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"IFRS for SMEs" that aren't SMEs

23rd Sep 2009
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Last week I attended a financial reporting update at the ICAEW. I understand from the speakers that there was a debate over the title of the proposed standard. The criteria has nothing to do with size but more whether entities are regarded as public interest. It would be feasible for extremely large privately held businesses to be regarded as SMEs under the proposed standard.

Whilst the reduction in administrative burden for smaller/medium businesses is to be applauded I am concerned that there is absolutely no size criteria. An AIM quoted company with 5 employees and a fairly narrow shareholder base would be (in terms of standards) regarded as of greater public interest than a privately held business with 50,000 employees and creditors of hundreds of millions of pounds. In the latter case the livelihoods of hundreds of thousands of people will be dependent upon the financial well being of the "SME" and I do not believe that the bar should be lowered for these companies.

The application of the Standard to UK companies is now being considered and I hope that the ASB take the view that size does matter when it comes to large companies.

David Lewis

Camrose Consulting


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By Edward Beale
25th Sep 2009 12:49

The ASB is the arbiter of what consitutes UK GAAP and is currenlty consulting on the future structure of accounting standards. The consultation document sees the IFRS for SMEs being adopted as UK GAAP for companies that are to large to use the FRSSE and are not public benefit entites. The ASB has the option to apply the IFRS for SMEs to public benefit entities that are currently allowed to use UK GAAP (i.e. not listed companies), and can edit it to make it more suitable for the purposes to which it is put. All companies will continue to have the option of using EU adopted IFRS if they so wish.

The IFRs for SMEs is not an easy read and contains some daft requirements such as valuing share options and requiring provisions to be valued using a probability weighting of all possible outcomes. The chapters on financial instruments, while simpler than IAS 39, could be simplified further.

Full IFRS (depending on what is included) is some 2,500 - 3,000 pages long. I would much prefer to prepare accounts using an SME standard which is 10% of that length. The greater the number of companies applying full IFRS, the larger the fees that auditors and other advisors can charge. The interests of auditors and advisers are not necessarily aligned with those of users and preparers.

The key is that accounts contain the information that is useful to users, in a format that is useable. Quality is what matters when it comes to disclosures and not quantity. Key discosures can be lost in amongst irrelevant and immaterial disclosures. I am not aware of any comparison between full IFRS and the SME standard which has concluded that the SME standard omits essential disclosures, but if it does, then the ASB can edit the IFRS for SMEs to require such disclosures. I would urge Mr Lewis to identify any shortcomings with the IFRS for SMEs before dismissing it as unsuitable for larger non-public benefit entities.

Edward Beale

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