Many countries are adopting IFRS for SMEs including the UK

Paul Pacter, the IASB's Director of Standards for SMEs, told me "I am trying to keep track of countries that are adopting the new accounting standard, IFRS for SMEs, and my count is up to 61 countries now that Egypt and Jordan have come on board. Not bad given the standard was issued only ten months ago."

My team of experts at UK Training have been closely monitoring these developments and look forward to a busy couple of years helping those organisations that will be required to implement the new standard. Peter Hughes, who leads the team, has been studying the impact that this new standard will have on global accounting and has prepared the following Briefing.

Stephen Smith, Managing Director, UK Training (Worldwide) Limited

Countries like Trinidad and Tobago, Sierra Leone, Botswana and Guyana have used full IFRS as their national basis of accounting for many years. Full IFRS in these countries supplements basic company law. The UK also has a basic company law framework governing company accounts. These basic legal requirements in the UK are supplemented by accounting standards issued by the Accounting Standards Board, although listed companies must use full IFRS.

There is a strong argument that full IFRS is unsuitable for the vast majority of companies. The 2002 Norwalk Agreement was aimed at harmonising US GAAP and full IFRS; the problem is that US GAAP is highly prescriptive and has grown up over 70 years in response to an increasingly complex business environment and litigious culture. Full IFRS has become more difficult to understand in recent years, especially in the realm of financial instruments, so the introduction of a new simplified standard for SMEs has been generally welcomed.  IFRS for SMEs is permissible in principle for unlisted companies in the US, though companies may need to check with their state boards of accountancy to determine the status of reporting on financial statements prepared in accordance with IFRS for SMEs within their individual state.

Many European countries, by contrast, have an accounting framework which is governed by detailed accounting laws. Those which are in the EU – as well as some which are not, such as Norway, Iceland and the countries which made up the former Yugoslavia – require listed companies to use full IFRS. Some, like Germany, think that the use of IFRS for SMEs by smaller companies would be unnecessarily complex compared to their existing accounting law.

The UK’s Accounting Standards Board responded quickly and issued a consultation paper which suggested that IFRS for SMEs should be adopted by medium-sized and large unlisted companies from 1 January 2012, with smaller companies continuing to use the Financial Reporting Standard for Smaller Entities.  It is now considering the 155 responses to the paper. The CBI says that the lack of choice in areas such as borrowing costs will lead to differences between full IFRS and the SME version, which will necessitate adjustments on consolidation. Deloitte & Touche point to the relatively short timetable for introduction, giving companies little time to prepare. BP would prefer an option of using full IFRS with reduced disclosure. We await further developments.

Peter has developed a half-day seminar, The Impact of the Proposed Changes to Financial Reporting in the UK, which helps people consider what they should be doing now to implement IFRS for SMEs for their UK financial reporting entities.