Ifrs for Smes

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Date Submitted: 04/14/2013 08:59 AM

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Small and medium-sized entities (SMEs) account for 99% of the world’s business concerns and perform an important role in the social and economic growth of a country. The United States and Europe alone have roughly 48 million SMEs which demonstrate their importance in the world economy. The complex requirements of full International Financial Reporting Standards may not be applicable to the needs of SMEs financial statement end users. After taking this into consideration, the International Accounting Standards Board (IASB) developed International Financial Reporting Standards (IFRS) for Small and Medium-sized Entities.

Small and medium-sized entities are defined by the IASB as those which:

a) do not have public accountability, and

b) publish general purpose financial statements for external users.

An entity does not have public accountability if debt or equity instruments of the entity are not traded in a public market or the entity is not in the process of issuing such instruments for trading in a public market. It also does not have public accountability if the entity does not hold assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. External users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies. Small and medium-sized entities are sometimes referred to as private entities and non-publicly accountable entities.

Conversation has been ongoing in the accounting society over whether or not there is a need for a separate set of standards for SMEs. In their article “Big GAAP/Little GAAP: Will The Debate Ever End?”, the authors state that before the first accounting standard had been written by FASB, a debate had begun about whether or not a single set of accounting standards for public and private companies should be issued. Although the United States never established a separate set of GAAP but allows private companies to follow...