IFRS for SMEs (International Financial Reporting Standard for Small and Medium-sized Entities) is a set of accounting standards specifically designed for small and medium-sized enterprises (SMEs). It provides a simplified framework compared to full IFRS, aiming to make financial reporting more accessible and less burdensome for smaller entities.
Key features of IFRS for SMEs include:
IFRS for SMEs is suitable for entities that do not have public accountability and are required or choose to prepare general-purpose financial statements for external users.
While IFRS for SMEs is updated less frequently, an Exposure Draft was published in September 2022 proposing amendments to the standard. The review process is nearing completion, with the final draft expected to be published in early 2025. The effective date of the amendments will be at least two years after the final standard is released, likely applying to financial years beginning on or after 1 January 2027. However, early adoption of the new standards may be permitted. This will be the 3rd edition of IFRS for SMEs.
Major proposed amendments to the standard
There have been 103 proposed amendments made to the standard, ranging from editorial changes to complete rewrite of sections. The most significant amendments will affect the following sections:
Section 11: Financial instruments
Under the new regulations, alignment with IFRS 9 is enhanced through the introduction of a new debt instrument category. This shift brings a revised impairment approach that varies depending on the category of financial instrument. Additionally, requirements for fair value measurement and disclosure have been relocated to a new section, streamlining the reporting process.
Section 12: Fair value measurement
A new section sets out the requirements for measuring fair value and disclosing information, consolidating these requirements from individual sections throughout.
Section 17: Property, plant, and equipment
An amendment to include bearer plants that are separately measurable without undue costs or effort.
Section 23: Revenue from contracts with customers
This section has been revised to align with IFRS 15, introducing a new revenue recognition model.
The previous section had different recognition rules for various revenue streams, such as sales of goods, rendering of services, construction contracts, and passive income such as interest, dividends, and royalties. As a result, the old approach was categorical.
The new section is based on an overall concept of a five-step model:
The 103 amendments are not final yet, and only when the final draft is released will we have more clarity of all the changes in the 3rd edition of IFRS for SMEs.
ASL is dedicated to proactively upskilling all relevant parties to ensure they are prepared for these changes when they take effect.
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