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IFRS for Private Entities (formerly IFRS for SMEs): ANT chronology
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  • Australian field testing of the proposed standard 
  • Institute lodges SMEs submission to AASB 
  • Institute White paper on standards for SMEs 
  • Institute submission to the IASB on IFRS for SMEs online 
  • Draft Institute SME submissions 
  • Institute hosts SME forum 
  • AASB issues SME ED 
  • AASB meeting highlights - 23-25 May 2007: SMEs 
  • AASB issues likely applicability of IFRS for SMEs 
  • AASB Warns that the Non-Reporting Entity Concept has a Use-by Date 
  • Draft Institute Submission on IASB's 'IFRS for SMEs' ED 
  • IASB issues 'IFRS for SMEs' ED 
  • IASB media release: IASB publishes draft IFRS for SMEs 
  • About the Exposure Draft (ED) 
     
     
     
    Australian field testing of the proposed standard 
     
    5 December 2007 
     
    The Institute, CPA and NIA conducted field testing of the proposed IFRS for SME standard and have documented the results in a report to the IASB. 
     
    Read the report here. 
     
     
    Institute lodges SMEs submission to AASB 
     
    as reported in ANT37/2007 - 21 September 2007 
     
    The Institute has lodged its submission on the AASB’s ITC 12 “Request for Comment on a Proposed Revised Differential Reporting Regime for Australia and IASB Exposure Draft of a Proposed IFRS for SMEs” with the AASB. The submission can be found on this webpage. 
     
    The Institute generally supports the proposed IFRS for SMEs. However, it did express concerns about the AASB proposals for differential reporting in Australia, especially given that a majority of the Institute’s membership supports the reporting entity concept.  
     
    The webpage also contains the Institute’s white paper (refer ANT36: 14 September 2007), submission to the IASB and submission to Treasury regarding financial reporting for unlisted companies.  
     
     
    Institute White paper on standards for SMEs 
     
    as reported in ANT36/2007 - 14 September 2007 
     
    The Institute has now published the white paper 'Financial Reporting Standards for Small and Medium Entities: Stakeholder insights', which summarises the key issues relating to the IASB International Financial Reporting Standards (IFRS) for SMEs, discussed at a forum hosted by the Institute in June this year.  
     
    The forum was attended by 24 leading figures from the accounting and business profession, regulators, standard setters and academics. 
     
    Key areas of agreement outlined in the discussion paper include:
    • Definition of a SME - the use of the term IFRS for SMEs is a misnomer and contributes to confusion about what the introduction of this standard in Australia would achieve; 
    • Definition of publicly accountable - it is unclear from the SME ED just how far the notion of public accountability is expected to stretch in practice 
    • Appropriateness of a stand-alone document - participants supported the IASB's choice to issue the IFRS for SMEs ED as a stand-alone document 
    • What should be excluded or included in the SME exposure draft - participants expressed the view that the IFRS for SMEs is still too complicated, but time did not permit the group to delve into the detail 
    • Treatment of subsidiaries - some concessions should be available for wholly owned subsidiary companies; and  
    • Appropriateness of a third-tier alternative framework - there seems to be a need for a third tier of best practice guidance for entities that are outside the regulated financial reporting framework and further research needs to be done in this area.
    Debate at the forum has been instrumental in forming the Institute's view on the IASB's proposed IFRS for SMEs and the AASB's ITC 12. The white paper, Financial Reporting Standards for Small and Medium Entities: Stakeholder insights, is available on the 
    Institute's website.  
     
     
     
    Institute submission to the IASB on IFRS for SMEs online 
     
    as reported in ANT35/2007 - 6 September 2007 
     
    The Institute has now lodged with the AASB and IASB its submission to the IASB on its Proposals for IFRS for SMEs exposure draft.  
     
    The Institute supports the overall objective of the draft IFRS for SME proposals, but considers that the name of the proposed standard is unhelpful and has led to confusion among constituents. Something like “IFRS for Private Entities” or “IFRS for Non-Publicly Accountable Entities” would reflect the content and purpose of the draft better than the current title. We suggest further simplification of the recognition and measurement requirements of the standard and suggest some areas where disclosure can be reduced.  
     
