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The IFRS for SME's - Essay Example

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The IFRS for SME's

In the fast-evolving business environment brought about by the recent advances in information and communication technologies, transportation, and others, conducting business have also changed. Requirements and understandings need to be ready, clear, and acceptable for all of those conducting business due to various factors such as internet connectivity that allows transfer of funds from one point of the globe to another in a matter of seconds, purchase and sales of high-end to low-end products at the click of the mouse, and the various automations that have increased organizational efficiencies in business operations. With this premise, this paper will explore the reasons for the introduction of the International Financial Reporting Standard for Small and Medium Entities by the International Accounting Standards Board and provide the adjustments and clarifications that SMEs need to consider in adopting the proposed IFRS. Discussion 1. Reasons why the standard was introduced & other options the IASB considered before a standalone standard was developed. Include a critic of each of the options and whether this standard fulfils the objective of providing useful information to users. Small and medium entities or enterprises have certain characteristics that are not exactly the same with bigger entities or corporations whether local or international. Due to their size and other factors, they require more flexible options in order to continue operations as well as other forms of flexibility and considerations to grow. The characteristic of small and medium entities or SMEs include lack of public accountability, issued or would issue debt or equity securities in public market, or hold assets in a fiduciary capacity for outsiders such as banks, insurance companies, securities dealer, or investment bank (Deloitte, 2007). However, other small listed companies are not qualified to use IFRS for SMEs for they seek capital from outside investors separate from managing the business, thus, cannot demand information they might want (Deloitte, 2007). These qualities were found to be in conflict with full IFRS requirements and standards prompting the IFRS for SMEs. The International Financial Reporting Standard for Small and Medium Entities or IFRS for SMEs was formulated by the International Accounting Standards Board which intention was to facilitate financial reporting for SMEs (KPMG, 2010). This can be achieved through simple and reduced detailed requirements and guidance from full IFRS and removal of the complex option in areas where full IFRS require more than one accounting option (Tomlinson, 2010). It was published in July 2009 after five years of development process in response to the call of many small and medium enterprises which find the full IFRS as burdensome in cost and user-friendliness (Tomlinson, 2010). The full IFRS required extensive adoption and guideline that mandated reporting entities to: “expense all borrowing costs, removing the requirement for full IFRSs for entities to ...Show more

Summary

International Financial Reporting Standard for Small and Medium Entities: Reasons and Considerations for Adoption Introduction The globalisation of businesses and merging of economies led to the intermingling of business operations and practices. But in order for businesses from various locations or countries and industries conduct a relationship with one another, it is important that a certain financial understanding fully comprehended by both or all ends is established…
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The IFRS for SMEs essay example
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