Early feedback on adoption of IFRS for SMEs.

• Author: Heffes, Ellen M.
• Position: Small and medium sized enterprises - International Financial Reporting Standards

Financial Executive recently conducted a preliminary online survey to gauge members' opinions on the International Financial Reporting Standard for Small- and Mid-Sized Entities, known as IFRS for SMEs. The new standard was created to be a shorter, more universal approach to financial reporting by international businesses.

While some companies may find it worthy of consideration--IFRS for SMEs was recently released July 9--there is potentially a lack of adequate information about the standard. This could explain companies' early hesitance to embrace the new standard, as indicated in the survey results.

Of the FEI study sample, 79 percent of participants stated they did not believe their company would adopt IFRS for SMEs. When asked if they had spoken to users of their financial statements about their willingness to adopt IFRS for SMEs, the majority, (60 percent) had not.

Several FEI members also provided feedback on their potential reservations about adopting the standard and what changes they would like to see. The most common concern reported regarding IFRS for SMEs was the inability to use LIFO (last-in, first-out) accounting. One respondent said that IFRS for SMEs would need some changes before it could be widely accepted by privately held companies. Aside from allowing LIFO accounting, it was noted that the disclosure of management compensation would need to be eliminated and the reversal of impairment charges could cause concern on the part of users.

In general, respondents seemed to agree that the reduced volume of disclosures could be beneficial if IFRS for SMEs were adopted. While many comments ranged from disinterest and uncertainty to outright denial of the value, there were other points of view. Among the notable comments:

"Interesting reading; looks like a reasonable approach to financial reporting."

"It's about time someone recognized the difference between public and private companies. FASB has not."

FEI's Committee on Private Company-Standards will make an effort to look for areas where FEI can provide educational information on IFRS for SMEs to private company members. If you have an interest in this subject, please contact Edith Orenstein, director, Accounting Policy Analysis and Marketing, at 973.765.1046 or eorenstein@financialexecutives.org.

Differences Between IFRS and U.S. GAAP

Separately, the August edition of KPMG's Issues in Depth offers a comprehensive view of IFRS for SMEs: "A Closer Look at IFRS for SMEs."

The...