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Accounting for SMEs

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Accounting for SMEsSmall and medium-sized entities (SMEs) make up more than 95% of all business entities and are generally subject to less complex financial reporting requirements.


EU Accounting Directive

Accounting requirements under the EU acquis communautaire are set out in the Accounting Directive approved in June 2013, which replaced the longstanding 4th and 7th Directives on Company Law.

The 2013 Directive seeks to improve the quality and comparability of information disclosed, and to modernize the terminology. It retains many options for Member States (MS) to select according to their national requirements. MS must have transposed the new requirements into national legislation by July 2015 and they must be in force for accounting periods commencing on or after 1 January 2016.

The specific needs of SMEs are at the heart of the new Directive, which follows a “think small first” approach – reducing unnecessary and disproportionate administrative costs for small businesses. MS must explicitly define a category of “small undertaking” for whom simplifications and exemptions apply. The preparation of financial statements has been simplified for small companies. The amount of information provided in the notes to the financial statements has been reduced and limited (i.e. no additional disclosures can be introduced by MS for small companies in addition to those disclosures that are listed in the directive), and MS can allow small companies to prepare only abridged balance sheets and profit and loss accounts. Small groups will be exempted from preparing consolidated financial statements. Any small company remains entitled to provide more information or statements on a voluntary basis. In Member States with a single filing system the Directive enables them to allow for information similar to tax returns to be prepared by small companies. There is no EU requirement for small companies to have an audit, but if a Member State sees the need for assurance the new Directive allows for a more proportionate approach.

The Directive also directly addresses the needs of the smallest “micro” entities. Member States are given the option to provide a number of reduced disclosures and certain recognition exemptions for ‘micro companies’”, for example for them to prepare only an abridged balance sheet and abridged profit and loss account and very limited disclosure notes.


IFRS for SMEs

The International Accounting Standards Board (IASB) produces International Financial Reporting Standards (IFRS), designed to be a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles. In the EU their use is limited to "Public interest Entities" (PIEs, read more about accounting for PIEs). Complying with the full IFRS involves significant costs with no clear corresponding benefits, and would be an excessive burden on smaller firms.

In 2009 the IASB introduced an IFRS for Small- and Medium-Sized Entities (known as the "IFRS for SMEs"). These can be adopted independently of the full IFRS and countries can set their own size thresholds for SMEs. However, even the simplified IFRS for SMEs impose a significant reporting burden, making them a relevant option mainly for medium-sized firms and for rapidly-growing enterprises that expect to adopt full IFRS in the future. IFRS for SMEs have not been adopted by the EU as they were assessed by the European Financial Reporting Advisory Group (EFRAG), an advisory body that takes part in the European endorsement process of IFRSs, to be incompatible with the EU Accounting Directive. EU MS have differing approaches to financial reporting and there is almost no flexibility built into IFRS for SMEs. However, there are fewer areas of incompatibility than under the previous Directives and the 2013 Directive contains a change allowing MS to permit or require IFRS for SMEs for all or some of their unlisted companies as long as the Directive is fully implemented and any incompatibilities between IFRS for SMEs and the Directive are resolved. Many countries, including Georgia, Bosnia and Herzegovina, Azerbaijan, Armenia and Macedonia, have adopted IFRS for SMEs and other countries in the ECA region are considering adopting the standard.

In 2013 the IASB published guidance for “micro” entities that are within the scope of the IFRS for SMEs, ie who do not have public accountability and either choose or are required by law in their jurisdiction to prepare general purpose financial statements in accordance with the IFRS for SMEs as issued in 2009, to identify the requirements that are relevant to them.



News


Recent developments/current issues


IFRS for SMEs
The IASB is conducting a comprehensive review of the IFRS for SMEs to consider whether there is a need for any amendments to the Standard to incorporate new and amended IFRSs, or to address issues identified by constituents. An exposure draft was published in 2013 and comments received until March 2014. After analysis and deliberation by the Board the review process is expected to be completed in 2015.



CFRR Resources


Presentations for download

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General material on financial reporting for SMEs

Reference material on the IFRS for SMEs

Video Presentations


Video presentation:
Michael Wells "Overview of IFRS for SMEs"

Michael Wells presents an overview of IFRS for SMEs1. Introduction of the event and speaker by John Hegarty
2. High level overview of the requirements of each of the 35 sections of IFRS for SMEs
3. Active Q&A session with participants

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Source: IFRS for SMEs: Financial Reporting Community of Practice GDLN, 28 April 2010




Video presentation:
Michael Wells "Scope and Concepts of IFRS for SMEs"

Michael Wells presents an scope and concepts of IFRS for SMEs1. Characteristics of SMEs
2. Public accountability definitions
3. Case study
4. Active Q&A session with participants

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Source: IFRS for SMEs: Financial Reporting Community of Practice GDLN, 28 April 2010




Video presentation:
Michael Wells: Tangible and Intangible Assets under the IFRS for SMEs

Michael Wells presents an overview of IFRS for SMEs

This session explains the treatment of assets in accordance with the IFRS for SMEs, including inventories; investment property; property, plant and equipment; intangible assets; and impairment of assets.

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Source: Second IFRS for SMEs Distance Learning Event, Financial Reporting Community of Practice, 11 November 2010





Video presentation:
Saskia Slomp "EFRAG and SME: Accounting in Europe"

Saskia Slomp - EFRAG and SME: Accounting in EuropeSaskia Slomp, Director of the European Financial Advisory Group (EFRAG)

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Source: Senior Officials meet for REPARIS Workshop, 26 - 27 May 2010, Chisinau





SME Financial Reporting

JoseMariaJosé Maria Bové Montero, Chairman, SME Working Party, European Federation of Accountants.

The justification for differential reporting in national jurisdictions; What is a small and medium-sized entity?; Implications for EU Member States and candidate countries

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PowerPoint Presentation

Source: Advanced Program 2006: Module 20



International Accounting Standards for SMEs

Paul PacterPaul Pacter, Director of Standards for SMEs, International Accounting Standards Board.

Why SME standards are needed; IASB's preliminary views and IASB definition of SME; Recognition and measurement questionnaire; Draft exposure draft.

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PowerPoint Presentation

Source: Advanced Program 2006: Module 20



Addressing Common Challenges in Accounting and Auditing on a Regional Basis

David NagyDavid Nagy, Consultant, Financial Management - Europe and Central Asia, World Bank

International financial architecture; Corporate financial reporting and the role of the World Bank; Country owned reform agenda - ROSC A&A - Strategy and Action Plans - REPARIS; Outcomes of the Ministerial Conference in Vienna and challenges ahead; Case studies: Bulgaria, Romania, Macedonia, and Bosnia and Herzegovina.

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PowerPoint Presentation

Source: Advanced Program 2006: Module 21


Obstacles Faced by SMEs in Applying Accounting Standards

Annette DavisAnnette Davis, Seconded National Expert, DG Internal Market, European Commission

EU law for limited liability companies; Unlisted companies: SME criteria; Unlisted companies: accounting requirements; SME exemptions and implementation; IASB SME project: Commission view, and EFRAG / FEE joint working group.

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PowerPoint Presentation

Source: Advanced Program 2006: Module 21


A case study - Slovenia: Addressing the Needs of SMEs and Other Stakeholders

Meta DuhonikMeta Duhovnik, Senior Technical Adviser, Slovenian Institute of Auditors.

Addressing the needs of the economy in line with the Fourth EU Company Law Directive.

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PowerPoint Presentation

Source: Advanced Program 2006: Module 21






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