ACCA Past question paper on IFRS for SME

June 2015 - 8 marks


You are the financial controller of Omega, a listed company which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Your managing director, who is not an accountant, has recently attended a seminar and has the following questions for you concerning issues raised at the seminar:

Another delegate, a director of a relatively small listed entity, stated that his entity did not need to comply with the detailed requirements of IFRS because of the relatively small size of the entity. Is it true that there are different accounting rules which are available for smaller entities? Can his entity take advantage of them? Please give me an outline explanation – I don’t need the details of any different rules.



The International Accounting Standards Board has developed an IFRS for small and medium sized entities (SMEs) which can be used as an alternative to full IFRS.

Despite the title of the IFRS for SMEs it is not available for all small and medium sized entities. The standard can only be used by entities which are not publicly accountable. Therefore the standard could not be used by your colleague as the entity is listed.

The IFRS for SMEs is one single standard which, if adopted, is used instead of all IFRS. The IFRS for SMEs omits completely the requirements of IFRS which are specifically relevant to listed entities, for example, earnings per share and segmental reporting.

In addition, the subject matter included in the IFRS for SMEs has been simplified compared with full IFRS. For example, research and development costs are always expensed and non-current assets are never revalued.

In general terms, the disclosures required by the IFRS for SMEs are considerably less burdensome than for full IFRS.

A further benefit is that the IFRS for SMEs is only updated once every three years, thus reducing the extent of change to financial reporting practice.


Examiners Feedback

Part (b) asked candidates to outline the main components of the IFRS for SMEs, and explain whether the IFRS for SMEs could be used by a small listed entity. Most candidates stated that the small entity in question could use the IFRS for SMEs, despite the fact that the IFRS for SMEs cannot be used by listed entities, whatever their size. A reasonable minority of candidates incorrectly stated that there was no such thing as the IFRS for SMEs and that all entities have to use full IFRS. A few candidates misinterpreted this part and reflected on the accounting requirements of IFRS 1 – First time adoption of IFRS. As in part (a), the level of knowledge displayed in part (b) was rather disappointing.