The standard consists of 230 pages of text, arranged into 35
chapters that cover all of the recognition, measurement, presentation and
disclosure requirements for SMEs. There is no cross reference to other IFRS
(with one exception relating to financial instruments discussed below). This
underscores the fact that IFRS for SMEs is viewed by the standard setter as
independent from the full IFRS.
The standard is intended for use by SMEs. SMEs are defined in
the standard as small and medium-sized entities that do not have public
accountability and which also publish general-purpose financial statements for
external users. An entity has public accountability if its debt or equity
instruments are traded in a public market, or it holds assets in a fiduciary
capacity for a broad group of outsiders.
While this definition is necessary for an understanding of
the entities to which IFRS for SMEs is applicable, the preface to the standard
indicates that the decision as to which entities are required or permitted to
apply the standard will lie with the regulatory and legislative authorities in
each jurisdiction. However, if a publicly accountable entity uses the standard,
it may not claim that the financial statements conform to IFRS for SMEs even if
its application is permitted or required in that jurisdiction, as the entity
would not meet the definition of an SME.
In India, various regulatory authorities such as the Ministry
of Corporate Affairs, RBI, IRDA, SEBI, etc will have to define the term SME.
Considering the manner in which the term SME is defined in the standard, these
would include entities other than listed companies, banks, financial
institutions, insurance companies, etc.
IFRS for SMEs is based on the fundamental principles of full
IFRS, but in many cases, it has been simplified to make the accounting
requirements less complex and to reduce the cost and effort required to produce
the financial statements. To achieve this, IASB has removed a number of
accounting options available under full IFRS and attempted to simplify
accounting for SMEs in certain areas.
For example in the case of share based payments, the fair
value of shares in equity-settled share-based payment transactions can be
measured using the directors’ best estimate of fair value if observable market
prices are not available. Another example of simplification is investment
property which can be accounted as fixed assets, if fair valuing them involves
undue cost or effort or does not provide a reliable measure.
The IFRS for SMEs includes a set of illustrative financial
statements and a presentation and disclosure checklist to assist entities with
preparing their financial statements. The application of this standard is
expected to reduce the compliance costs for many smaller entities and help make
the financial statements of such entities less complex.
As the standard is very much principles-based, interpretation
issues are likely to arise, which will require a globally consistent resolution.
In order to ensure this standard achieves international consistency and
comparability of financial reporting, it is important that interpretations are
not developed by each jurisdiction. It would appear logical that the
International Financial Reporting Interpretations Committee (IFRIC) could be
approached to provide any interpretative guidance that users may require.
In India, one major criticism against the full implementation
of IFRS was that they would impose an unnecessary burden and hardship on SMEs.
With the issuance of the SME standard, one of the major hurdles for the
implementation of IFRS in India has been removed. The ICAI and the Ministry of
Corporate Affairs (MCA) should now take appropriate and swift measures to
legalize the adoption of full IFRS by public interest entities and IFRS for SMEs
by SMEs from 2011. As a first step, the ICAI and other regulatory bodies should
define an SME. Also, it is desirable that all regulatory agencies define SME in
a consistent manner to the extent practicable.
