The International Financial Reporting Standard (IFRS) for small and medium-sized enterprises (SMEs), issued by the International Accounting Standards Board in July, is a huge step forward, according to the standard's author Paul Pacter, director, IFRS global office, Deloitte China. He is also director of standards for SMEs at the standards board.
The full IFRS, with which all but the smallest Hong Kong companies must comply, is 2,800 pages of densely packed principles to follow compared with the SME standard's 230 pages.
IFRS, designed for companies that are listed and for equity investors who want to make long-term forecasts of earnings and stock prices, is burdensome for small companies whose financial statements are more often viewed by banks or other lenders concerned about short-term liquidity, insolvency and short-term cash flow.
The standard for SMEs asks that firms provide financial statements and meet the requirements of a disclosure checklist. The standards board is providing separate booklets of implementation guidance, such as illustrative financial statements, and a presentation and disclosure checklist to help those that are complying with the standard for the first time. Fewer disclosures are required - roughly 10 per cent of the number required by full IFRS. And topics not relevant for small companies are omitted from the financial statements.
The SME standard is much simpler compared with full IFRS. Fears that it would be too complex have been allayed by the Association of Chartered Certified Accountants, according to its Hong Kong president Judy Wong.
'ACCA field tested the exposure draft in Britain. Small companies and their accounting professionals were able to apply it without significant difficulty, though more support in providing related educational materials for users would be very helpful,' she said.
Pacter said that the standards board was developing comprehensive training materials that would be freely available by the end of this year in English and next year in other languages.