IFRS for SMEs
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IFRS for Small and Medium-sized Entities
A self-contained, simplified accounting standard developed by the IASB for entities without public accountability.
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Conceptual Framework Linkage
Cost-benefit as an organising principle
Full IFRS is designed for entities with public accountability, where the volume and complexity of disclosure serves capital market participants with diverse, sophisticated information needs. For SMEs, whose users typically have DIRECT ACCESS to management and narrower information needs, the FULL cost-benefit balance shifts – the IFRS for SMEs Standard deliberately simplifies recognition, measurement, and disclosure to reduce preparation burden without abandoning the underlying qualitative characteristics of useful financial information.
A genuinely standalone Standard, not a "lite" cross-reference
The IFRS for SMEs Standard is a SELF-CONTAINED document – an entity applying it does not need to refer back to full IFRS Standards for its day-to-day accounting. It is organised in 35 numbered sections (a fundamentally different structure from the individually numbered IAS/IFRS Standards), each addressing a specific topic area.
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Scope & SME Definition
Defined by absence of public accountability, not by size
An entity is an SME, for purposes of this Standard, if it does NOT have public accountability and it PUBLISHES general purpose financial statements for external users. Public accountability exists if the entity's debt or equity instruments are traded in a public market (or it is in the process of issuing such instruments), OR it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses (e.g. banks, insurers, brokers).
Notably, the Standard does NOT set quantified size thresholds (revenue, assets, employees) itself – individual jurisdictions adopting the Standard often layer their own size criteria on top when incorporating it into local law.
Subsidiaries of listed groups
A subsidiary whose PARENT uses full IFRS Standards in its consolidated financial statements is not thereby prevented from using the IFRS for SMEs Standard in its OWN financial statements, provided the subsidiary itself does not have public accountability.
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Structure – 35 Sections Overview
Broad topic groupings
Section rangeBroad topic area
Sections 1–8Concepts, pervasive principles, and general financial statement presentation
Sections 9–19Consolidated/separate financial statements, accounting policies, financial instruments, inventories, investments, PP&E, investment property, intangibles/goodwill, leases, provisions
Sections 20–29Leases, provisions and contingencies, equity, revenue, government grants, borrowing costs, share-based payment, impairment, employee benefits, and income tax
Sections 30–35Foreign currency translation, hyperinflation, events after the reporting period, related party disclosures, specialised activities, and transition
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Key Simplification Philosophy
Where the Standard consistently diverges from full IFRS
Fewer available accounting policy CHOICES than full IFRS Amortisation of goodwill and other intangibles with indefinite useful life, rather than the annual impairment-only model Simplified financial instrument classification (Sections 11–12), avoiding much of IFRS 9's complexity Reduced disclosure volume throughout (see Section 10) Topics NOT addressed at all where irrelevant to typical SMEs (e.g. earnings per share, interim financial reporting, segment reporting are omitted)
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Financial Statement Presentation
A familiar set of statements, presented more simply
A complete set of financial statements comprises a STATEMENT OF FINANCIAL POSITION (SOFP), a STATEMENT OF PROFIT OR LOSS (SOPL) – with an option to present a single combined statement of comprehensive income where OCI items exist – a STATEMENT OF CHANGES IN EQUITY, a STATEMENT OF CASH FLOWS, and NOTES. The structure closely parallels IAS 1's requirements but with a smaller mandatory disclosure set.
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Goodwill & Intangibles – Mandatory Amortisation
The single most-cited divergence from full IFRS
Unlike full IFRS (IAS 36/IFRS 3), where goodwill and indefinite-life intangibles are NOT amortised but tested for impairment annually, the IFRS for SMEs Standard requires ALL intangible assets, including goodwill, to be AMORTISED over their useful lives. If an entity is unable to make a reliable estimate of the useful life, the life is presumed NOT to exceed 10 YEARS. This avoids the cost and judgement burden of annual impairment testing.
