27 January 2013
Muscat: The introduction of the new international financial reporting standards (IFRS) for small and medium-sized enterprises (SMEs) is bound to transform business reporting models across the world.
It is estimated that 95 per cent of business entities the world over will fall under the classification of SMEs, said David Chitty, International Director for Audit and Accounting Services at Crowe Horwath International.
In the Sultanate, a small company is defined as a business entity with less than nine employees whereas a medium-sized company has nine to ninety-nine employees. According to official statistics, there are some 120,000 SMEs in Oman, contributing almost 20 per cent of the gross domestic product of the country.
The IFRS for SMEs has been adopted or has significantly influenced reporting by SMEs in more than 50 countries. The IFRS for SMEs is the first international accounting requirements to be developed specifically for SMEs by the International Accounting Standards Board (IASB).
It is a stand-alone product formed from a full set of the IFRS and has been simplified to reflect the needs of users of SMEs' financial statements, added Chitty, who was on a short visit to Oman as part of a peer-review programme for its Oman affiliate.
Compared to the full IFRS, it is less complex in several ways. Numerous topics that are not relevant for SMEs have been omitted. The full IFRS allows accounting-policy choices whereas the IFRS for SMEs allows only easier options. Many of the principles for recognising and measuring assets, liabilities, income, and expenses in the IFRS are simplified.
Significantly fewer disclosures are required, which is a great relief to these business entities.
The development of the IFRS for SMEs has been supported by institutions that promote the growth of SMEs and that provide support and finance to them, added Davis Kallukaran, Managing Partner of Crowe Horwath Muscat.
Financial statements prepared under the IFRS for SMEs are more credible than statements prepared without standards. Thus, SMEs will be able to present reliable financial information to their business partners and finance providers.
Applicability
Kallukaran said the international accounting standards are used in more than 100 countries. However, the decision on which entities are required or permitted to use the IASB standard on SMEs rests with legislative and regulatory authorities and standard setters in each country.
According to Chitty, the definition of SMEs does not include quantified size criteria. These standards are suitable for all entities except those whose securities are publicly traded and financial institutions such as banks and insurance companies. According to the IASB, SMEs are entities that do not have public accountability and that publish general-purpose financial statements for external users.
Chitty added that the IFRS for SMEs does not require the presentation of segment information, earnings per share, or interim financial reporting. Further, there are significant changes in the treatment of certain items of financial statements, such as the amortisation of all indefinite life intangibles, including goodwill and recognising as expense both borrowing costs and research and development costs.
A different treatment is also given to the recognition of actuarial gains and losses and foreign-exchange differences. Again, some accounting treatments permitted under the full IFRS have been removed from the new standards. For instance, the revaluation option for property, plants, and equipment is not permitted.
Similarly, the revaluation option for intangibles is also not allowed. With regard to financial instruments, the standard has dropped the available instruments for sale and held to the maturity categories given in IAS 39.
The fair-value option is not permitted. However, this standard allows the entities to choose to apply IAS 39 in its entirety, instead of applying the financial-instrument requirement in the IFRS for SMEs. This is the only fallback option to the full IFRS in the entire IFRS for SMEs model.
One interesting aspect is that a subsidiary whose parent uses the full IFRS, or is part of a consolidated group that uses it, is not prohibited from using these IFRS in its own financial statements, so long as that subsidiary, by itself, does not have public accountability.
If its financial statements are described as conforming to the IFRS for SMEs, it must comply with all the provisions of these IFRS.
Muscat: The introduction of the new international financial reporting standards (IFRS) for small and medium-sized enterprises (SMEs) is bound to transform business reporting models across the world.
It is estimated that 95 per cent of business entities the world over will fall under the classification of SMEs, said David Chitty, International Director for Audit and Accounting Services at Crowe Horwath International.
In the Sultanate, a small company is defined as a business entity with less than nine employees whereas a medium-sized company has nine to ninety-nine employees. According to official statistics, there are some 120,000 SMEs in Oman, contributing almost 20 per cent of the gross domestic product of the country.
The IFRS for SMEs has been adopted or has significantly influenced reporting by SMEs in more than 50 countries. The IFRS for SMEs is the first international accounting requirements to be developed specifically for SMEs by the International Accounting Standards Board (IASB).
It is a stand-alone product formed from a full set of the IFRS and has been simplified to reflect the needs of users of SMEs' financial statements, added Chitty, who was on a short visit to Oman as part of a peer-review programme for its Oman affiliate.
Compared to the full IFRS, it is less complex in several ways. Numerous topics that are not relevant for SMEs have been omitted. The full IFRS allows accounting-policy choices whereas the IFRS for SMEs allows only easier options. Many of the principles for recognising and measuring assets, liabilities, income, and expenses in the IFRS are simplified.
Significantly fewer disclosures are required, which is a great relief to these business entities.
The development of the IFRS for SMEs has been supported by institutions that promote the growth of SMEs and that provide support and finance to them, added Davis Kallukaran, Managing Partner of Crowe Horwath Muscat.
Financial statements prepared under the IFRS for SMEs are more credible than statements prepared without standards. Thus, SMEs will be able to present reliable financial information to their business partners and finance providers.
Applicability
Kallukaran said the international accounting standards are used in more than 100 countries. However, the decision on which entities are required or permitted to use the IASB standard on SMEs rests with legislative and regulatory authorities and standard setters in each country.
According to Chitty, the definition of SMEs does not include quantified size criteria. These standards are suitable for all entities except those whose securities are publicly traded and financial institutions such as banks and insurance companies. According to the IASB, SMEs are entities that do not have public accountability and that publish general-purpose financial statements for external users.
Chitty added that the IFRS for SMEs does not require the presentation of segment information, earnings per share, or interim financial reporting. Further, there are significant changes in the treatment of certain items of financial statements, such as the amortisation of all indefinite life intangibles, including goodwill and recognising as expense both borrowing costs and research and development costs.
A different treatment is also given to the recognition of actuarial gains and losses and foreign-exchange differences. Again, some accounting treatments permitted under the full IFRS have been removed from the new standards. For instance, the revaluation option for property, plants, and equipment is not permitted.
Similarly, the revaluation option for intangibles is also not allowed. With regard to financial instruments, the standard has dropped the available instruments for sale and held to the maturity categories given in IAS 39.
The fair-value option is not permitted. However, this standard allows the entities to choose to apply IAS 39 in its entirety, instead of applying the financial-instrument requirement in the IFRS for SMEs. This is the only fallback option to the full IFRS in the entire IFRS for SMEs model.
One interesting aspect is that a subsidiary whose parent uses the full IFRS, or is part of a consolidated group that uses it, is not prohibited from using these IFRS in its own financial statements, so long as that subsidiary, by itself, does not have public accountability.
If its financial statements are described as conforming to the IFRS for SMEs, it must comply with all the provisions of these IFRS.
© Times of Oman 2013
