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On July 9, 2009, the International Accounting Standards Board (IASB) released the International Financial Reporting Standard (IFRS) for Small and Medium Entities (SME’s). IFRS for SME’s were developed specifically for private companies and recognize that SME financial statement users are generally more focused on cash flows, liquidity, balance sheet strength, and solvency matters. The IFRS SME standards represent a simplification of the full IFRS standards and eliminate many accounting topics that are not generally relevant to private companies (for example, earnings per share and segment reporting).
The IASB has defined SME’s as entities that publish general purpose financial statements for external users and do not have public accountability. Most private companies in the United States will fit into this category although certain entities such as banks, insurance companies, and brokers and dealers are specifically excluded. Over the next few years, we expect more private companies to begin the transition from US GAAP to IFRS for SME’s, particularly those who may be owned by foreign entities or a supplier to foreign companies (some private companies have already adopted full IFRS). One significant factor as to the transition period will be how quickly financial statement users of private companies, such as lending institutions and investment bankers, accept IFRS for SME’s as an acceptable method of accounting. The AICPA has already recognized the IASB and IFRS as generally accepted accounting principles, but it may be longer before financial statement users are ready for that change.
Although the exact timing is still uncertain, it appears likely that all companies will ultimately be required to adopt some form of IFRS, either the full IFRS or IFRS for SME’s.
Have you begun the process of understanding IFRS (or IFRS for SME’s) and how these new standards may impact your significant accounting processes, information systems, and financial reporting requirements?
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.