EU uncovers resistance to IFRS for SMEs
Preparers and users of accounts across Europe are ambivalent about the introduction of the new IFRS for SMEs, a European Commission survey has found.
Respondents from the UK joined those in the Netherlands, Spain, Denmark and Ireland among the 13-strong majority that favoured adoption of the new SME standard, while the nine dissenting countries included Germany, France and Italy and Belgium. A narrow majority (11 to 10) of public authorities and standard-setters across Europe felt that IFRS for SMEs was not suitable for widespread use across the continent.
Benefits of IFRS for SMEs
Those who supported the IFRS for SMEs highlighted the advantages for comparing financial statements prepared in different jurisdictions, which would encourage more cross-border trade and merger/acquisition activity and lower the cost of raising finance.
For companies that operated subsidiaries in different EU member states, the SME standard would make preparing consolidated accounts easier as there would be no need for reconciling national accounting treatments.
Audit costs would be lower too. And the development of a common educational framework for accountants around the standard could pave the way for more mobility of accountants and audit services within the EU.
Supporters added that because the IFRS for SMEs is easier to follow than full EU IFRS, companies could adopt it as a stepping stone towards public listing.
Opponents to the application of IFRS for SMEs in Europe stressed the standard’s complexity, particularly for small companies. For companies operating in just one country that have no need for cross-border comparability, the extra burden the standard imposed would outweigh any potential benefits.
The IFRS for SMEs is not suitable for internal management, they argued, and would increase the cost of preparation and audit of individual company accounts and the increased disclosure requirements could potentially put companies that adopted it at a competitive disadvantage to firms using less stringent accounting rules.
To adopt the new rules, companies and their accountants would have to redesign internal processes, train staff on new accounting systems and produce restatements of comparative information. Many small companies lack accounting expertise would need to enlist professional help when adopting IFRS for SMEs. These initial adoption costs would recur whenever the standard was revised, the report noted.