Following a long period of assimilation, the London-based International Accounting Standards Board has released an exposure draft on accounting principles under International Financial Reporting Standards for the small and midsized sector.The IASB's goal was to provide a simplified, self-contained set of accounting principles that are appropriate for smaller, non-listed companies, but nevertheless based on IFRS - the guidelines developed primarily for listed European Union companies that are now in use or being adopted by 100 different countries around the world. American and EU regulators are currently embroiled in an ongoing convergence project between IFRS and U.S. generally accepted accounting principles.

The IASB is inviting comments by October 1.

The board said that its new version for smaller companies removes choices for accounting treatments, while eliminating topics that are not generally relevant to SMBs. It presents simplified methods for recognition and measurement. As a result of these, the draft envisions a reduction in the amount of guidance applicable to SMBs by more than 85 percent when compared with the full set of IFRS.

However, the IASB said that the exposure draft does provide "a workable, self-contained set of accounting standards that would allow investors for the first time to compare SMBs' financial performance across international boundaries on a like-for-like basis."

According to IASB Chairman Sir David Tweedie, the new standard offers the comparability of full IFRS, while reducing the burden on companies. "When completed, the SMB standard will make the accounting requirements more accessible to smaller preparers in both developed and emerging markets," he added.

Its adoption will be a matter for each adopting jurisdiction to decide. For example, the EU requires listed companies to comply with IFRS, but will leave it to its member nations to decide which standards SMBs should follow.

Some reactions to the proposed provisions, which had been chopped down to 90 pages from an unabridged 250-page version, were critical, if not negative.

For instance, the Confederation of Business Europe, which represents European employers, said that while it was too early for it to comment, it referred to a statement from the Bundesverband der Deutschen Industrie, which represents German industry, that labeled the ED "not attractive." "The regulations are too complex and are unsuitable for medium-sized enterprises," stated Klaus Braeunig, speaker of the BDI managerial board. He explained that simplifications to the full IFRS version for listed companies were not sufficient.

For the present, at least, the European Commission has adopted a similar negative stance. An EC official said that it had "no big appetite to endorse it, or even recommend member nations to use it. While the IASB approach was interesting, the results were still not simplified enough to meet the needs of small companies, or even the needs of medium-size companies." However, he added, the commission would evaluate what are, in fact, non-mandatory proposals.

The official continued that the commission would be considering issues on recognition and measurement principles. Recognition refers to which assets and liabilities have to be shown on the balance sheet. Measurement would inevitably bring up the controversial issue of fair value principles.

However, another reaction to the draft is more cautious. Richard Martin, the head of financial reporting at the London-based Association of Chartered Certified Accountants, said: "[The] ACCA is concerned that people are rejecting the IASB's proposed new standards for SMEs in their totality. We strongly urge organizations and individuals to look at each area of the exposure draft and be specific about where they feel there is too much unnecessary complexity, rather than dismissing all proposals out of hand. There are options in the draft that could make it simpler. When the IASB has completed its consultation, people should then judge whether the standard ... might meet the needs in their country or not."

Nigel Sleigh-Johnson, head of financial for the Institute of Chartered Accountants for England & Wales, noted, "Initial consultations indicate that the standard may fail to meet the needs of many micro-companies in developing countries." But then he added, "However, the final product may prove suitable for application by larger private companies."

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