U.S. SMEs should consider commenting on IASB's proposal for SMEs.

• Author: Morris, David
• Position: Financial reporting - International Accounting Standards Board - Small and medium sized companies

On June 18, the International Accounting Standards Board (IASB) announced that it was beginning field testing of its proposal on the accounting for small and medium-sized entities (SMEs) that had been issued earlier this year. The exposure draft (ED), a Proposed International Financial Reporting Standard for Small and Medium-sized Entities, is available on the IASB's website, www.isab.org.uk, along with comments that are due Oct. 1.

The press release quoted IASB Chairman Sir David Tweedie saying, "The field test will suggest how we can improve our proposals and identify areas for further simplification, if possible." IASB plans to use the field testing program to assess the scope, impact and burden of the proposed International Financial Reporting Standards (IFRS) for SMEs.

Overall, the IASB proposal is an attempt to develop a solution to the problems facing SMEs on how to deal with the sheer volume and undue complexity of existing international accounting standards. Most knowledgeable commentators believe that only the most sophisticated of entities can assemble the talent and resources necessary to adequately implement and apply, on an ongoing basis, the existing universe of international accounting standards.

There are over 25,000 pages of U.S. accounting guidance--including materials issued by the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants (AICPA) and the U.S. Securities and Exchange Commission (SEC)--as compared to the over 2,500 pages of international guidance published by IASB.

IASB's SME proposal, at slightly over 250 pages, is an attempt to reduce to a more manageable level the accounting guidance that SMEs must typically follow. IASB considers the typical SME to have approximately 50 employees with revenues and assets in the $10 million-to-$25 million range. While it is a proposed solution to the dilemma SMEs face, it is not the first "slice of the apple" in trying to solve this intractable problem and possibly not the best solution.

SME Solutions: Background

To understand this thinking, it is necessary to review some history. At its 17th annual session in July 2000, the Intergovernmental Working Groups of Experts on International Standards of Accounting and Reporting (ISAR) of the United Nations Conference on Trade and Development (UNCTAD) discussed the obstacles that SMEs faced in applying accounting standards that had been issued by various standard-setting bodies, both...