Second Comprehensive Review of the IFRS for SMEs Accounting Standard

Most small and medium businesses in South Africa make use of the International Financial Reporting Standard for Small- and Medium-Sized Entities (IFRS for SMEs), as accounting standard used for accounting and reporting purposes. All entities apart from public companies, state-owned companies and certain non-profit companies are allowed to apply the IFRS for SMEs and choose to do so as this framework is far less onerous and simpler to apply. In terms of the Company’s Act, a company only needs to apply IFRS if the company is a state-owned company as defined by the Act or if the company is a public company listed on an exchange such as the JSE or AltX for example. All other companies can apply to IFRS for SMEs. 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.

From 2020, the International Accounting Standards Board (IASB) has done comprehensive research by publishing a Request for Information to seek views on whether and how to align the IFRS for SMEs Accounting Standard with IFRS Accounting Standard.

The IASB started with a second comprehensive review of the IFRS for SMEs Accounting Standard back in 2019. The previous comprehensive review was done in 2015 and took effect on 1 January 2017.

The IFRS for SME Accounting Standard was originally developed using an alignment approach, aligning IFRS for SMEs with the full IFRS Standard and therefore the IASB board approached the second review from the same starting point, focusing on three principles:

• relevance to SMEs;
• simplicity; and
• faithful representation.

With the above principles in mind, the goal is to not alter the decisions made by the users of financial statements prepared by applying to the IFRS for SME Accounting Standard.

The IASB has considered all the feedback from the Request for Information, as well as the recommendations they received from the consultation group and is working towards publishing an exposure draft for new requirements that are in the scope of the review. The exposure draft is their next milestone, and the project is due in September 2022.

On 27 June 2022, the IASB published a condensed summary of their tentative decisions. Click here to view this summary.

Tentative decisions resulting in proposed changes to the IFRS for SMEs Accounting Standard will potentially have an impact on the following sections:

• business combinations
• financial instruments
• consolidated financial statements
• joint arrangements
• fair value measurement
• revenue (IFRS 15)
• employee benefits

According to the IASB they have complied with the applicable due process requirements and have done sufficient consultation and analysis to begin the process of the exposure draft that will be published in September 2022 with a period of 180 days for comment.

Revised standards are expected to be released by the end of next year with application in 2024.

We commit to keep our clients up to date on the outcomes of this process in the months to follow and how this will impact their accounting processes.