The following points must not be allowed while accounting for SME’s:
The revaluation model for property, plant and equipment and intangible assets.
Proportionate consolidation for investments in jointly controlled entities;
Borrowing and development costs capitalization.
The need of the hour is to adopt a system which is less complex then the current IFRS. Topics not relevant to SME’s must be excluded and principles for recognizing and measuring assets, liabilities, income and expenses in full IFRSs must be simplified. Two examples of simplifications are amortization of goodwill, and accounting for investments in associates and joint ventures at cost. The number of disclosures is less (roughly 300 versus 3,000) and the standard is easy language. Revision of the IFRS has further been reduced to three years.
The International Accounting Standard board (IASB) published International Financial Reporting Standard (IFRS) for Small and Medium Sized Entities (SME’s) in July 2009.The measures and recognition criteria are simplified with fewer disclosures. However the entities which were publicly accountable will apply for EU adopted IFRS while public benefit firms would switch over to IFRS for SME’s
The simplification in IFRS for SME’s as compared to that of full IFRS included:
financial instruments with distinctive criteria are measured at amortised cost with all others measured at fair value through profit or loss
Amortization period for goodwill and other indefinite life was increased to over 10 years.
equity accounting of associates and joint ventures may be measured at cost
Joint venture entities are proportionately consolidated.
research ,development and borrowing costs are expensed
certain income tax accounting principles are consistent with the approach set out in the recent Exposure Draft issued by the IASB
residual values, useful lives, and depreciation/amortisation for property, plant and equipment and intangible assets will be reviewed only when a change may have occurred since the previous period.
investment property may be treated as property, plant and equipment that is measured at cost if fair value cannot be measured reliably without undue cost
Salvage of goodwill calculations simplified property, plant and equipment must be carried at cost.
The difference between full IFRS and the current IFRS for SME’s are:
Topics not significant to SMEs are absent.
Full IFRSs has simplified the principles for recognizing and measuring assets, liabilities, income and expenses.
Number of disclosures required is less.
Understanding and translation is easy
Revision is limited to three years.