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. According to Paul Winkelmann, risk and quality leader for Greater China at PricewaterhouseCoopers, and president of the Hong Kong Institute of Certified Public Accountants (HKICPA), the new SME standard has practical implications. 'The adoption of this standard throughout the region means that you're going to have companies preparing accounts on a consistent basis. That means mergers and acquisitions in the region will become much easier because those making acquisitions will be familiar with the same accounting framework.' South Africa has already adopted the SME standard for its unlisted companies. Britain has proposed replacing its existing financial reporting standards with the standard. The mainland's Ministry of Finance is translating the standard into Chinese and, although it hasn't yet committed to adopting it, the fact that it is being translated indicates that it may be required for small companies in the future. Winkelmann said: 'The equivalent is true for companies that need to consolidate. And, for a private company that is growing and expects to go public, using the board's SME standard prepares it to step up to the full IFRS standards when it lists. Even listed groups in Hong Kong can use this SME framework for their unlisted subsidiaries.' The HKICPA will allow private companies in Hong Kong to choose whether to use the SME standard or the full IFRS. An implementation date has not been set. 'I would have liked to have had the standard in place by the end of this year but I am not sure we're going to make that,' Winkelmann said. 'On the other hand I'm not so sure that a date is important because we're making the standard available for those who wish to use it voluntarily.' Some minor objections to the standard have come from small accounting practitioners who are questioning the need to learn another accounting standards frameworks. 'I think that's a misplaced objection,' Winkelmann said. 'This SME standard is very close to IFRS, it's a lighter version but it's consistent with IFRS measurements and it has been produced by the standards board. 'It has a much broader outreach to a wide bunch of people [who prepare financial statements] in Hong Kong rather than just very small enterprises. IFRS are focused very much on listed companies and publicly accountable companies and they are over-burdensome for private companies that are not publicly accountable.'