Updated IFRS for SMEs - 3rd edition

Updated IFRS for SMEs - 3rd edition

• 24 March 2025
• Financial Reporting
• South African Accounting Academy

Summary:

The International Accounting Standards Board (IASB) has issued a major update to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) Accounting Standard, which is currently required or permitted in 85 jurisdictions – which aims to balance the information needs of lenders and other users of SMEs’ financial statements with the resources available to SMEs.

Article:

The Standard defines SMEs as entities without public accountability that prepare general purpose financial statements - which are estimated to account for more than 95% of companies worldwide.

The IFRS for SMEs Accounting Standard reflects 5 types of simplifications from full IFRS Accounting Standards:

• some topics in full IFRS Accounting Standards are omitted because they are not relevant to typical SMEs, e.g. earnings per share, interim financial reporting and segment reporting;
• some accounting policy options in full IFRS Accounting Standards are not allowed because a more simplified method is available to SMEs;
• many of the recognition and measurement principles that are in full IFRS Accounting Standards have been simplified, e.g.
  • goodwill is amortised;
  • all borrowing and development costs are recognised as expenses;
  • the cost model is available for associates and jointly-controlled entities; and
  • undue cost or effort exemptions for specific requirements are available;
• substantially fewer disclosures are required (roughly a 90% reduction); and
• the text is written in ‘plain English’, so it is easier to understand and translate.

The update of this Standard is the outcome of a periodic comprehensive review of the Standard. Highlights include:

• a revised model for revenue recognition;
• bringing together the requirements for fair value measurement in a single location; and
• updating the requirements for business combinations, consolidations and financial instruments.

Andreas Barckow, Chair of the IASB, said that the update to the IFRS for SMEs Accounting Standard will improve the information provided to users of SMEs’ financial statements while maintaining the simplicity of the Standard.

This update is effective for annual periods beginning on or after 1 January 2027, with early application permitted.

The IASB will add supporting materials relating to the 2025 IFRS for SMEs Accounting Standard during 2025 and 2026.

The Basis of Conclusions (120 pages) also contains Illustrative Financial Statements, and can be downloaded at https://www.ifrs.org/content/dam/ifrs/publications/ifrs-for-smes/english/2025/ifrs-for-smes-bc.pdf.

Click here to download the 326-page Updated Standard:

https://www.ifrs.org/content/dam/ifrs/publications/ifrs-for-smes/english/2025/ifrs-for-smes.pdf

Relevance to Auditors, Independent Reviewers & Accountants:

• As a compiler, you need to comply with your client’s financial reporting framework, e.g. IFRS for SMEs, and thus you need knowledge of newly proposed and revised standards that are approved as well as when they become effective.
• As an auditor and independent reviewer, you need to evaluate your clients’ compliance with IFRS for SMEs, and thus you need knowledge of newly proposed and revised standards that are approved as well as when they become effective.
• As a practitioner, you should be aware of the latest publications providing guidance by relevant regulators and professional bodies, e.g. the Basis of Conclusions – which contains Illustrative Financial Statements in accordance with the updated IFRS for SMEs.
• This document clarifies the applicability of new IFRS Accounting Standards.

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