Which entities should use IFRS for SMEs | What is an SME ?
Note: Public Accountability Companies use full IFRS while SME companies use partial IFRS or IFRS for SME.
What is an SME?
There is no universally agreed definition of an SME( small- or medium-sized enterprise). No single definition can capture all the dimensions of a small- or medium-sized enterprise, nor can it be expected to reflect the differences between firms, sectors, or countries at different levels of development.
Most definitions based on size use measures such as number of employees, balance sheet total, or annual turnover. However, none of these measures apply well across national borders. IFRS (International Financial Reporting Standard) for SMEs is intended for use by entities that have no public accountability (ie, their debt or equity instruments are not publicly traded).
Ultimately, the decision regarding which entities should use IFRS for SMEs stays with national regulatory authorities and standard-setters. These bodies will often specify more detailed eligibility criteria. If an entity opts to use IFRS for SMEs, it must follow the standard in its entirety – it cannot cherry pick between the requirements of IFRS for SMEs and the full set.
The IASB makes it clear that the prime users of IFRS are the capital markets. This means that IFRS are primarily designed for quoted companies and not SMEs. The vast majority of the world’s companies are small and privately owned, and it could be argued that full International Financial Reporting Standards are not relevant to their needs or to their users. It is often thought that small business managers perceive the cost of compliance with accounting standards to be greater than their benefit.
Because of this, the IFRS for SMEs makes numerous simplifications to the recognition, measurement and disclosure requirements in full IFRS.
Examples of these simplifications are:
- Goodwill and other indefinite-life intangibles are amortised over their useful lives, but if useful life cannot be reliably estimated, then 10 years.
- A simplified calculation is allowed if measurement of defined benefit pension plan obligations (under the projected unit credit method) involve undue cost or effort.
- The cost model is permitted for investments in associates and joint ventures.
Please note that full International Financial Reporting Standards (IFRS) may be used for public accountability companies only.
Reference: ACCA , Phnom Penh HR