Impact of IFRS on SMEs in the UK

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Name of Writer

Name of Institute

DateImpact of IFRS on SMEs in the UK

Introduction

Background

The International Financial Reporting Standard (IFRS) for Small and Medium Sized-Entities (SMEs) was published as an exposure draft by the IASB in February 2007, and was designed for companies with no public accountability. Public accountability would exist where a company's shares or debt were listed on a public exchange or that the company was a financial institution with fiduciary responsibilities. Whilst it will be up to each jurisdiction to decide the scope of application, the IFRS for SMEs (IFRS FOR SME) could be applied by a large range of privately held entities. Given this huge potential number of entities to which the future standard might apply and their economic significance, the development of a future standard for SMEs is probably the most important project that IASB are currently engaged upon.

The exposure draft of IFRS for SME is based on the full IFRS but with fewer disclosure requirements, some simplifications of measurement but few if any recognition differences. In the UK the Accounting Standards Board (ASB) has indicated that this standard might replace the existing UK accounting standards for all such companies, that is those without public accountability, with the possible exceptions of very large (as yet undefined) private companies and of subsidiaries in groups preparing IFRS consolidated financial statements. For those companies that can use the Financial Reporting Standard for Smaller Entities (FRSSE), ASB have not decided whether to require them to use the IFRS FOR SME or continue with the FRSSE as a separate system.

Objectives

As well as asking for comments on the exposure draft itself, the IASB further invited respondents to carry out surveys and field tests with regards to the potential impact of the exposure draft on preparers and users of financial statements of SMEs. In late 2007 ACCA commissioned five members in practice based in the UK to carry out field tests on a sample of five of their clients each.

This was with the aim of assessing

• the extent of restatements required as a result of transitioning to the IFRS FOR SME

• problems encountered with so doing

• where more guidance in the exposure draft may be needed

• rarely occurring items or treatments which might be omitted from the standard. The IASB questionnaires completed by respondents, along with the financial statements under both, UK GAAP, and the IFRS for SME version, have been submitted to the IASB, for use as part of their overall analysis. The answers to the questionnaires were completed by the accountants in relation to their clients. They had not asked the clients to fill them in.

The sample of entities surveyed

Summary of participating entities

The total number of entities for which completed questionnaires and financial statements were received was 25. They constituted a reasonably representative sample of UK businesses. However their profile would not be the same as UK companies as a whole - they would on ...