The ED is of major importance in the context of the Accounting Standards Board’s (ASB) convergence project and is, therefore, of particular relevance in an Irish context. To date, the ASB has consulted on its convergence strategy on three separate occasions, i.e. in 2004, 2005 and 2006 respectively.
In summary, the tentative proposals put forward by the ASB in 2006 were that:
- All publicly quoted and other publicly accountable companies would be required to apply full IFRS, irrespective of turnover and whether they present group accounts or not;
- The use of the ASB’s Financial Reporting Standard for Smaller Entities (FRSSE), which enables small entities to take advantage of certain simplified requirements, would be extended beyond small companies to include medium-sized entities;
- Subsidiaries of parent entities that apply full IFRS would also be required to apply full IFRS in respect of measurement and recognition, but with reduced disclosure requirements (not yet defined); and
- No definitive proposals were put forward regarding companies that do not fall within categories 1, 2 or 3 above. Alternatives that were identified, however, included:
- extending the application of the FRSSE further;
- applying IFRS to more companies;
- maintaining UK GAAP for affected entities; or
- some combination of these three alternatives.
Responses to the ASB’s proposals broadly supported a two-tier approach, with the lower end of the spectrum potentially being based on the IASB’s SME project. In that context, the ASB stated that once the IASB’s proposals were published it would consider further as to whether the proposals contained therein are, in its judgement, suitable for the needs of its UK and Irish constituents.
As is clear from the foregoing, the ED is particularly important to Irish stakeholders and will require detailed consideration for the following reasons:
- whether the ASB deems the ED as being suitable for the UK and Ireland will, potentially, be a key determinant of whether, and if so to what extent, ASB Standards will converge with IFRS in the future.
- It is a matter for each EU Member State to decide upon which accounting standards SMEs should follow. In that context, the ASB’s deliberations on the suitability of the ED for use by SMEs is likely to be influential in Ireland’s decision making process in this regard.
- This IASB ED could be the accounting standard used by SME companies in the future and constituents should determine whether they deem them suitable for their needs and respond to the ED as they see fit.
It should be noted that the ED defines SMEs as entities that:
- do not have public accountability; and
- publish general purpose financial statements for external users.
However, the IASB believes that the proposed framework of IFRS for SMEs would be suitable even for very small entities. The FRSSE can currently only be used by companies that qualify as small under the Companies Acts and other entities of similar size. Therefore, the ED accommodates much larger entities than the FRSSE and this needs to be borne in mind when analysing and comparing the two documents.
It is anticipated that the ASB will issue the ED for consultation with an accompanying ASB Invitation to Comment, giving an insight into the Board’s initial views on the Exposure Draft and its potential implications for UK and Irish entities.
- Michael Kavanagh
- Head of Financial Reporting Supervision
- Irish Auditing and Accounting Supervisory Authority (IAASA)
- Willow House
- Millennium Park
- Naas, Co. Kildare