    The submission can be viewed here.  
     
     
    Draft Institute SME submissions 
     
    as reported in ANT32/2007 - 18 August 2007 
     
    The Institute is seeking member input on its draft submissions on the International Accounting Standards Board (IASB's) IFRS for SMEs exposure draft and the Australian Accounting Standards Board (AASB's) Preface to ITC 12, which is now available on our website.  
     
    The Institute supports the overall objective of the draft IFRS for SMEs, to produce a simpler form of general purpose financial reporting for entities that are not publicly accountable. However, the Institute has significant reservations about the AASB's proposals for differential reporting in Australia and consequently how the IFRS for SMEs might be used here.  
     
    In particular the Institute does not support the AASB's proposals in ITC 12 to do away with the reporting entity concept altogether as it considers that this would remove the flexibility entities currently have to prepare financial reports that suit the needs of users. The AASB proposals would have the effect of imposing a much more rigid financial reporting framework on Australian entities which will be expensive for the community to implement and which will require the production of financial information for which there are no identified users.  
     
    The Institute encourages members to review its submissions on both ITC 12 and the IASB's IFRS for SME's exposure draft and provide feedback via our submissions email box techsubmissions@charteredaccountants.com.au prior to Wednesday August 29 to enable our submission to be finalised and lodged with the AASB before the ITC comment close date of 1 September 2007. Read the draft Institute's submission to the AASB ITC 12.  
     
    The draft Institute submission for the IASB IFRS for SMEs is also available for download. (link removed) 
     
    Members are encouraged to prepare their own submissions on these documents to ensure their contribution to this important debate about the future of differential reporting in Australia. 
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    Institute hosts SME forum 
     
    as reported in ANT24/2007 - 22 June 2007 
     
    The Institute this week hosted a Forum in Melbourne to discuss the International Accounting Standards Board's (IASB's) SME exposure draft and the Australian Accounting Standards Board's (AASB's) proposals as to how an SME standard might be used in Australia. We welcomed about 20 participants including David Boymal (AASB), Charles Macek (Financial Reporting Council Chair), representatives of ASIC, the 3 Accounting Bodies and the Australian Institute of Company Directors, practitioners from large, small and mid-tier firms, chartered accountants in business, academics and a practitioner with particular expertise in the area of not-for-profits.  
     
    The objective of the Forum was to stimulate discussion and gain feedback for input into the Institute's submissions and a White Paper will be produced and circulated in coming weeks summarising the outcomes of the meeting. 
     
    The general consensus was that the concept of an IFRS for SMEs ED (proposed Standard) should be supported, but there was considerable discussion as to where the cut-offs for its use (both high and low) should fall.  
     
    Participants liked the "stand-alone" single book approach to the SME project. However, many participants suggested that the requirements of the ED were still too complicated and needed to be simplified in terms of both measurement/recognition and disclosures.  
     
    Those involved in financial reporting for large groups argued that there should be some sort of concession involving much more basic disclosures for Subsidiaries that are preparing financial reports because they are not claiming Class Order relief, but have a very limited circulation of users for the accounts.  
     
    The point was raised several times that there seemed to have been no academic research on the needs of users of SME accounts and what the actually want, so to a certain extent, the standard setters, both local and international, are working in a vacuum. 
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    AASB issues SME ED 
     
    as reported in ANT22/2007 - 8 June 2007 
     
    The AASB has now issued ITC 12 - Request for Comment on a Proposed Revised Differential Reporting Regime for Australia and IASB "Exposure Draft of A Proposed IFRS for Small and Medium-sized Entities".  
     
    Comments are requested by the AASB by 1 September 2007 for comment to the IASB by 1 October 2007. The Institute will be making a submission and members can email comments to techsubmissions@icaa.org.au. 
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    AASB meeting highlights - 23-25 May 2007: SMEs 
     
    as reported in ANT21/2007 - 1 June 2007 
     
    The Board has approved and released the Invitation to Comment “A Proposed Revised Differential Reporting Regime for Australia and the IASB Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities” without substantive amendments. The proposals would require all entities that prepare general purpose financial reports to apply either full IFRS or the IFRS for SMEs based on public accountability criteria and size thresholds. 
     
