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To maintain alignment with IFRS® Accounting Standards, the International Accounting Standards Board (IASB) is proposing updates to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) to reflect some recent standards that have become effective – e.g. IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers – and other changes made to IFRS Accounting Standards since the last update in 2015.

The proposed updates would mean that the standard largely aligns with IFRS Accounting Standards but some areas of divergence would remain – notably the IASB is proposing to defer alignment on IFRS 16 Leases.

The goal for the IASB in maintaining the IFRS for SMEs is to minimise the differences from full IFRS Accounting Standards while keeping it simple. The proposals aim to do this by aligning the standard with many of the current requirements. We welcome the IASB’s efforts but believe it is missing an opportunity by deferring alignment with IFRS 16.

Una Curtis, KPMG in Ireland
Chair of KPMG IFRS for SMEs working group

What are the proposed changes?

The IASB is proposing changes to all sections of the standard. However, many of these are editorial in nature. The following table summarises some of the more important changes:

Section  Proposed changes
Section 2 Concepts and Pervasive Principles
  • Revised to align with the 2018 Conceptual Framework for Financial Reporting
Section 9 Consolidated and Separate Financial Statements
  • Changes to align with IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosures of Interests in Other Entities, including an amendment to the definition of control and new requirements relating to the loss of control of a subsidiary
Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments
  • These sections have been combined and renamed Section 11 Financial Instruments, and changes have been made to reflect the requirements of IFRS 9 Financial Instruments (with appropriate simplifications).
  • The amendments include:
    • removing the option to apply the recognition and measurement requirements of IAS 39 Financial Instruments: Recognition and Measurement;
    • introducing a supplementary principle for classifying debt instruments based on their contractual cash flow characteristics; and
    • adding an expected credit loss impairment model for all financial assets measured at amortised cost, excluding trade receivables and contract assets in the scope of Section 23 Revenue
Section 12 Fair Value Measurement
  • A new section on measuring fair value and disclosing information about fair value measurements based on IFRS 13 Fair Value Measurement
Section 19 Business Combinations and Goodwill
  • Changes to reflect new requirements in IFRS 3 Business Combinations, including amendments:
    • to the definition of a business and a business combination;
    • requiring application of the acquisition rather than the purchase method;
    • requiring initial and subsequent recognition of contingent consideration at fair value; and
    • adding requirements for a business combination achieved in stages
Section 23 Revenue 
  • Section revised to align with IFRS 15 Revenue from Contracts with Customers
  • Introduces a new revenue recognition model, which is a simplified version of IFRS 15’s five-step model
  • Transition relief would allow companies to apply their current revenue recognition policy to contracts already in progress

Are there areas where differences would remain?

The IASB is also seeking views from stakeholders on areas of the standard that it is not currently seeking to change. These include the following.

Standard/Topic Reason for no change
IFRS 16 Leases  The IASB believes that aligning the standard with IFRS 16 now would impose an undue burden on SMEs
IFRS 14 Regulatory Deferral Accounts  IFRS 14 may be replaced when the IASB project on rate-regulated activities is completed
Cryptocurrency The IASB believes that the use of cryptocurrency is not prevalent among SMEs

Have your say by 7 March 2023

Read the exposure draft and don’t miss your opportunity to have your say before 7 March 2023. For further information on the proposals, speak to your KPMG contact.

* Read our comment letter (PDF 360KB)

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