THE International Financial Reporting Standards for Small and Medium Enterprises (IFRS for SMEs) is a separate international financial reporting standard that is intended to apply to the general purpose financial statements of entities that are typically small and medium-sized entities (SMEs), private entities and non-publicly accountable entities.

The IFRS for SMEs has been prepared on IFRS foundations but is a stand-alone product that is separate from the full set of International Financial Reporting Standards.

The IFRS for SMEs has simplifications that reflect the needs of users of SMEs’ financial statements and cost-benefit considerations. Compared with full IFRSs, it is less complex in a number of ways:

  • The topics not relevant to SMEs are omitted.
  • Where full IFRSs allow ac counting policy choices, the IFRS for SMEs allows only the easier option.
  • Many of the principles for recognising and measuring assets, liabilities, income and expenses in full IFRSs are simplified.
  • The standard has also been written in more clear and easily translatable language.

Entities that prepare financial statements for external users (i.e. owners who are not involved in managing the business, SARS, banks, employees and other lenders) should consider whether they should or may apply the IFRS for SMEs in preparing such financial statements.

Some entities, such as companies or close corporations, may be legally compelled to apply the IFRS for SMEs.

In terms of the Companies Act and Regulations, these entities should determine its ‘public interest score’ and, based upon that score and whether the financial statements are independently or internally compiled, they should or may apply the IFRS for SMEs.

Other entities, such as nonprofit organisations, non-governmental organisations and trusts should consider whether there are any legal requirements that compel them to apply a formal financial reporting framework.

An entity’s own memorandum of incorporation, constitution or any other founding document may also require an entity to comply with a formal financial reporting standard. Furthermore, a regulatory body, where applicable, may also prescribe a formal reporting framework to be applied.

To be able to apply the IFRS for SMEs, an entity should ensure that it complies with the following definition of an SME. An SME as defined by IFRS for SMEs are ‘entities that do not have public accountability; and publish general purpose financial statements for external users’.

An entity has public accountability as defined by the IFRS for SMEs if ‘its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market; or it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses’.

Management of an entity remains responsible for the financial statements of that entity. Management should therefore carefully consider whether the entity should or may apply the IFRS for SMEs.

Please note that the above is for information purposes only and does not constitute financial or tax advice. As each individual’s personal circumstances vary, we recommend they seek advice on the matter. Please note that while every effort is made to ensure accuracy, Nexia SAB&T does not accept responsibility for any inaccuracies or errors contained herein. If you are in doubt about any information in this article or require any advice on the topical matter, please do not hesitate to contact any Nexia SAB&T office nationally.

Article prepared by: Aysha Osman

For any queries, please contact:

  • Hassen Kajie (Entrepreneurial Business Services Director)
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  • Yousuf Hassen (Entrepreneurial Business Services Director)
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