are tentative:these dates are tentative: Exposure Draft – by 30 Exposure Draft – by 30

JuneJune 2006.2006. Field tests?Field tests? Final Standard – by 30 June Final Standard – by 30 June

2007. 2007. Effective – 2008.Effective – 2008.


Thank you.Thank you.

Questions?Questions?Comments?Comments?

the iasb project on accounting standards for smes

Documents