    Comments on the proposed revised differential reporting regime and the IASB’s IFRS for SMEs ED are due by 1 September 2007.  
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    AASB issues likely applicability of IFRS for SMEs 
     
    as reported in ANT17/2007 - 4 May 2007 
     
    The Board in consideration of the Preface to an Invitation to Comment on "A Proposed Differential Reporting Regime for Australia and the IASB Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities", confirmed that the focus should be on the applicability of accounting standards to general purpose financial reports. 
     
    The Board confirmed that public accountability should be applied in the for-profit sector combined with size thresholds. It also agreed that such size thresholds apply to not-for-profits, whereby entities above them would apply AIFRS and those below would apply the SME standard. The Board will consider a revised draft of the Preface at its 23-25 May meeting. A more detailed report on the applicability of IFRS for  
    SMEs follows: 
     
    Likely applicability of IFRS for SMEs at a glance      
     
    The Board discussed and broadly agreed to the following in-principle but it is subject to final approval at the 23-25 May meeting. 
     
    Current IFRS-based requirements will continue to apply to: 
    • ASX listed entities; 
    • Publicly accountable entities (in addition to listed companies this includes entities that hold deposits in a fiduciary capacity - deposit takers such as banks, credit unions, insurance companies etc); 
    • Large for-profit entities that are not publicly accountable, but exceed either of the applicable size tests (consolidated gross operating revenues of $500 million or consolidated assets of $250 million); 
    • Large not-for-profit entities that exceed either of the applicable size tests (consolidated gross operating revenues of $25 million or consolidated assets of $12.5 million); 
    • Public sector entities that exceed either of the applicable size tests (consolidated gross operating revenues of $25 million or consolidated assets of $12.5 million); 
    • Any entity that prepares general purpose financial reports as re-defined will be able to elect to follow full IFRS requirements rather than the IFRS for SMEs.
     
    IFRS for SMEs will apply to: 
    • Non-publicly accountable entities which prepare general purpose financial reports - these include all companies required to prepare and lodge with the Australian Securities and Investments Commission (ASIC) by the Corporations Act that do not exceed either of the applicable size tests (consolidated gross operating revenues of $500 million or consolidated assets of $250 million); 
    • Not-for-profit entities that do not exceed either of the applicable size tests (consolidated gross operating revenues of $25 million or consolidated assets of $12.5 million); 
    • Not-for-profit entities that are not 'publicly accountable' (privately funded entities e.g. no entrance fees); 
    • Public sector entities that do not exceed either of the applicable size tests (consolidate gross operating revenues of $25 million or consolidated assets of $12.5 million).
     
    The Reporting Entity Model that Australia has operated under for some 15 years is to be 'ditched' for a Model that has 2 reporting standards - full IFRS or slightly simplified IFRS for SMEs. Non-reporting entities will no longer have the opportunity to continue to produce simplified financial reports that pick up ASIC disclosure requirements and simplified measurement and recognition requirements. However the AASB is seeking specific comment on its 'in principle' decision. 
     
    Discussion by AASB members made it quite clear that the IFRS for SMEs ED is still quite stringent and very onerous and complex, and comments are to be sought. 
     
    Thanks to Keith Reilly (Grant Thornton) for providing us with this report.     
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    AASB Warns that the Non-Reporting Entity Concept has a Use-by Date 
     
    as reported in ANT07/2007 - 23 February 2007 
     
    The AASB continues to deliberate on the IASB's IFRS for SMEs draft Accounting Standard that was released last week (see ANT 06 - 16/2/2007), with an expected Australian ED for release after the Board's 23-25 May 2007 meeting.  
     
    However it is clear from the AASB's latest Action Alert that the AASB sees the IASB's IFRS for SME Project as the model to adopt for Australia for those companies that lodge financial reports with ASIC, except for publicly accountable companies such as listed companies. The Action Alert states: "Differential Reporting /Small and Medium-sized Entities (SMEs) - The Board decided that under a revised financial reporting regime all financial reports that are prepared and lodged with the ASIC under the Corporations Act 2001 would be regarded as general purpose financial reports on the basis of being available on a public register for access by users." 
     
