29 November 2007
International Accounting Standards Board
Mr. Paul Pacter
Director of Standards for SMEs
30 Cannon Street
London EC4M 6XH
United Kingdom
Subject: Comments on Exposure Draft International Financial Reporting Standard for
Small and Medium-sized Entities (IFRS for SMEs )(the ED)
Consejo Mexicano para la Investigación y Desarrollo de Normas de Información
Financiera (CINIF) the accounting standards setter body in Mexico, welcomes the
opportunity to submit our comments on the Exposure Draft (ED) of IFRS for Small
and Medium-sized Entitites.
GENERAL COMMENTS
Some of the following comments were made to you in our letter dated 29 June 2005
regarding our views on IASB’s “Staff Questionnaire on Possible Recognition and
Measurement Modifications for Small and Medium-sized Enterprises (SMEs).”
1. SMEs are undoubtedly very important in Mexico’s economy. If the ED is applied
in the country in accordance with its paragraphs 1.1 and 1.2 more than 95% of all
Mexican entities would be considered SMEs. Since the first Mexican accounting
standards commenced being issued, more than 40 years ago, a single set of
generally accepted accounting principles (now Financial Reporting Standards) has
been applicable and followed by all Mexican entities regardless of their size or
whether they have or not public accountability. For this reason we continue
strongly supporting the fact that the same recognition and measurement
requirements should be applicable to all reporting entities.
2. We believe that having two co-existing sets of accounting: i) will not make
accounting less complex for SMEs; ii) will generate confusion among issuers and
users of the financial information, iii) will difficult accounting education, and iii)
will not permit the proper comparison of the financial information of entities in
the same industry.
3. In accordance with our new framework which became effective in 1 January
2006, there are no basis to justify the application of different accounting
treatments to similar transactions and events based only in the size or type of the
1
entities, whether with public accountability or not, including those that are
consolidated or are part of an entity that does not qualify as a SME.
4. The definition in Mexico of an SME is based only on its size without considering
if it is quoted or listed in a capital or debt market or if it issues or not general
purpose financial statements for external users.
5. We believe that it is improper to have two sets of accounting rules based on
whether or not the entities have public accountability and publish general
purpose financial statements for external users. In Mexico there is a big number
of large non-publicly accountable entities that in accordance with paragraphs 1.1
and 1.2 of the IFRS for SMEs qualify as SMEs; notwithstanding, they have huge
and complex operations that certainly do not justify following different criteria for
measuring, valuing and recognizing their transactions applying rules different to
those followed by publicly accountable entities. Some of this non-public entities
are bigger and more complex than entities that in accordance with paragraphs 1.1
and 1.2 would be considered as publicly accountable entities.
6. A large number of entities in Mexico is integrated by small and medium-size
entities with owners without formal education in accounting and financing who
consider accounting as an evil necessary to comply with the Mexican tax law.
7. A cultural problem on accounting based on IFRSs exists in Mexico and as a result
there is only a very small group of experts on those standards, mainly within the
big accounting firms and very large entities. For this reason it is imperative to
modify the Mexican educational system on accounting. Also, the Mexican law on
mercantile corporations, banks and insurance entities and other legislation should
be amended to adopt IFRSs. The time frame for attaining these goals is unknown.
8. The Mexican Financial Reporting standards are written in plain Spanish thus not
creating any burden to the user to understanding them. The language used in such
standards is the one commonly used by the Mexican business community, and
therefore is known and understood by businessmen, accountants, auditors and
financial analysts. We believe that if IFRS for SMEs is issued, the only way it
might be useful in every country would be to have a translation into the plain
language of each country, based on the terminology commonly used by its
business community. For instance the translation into Spanish of IFRS for SMEs
contains many words used in Spain but with different meaning for the business
community in Mexico which makes very difficult the understanding of the IFRS
for SMEs.
9. Due to the situations discussed in the preceding paragraphs 1-8 it is not within the
plans of CINIF to issue a set of accounting rules for SMEs. We strongly believe
that these entities eliminate themselves the accounting standards that are not
applicable to them mainly because the situations contemplated by such rules are
not present in the SMEs. In some cases such as earnings per share and segment
2
reporting the Mexican financial reporting standards exempt non-publicly
accountable entities from applying those standards. Also, as you know CINIF is
in the process of adapting, not adopting, the full IFRSs with the purpose of
achieving full convergence by 2010. Before such convergence is attained it will
not be possible to adopt in Mexico IFRS for SMEs.
10. The definition of SME in paragraphs 1.1 and 1.2 of the ED does not indicate if
such definition is applicable or not to a subsidiary or affiliated company of a nonpublic entity and therefore it is not clear if such entities should or should not
apply the IFRS for SMEs.
11. We consider that the term “Fair Value” corresponds to the terminology used by
accountants, auditors, actuaries and analysts of the financial information and
should not be applied to small business. Furthermore, the “Fair Value” term used
in paragraphs 11.14, 11.15, 11.1 and 11.17 of the IFRS for SMEs seems to be
improper since it is difficult to consider it in a family-business environment, as it
is the case of many small and medium size entities in Mexico. We suggest that
instead, the term “Current Value” be used, meaning the estimated actual value
of the future cash flows associated to the corresponding asset or liability. This
concept may be based on market values or on specific data from the entity,
depending in the circumstances, which should be specified in every applicable
section of the IFRS for SMEs.
12. In our opinion in order not to provoke confusion it is very important that the final
IFRS for SMEs be both autonomous and self-sufficient avoiding cross references
to the full IFRSs. However, cross references to full IFRSs are made in the
following twenty four paragraphs of IFRS for SMEs: 7.9, 10.4, 11.1, 13.5, 14.10,
14.11, 15.5, 16.13, 17.16, 17.23, 19.15, 19.20, 23.3 (b), 24.4, 24.5, 25.4, 29.2,
29.3, 30.21, 31.1, 34.1, 35.1 (a), 37.1 and 37.2.
NO NEED TO SIMPLIFY STANDARDS FOR SMEs
1. We consider that the effort of simplification of recognition and measurement
issues for SMEs that is made in IFRS for SMEs is improper because:
a) Assets and liabilities have the same characteristics for all entities whether or
not publicly accountable entities.
b) Without consideration of not been publicly accountable entities SMEs have
the same capacity to enter into sophisticated transactions and complex
contracts, similar to those entered by publicly accountable entities.
c) Similar transactions whether entered by publicly accountable entities or SMEs
should be accounted for applying the same recognition and measurement
principles.
3
2. We do not see any justification for having SMEs using a simplified accounting
basis. Furthermore, in our opinion two different sets of accounting rules may
provoke confusion in both the issuers and the users of the financial information.
3. We strongly believe that simplification in the recognition and measurement of the
financial information by SMEs may and should be attained by reducing to these
entities, in the full IFRSs, the presentation and disclosure requirements in issues
such as financial instruments, earnings per share, segment reporting and
acquisition of business. By adopting this recommendation it would not be
necessary to prepare and issue a set of accounting rules for SMEs.
Exhibit 1 includes our responses to the eleven questions listed in your invitation to
comment. Exhibit 2 includes our specific comments to Sections 1–38 of the IFRS for
SMEs.
Should you require additional information on our comments listed above and in the
attached Exhibits 1 and 2, please contact me at 00-52-55-55965633 or 00-52-5555965634 or by e-mail at
fperezcervantes@cinif.org.mx with copy to acampana@cinif.org.mx
Sincerely,
C.P.C. Felipe Perez Cervantes
President of the Mexican Accounting Standards Board
Consejo Mexicano para la Investigacion y Desarrollo
de Normas de Informacion Financiera (CINIF)
4