IFRS Position Paper The SME update CIMA Position Paper | July 2006
CIMA supports global standards i.e. IFRS and the development of principal-based accounting standards. This paper summarises CIMA’s position with respect to the SME update in financial reporting. The IASB are developing an accounting standard for Small and Medium Sized Companies (IFRS for SMEs) and this is causing an interesting debate within the UK. At the present, listed groups in the UK have to report using IFRS and other listed, unlisted or private companies are subject to a two-tier UK GAAP system. The Financial Reporting Standard for Small Entities (FRSSE) is available for use by those entities defined as ‘small’ under UK company legislation whereas full UK GAAP applies elsewhere. The IASB’s working group on IFRS for SMEs has recommended that the SME standard should be aimed typically at an entity that has turnover of €10,000,000 or less. This project has not yet reached the exposure draft stage but the UK accountancy profession has already started to consider how it might be used in the UK. The ASB’s current thinking is that it will propose that the requirement to apply full IFRS is extended to include all UK Public Quoted and other publicly accountable companies. In addition, UK subsidiaries of group companies that apply full IFRS would be required to apply full IFRS in respect of measurement and recognition but with reduced disclosure requirements. The use of the FRSSE would be extended to include medium-sized entities. This would leave a ‘gap’ of approximately 7,000 companies that are larger than the medium-sized company threshold but which are not listed or otherwise publicly accountable.
The ASB has put forward for comment two possible uses of the new IFRS for SMEs:
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use it to replace the FRSSE
use it for the 7,000 company ‘gap’ category identified above. If the new IFRS for SMEs was used to replace the FRSSE then this would still leave the question as to the required accounting for the ‘gap’ companies. CIMA believes that if the new IFRS for SMEs standard can be so structured then we should strive for a simple two-tier structure, as follows: 1)
full IFRS of listed companies, other publicly accountable entities and UK subsidiaries of groups applying IFRS (with the latter group enjoying some relief from the full IFRS disclosure requirements)
2)
all other UK entities to use IFRS for SMEs with a mandatory fall back to full IFRS for anything not covered by the eventual IASB SME standard.
Of course, this will depend upon the exact nature of the proposed IFRS for SMEs and the current IASB timetable indicates that an exposure draft will be published in Q3 2006.
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