In July 2009 the International Accounting Standards Board (IASB) decided to publish one of the most important documents in the history of financial reporting – the IFRS for SMEs – which is likely to have an impact on every financial accountant in Ireland.
The standard will replace local accounting standards and thus there is an urgent need for accountants to get to grips as soon as possible with the likely changes that will impact on their work.
Although the standard has already been adopted in a number of countries it is up to each jurisdiction to decide to whom it should be applied and when. The Accounting Standards Board (ASB) in the United Kingdom therefore decided to release a Consultation Paper in August 2009 to allow accountants in these islands to discuss any teething issues that need to be sorted out before the standard is finally implemented. The comment period ended in February 2010 and the staff at the ASB have completed their analysis of the 152 comment letters received. As a result a number of roadshows have taken place , notably in London and Dublin, to air views on how the project should progress. The intention is that an Exposure Draft be published in October/November 2010 with a tentative implementation date of the standard being 1st January 2013.
The main issues still to be decided are:
- Should we introduce a three tier accounting regime in these islands? i.e. Tier 1 - full IFRS for listed companies and publicly accountable entities such as banks, Tier 2 - the IFRS for SMEs for all non publicly accountable entities regardless of size and Tier 3 - for the very small company that currently has adopted the FRS for Smaller Entities. If that happens it is possible that the third tier will only be adopted for a transitional phase of 3 to 4 years before being dropped and that will then force all small companies to eventually adopt the new IFRS for SMEs.
- Should a specialised standard be developed for public benefit entities to replace the current SORPs? There would still be a need for application notes on how to apply it to Charities, Housing Associations etc. However, there does seem to be considerable public support for the retention of the SORPs.
- Should subsidiaries of listed companies be allowed to adopt a mixed model? i.e. use the recognition and measurement rules of the full IFRS but switch to the IFRS for SMEs for disclosure purposes. That would save a lot of work at Head Office during the consolidation process but also reduce the considerable overkill of disclosure required by the full IFRSs.
It is unlikely that the content of the document will change apart from the possibility of replacing the section on Income taxes with the full IAS 12.
Accountants should realise that the document is introducing a number of significant simplifications in its 200 page as follows:
- The elimination of irrelevant topics such as earnings per share, segment reporting and interim reporting
- The elimination of options regarded as not cost beneficial e.g. no revaluation model for property etc, no distinction between capital and revenue based grants and the elimination of proportionate consolidation for joint ventures
- The simplification of recognition and measurement rules e.g. reporting entities will have to write off all development costs, to write off all borrowing costs and goodwill will be permitted to be amortised over a period not exceeding 10 years.
- There will be a substantial reduction in the disclosure requirements from the full IFRSs
- A more straightforward drafting has made the document fairly understandable and easy to apply.
By announcing a tentative start date or date of transition of 1st January 2013 that effectively means that anybody applying the standard will need to publish their last Irish Gaap accounts for the year ended 31st December 2012 but also publish those same accounts again under IFRS in order to get proper comparisons for the 2013 year end. That, in effect, means that reporting entities will have to restate their opening balance sheet/statement of financial position as at the 1st January 2012. That is just over a year away!!
There is help at hand as OmniPro are providing clients with a number of courses during the latter part of 2010 and, in addition, the IASB itself is currently in the process of developing very detailed training material to aid the process. Approximately 60% of that has already been published and is available on their website (iasb.org.uk.). Copies of the standard itself together with a set of illustrative published accounts and disclosure checklist are also available free of charge on the IASB website.
Accountants should therefore keep their eye on the ball to ensure that they are not left behind when the standard is first applied. They should also keep a close eye on the ASB’s website for further details of how and when the IFRS for SMEs will be implemented locally. The quarterly journal ‘Inside Track’ on the ASB’s website is an ideal document to achieve that aim.
It will be a tough year in the year of transition but the long term benefits of adopting the new IFRS will, in my opinion, lead to considerable savings in the future and will provide excellent comparative information about financial statement across all countries of the world. It should be welcomed but in the short-term, i.e. the year 2012, will clients be prepared to pay for the production of two sets of accounts in that year as they will probably not see any direct benefit themselves in switching to the IFRS.
Robert is Speaking at our IFRS for SMEs - Getting Ready for The Transitionseminar.
