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Is Small Biz Ready to Adopt IFRS for SMEs?

July 13, 2009

The International Accounting Standards Board introduced a slimmed down set of International Financial Reporting Standards last week for small and midsized businesses, but many companies in the U.S. are probably not likely to drop GAAP anytime soon.

Still, the 230-page set of standards in “IFRS for SMEs” does make things easier (see International Accounting Standards Issued for SMEs). It’s certainly a lot less to digest than the approximately 2,500 pages in the full IFRS, and a far cry from the estimated 25,000 pages that U.S. GAAP used to take up (also recently slimmed down to a relatively svelte 17,000 pages thanks to the new FASB Codification).

On the other hand, until the SEC approves the roadmap for transitioning to IFRS, most companies are not likely to adopt IFRS, even though the AICPA has recognized the IASB as an official accounting standard-setter. Most public companies are going to wait for the SEC to approve the roadmap, a question that has not been resolved ever since Mary Schapiro took over as chair of the SEC early this year.

Private companies are free to adopt IFRS, but as an article on pointed out, the banks that lend money to small and midsized business are probably not going to be familiar with IFRS either, and that could prove to be a hurdle if a business owner is hoping to get an extension on a line of credit from the bank, and the banking analyst can’t understand their books.

Indeed, Western Europe is likely to be the first place where we’ll see small private companies starting to switch over to “IFRS for SMEs,” and where we’ll see any problems that develop.

If the smaller set of standards does catch on in the U.S. among privately held businesses, that trend could help ease adoption of IFRS by larger companies. But it’s more likely that the large public companies will move to IFRS before their smaller private counterparts do.

In any case, don’t throw out your old collection of GAAP standards just yet, even if your bookcase is yawning under the weight of them. FASB didn’t produce its official codification just for the heck of it, and it’s certainly not ready to jettison GAAP just yet. Even if “IFRS for SMEs” does prove useful for U.S. companies, GAAP will still be around to provide guidance and answer questions about the matters that the slimmed-down set of standards does not address.

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