IASB issued exposure draft on proposed amendments in IFRS for SMEs Accounting Standard (Part 1 of 3)

Background

• IFRS for Small and Medium enterprises (SMEs) Accounting Standard is developed out of the full IFRSs and is a simplified version of the same to reflect the needs of SMEs and users of their financial statements.
• • In 2009, the International Accounting Standards Board (IASB) issued first edition of IFRS for SMEs accounting standard.
• • In 2015, IASB post its first review of the standard along with second edition of standard with limited amendments.

Scope

• Primarily, the scope for the IASB’s second comprehensive review of the standard was:
• Amendments in full IFRS issued since its (IASB) first review of the IFRS for SMEs Accounting Standard.
• Requirements in full IFRS issued before its first review, but which were not considered in the previous
• amendment issued in 2015.
• IASB considered 9+ full IFRS Accounting Standards, 29+ minor amendments to IFRS Accounting Standards, and interpretations of the IFRIC (IFRS Interpretation Committee).

Proposed Amendments

Section 2 – Concepts and Pervasive Principles:

• The section sets out the concepts based on the old 1989 Framework for Preparation and Presentation of Financial Statements. Amendments propose alignment of the section with the new Conceptual Framework for Financial Reporting issued in 2018.
• The concept of ‘undue cost or effort’ has been retained, which continues to provide relief to the SMEs. It is an exemption in specified circumstances for SMEs where they are exempted from obtaining an information if incremental cost / additional efforts exceed the benefits to users of SMEs Financial Statements.

Section 19 – Business Combinations and Goodwill (Corresponding IFRS 3):

• The section sets out requirements for SMEs undertaking Business Combinations and is proposed to be amended in line with the latest version of IFRS 3 Business Combinations.
• A simpler definition of business with illustrative examples is intended to help the SMEs to check the applicability of Section 19.
• Now, every business combination has to be accounted for in accordance with the acquisition method rather than purchase method (which was provided earlier), which involves additional requirements as determination of the acquisition date and recognition and identification of the assets, liabilities and non-controlling interest among other requirements.
• Requirement for step-acquisition has been introduced whereby, if an entity holds a non-controlling interest in another entity immediately before the acquisition date, the former shall remeasure the previously held equity interest on its acquisition-date fair value and shall recognise the gain or loss in the Profit or Loss.
• The provisions with respect to contingent consideration have been clarified whereby, the acquirer shall account for acquisition date fair-value of the contingent consideration if it can be measured reliably without undue cost or efforts.

SW’s Remarks:
In the afore-mentioned update, we have covered the proposed amendments made in Section 2 and Section 19 of IFRS for SMEs. Amendments proposed in other sections will be covered in the further upcoming updates. Meanwhile, the exposure draft is open for comments till March 7, 2023 at “IFRS for SMEs”.

Nitin, Audit Associate, SW India

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