International Federation of Accountants
IFRS for Private Entities (formerly IFRS for
SMEs)
Ali Cherif, Partner, Mazars, OECT
IFAC SMP Forum 2008
Abuja, Nigeria, October 13, 2008
Content
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Why an IFRS for Private Entities?
IFRS for SMEs ED
Next Steps
IASCF Training Materials for IFRS for PEs
Potential Use of IFRS for PEs
My Other Comments & Suggestions
Why an IFRS for Private Entities?
• Assist decision-making by financial statement users:
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Bank lending/monitoring & credit rating
Overseas customers & vendors
Non-management investors & foreign venture capital
Development institutions (African Development Bank etc.)
Improved comparability & quality of reporting
Ease burden (verses full IFRSs/full national GAAP)
Enhanced access to capital
Efficiencies in education & training and auditing
IFRS for SMEs Exposure Draft - Overview
• Simplified principles tailored for smaller, private
entities
• Based on full IFRSs with modifications based on:
– User needs
– Cost-benefit
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254 pages; organized by topic into 38 sections
Sample financial statements & disclosure checklists
Issued Feb. 2007: deadline for comment Nov. 2007
IFAC highly supportive of project
IFRS for SMEs ED - Objective
• General purpose financial statements for external
users (see above)
– Non-manager owners
– Existing & potential lenders, vendors, creditors, customers
– Credit rating agencies
• Understand and compare performance, financial
position, and cash flows
• Auditor opinion on fair presentation
IFRS for SMEs ED – Simplifications
• Five kinds of simplifications:
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Some IFRS topics omitted if irrelevant to private entities
Where IFRS has options, include only simpler one
Recognition and measurement
Reduced disclosures (400 verses 3000+ in IFRS)
Drafting
• Finding an answer:
– Number of cross-references to full IFRS
– Must try to find answers in IFRS for PEs
– May look in full IFRSs if answer not in IFRS for PEs
IFRS for SMEs ED – Comment Letters
• 162 comment letters ( 9 from Africa – 5 IFAC
member bodies, 2 regional organizations, 2 other)
• Key recommendations:
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Remove all cross references to full IFRSs
Do not anticipate changes to full IFRSs
Historical cost model should be default
Income taxes – taxes payable only?
Consolidation – reduce or eliminate
Amortize goodwill & other intangibles
Fair value – reduce and clarify
IFRS for SMEs ED – Comment Letters
• Key recommendations (cont..):
8. Pensions – measure at liquidation amount? Actuarial
gains/losses
9. Share-based payment – intrinsic value is not simpler
10. Leases – simplify calculations
11. Impairment – allow value in use
12. Debt-equity classification
13. Further disclosure simplifications
• IFAC’s comment letter made many of these.
IFRS for SMEs ED – Field Tests
• 116 small entities from over 20 countries
– Restated most recent annual financial statements using
IFRS for PEs
– Completed a questionnaire
• Very few PEs had problems applying the ED
• Main issues (few companies) were:
– Determining fair values
– Computing deferred taxes
– First time: Equity and cash flow statements
• Some doubts over rigor of field testing
Next Steps
• Staff analyses of comments / field tests complete
• Board deliberating staff recommendations Q2-Q4
2008
• Many staff recommendations declined for
example, elimination of deferred tax and options,
amortization of goodwill
• Final Standard: Vote end of 2008
• Effective: Whenever adopted locally
• Training materials: Mid-late 2009
IASCF Training Materials for IFRS for PEs
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Being developed by IASC Foundation
One module per section
Finish by mid/late 2009
Multiple languages
Free of charge!
IASCF train the trainers workshops
IFAC welcomes implementation support &
looking into how it can help deliver workshops
Potential Use of IFRS for PEs
• South Africa already adopted it word for word
• South African GAAP = full IFRS
• CEO of SAICA has said:
“It is very welcome. The standard in its current form already offers SMEs
real relief, and when the final standard comes it will be even better.”
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Likely many others in similar position will adopt
This does not mean standard is best solution
Much interest in EU – high demand for convergence
But signs of disappointment: EC will not adopt
My Other Comments & Suggestions
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Unlikely to be a solution for micro-entities:
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IFAC research suggests ED much too complex
Reconsider further simplifications
Make pure stand-alone
Use even simpler language
Conduct analysis of whether satisfies user needs as
part of post-implementation review