Accounting standard updates: SME standards updates, what does it all mean?

23 Nov 2023
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The International Accounting Standards Board (IASB) has proposed updates to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) to align it with recent IFRS Accounting Standards like IFRS 9 and IFRS 15. These updates aim to reduce differences from full IFRS Accounting Standards while maintaining simplicity for small businesses.

In September 2022, the IASB commenced its second comprehensive review of the IFRS for SMEs, publishing the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard (Exposure Draft) as part of this review. Over the next six months, the draft was open for comments, and in June 2023, the feedback essential for finalising the updates was presented. 

Why have the accounting standards been updated?


Tailored to meet the capacities of small and medium-sized enterprises (SMEs) and the financial reporting demands of their stakeholders, IFRS for SMEs diverges from full IFRS by offering a more concise and simplified framework. For example, in IFRS for SMEs, topics that are not relevant to private entities are omitted, or where IFRSs have alternatives, standards for SMEs typically include only simpler options. Also, recognition and measurement are simplified and disclosure requirements are reduced.

The IFRS Board follows the practice of updating the standards via periodic reviews and when considering potential amendments to the standards for SMEs, it applies the following three alignment principles: 

  • Relevance to SMEs,
  • simplicity,
  • and faithful representation.

The first review was completed in 2015, while the second was started in 2019 when the Board asked for feedback on broad topics, including the framework for the review and the sections that could be updated to reflect improvements made to all IFRS accounting standards.

This feedback helped the Board arrive at the proposal of the Third Exposure draft. The updates are introduced to enhance information in the financial statements of SMEs and to reflect improvements made in the IFRS Accounting Standards while keeping the standards simple for small businesses who are providing useful information to the users of their financial statements.

What are the key updates? 


While the first review resulted in a limited number of modifications, the changes from the latest review are more significant. 

For example, the updates include a revised section on revenue to simplify the requirements of IFRS 15 Revenue from Contracts with Customers by introducing a framework that requires revenue to be recognised when the customer gains control of the good or service. 

This framework draws upon the five-step model in IFRS 15 but is streamlined and includes a transition relief allowing SMEs to maintain their current revenue recognition policies for contracts already in progress.

Additionally, there is an update that simplifies the IFRS 13 Fair Value Measurement, while other revisions affect IFRS Standard 3 on Business Combinations, IFRS 9 on Financial Instruments, IFRS 10 on Consolidated Financial Statements, and IFRS 11 Joint Arrangements.

The latest modifications are also designed to reflect improvements from the 2018 Conceptual Framework for Financial Reporting by introducing new concepts on measurement, presentation, disclosure, and guidance on derecognition. The changes intend to update definitions and recognition criteria for assets and liabilities and provide clarity around key accounting concepts such as prudence, stewardship, and measurement to help small businesses apply judgment in creating accounting policies when the Standard does not specify requirements.

In September 2023, the IASB also published 'International Tax Reform—Pillar Two Model Rules Amendments to the IFRS for SMEs Accounting Standard. They are based on the amendments to IAS 12 Income Taxes, introduced in May 2023 on the back of the OECD Pillar Two model rules. This change seeks to provide SMEs with the same temporary relief granted to companies applying full IFRS Accounting Standards while ensuring that users of SMEs' financial reports receive the necessary information.

How can SMEs adapt to these changes in accounting standards? 


While the IFRS landscape may appear intricate, SMEs have strong incentives to embrace IFRS and stay current with all updates. Firstly, those that do, will typically have better access to capital, as investors and lenders tend to prefer standardised financial reporting aligned with international norms. Additionally, adherence to IFRS enhances comparability, allowing investors to evaluate and compare the financial performance of different small businesses.

Recognising small businesses' unique challenges when adopting IFRS, the Board set up the SME Implementation Group, providing a platform where SMEs can seek guidance and clarification through the Implementation Q&As.

A wealth of resources is available to support SMEs in their journey towards IFRS compliance, including IASB training materials and commercial training programs. These resources are designed to facilitate the understanding and application of IFRS standards, enabling small businesses to tackle the complexities of international financial reporting with confidence.

How HLB can help 


Navigating the ever-evolving landscape of IFRS can be a challenge, especially for SMEs. HLB Global is here to support you every step of the way, ensuring that you have the guidance and expertise needed to make informed decisions in this dynamic environment.

We assist a number of SMEs just like you with IFRS implementation, providing expert IFRS advisory services and offering access to a wealth of IFRS e-learning resources and a comprehensive standards library so they can confidently navigate the complex world of IFRS.


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