SMEs must wake up to realities of IFRS

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Nexia International survey reveals little appetite for early adoption

The introduction of a specific set of international financial reporting standards for SMEs – so-called IFRS-lite – has made IFRS potentially accessible to a wide range of companies around the world. But few SMEs have plans in place to adopt even this lighter version of IFRS before it becomes a mandatory requirement, according to a survey of European member firms by Nexia International, the global network of international accounting firms.

Speaking at Nexia International’s recent annual conference in Prague (its largest to date, with 220 delegates from 67 countries) Stephen Cooper of the International Accounting Standards Board said “IFRS for SMEs was created in response to strong international demand from both developed and emerging economies for a rigorous and common set of accounting standards for smaller and medium-sized businesses that is much simpler than full IFRS. In a recent survey, almost 60% of accounting standard-setters said they planned to require or permit the use of IFRS for SMEs within their jurisdiction in the next three years.”

Nexia International welcomed the IASB’s continued drive towards global standards and acknowledged the IASB’s efforts to drive these developments forward against a back-drop of action required on urgent issues arising as a consequence of the financial crisis.

IFRS specialist Eric Hutton of Nexia International member firm KroeseWevers in the Netherlands, who conducted the survey, said that the introduction of IFRS for SMEs was an important step in facilitating worldwide convergence by making the standards more “user-friendly” for the majority of companies. “It eases the way for national standard setters being comfortable with the introduction of an IFRS-based platform in place of their own”, he said.

According to its survey, a large majority (73%) of Nexia International members support the adoption of a common set of accounting standards for non-listed companies throughout Europe. But 38% think that entities in their country will not adopt IFRS until it is mandated by their respective national accounting standard setting body. The survey also raised doubts over the necessity of mandatory IFRS for the smallest SMEs – so called micro companies. Nearly a third of Nexia members believe that IFRS will not be of use to micro SMEs in their country.

The Nexia International members surveyed echoed the sentiments of the IASB on the benefits of the new IFRS for SMEs in providing a simplified, self-contained set of accounting standards and reducing the financial reporting burden. The standards will enable investors, lenders and other users to compare financial performance among SMEs.

Implementation of IFRS for SMEs in specific jurisdictions, especially those outside the EU, may prove to be just as challenging as the development of the standard itself.

“With less emphasis on fire-fighting the financial crisis, companies may now have more time to focus attention on the IFRS issue. Understanding the differences between IFRS and generally accepted accounting principles in any given country will be a significant challenge for many companies, with significant resource implications. There will be a number of new challenges for preparers and users of financial statements in the future that will change company accounts as we know them. It is important that finance teams address these issues at the earliest opportunity”, said Mike Bishop, Nexia International’s European chairman. “Nexia firms expect to be at the forefront of providing that support, using their expertise in IFRS and experience in those countries that have already adopted the standards”, he added.