IFRS for SMEs: Views of IFAC CAPA Osaka Conference, Osaka, October 5, 2007 Sylvie Voghel Chair, IFAC Small and Medium Practices Committee

1 General Observations SME and SMP topping agendaSME and SMP topping agenda Concerns over regulatory overloadConcerns over regulatory overload Standards lack relevance to SME/SMP…Standards lack relevance to SME/SMP… …and SME/SMP lack ability to efficiently comply…and SME/SMP lack ability to efficiently comply IFAC SMP CommitteeIFAC SMP Committee Ensure standards reflect SME/SMPEnsure standards reflect SME/SMP Succinct, relevant, understandable guidanceSuccinct, relevant, understandable guidance

2 IFRS for SMEs Introduction IFAC has closely tracked and input since startIFAC has closely tracked and input since start Globally applicable standard, consistently implementedGlobally applicable standard, consistently implemented Ease compliance burden on preparersEase compliance burden on preparers Ensure benefits exceed costEnsure benefits exceed cost Release of ED is milestoneRelease of ED is milestone IFAC supports project & committed to assisting IASB secure optimal outcomeIFAC supports project & committed to assisting IASB secure optimal outcome

2 IFRS for SMEs IFAC’s Role Encouraged member bodies, regional accountancy organizations to contribute to debateEncouraged member bodies, regional accountancy organizations to contribute to debate Promoted conduct of field tests – more member bodies need to joinPromoted conduct of field tests – more member bodies need to join Getting SMEs and SMPs engagedGetting SMEs and SMPs engaged Responding to EDResponding to ED Pragmatic approach – focus on major thingsPragmatic approach – focus on major things

2 IFRS for SMEs IFAC Comment Letter 1Recognition & measurement simplifications: Elimination of deferred taxElimination of deferred tax Amortization of goodwillAmortization of goodwill Simplified impairment testsSimplified impairment tests Modifications to financial assets and liabilitiesModifications to financial assets and liabilities

2 IFRS for SMEs IFAC Comment Letter 2Eliminate all cross references: Remove altogether certain topics – segment reporting, EPS and interim reportingRemove altogether certain topics – segment reporting, EPS and interim reporting Remove most options – cost method only for PP&E, intangibles, investment property & when consolidating associates and joint venturesRemove most options – cost method only for PP&E, intangibles, investment property & when consolidating associates and joint ventures

2 IFRS for SMEs IFAC Comment Letter 3Cost-benefit overriding objective 4Restructure – topics not relevant to all at back 5Rationalize disclosures – focus on financial position 6Post-implementation review 7Exclude very small entities with few external users

3 Micro-Entity Financial Reporting Phase 1 Concerns expressed at IFAC SMP ForumsConcerns expressed at IFAC SMP Forums Project aim – to inform debateProject aim – to inform debate Micro-Entity Financial Reporting: Perspectives of Preparers and Users, December 2006 Micro-Entity Financial Reporting: Perspectives of Preparers and Users, December 2006 Summary of existing research evidenceSummary of existing research evidence Lack of researchLack of research

3 Micro-Entity Financial Reporting Phase 2 Focus group interviews of owners, financiers & preparersFocus group interviews of owners, financiers & preparers Kenya, Italy, Poland, UK & UruguayKenya, Italy, Poland, UK & Uruguay Investigates whether proposed IFRS for SMEs:Investigates whether proposed IFRS for SMEs: likely to meet needs of userslikely to meet needs of users can be easily applied by preparerscan be easily applied by preparers What changes to ED may be necessary for it to be suitable for micro-entities?What changes to ED may be necessary for it to be suitable for micro-entities?

3 Micro-Entity Financial Reporting Phase 2 1.Mixed support for international guidance for micro-entities 2.ED too complex and long for micro-entities 3.Characteristics of any new guidance: Simplicity, few rules, infrequent updates, short, & applicable to allSimplicity, few rules, infrequent updates, short, & applicable to all

3 Micro-Entity Financial Reporting Phase 2 4.Outline content - general support for: Fixed format statements, simple disclosure checklist, clear rules for common transactions, & statement of principlesFixed format statements, simple disclosure checklist, clear rules for common transactions, & statement of principles Précis version for owners and longer one for preparersPrécis version for owners and longer one for preparers 5.Internet and hard copy

3 Micro-Entity Financial Reporting Phase 2 Conclusions:Conclusions: ED appears unsuitable for micro-entitiesED appears unsuitable for micro-entities Relatively minor changes to ED will not be sufficient for micro-entitiesRelatively minor changes to ED will not be sufficient for micro-entities No clear case for separate tier of micro-entity guidanceNo clear case for separate tier of micro-entity guidance Some form of assurance needed for micro-entity financial reportsSome form of assurance needed for micro-entity financial reports

4 Assurance Services for SMEs Inappropriate for IFAC to dictate policyInappropriate for IFAC to dictate policy If there is sufficient demand then IAASB should make available appropriate standardsIf there is sufficient demand then IAASB should make available appropriate standards SMP Committee welcomes IAASB proposals to:SMP Committee welcomes IAASB proposals to: –Revise ISRE 2400 Engagements to Review Financial Statements; and –Explore alternative assurance service and, if appropriate, develop a standard if different from review