The International Accounting Standards Board said Thursday that its staff will develop guidance to help “micro-sized entities” apply International Financial Reporting Standards for Small and Medium-sized Entities.
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An IASB advisory body, known as the SME Implementation Group, will work with the IASB staff to develop the guidance for applying IFRS for SMEs to micro businesses and will then approve a final draft to be sent to the full IASB for review.
“The IFRS for SMEs has been a remarkable success story, with around 80 jurisdictions having already adopted or planning to adopt the 230-page standard,” said IASB member Paul Pacter, who chairs the SME Implementation Group. “In some of those jurisdictions the IFRS for SMEs is also used by very small companies with just a few employees. The staff was asked and has agreed to develop guidance suitable for micros as a ‘sub-set’ of the IFRS for SMEs, not as a separate standard.”
Pacter is one of three remaining U.S. members of the IASB, but his term expires at the end of the year. It is unclear whether the IASB will name another U.S. member to replace him on the board. The Securities and Exchange Commission has held off on voting to incorporate IFRS into the U.S. financial reporting system for public companies, and other countries that have already committed to IFRS are clamoring for one of the seats when it opens.
IFRS for SMEs is not widely used by small and midsize private companies in the U.S., although the American Institute for CPAs has allowed its use. The Financial Accounting Foundation is in the process of establishing a Private Company Council that will participate in setting standards for private companies.
For those small businesses around the world that wish to use a subset of IFRS for SMEs, IASB staff will develop the guidance by extracting from the IFRS for SMEs only those requirements that are clearly necessary for most micro-sized entities, without modifying any of the principles for recognising and measuring assets, liabilities, income and expenses. Only the main principles relating to those requirements would be included.
The guidance will contain cross-references to the IFRS for SMEs for matters not dealt with in the guidance booklet. Subsequently, having applied the guidance, an entity’s notes to financial statements and auditor’s report could refer to conformity with the IFRS for SMEs because there is no modification.
More information about the IFRS for SMEs is available at http://go.ifrs.org/SMEsHome.