International Financial Reporting Standards For Small And Medium-sized Entities

IFRS for SMEs and its purpose

This assignment is based on International Financial Reporting Standards for Small and Medium-sized Entities. In this particular assignment, proper emphasis has been given on IFRS for SMEs that is a self-contained that is less than 250 pages that is designed for meeting the needs and capabilities of SMEs that is estimated that accounts for more than 95% of all companies in and across the world (Quinn and Connolly 2017). On comparing it with Full IFRS and IFRS for SMEs where IFRS is under National GAAP and IFRS for SMEs is less complex in nature in accordance to IASB. The selected stakeholder perspectives are SME in the mining industry and company Paladin Energy Limited that is based in Australia (Deegan 2013).

IFRS for SMEs is planned to be used by Small and Medium-sized Enterprises where the unit are published under general purpose of financial statement that are used by the external users and do not have public responsibility (Nurunnabi 2017). Addition to that, an entity has public responsibility under the definition of IASB in case it is a procedure used for filing their financial statements with a securities charge or any of the other authoritarian association for the reason of issuing any financial instruments in a communal market. Furthermore, IFRS for SMEs is used for the secretarial structure for unit that is not of the size or has enough possessions for using full IFRS.

There is need to have separate IFRS that will be used by Small and Medium-sized Entities. This is because the types as well as needs of SME fiscal statements are quite diverse from that of users of public company monetary systems. In that way, Full IFRS was designed for meeting the need of equity investors in companies especially in public capital markets (Minnis and Sutherland 2017). On the contrary, users of financial statements of SMEs actually focus more on immediate cash flows, solvency issues, liquidity as well as interest reporting and balance sheet strength. Bu using the concept of regulatory theories, it is understood that there was even need for IFRS that will be used by SMEs as full IFRS contains topics and implementation guidance that has no relevance for SMEs. This is the reason behind why it is necessary to have separate IFRS guidance for SMEs as full IFRS is in detailed format. IFRS for SMEs can easily assemble the needs of their financial statement users at the time of balancing the costs as well as benefits from the perspective of preparer.

Comparison between Full IFRS and IFRS for SMEs

Basis of Differentiation	Full IFRS Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	IFRS for SMEs
Long-term non-financial assets
PPE (Property, Plant and Equipment)	Definition PPE are tangible assets that are held for use in the manufacture or deliver of goods as well as services and are used for more than one period. Both are recognized at their cost (IFRS for SMEs 17.2; full IFRS 16.6).
	Options are present to select either cost model or the revaluation model when fair value can be measured reliably as well as carried at a revalued amount that is deducted from accumulated depreciation and accumulated impairment losses	It is just the cost model that means cost that is deducted from accumulated depreciation and impairment losses that is accepted
Intangible Assets	Definition An intangible asset is one of the non-monetary assets that are used without any physical substance that is easily identified. Both the standards excludes  financial assets (Full IFRS IAS 38.8; IFRS for SMEs 18.2 and 18.3)
	IFRS IAS 38.52 specifies the classification of the assets in two major parts such as the research as well as development phase. The Standard handles research costs where the expenses as well as development costs are being capitalized (Maksimov, Wang and Luo 2017)	IFRS for SMEs 18.14, they often are not able to check the perquisites of capitalization due to lack of financial as well as other economic resources.
Investment Property	Definition Investment Property includes both land and buildings that is held by an owner or by lessee under a business lease for earning the rentals or for resources approval (Kvaal 2017).
	The Standard envisage the options between the cost model as well as fair value model	There is no real option in the IFRS for SMEs as in case there is reliable measurement of the fair value under the undue cost effort where the investment property has been capitalized with the changes in fair value recognition (Koppeschaar 2012). The cost model is otherwise obligatory in case of IFRS for SMEs.
Borrowing Costs	The borrowing costs must be recognized as an assets when it is a part of the qualifying assets (IFRS IAS 23.5)	It prohibits this borrowing costs through capitalization as well as initializing recognition of these costs as expenses in profit or loss (IFRS for SMEs 25.2)

From the Top 100 Global SMEs that was recognized in the year 2008 for the country Australia, Paladin ranks in the third position that operates in the mining sector. The stakeholder perspective that was used in the study was to find out SMEs in the mining sector and the company named is Paladin Energy Limited (Kim and Im 2017). A hostile regulatory environment has been a reason for globalization from past decades. Paladin Energy Limited is a uranium miner company based in Australia that responds to local authoritarian constraints by way of pursuing its operations in Namibia. This corporation had been generating $US 185 million uranium mine in Malawi. Furthermore, the move had been offshore and produced spectacular stock market returns where the energy sector company had joined Fortescue Metals that has been one of the best investments in and across Australia from the past five years. Addition to that, the corporation has two possible sites for uranium expansion, one in Western Australia and other in Africa (Hope, Thomas W.B. and Vyas 2017). Therefore, the Northern Territory Government had recently decided a Paladin Joint venture where there is investigation lease present over the Pamela uranium project that suggest the fact that local authoritarian surroundings has become much challenging in recent times.

By using the regulatory theories, it is easy to gather facts that mining companies have approved the torch for big Australian business. After comparing it with nationals, minerals in the ground goes back at least a century. In case of Australia, the story is bit different as for smaller globalizing companies that is based in Australia. It is because of the reason why mining sector is the second biggest sector after service as it accounts for fifth of the firms as well as 28% of the income that is followed by manufacturing (Chikwemma, Ursula and Sunday 2016). By using Positive accounting theories, it was easy to understand the status of SMEs mining sector based in Australia. The mining sector is actually evenly reasonable between the offshore mining as well as investigation. This mining sector generates revenue around $51 million.

