The International Financial Reporting Standard (IFRS). Corporate Reporting Theory and Practice

Term Paper, 2008
13 Pages, Grade: 1,0


List of Contents:

Executive Summary

1. Introduction

2. Reasons Why IFRSs for SMEs are Needed and What Benefits can be Expected

3. Companies for which IFRSs for SMEs are assigned

4. Cost-Benefit Evaluation

5. Selected Recognition and Measurement Simplifications
5.1. Goodwill Impairment
5.2. Cost Method for Associated Companies
5.3. Finance Leases
5.4. Research and Development Expenditures

6. Conclusion

7. References

Executive Summary

In this report the International Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs) is presented. It identifies that this new standard is required due to mainly smaller, non-listed companies prevailing. These entities currently use diverse national accounting standards and thus are not comparable. However, because of SMEs’ differing activities and stakeholders, existing IFRSs would not be appropriate so new standards are needed.

The IFRSs for SMEs are based on initial, full IFRSs but were reduced, simplified and adjusted to reduce the reporting burden that many small companies would suffer.

All companies addressed are not publicly accountable, provide general purpose statements and approximately contain 50 employees. Which firms in detail will apply to these new standards is finalised by national jurisdictions.

Nonetheless, there can be found some disadvantages. E.g. immense simplifications can result in insufficiently explained standards that can hardly be employed adequately.

Furthermore, four accounting events are revealed: goodwill impairment, cost method for associates, finance leases and research and development expenditures. All these show up differences compared to full IFRSs. The preparation of financial reports is facilitated and user interests are taken into consideration. However, alternatives can be suggested that perhaps are more appropriate for SMEs.

Finally, it is concluded that the IFRS for SMEs are well developed including advantageous adjustments that try to satisfy SMEs’ as well as their reports users’ needs. However, it becomes apparent that some revisions could be necessary to consequently truthfully allow the vast amount of smaller companies become globally comparable.

1. Introduction

In February 2007 the Exposure Draft of the IFRS for SMEs was published. The objective of this standard was to develop a “simplified, self-contained set of accounting principles […] appropriate for smaller, non-listed companies”. The basis still was full IFRS that are designed for listed companies. (IASB 2007b, p.3)

The benefits for listed companies using IFRSs are common. They profit from more qualitative reports that are easily comparable with their global competitors. In this way, capital markets are made highly accessible for IFRS users.

However, why are IFRSs for SMEs required?

This and other questions similar which companies will make use of the ‘new’ IFRSs for SMEs and which benefits as well as costs can be expected are attempted to be answered in this report.

Furthermore, it is looked at four accounting treatments that are briefly explained. Meanwhile it is examined which differences exist compared to full IFRSs and which underlying intentions are pursued that eventually benefit SMEs.

Finally, it is concluded whether the standards for SMEs do add value and can lead to international higher-quality statements.

2. Reasons Why IFRSs for SMEs are Needed and What Benefits can be Expected

One of the most important factors that require specialised IFRSs for SMEs is that the majority of all businesses represents smaller, unlisted companies that currently report under national, highly varying standards (Pacter 2004, p.118). However, the existing IFRSs are intended to be used by listed, internationally operating companies. At this point two major difficulties emerge that do not allow SMEs to use existing IFRSs:

1. Unlisted SMEs have other main stakeholders like non-owner managers as well as creditors and not shareholders. Thus, resulting reports would not meet users’ needs. (Jarvis 2003)
2. SMEs face differing issues and transactions.
3. Smaller companies often cannot cope with the high complexity of full IFRSs. There are too many standards as well as too complicated treatments (Morris 2007).

Thus, to also provide comparable financial statements for SMEs, initial IFRSs must be adjusted:

- Removing standards irrelevant for SMEs, simplifying methods for recognition and measurement as well as reducing disclosure requirements (Macintosh 2007);
- Structure according to topics and common speech.

These changes lead to a reduced reporting burden for SMEs. Hence, SMEs can easily benefit from international comparability.

Further benefits like: higher-quality statements, more efficient auditing, simplified education as well as training (IASB 2007b, p.3), and eventually advanced decision-making for best resource allocation lead to an optimised worldwide economy.


Excerpt out of 13 pages


The International Financial Reporting Standard (IFRS). Corporate Reporting Theory and Practice
University of the West of England, Bristol  (Bristol Business School)
Corporate Reporting Theory and Practice
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
419 KB
Quote paper
Nadine Wiese (Author), 2008, The International Financial Reporting Standard (IFRS). Corporate Reporting Theory and Practice, Munich, GRIN Verlag,


  • No comments yet.
Read the ebook
Title: The International Financial Reporting Standard (IFRS). Corporate Reporting Theory and Practice

Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free