Putting your private company wheels in motion IFRS for SME.

• Author: Lawson, Jason

As a CFO of a small or medium-sized entity (SME), it's a never-ending battle to stay current with financial regulations and keep your company compliant. So far, you've maneuvered these difficult economic times by working longer hours and more efficiently. In your limited spare time, you've discussed, downloaded, webcasted or somehow heard about. International Financial Reporting Standards, including those relevant, for private companies--IFRS for SME.

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If you've gotten this far, you have accepted (willingly or not) that the world is migrating toward IFRS and away from local GAAPs, possibly including U.S. GAAP You also may have plenty of websites, downloads and educational offerings to help you understand what IFRS means for your company.

Putting Keyboard to Spreadsheet

Before asking your local banker to look into amending your credit facility to allow for IFRS for SME financial statements, consider some typical line items on your existing U.S. GAAP income statement and balance sheet (see Exhibit 1).

Exhibit 1 Will my Credit Facility covenants be affected? Your Company EBITDA Debt-to-Equity Sales of goods and Probably not Probably not trade receivables Cost of sales and Maybe Probably not inventories Salaries Probably not Probably not Long-term leases Possibly Possibly Goodwill Yes Yes Intangible assets Possibly Possibly Then consider potential differences in those line items you have thought about and now wish to keyboard to your spreadsheet.

Sale of goods and trade receivables: Assuming you sell goods without much complexity to the terms or duration, the accounting for sales and trade receivables will probably be the same as it was under U.S. GAAP (Sec. 23, IFRS for SME).

Cost of sales and inventories: If you're a retailer that uses last in, first out as one of your methods to determine inventory cost, tins would no longer be allowed under IFRS. If you're using first in, first out, weighted average or similar method, you probably will not have much of a difference under IFRS for SME. (Sec. 13, IFRS for SME).

Salaries and employee benefits: Assuming these are basic compensation arrangements without a defined benefit plan or share-based compensation, you probably have no material differences when adopting IFRS for SME (Sec. 28, IFRS for SME).

Long-term leases (from a lessee's perspective): Under IFRS for SME, the factors to consider for capitalizing leased assets are the same in substance but different in "bright-line"...