What to know about third reboot of IFRS accounting standard for SMEs

The third edition of the IFRS for SMEs standard will be issued in the first quarter of 2025 with an effective date for annual reporting periods beginning on or after January 1, 2027. This recent reboot marks 10 years since the IASB (International Accounting Standards Board) last revised the IFRS for SMEs standard.

The changes to the standard are the result of stakeholder feedback and discussions at the IASB through comment letters, surveys, outreach programs, and meetings in response to information requests, as well as an exposure draft of the revisions to the standard.

The guiding principle was ensuring a balance between the simplicity of the IFRS for SMEs standard and the information needs of users of an SME’s financial statement. The IASB assessed the changes based on their relevance, simplification and faithful representation.

The comprehensive review considered the requirements in full IFRS aimed at aligning with specific full IFRS standards, though differences remain.

For example, the IFRS for SMEs standard retains the incurred loss model for impairment of financial instruments measured at amortised cost, unlike the expected credit loss applied in full IFRS.

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Some notable change areas include revenue, financial instruments, consolidated financial statements, business combinations, goodwill and improved disclosures. The transition rules require retrospective application with reliefs provided for specific standards and disclosure requirements.

While this third edition of the standard introduces new reporting requirements that will result in changes to the financial statements of SMEs, preparers can breathe a sigh of relief knowing that most of these changes have been implemented previously by organisations applying the full IFRS.

The key question is how to learn and leverage from the experience of others who have transitioned to these new reporting requirements in the past. The goal of successfully transitioning to this latest edition of the standard is a function of how well organisations learn and leverage the experience of others.

Organisations must assess the changes and impact on their profit or loss statement and balance sheet through a gap analysis and ensure a straightforward implementation and transition approach, particularly if any business or reporting system changes are needed.

Finally, there needs to be a communication plan for stakeholders on the changes and how to engage with the revisions to the financial statements.

Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics