Simplified International Financial Reporting Standards (IFRS) for non-publicly accountable entities
Following a long debate over whether the same financial reporting rules should be applied to both listed and unlisted entities, the IASB have developed a proposed IFRS for businesses that publish general purpose financial statements but that are not publicly accountable.
A positive move?
April Mackenzie, Executive Director Global Standards, Grant Thornton International comments:
"This is a very positive move. Good financial information is extremely important and beneficial. But there is a huge demand for a level of reporting less onerous than full IFRS for non-publicly accountable entities. The users of financial information in the non-publicly accountable sector don't have the same requirements as users of listed company financial statements. An internationally accepted approach to reporting by non-publicly accountable entities will also bring credibility to their financial statements because banks and other financial institutions will take comfort from the fact that they are following a recognised set of standards. The financial statements of many of our member firms' large private clients are used in more than one country so having the same set of standards globally can only be a benefit to them and to the increasingly global economy.
April adds: "It will of course be up to each individual jurisdiction to determine who applies the standard - whether it fits all sizes of company within the very broad non-publicly accountable category or whether larger private companies should use full IFRS. Public accountability is a good dividing line but size criteria could only be driven at the national level.
Getting the standard right
It is very encouraging to see a number of measurement and reporting differences between the full IFRS and the proposed SME standard. The proposed reduction in disclosures makes sense as well - many of the disclosures in full IFRS are relevant for analysts only and would consume a great deal of time and expense for SMEs. However it remains to be seen whether the Board have gone far enough to reduce the cost of reporting for non-publicly accountable entities. One area of interest is the extent of fair value measurement required in the proposed standard. For example, the proposals require fair value for financial instruments unless strict conditions are met. SMEs that make acquisitions would also need to fair value many intangible assets in the acquired business. Fair value has its place but it adds cost and complexity - it should not be widely imposed on SMEs.
I also believe that, as far as possible, the SME standard should be self-contained. In other words, a mandatory and wide-ranging fallback to full IFRS would cause problems. The benefits of simplified reporting will be much reduced if companies need to look to full IFRS every time they encounter an issue that isn't specifically dealt with. The approach in the draft standard looks to be a sensible compromise."
Grant Thornton International welcomes this important step towards a global standard for SMEs. Representatives of the organisation will be examining the proposal in detail in the coming weeks, and discussing its implications with the Grant Thornton member firms, before sending a formal response.
Ends
Notes to editors
April Mackenzie is Executive Director of Global Standards for Grant Thornton International and a member of the Standards Working Group (SWG), Global Public Policy Committee. As a member of the SWG, she advises the six largest international accounting networks on the development of common positions toward professional standards of accounting and auditing worldwide.
About the IASB
The International Accounting Standards Board is an independent, privately-funded accounting standard-setter based in London, UK. The Board members come from nine countries and have a variety of functional backgrounds. The IASB is committed to developing, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements. In addition, the IASB co-operates with national accounting standard-setters to achieve convergence in accounting standards around the world.
About Grant Thornton International
Grant Thornton International is one of the world's leading organisations of independently owned and managed accounting and consulting firms providing assurance, tax and specialist business advice to privately held businesses and public interest entities. The strength of each local firm is reflected in the quality of the international organisation. All Grant Thornton International member firms share a commitment to providing the same high quality service to their clients wherever they choose to do business.
Grant Thornton International is a non-practising international umbrella organisation and does not deliver services in its own name or otherwise. Each member and correspondent firm in Grant Thornton International is a separate national firm. These firms are not members of one international partnership or otherwise legal partners with each other (with the exception of certain limited instances), nor is any one firm responsible for the services or activities of any other.
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