By using the information theories, it is understood that IFRS designed for used by SMEs is actually beneficial to the users. This standard is designed for providing information about the monetary position as well as cash flows unit that will be useful at the time of economic decision-making and benefit wide range of users (Chand, Patel and White 2015). These users are not in a position to demand reports that actually caters to meet the need of information by the users.

Selected stakeholder perspectives

AASB decides to commence its initial commencement review in the year 2012 that gets support from the SME Implementation Group. At the time when IFRS for SMEs was issues, it was AASB that stated the plan for undertaking an initial complete evaluation of the IFRS for SMEs after two years of time span. During this time, it was decided whether separate standard is essential for SMEs or any other changes are to be amended (Camfferman and Zeff 2017). After the implementation, it was concluded that IFRS for SMEs was working well in real practice. Some areas need to be improved after getting the feedback. Still, IFRS for  SMEs is still a new standard where AASB made the limited amendments so that it is related to the transactions where it permits SMEs for use of revaluation model for PPE as well as aligning with the major recognition and the measurement requirements as in case of deferred taxes with IFRS.

Under differential reporting framework, it is noted that there is differences between AASB and IFRS for SMEs. Both the standards had been designed for meeting the need of financial users for reference purpose. There was an incredibly high demand from the standard setters where small companies are auditors are present in and across the world. SMEs have to or may be want to use IFRS. In that case, SMEs were facing issues with the unclear as well as time-consuming regulations as mentioned in the full IFRS because these regulations actually do not fit to their needs as well as some of the sections are even unnecessary for SMEs. After that, the users of financial statement of SMEs show interest in short-term financial ratios rather than investing in public entities (Biener, Eling and Jia 2017). Hence, Standard was designed for fulfilling the needs of financial users that will strengthen the position in the market as well as encourages the users of financial statements for investing in these entities.

To sum up the similarities and differences of full IFRS and IFRS for SMEs, it can be stated that it is essential basics of accounting as well as definitions of accounting. This actually creates the primary basement of the IFRS for SMEs as it follows more specific accounting principles that hugely differ from full IFRS. Further, the elementary principles are quite alike as it allows the user of the financial statements in a certain basis for comparing the financial statements. Hence, a complete new standard with other definitions and principles can probably analysis where entity with public accountability after using full IFRS as well as entity that fulfils qualification of SMEs. Therefore, it was the solution of IASB for setting up new standard with the main features.

IFRS for SMEs and financial statement users

Conclusion

At the end of the study, IASB was showing an effective due process for developing the new standard. There is no links or references to the full IFRS and IFRs for SMEs that can be viewed as a complete standard alone standard despite of top-down approach. IASB tried to make the accounting easier for SMEs. Most of the SMEs in the world gets benefits from IFRS for SMEs as it include various public companies in Australia that will have an opinion for using a simplified IFRS framework at the time of preparing the financial statements.

Reference List

Biener, C., Eling, M. and Jia, R., 2017. The structure of the global reinsurance market: An analysis of efficiency, scale, and scope. Journal of Banking & Finance, 77, pp.213-229.

Camfferman, K. and Zeff, S.A., 2017. The Challenge of Setting Standards for a Worldwide Constituency: Research Implications from the IASB’s Early History. European Accounting Review, pp.1-24.

Chand, P., Patel, A. and White, M., 2015. Adopting international financial reporting standards for small and medium?sized enterprises. Australian Accounting Review, 25(2), pp.139-154.

Chikwemma, M.P., Ursula, E.N. and Sunday, A.A., 2016. International Financial Reporting Standards for Small And Medium Enterprise (Ifrs For Smes) And The Statement Of Accounting Standards (Sas): A Comparative Study. International Journal of Finance and Accounting, 1(3), pp.79-94.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Hope, O.K., Thomas, W.B. and Vyas, D., 2017. Stakeholder demand for accounting quality and economic usefulness of accounting in US private firms. Journal of Accounting and Public Policy, 36(1), pp.1-13.

Kim, J.H. and Im, C.C., 2017. The Study On The Effect And Determinants Of Small-And Medium-Sized Entities Conducting Tax Avoidance. Journal of Applied Business Research (JABR), 33(2), pp.375-390.

Koppeschaar, Z., 2012. International Financial Reporting standard for Small and Medium-sized entities. The Southern African Journal of Entrepreneurship and Small Business Management, 5(1), pp.54-68.

Kvaal, E., 2017. The Role and Current Status of IFRS in the Completion of National Accounting Rules–Evidence from Norway. Accounting in Europe, pp.1-8.

Maksimov, V., Wang, S.L. and Luo, Y., 2017. Reducing poverty in the least developed countries: The role of small and medium enterprises. Journal of World Business, 52(2), pp.244-257.

Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence from small commercial loans. Journal of Accounting Research, 55(1), pp.197-233.

Nurunnabi, M., 2017. Auditors’ perceptions of the implementation of International Financial Reporting Standards (IFRS) in a developing country. Journal of Accounting in Emerging Economies, 7(1).

Quinn, J. and Connolly, B., 2017. The Non-Financial Information Directive: An Assessment of Its Impact on Corporate Social Responsibility. European Company Law, 14(1), pp.15-21.