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IFRS for SMEs - will small businesses be able to cope?
The adoption of International Reporting Standards (IFRS) in the UK for Small and Medium Sized Enterprises (SMEs) should not prove too complicated for them says ACCA (the Association of Chartered Certified Accountants) following a successful field test of the proposed new accounting standard.
Despite the European Commissioner for Internal Markets and Services - Charlie McCreevy - rejecting these draft guidelines, ACCA tested the process with 25 SMEs to see how they would cope. Only five experienced minor problems with the draft standards and guidelines, produced by the International Accounting Standards Board (IASB) in February 2007.
The IASB are currently looking to simplify the Standard further and plan to introduce it in the first part of 2009 for adoption by SMEs. The results of the field texts have been submitted to the IASB and will play a part in the process to simplify the standard.
The field test examined how SMEs would find the transition from current arrangements to new international standards, and to assess:
- The extent of restatements required as a result of a move to the draft IFRS for SMEs
- The likely problems encountered in doing this
- Where more guidance in the exposure draft may be needed
- Where items could be omitted from this international accounting standard
The overall picture from the field testing is that the transition did not create significant problems for this sample. In 20 out of 25 cases, the preparation of the new SME accounts was considered to raise none or only minor issues.
The SMEs found only a few differences between their current reporting methods and the new IFRS, including goodwill amortisation, the need to prepare consolidated accounts, restating investments to fair value and government grants. The SMEs were also unsure about requirements concerning financial instruments and when fair value should be used.
Professor Robin Jarvis, head of ACCA's Small Business Unit, says: 'Completing and filing full accounts is a highly specialised job, even under current regulations. What we found is that for SMEs, following new international standards was not that problematic; the main hurdle was the inclusion of a cash flow statement, although this did not cause major problems. The SMEs and their ACCA advisers were able to simply work their way through the test.
'However, the main problem was the lack of clarity of the requirements under the IFRS for SMEs for financial instruments. But in general the field testers felt at ease with UK adoption of an IFRS for SMEs if and when it is introduced.'
Professor Jarvis concluded: 'When IFRS for SMEs eventually comes to the UK, our field testers said they would feel even more at ease if IT software were available in good time and if implementation guidelines were made available with examples for them to follow. Which ACCA believes is only a relatively small hurdle for SMEs to leap over. The reality of the testing proves that the future will not be as tangled up in red tape as believed by some commentators.'