Relevance is the first of the alignment principles, as discussed with in a previous issue. The question could then be raised on whether alignment is not a becoming an increasing threat to the relevance of the SMEs Accounting Standard as a whole.
Adopting a full alignment to IFRS Accounting Standards approach would mean the SMEs Accounting Standard is treated as a condensed version of full IFRS Accounting Standards. In a full alignment, all recognition and measurement principles from full IFRS Accounting Standards would be reflected in the IFRS for SMEs Accounting Standard, albeit in a simplified or shorter version. Two companies with the same transactions and balances would have similar outcomes in their financial statements if one applied the IFRS for SMEs Accounting Standard and the other applied full IFRS Accounting Standards. The expected outcome from this approach appears to mirror that of the issued, but not yet effective, IFRS 19 Subsidiaries without Public Accountability (IFRS 19) which is based on the premise that subsidiaries that meet the set criteria − that is, those that do not have public accountability will apply the recognition and measurements requirements of IFRS Standards, but with fewer disclosures.
IFRS 19 enables subsidiaries to align their accounting policies with those of their parent company, for group reporting purposes, without having to comply with ‘excessive’ disclosure considering the limited users of these individual financial statements. Currently subsidiaries often apply the SMEs Accounting Standard for their individual statutory reports for exactly this purpose. In future it may be simpler for these entities to rather transition to full IFRS and adopting IFRS 19, as it would eliminate the need for keeping dual accounting records.
In light of the newly issued IFRS 19, one would be remiss to not ask whether the continued alignment approach impairs the relevance of the SMEs Accounting Standard, if inevitably, the outcome is similar under both sets of Standards.
Authors
Eben Eduard Bakker CA(SA), Head of Audit at Enslins Bethlehem Incorporated, and Madelie Olivey CA(SA), Director and Head of Technical Services at SNG Grant Thornton
