Financial reporting relief in pipeline for SMMEs

Bongeka Nodada, financial reporting standards project director at the South African Institute of Chartered Accountants (SAICA), says that these long-awaited changes to the first set of international accounting requirements developed specifically for SMMEs, have been released for comment with a few, but significant simplifications which have been made to the standard.

"The revisions to the IFRS for SMEs have been proposed to address deficiencies in the implementation of the standard identified by users of this standard. These changes will also provide additional guidance, provide exemptions, simplify disclosures as well as to update it to be in line with other recently issued IFRSs which makes the IFRS for SMEs requirements easier to apply."

Details of revisions

Nodada states that in this year's consultation process, the International Accounting Standards Board (IASB) proposed, amongst others, that the following revisions be made to the IFRS for SMEs. These changes either clarify the current requirements or introduce a new requirement to simplify the accounting:

• Subsidiaries can be excluded from consolidation if they are acquired with the intention of selling or disposing within one year of purchase. This avoids any unnecessary time and effort.
  
• The 'undue cost or effort' exemption has been added in relation to the measurement of investments in equity instruments at fair value, recognising intangible assets separately in a business combination and offsetting income tax assets and liabilities. This means that if the cost or effort of measuring the instrument at fair value will exceed the benefit for the users, you will not have to comply with the requirement.
  
• Entities that cannot reliably estimate the useful life of an intangible asset or goodwill are permitted to apply a useful life of less than ten years.
  
• The IFRS for SMEs accounting for income taxes requirements have been aligned with full IFRSs which are viewed as much simpler than the current requirements in the IFRS for SMEs.
  
• Additional guidance on the accounting requirements for extractive activities has been provided.
  
• Similar to IFRSs, an entity will be permitted to become a first-time adopter of IFRS for SMEs more than once and hence apply the exemptions again when you do this.

Companies can also apply

In South Africa, the Companies Act of 2008 and the Companies Act Regulations 2011 which became effective from 1 May 2011, provides that companies with a public interest score below 350 may apply IFRS for SMEs provided that the scope requirements of the standard are met. Companies as defined in the Companies Act also encompass close corporations. Whilst companies also have the option to apply IFRSs, in most instances, IFRS for SMEs is often the preferred option as it is significantly simpler than IFRSs.

"South Africa was the first country in the world to adopt the Exposure Draft on the IFRS for SMEs for use by local companies, when it was issued by the (IASB) in 2007. As a consequence of early adopting the standard in South Africa, SAICA provided significant feedback to the IASB on the practical issues identified by local companies in implementing the standard, which helped shape the final IFRS for SMEs standard. The intention of the early adoption of the standard at the time was to provide immediate relief for limited interest companies under the then pending Corporate Laws Amendment Act of 2007," Nodada explains.

The IASB issued its guidance on applying the IFRS for SMEs for micro enterprises which deals with the sections of the IFRS for SMEs applicable to a typical micro enterprise. If considered necessary, consequential adjustments will be made to the SAICA electronic guide for applying IFRS for SMEs for micro enterprises for final changes made to the IFRS for SMEs.

Nodada encourages all SMMEs to voice their approvals or concerns with any of the requirements of the IFRS for SMEs. Comment can be made to the IASB until 3 March 2014.