    This will come as a surprise to those who responded to the AASB's ED 148 last June in record numbers (96% of the 180 Submissions argued against this very point). It also appears to be contrary to the Government's Red Tape Reduction Policy as it will force many large Pty and non-listed public companies that are preparing simplified non-reporting entity financial reports to significantly increase the size and complexity of financial reports. 
     
    When this change in reporting will occur is not yet clear. However it seems reasonable to expect that this issue will be hotly debated once the AASB issues its Australian equivalent to the IASB's ED. For 2007, 2008 and probably 2009 financial reports, there will probably be no change in the financial reporting framework and non-reporting entities will be able to continue with simplified financial reports. However once the IASB finalises its IFRS for SMEs Standard in late 2008, the AASB's intentions are clear: to replace the Reporting Entity Concept with the IFRS for SME's Standard. 
     
    There will be some relief for the smaller large pty companies and hopefully the smaller non-listed public companies as the Government's review of the Size Threshold Tests will relieve some of those companies from having to produce financial reports, but for many of the rest, Red Tape will have increased, not reduced. 
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    Draft Institute Submission on IASB's 'IFRS for SMEs' ED 
     
    as reported in ANT07/2007 - 23 February 2007 
     
    A copy of the Institute's draft Submission to the IASB (and AASB when it calls for comments) is on the Institute's website for member input - draft_IFRSforSMEs.pdf. Comments are due to the IASB on 1 October 2007 and it is expected that the AASB will release the ED for Australian Comment in May 2007, once it has carefully deliberated on the implications the ED has for the Australian financial reporting environment. 
     
    As detailed in previous ANTs and various member seminars, the Institute remains strongly supportive of the IASB's push to relieve non-listed companies from the complexity of IFRS (or the Australian equivalents - AIFRS), and at first glance the IASB has made significant simplifications with the 3000-odd IFRS disclosures reduced to some 400. However it is in the area of 'measurement' that there will be much debate as the IASB continues to argue that 'fair value' is necessary for compatibility with the IASB's own Conceptual Framework. 
     
    Australian Issues have yet to be promulgated by the AASB and an Australian ED is not expected to be available until late May 2007. Howeve the major Issue for Australia is whether the IASB's ED which is scoped for reporting entities preparing general purpose financial reports, should be applied to the majority of large pty companies and many non-listed public companies that are non-reporting entities which currently prepare special purpose financial reports that are often quite simplified.  
     
    For such non-reporting entities, the Institute believes that the existing requirements, which apply the Australian equivalents of IFRS being AASBs 101, 107 and 108 dealing with financial statement presentation, accounting policies and cash flow statements, are appropriate and consistent with what Users need (AASB 1031 Materiality and AASB 1048 Interpretations (for AASB's 101, 107 and 108) also apply. The Institute believes that the IFRS for SMEs ED is generally not suitable for such entities, will add increased costs to the preparation of financial reports, and is contrary to the Government's Red Tape Reduction Policy. As such the Institute believes that its Business Practice Guide provides a better 'guide' to how to prepare Financial Reports http://www.charteredaccountants.com.au/A117157740. 
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    IASB issues 'IFRS for SMEs' ED 
     
    as reported in ANT06/2007 - 16 February 2007 
     
    The IASB has issued its long awaited Exposure Draft 'IFRS for SMEs' on its Subscriber Website, with Comments due by 1 October 2007. It will be publicly (free) accessible from Monday 26 February (London time) at http://www.iasb.org. 
     
    As expected, the ED is designed for Non-Listed Reporting Entities and according to the IASB's Press Release is aimed at providing "...a simplified, self-contained set of accounting principles...". The IASB claims that it reduces the IFRS volume by 85% and from discussions that the Institute had with IASB Staff it is claimed that the 3000 IFRS disclosures have been reduced to around 400. 
     
    A copy of the IASB's Summary of the ED is available on the Institute's website at http://www.charteredaccountants.com.au/A117036912.  
     