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Financial Instruments – Sections 11/12
A two-tier approach avoiding IFRS 9's full complexity
Section 11 (Basic Financial Instruments) covers straightforward instruments – most trade receivables/payables, bank loans – generally measured at AMORTISED COST. Section 12 (Other Financial Instrument Issues) covers more complex instruments (derivatives, hedge accounting), generally measured at FAIR VALUE through profit or loss. This structure avoids IFRS 9's full expected-credit-loss impairment model and complex classification categories.
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PP&E, Investment Property & Borrowing Costs
PP&E and investment property
PP&E follows the cost model, largely consistent with IAS 16. Investment property is measured at FAIR VALUE THROUGH PROFIT OR LOSS if fair value can be measured reliably without undue cost or effort – otherwise, the entity falls back to the PP&E cost model. This differs from full IFRS's IAS 40, which offers a genuine free choice between the cost and fair value models.
Borrowing costs
Unlike full IFRS (IAS 23), which REQUIRES capitalisation of borrowing costs directly attributable to qualifying assets, the IFRS for SMEs Standard requires ALL borrowing costs to be EXPENSED as incurred – a deliberate simplification removing an area of judgement.
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Income Tax & Business Combinations
Broadly aligned, with narrower guidance
Income tax (Section 29) follows a temporary-difference deferred tax approach broadly consistent with IAS 12's core mechanics. Business combinations (Section 19) require the PURCHASE method, consistent with IFRS 3, but with simpler guidance – and resulting goodwill is amortised rather than tested only for impairment.
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Disclosure – Reduced Volume
A deliberately lighter disclosure footprint
Disclosure requirements throughout the Standard are substantially REDUCED relative to full IFRS – reflecting that SME users typically have more direct access to supplementary information from management, reducing their reliance on extensive note disclosure. Areas with the most significant reduction include financial instruments, employee benefits, and share-based payment.
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Worked Example – Goodwill Amortisation
Contrasting the SME and full IFRS outcomes
Example: Goodwill following an acquisition, useful life not reliably estimable
An SME acquires a business, recognising goodwill of $900,000. Management cannot make a reliable estimate of goodwill's useful life.
Under the IFRS for SMEs Standard, the useful life is PRESUMED not to exceed 10 years – the SME amortises $90,000 per year on a straight-line basis. Under FULL IFRS (IFRS 3/IAS 36), the same $900,000 would instead remain UNAMORTISED and be tested for impairment annually – potentially remaining at $900,000 indefinitely if no impairment is triggered.
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Transition to the IFRS for SMEs Standard
A dedicated transition section (Section 35)
An entity adopting the IFRS for SMEs Standard for the first time applies Section 35, which – much like IFRS 1 for full IFRS – generally requires FULL RETROSPECTIVE application, subject to specified mandatory exceptions and optional exemptions designed to ease the transition.
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IFRS for SMEs vs Full IFRS vs US GAAP
Comparison across three frameworks
FeatureIFRS for SMEsFull IFRSUS GAAP (with PCC alternatives)
GoodwillAmortised (≤10yr presumption)Impairment-only, never amortisedUS private companies MAY elect to amortise goodwill over 10 years
Borrowing costsAlways expensedCapitalised for qualifying assetsCapitalisation generally required
Structural approachSingle, self-contained 35-section StandardMany separate numbered StandardsNo single "SME" codification
The PCC's targeted alternatives represent a philosophically similar but STRUCTURALLY different approach: the US opted to bolt private-company relief onto its single GAAP codification, rather than issue a fully separate, self-contained standard.
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Glossary
Public accountability
The defining scope test for the IFRS for SMEs Standard – an entity has public accountability if its debt/equity trades in a public market, or it holds assets in a fiduciary capacity for a broad group of outsiders.
Undue cost or effort
A recurring threshold throughout the Standard permitting a fallback to a simpler treatment where the cost of applying a requirement would clearly outweigh the benefit to users.
Section (vs Standard)
The IFRS for SMEs Standard's internal organisational unit – 35 numbered Sections within one document.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows