The South African Companies Act allows companies to prepare their financial statements in accordance with one of two frameworks, International Financial Reporting Standards (IFRS), and, if they are not listed, in the process of listing, or a state owned entity, IFRS for Small and Medium-sized Entities (IFRS for SMEs).
More and more entities are converting from IFRS to IFRS for SMEs. With the advent of IFRS 9 Financial instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases under IFRS, these numbers are escalating as people try to avoid grappling with the concept of expected credit loss and other perceived complicated issues. IFRS for SMEs is considered a simpler accounting framework that is based on IFRS but requires a lot less disclosures.
The following is a list of areas that have formed stumbling blocks for entities in converting to IFRS for SMEs. These are some of the major differences to be aware of when considering converting to IFRS for SMEs.
Where there is a transaction or event that IFRS for SMEs does not provide guidance on, one would either look to the current IFRS for SMEs or IFRS for formulation of a relevant accounting policy. IFRS for SMS sections 10.4 to 10.6 provide guidance in this regard.
Once a business has gone through the process of determining whether it can actually apply IFRS for SMEs, looking at the Companies Act Regulations and the scope of IFRS for SMEs, management should consider what the biggest impacts are likely to be.
These are a few areas that need to be considered when converting from IFRS to IFRS for SMEs. Depending on the business, the assets and liabilities recognised, and the first time adoption exemptions applied, it is always important to understand the impacts and know what the non-negotiable areas are before beginning the conversion process.