    The Institute remains supportive of the IASB's ED as for Non-Listed Reporting Entities it will significantly reduce the burden that they currently face in producing AIFRS complaint Financial Statements. On that basis, the Institute believes that the AASB should introduce the resultant Standard when it is approved by the IASB and allow immediate application for Non-Listed Reporting Entities as an alternative to the current AIFRS requirements. Whether the ED has been sufficiently simplified, will become clearer during the global debate. 
     
    However for Non-Reporting Entities, the Institute believes that the ED is still too complicated for such Entities who are in the main SMEs in an Australian context. The Institute's Business Practice Guide remains a more relevant approach to simplified Financial Statements as it is premised on the historical cost model with simplified impairment trigger tests. It can be accessed at http://www.charteredaccountants.com.au/A117157740.  
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    IASB media release: IASB publishes draft IFRS for SMEs 
     
    as referred to in ANT06/2007 - 16 February 2007 
     
    The International Accounting Standards Board (IASB) is today publishing for public comment the Exposure Draft of its International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs ).  
     
    The aim of the proposed standard is to provide a simplified, self-contained set of accounting principles that are appropriate for smaller, non-listed companies and are based on full International Financial Reporting Standards (IFRSs), developed primarily for listed companies. By removing choices for accounting treatment, eliminating topics that are not generally relevant to SMEs and simplifying methods for recognition and measurement, the resulting draft standard reduces the volume of accounting guidance applicable to SMEs by more than 85 per cent when compared with the full set of IFRSs. As a result, the Exposure Draft offers a workable, self-contained set of accounting standards that would allow investors for the first time to compare SMEs' financial performance across international boundaries on a like for like basis.  
     
    In order to assist companies in preparing accounts based on the proposed IFRS for SMEs , the requirements of IFRSs have been simplified and redrafted using plain English where possible. However, SMEs that decide to upgrade to using full IFRSs would find the transition eased because both sets of standards are based on the same underlying principles.  
     
    Introducing the Exposure Draft, Sir David Tweedie, IASB Chairman, said:  
     
    Our goal has been to produce a standard for use by smaller and unlisted companies that offers the comparability of full IFRSs while reducing the burden on the preparing company. When completed, the SME standard will make the accounting requirements more accessible to smaller preparers in both developed and emerging markets. With this publication, we are now actively seeking the views of companies, banks, the audit profession, and other interested parties as part of a broad consultation to see if we've taken out too much or not enough or if we've got it about right.  
     
    The adoption of the IFRSs for SMEs will be a matter for each country or adopting jurisdiction to decide. For example, the EU requires listed companies to comply with International Financial Reporting Standards (IFRSs), but will leave it to Member States to decide which standards SMEs should follow. The IASB proposes that listed companies, however small, would not be eligible to use the IFRS for SMEs.  
     
    The Exposure Draft is available for e IFRS subscribers from today (15/2/07) and will be freely available on the Website from 26 February 2007. The IASB invites comments on the Exposure Draft by 1 October 2007. As a step to facilitate broader consultation, the IASB will for the first time publish a proposed standard in translation. The Exposure Draft will be published in French, German and Spanish in April 2007: see the IASB Website for more details. 
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    About the Exposure Draft (ED) 
     
    as referred to in ANT06/2007 - 16 February 2007 
     
    Which entities could use the proposed IFRS for SMEs?  
     
    The IFRS for SMEs is intended for entities that do not have public accountability. An entity has public accountability (and therefore should use full IFRSs) if:
    • it has issued debt or equity securities in a public market; or  
    • it holds assets in a fiduciary capacity for a broad group of outsiders, such as a bank, insurance company, securities broker/dealer, pension fund, mutual fund, or investment bank.
     
