The ICAEW has submitted its comments to the European Commission’s consultation on the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs), which will feed into the Commission’s wider review of the Fourth and Seventh Company Law Directives, the Accounting Directives.
I believe the 230-page standard could be of particular benefit to fast-growing medium-sized businesses looking at a potential future listing, as it will make the transition to full IFRS easier. But it will also probably benefit those trading across country borders and could, if adopted across the EU countries, accelerate integration of the European markets (as full IFRS did when made mandatory across the EU in 2005).
The standard is shorter and clearer than many domestic Generally Accepted Accounting Principles (GAAPs) and might therefore also help improve the reporting framework in many countries. EU should allow its Member States to implement the standard – but not make implementation mandatory.
What is absolutely critical in this context, however, is that the EC’s review of the Accounting Directives does not put any spanners in the works for the adoption of IFRS for SMEs in individual Member States. The Directives, whenever they are reborn, should not refer to this standard at all but stay as a basic framework for accounting without any prescriptive rules.
Strict rules can stymie development of best practice and also make it difficult for financial reporting to keep pace with market developments. That’s the last thing we would want..