Audit-Assur-vp-IFRS-SME
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Audit-Assur-vp-IFRS-SME

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ViewpointAudit and assuranceAustralia has IFRS for SMEs“led” the world Wayne Basford, Partner, BDO Kendallsby applying Challenge areaIFRS to SMEs, The International Accounting Standards Board (IASB) is currently years ahead of undertaking a major project, developing a set of standards for Small and Medium-Sized Entities (SMEs).the SME project The IASB recognises that the current suite of IFRS are written for those entities preparing general-purpose financial statements and in the minds that is intended of the IASB this means large listed entities. The IASB have embarked on (but are still a way off completing) a major project writing a “small book” to be applied by SMEs. The IASB has left the application of the to significantly “small book” to the discretion of local regulators other than stating that it cannot be utilised by a listed entity or a deposit taker.ease the burden of applying the New perspectivesIf you think that we already have IFRS for SMEs, you will have come standards.. to that conclusion through struggling through the pages of the new standards in preparing or auditing 30 June 2006 financial reports. You must be aware however, that IFRS was only really written for listed companies and that in Europe IFRS has only been applied to consoli-dated group accounts of listed entities. Throughout the European Union the vast majority of European companies have continued to prepare their individual financial reports under local National GAAP ...

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Viewpoint
Audit and assurance
Australia has IFRS for SMEs
“led” the world
Wayne Basford, Partner, BDO Kendalls
by applying
Challenge areaIFRS to SMEs,
The International Accounting Standards Board (IASB) is currently years ahead of undertaking a major project, developing a set of standards for Small
and Medium-Sized Entities (SMEs).
the SME project
The IASB recognises that the current suite of IFRS are written for those
entities preparing general-purpose financial statements and in the minds that is intended of the IASB this means large listed entities. The IASB have embarked
on (but are still a way off completing) a major project writing a “small
book” to be applied by SMEs. The IASB has left the application of the to significantly
“small book” to the discretion of local regulators other than stating that
it cannot be utilised by a listed entity or a deposit taker.ease the burden
of applying the New perspectives
If you think that we already have IFRS for SMEs, you will have come standards..
to that conclusion through struggling through the pages of the new
standards in preparing or auditing 30 June 2006 financial reports. You
must be aware however, that IFRS was only really written for listed
companies and that in Europe IFRS has only been applied to consoli-
dated group accounts of listed entities. Throughout the European Union
the vast majority of European companies have continued to prepare
their individual financial reports under local National GAAP (UK, French,
German GAAP etc). Australia has “led” the world by applying IFRS to
SMEs, years ahead of the SME project that is intended to significantly
ease the burden of applying the standards – particularly in respect of
certain areas of complicated fair value issues.
1Viewpoint
The SME “small book” currently stands at approx 230 pages, and is written The standard so as to be the standard to be applied by an SME (i.e. no requirement
to comply with IAS 1-41 (AASB 101-141) or IFRS 1- 7 (AASB 1 - 7)). The
standard will cover layout of the balance sheet, income statement, cash will cover layout
flow statement, consolidation and how to account for investments,
impairment, inventory etc.of the balance
IFRS Lite/Light or Heavy?sheet, income
In November 2006 Paul Pactor of the IASB and head of the SME project
visited Melbourne and Sydney to attend round table discussions with statement, cash
representatives of the AASB, the major auditing firms (including BDO)
and preparers of financial statements. The round table meeting was also flow statement, attended by Warren McGregor, the Australian representative on the IASB.
consolidation How does the Australian reporting entity concept work?
The round table discussions in both Melbourne and Sydney time and time and how to
again highlighted the current confusion in Australia as to who should
prepare a general purpose financial report, and if you do not prepare a account for general purpose financial report, then which standards should be applied.
investments, Which standards apply to a special purpose report?
The only standards that apply to non-reporting entities preparing special impairment,