    Modifications of full IFRSs reflected in the ED 
     
    The draft IFRS for SMEs reflects three kinds of modifications of the principles in full IFRSs based on the needs of users of SMEs' financial statements and cost-benefit considerations:  
     
    1. Topics omitted. IFRS topics not relevant to typical SMEs are omitted, with cross-references to the IFRS if needed. These are:
    • general price-level adjusted reporting in a hyperinflationary environment.  
    • equity-settled share-based payment (the computational details are in IFRS 2 Share-based Payment).  
    • determining the fair value of agricultural assets (look to IAS 41 Agriculture, but the Board also proposes to reduce the use of fair value for agricultural SMEs).  
    • extractive industries (look to IFRS 6 Exploration for and Evaluation of Mineral Resources).  
    • interim reporting (look to IAS 34 Interim Financial Reporting).  
    • lessor accounting finance leases (finance lessors are likely to be financial institutions who would be ineligible to use the IFRS for SMEs anyway).  
    • Recoverable amount of goodwill (SMEs would test goodwill for impairment much less frequently than under IAS 38 Intangible Assets, but if necessary to do such a test would look to the calculation guidance in IAS 38).  
    • earnings per share and segment reporting, which are not required for SMEs, and insurance contracts (insurers would not be eligible to use the IFRS for SMEs).
     
    2. Only the simpler option included. Where full IFRSs provide an accounting policy choice, only the simpler option is in the IFRS for SMEs. SMEs are permitted to use the other option by cross-reference to the relevant IFRS. The simpler options selected are:
       
    • the cost-depreciation model for investment property (fair value through profit or loss is permitted by reference to IAS 40 Investment Property).  
    • the cost-amortisation-impairment model for property, plant and equipment and intangibles (the revaluation model is allowed by references to IAS 16 Property, Plant and Equipment and IAS 38).  
    • treating borrowing costs as expense(capitalisation allowed by reference to IAS 23 Borrowing Costs).  
    • indirect method for reporting operating cash flows (the direct method is allowed by reference to IAS 7 Cash Flow Statements).  
    • one method for all grants (or SMEs can use any of the alternatives in IAS 20 Accounting for Government Grants and Disclosure of Government Assistance).
     
    In adopting the IFRS for SMEs, an individual jurisdiction could decide not to allow the option that is cross-referenced to the full IFRS.  
     
    3. Recognition and measurement simplifications. Here are some examples:
    •  
      financial instruments:  
      - two categories of financial assets rather than four. This means no need to deal with all of the 'intent-driven' held-to-maturity rules or related 'tainting', no need for an available-for-sale option, and many other simplifications.  
      - a clear and simple principle for derecognition-if the transferor has any significant continuing involvement, do not derecognise. The complex 'pass-through testing' and 'control retention testing' of IAS 39 Financial Instruments: Recognition and Measurement are avoided.  
      - much simplified hedge accounting.  
    • goodwill impairment-an indicator approach rather than mandatory annual impairment calculations.  
    • recognise all research and development costs as expense (IAS 38 would require capitalisation after commercial viability has been assessed).  
    • the cost method for associates and joint ventures (rather than the equity method or proportionate consolidation).  
    • less fair value for agriculture-only if 'readily determinable without undue cost or effort'.  
    • defined benefit plans-a principle approach rather than the detailed calculation and deferral rules of IAS 19 Employee Benefits. Complex 'corridor approach' omitted.  
    • share-based payment-intrinsic value method.  
    • finance leases-simplified measurement of lessee's rights and obligations.  
    • first-time adoption-less prior period data would have to be restated than under IFRS 1 First-time Adoption of International Financial Reporting Standards.
     
    Frequency of updating the IFRS for SMEs 
    The Board intends to update the IFRS for SMEs approximately once every two years via an omnibus exposure draft. 
     
    Organisation of the ED 
    The ED is published in three documents-the draft IFRS for SMEs, implementation guidance (consisting of illustrative financial statements and a disclosure checklist), and a basis for conclusions. The IFRS for SMEs is organised topically, rather than in IAS/IFRS statement number sequence. It has 38 sections and a glossary. 
     
    Next steps
    • The comment deadline on the Exposure Draft is 1 October 2007.  
    • During the exposure period the Board will conduct round-table meetings with SMEs and small firms of auditors to discuss the proposals. The Board will also conduct field tests and/or field visits on the proposals in the ED.  
    • The standard is expected in mid-2008.  
    • It would take effect according to decisions in each jurisdiction that adopts the IFRS for SMEs.
     
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