International Financial Reporting Standards for SMEs

• Date: March 18, 2010
• Source: Admin

What is International Financial Reporting Standards for SMEs?

Promulgated and published by the International Accounting Standards Board on July 9 2009, the International Financial Reporting Standard (IFRS) has been designed for the use by small and medium-sized entities (SMEs).

Goal of IFRS for SMEs is to provide a modified and simplified version or interpretation of full IFRS so as to meet the needs of private company financial reporting users and provide a cost-benefit approach for easing the financial reporting burden on private companies. Known as a self-contained global accounting and financial reporting standard, IFRS for SMEs is applicable to the general-purpose financial statements of, and other financial reporting by, entities that in many countries are known as small- and medium-sized entities.

The standard is an outcome of five-year development process with extensive consultation of SMEs, which represent more than 95% of all companies worldwide.

What are Small- and Medium-Sized Entities ("SMEs")?

SMEs are entities that publish general purpose financial statements for external users and do not have public accountability. According to IASB’s definition, an entity has public accountability when it files, or is in the process of filing, its financial statements with a security commission or other regulatory organization for the purpose of issuing any class of instruments in a public market. Additionally, it bears accountability in case it holds assets in a fiduciary capacity for a broad group of outsiders. For instance, entities banks, insurance companies, pension funds, brokers and dealers in securities, and mutual funds hold assets in a fiduciary capacity.

IASB has developed IFRS for SMEs keeping in mind the necessity of accounting framework for entities that are small or medium in size and lack the resources to use full IFRS. In fact, in the United States, the term "SME" can cover many private companies.

How International Financial Reporting Standards for SMEs will Help SMEs

IFRS for SMEs promises to help small and medium sized companies to be more focused on shorter-term cash flows, liquidity, balance sheet strength, interest coverage and solvency issues.

While the full IFRS becomes a burden on SME preparers with its varied and extensive topics and detailed implementation guidance that generally are not relevant to SMEs, the IFRS for SMEs are more to-the-point and handy for the SMEs in terms of balancing the costs and benefits from a preparer perspective.

With IFRS for SMEs, many SMEs around the world, including private companies in the United States, will have the option of using a much simplified, IFRS-based accounting framework to prepare their financial statements.

To know more about IFRS for SMEs, join the webinar International Financial Reporting Standards for SME's . Register yourself for the webinar and become acquainted with the latest information regarding IFRS for SME’s and will include an opportunity to practice applying these standards.