IFRS

IFRS (International Financial Reporting Standards) standards, change the lives of small and medium-sized entities (SME's)

IFRS (International Financial Reporting Standards) standards, change the lives of small and medium-sized entities (SME's)

What is IFRS for SMEs?

The July 2009 release of International Financial Reporting Standards (IFRS) for Small and Medium-sized Entities (SMEs) is a major event in the adoption of international standards by U.S. companies. Since the AICPA's May 2008 recognition of the International Accounting Standards Board (IASB) as a standard-setting body, IFRS for SMEs automatically becomes an acceptable basis for accounting in the United States.

Prior to the release of IFRS for SMEs, professionals studying the U.S. adoption of IFRS generally concluded that public companies would lead the way in the U.S. adoption. However, since the SEC has made it clear other problems are more pressing right now, it is quite possible that private companies, not public ones, will lead the U.S. adoption of international standards.

The IASB intended IFRS for SMEs to be the acceptable standard that most companies would use. The standards setters envisioned that companies with public accountability would use full IFRS and all other for-profit entities would use IFRS for SMEs. The IASB defined public accountability to mean public companies and those holding assets in a fiduciary capacity for outsiders such as banks, credit unions, insurance companies, broker dealers and mutual funds. They defined SMEs as everyone else. Thus, their definition of “small and medium-sized entities” has little to do with size. A huge closely held company might fall under IFRS for SMEs while a small public company might be subject to full IFRS.

The IASB estimates that 95% of the world's for-profit entities would use IFRS for SMEs. The IASB acknowledged that legislatures and standard-setting bodies of each jurisdiction would make the decision about which entities would use each of the two IFRS standards. No international standards yet exist for not-for-profit entities.

Financial Statement Presentation

IFRS for SMEs specifies the following basic financial statements:

• Statement of Financial Position

• Statement of Comprehensive Income

• Statement of Changes in Equity

• Statement of Cash Flows

The standard also provides companies an alternative that allows them to show profit and loss on a separate statement from comprehensive income. In addition, when a company's only changes in equity are to retained earnings and dividends, they may combine the Statement of Changes in Equity with the Income Statement.

The current IFRS standards specify what must appear on financial statements, but not how companies must present them. Current IFRS will have little affect on US financial statement presentation. However, the current FASB/IASB's financial statement formatting joint project could completely remake financial statements as accountants worldwide know them today.

While not well known, despite a prominent article in the November 2008 Journal of Accountancy, this joint project would remake all of the basic financial statements used in the United States today. The project has been controversial, particularly in view that the Statement of Financial Position would no longer reflect a balanced “Assets = Liabilities and Equity” ...