purpose financial statements under 2M.3 of the Corporations Act are:
• AASB 101inventory etc. • AASB 107
• AASB 108
• AASB 1031
• AASB 1048
There is an ongoing debate between the Australian Securities and
Investments Commission (ASIC) and the Institute of Chartered
Accountants as to which measurement standards should be applied,
with ASIC prescribing the measurement methods laid out in the other
standards, and the Institute referring to their Business Practice Guide
(which largely supports using historic cost as the valuation model). The
Australian Accounting Standards Board (AASB) has largely remained
silent on the issue. It is also accepted that ASIC have not seriously
policed the SME sector as to application of all measurement standards.
This confusion could seriously impact how preparers and users view
the new SME standards, i.e. depending on whether their accounts are
currently prepared as per ASIC’s instructions or the Institute’s.
2Viewpoint
Measurement DisclosureThe proposed
Prepares general purpose Less under Less under
financial statements “small book” “small book”SME standard
Prepares special purpose financial Less under More under
statements - uses ASIC’s
“small book” “small book”measurement guideincludes a
Prepares special purpose financial More under More under
statements - uses the ICAA “small book” “small book”
Business Practice Guidenumber of
Table 1. - Impact of proposed SME standard on Australian SMEs“common sense”
SME project disclosure - too much?
proposals...
The preparers of the SME “small book” have aimed to significantly reduce
the level of disclosure as compared with the full IFRS “big book”. With
individual disclosure items being reduced from approx 3,000 to 400, for
SMEs currently preparing general-purposes financial statements under
AIFRS, the introduction of the “small book” would significantly reduce
disclosure, however for any SMEs preparing special purpose financial
Major improvements in the SME standard v the big book
The proposed SME standard includes a number of “common sense”
proposals that should significantly ease the cost and difficulty of
preparing financial statements, these include:
•Only fair value assets if “readily determinable”
•Opportunity to fair value investments in associates and joint
ventures through profit or loss
•Only separate intangibles in business combinations if there is a
history of separation for similar assets
•Much simpler hedge accounting.
Potential “downside” in the SME standard is the big book
One participant at the round table discussions correctly questioned
whether these standards are IFRS “heavy” rather than IFRS “lite”, with
some of the options allowed within the big book being prohibited within
the small book, for example:
•No available-for-sale (AFS) category for financial assets
•No corridor approach allowed for defined benefit superannuation funds.
For the SME sector, removal of the AFS category will mean that all invest-
ments in listed shares will have to be fair valued at each reporting date
and the movements recognised in the profit or loss instead of to equity.
3Viewpoint
The way forwardRelated links
The SME standard going forward
BDO Kendalls
The IASB issued an exposure draft in February 2007. For Australia the Audit and assurance
SME standard will raise a number of significant issues that will directly
impact the SME sector. These include:
•Will Australia adopt the SME standard?
•Which entities will be allowed to use it?
•If Australia does not adopt it, will Australian accountants be disad-
vantaged gaining employment in the world?
•Will the Australian reporting entity concept be scrapped or retained?
About the author
Wayne has over 13 years of audit and advisory services experience, having
worked with other major accountancy firms across three continents.

Prior to joining BDO Wayne had national responsibility within another
major accounting group for a range of technical advisory issues.

Wayne’s recent experience includes a dual listing of Chartered Semi
Conductors Limited on NASDAQ and the Singapore Stock Exchange,
Senior Finance Manager on BMW’s new Mini Project as well as numerous
due diligence exercises.
For more information
Phone 1300 138 991 or visit www.bdo.com.au
BDO Kendalls is a national association of separate partnerships and entities. *Liability limited by a scheme approved under Professional Standards
Legislation. Disclaimer: This publication is issued exclusively for the general information of clients and staff of BDO Kendalls. The contents are not a
substitute for specific advice and should not be relied upon as such. Accordingly, whilst every care has been taken in the presentation of the publication, no
responsibility is accepted for persons acting on this information.
© 2007 4