With the evolution of accounting & financial reporting, financial statements must now conform to International Financial Reporting Standards (IFRS). BHL has assisted its clients to be compliant with IFRS. In addition to assisting our client to meet the requirements of IFRS, we prepare financial statements that best reflect the nature of our clients’ operation and satisfy the needs of intended users.
IFRS for SMEs
Who should use IFRS for SMEs
IFRS for SMEs Standard is a
self-contained set of accounting principles that are based on full IFRS
Standards, but that have been simplified so that they are suitable for MSMEs.
The standard has been organised by topic with the intention that the standard
would be user-friendly for preparers and users of MSME financial statements.
IFRS for SMEs should be used by companies which are not listed on the stock exchange, and provide general purpose financial statements for external users.
What this means essentially is that the debt or equity instruments of these companies are not traded in a public market, neither are these companies in the process of issuing such instruments for trading in a public market, domestic or foreign stock exchange, or an over-the-counter market, including local and regional markets; or they do not hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses.
Because of the extensive disclosure requirements and its technically, it is not cost-effective for MSMEs to use full IFRS, and hence the necessity arise for the International Accounting Standard Board to introduce IFRS for SMEs. In addition, Full IFRS deals with matters that falls outside the scope of MSMEs.
Cost-effective for MSMEs
The SMEs Standard is a response to international demand from developed and emerging economies for a rigorous and common set of accounting standards for smaller and medium-sized businesses that is much simpler than full IFRS Standards. The SMEs Standard should provide improved comparability for users of financial statements while enhancing the overall confidence in the financial statements of SMEs, and reducing the significant costs involved of maintaining standards on a national basis.
The main argument for the SMEs Standard is the undue cost burden of reporting, which is proportionately heavier for smaller firms. The cost burden of applying the full set of IFRS Standards may not be justified on the basis of user needs. Further, much of the current reporting framework is based on the needs of large business, so SMEs perceive that the full statutory financial statements are less relevant to the users of SME accounts. SMEs also use financial statements for a narrower range of decisions, as they have less complex transactions and therefore less need for a sophisticated analysis of financial statements. Thus, the disclosure requirements in the SMEs Standard are also substantially reduced when compared with those in full IFRS Standards partly because they are not considered appropriate for users' needs and for cost-benefit considerations. Many disclosures in full IFRS Standards are more relevant to investment decisions in capital markets than to the transactions undertaken by SMEs.