Comment on the IASB's Exposure Draft ‘IFRS for Small and Medium-Sized Entities’1

¹The opinions in this document reflect the opinions of the authors and not necessarily those of the EAA membership.

Abstract

In February 2007 the IASB invited comments on its Exposure Draft of a proposed IFRS for Small and Medium-Sized Entities. The deadline for comments was 30 November 2007. Below we reproduce3 the comment letter prepared by the European Accounting Association's Financial Reporting Standards Committee (EAA FRSC). This is a follow up of the EAA FRSC's comment letter prepared in response to the IASB's Discussion Paper on ‘Preliminary Views on Accounting Standards for Small and Medium-Sized Entities’, published in 2005. Our comment is structured as follows: we initially sketch the background to the development of the Exposure Draft. We then revisit the key issues arising from our previous comment letter. This is followed by a survey of relevant literature published since the Discussion Paper. We then briefly address the questions raised by the IASB in the context of the Exposure Draft, before summarising the key issues arising from the literature which we consider relevant to the IASB's project.

Notes

¹The opinions in this document reflect the opinions of the authors and not necessarily those of the EAA membership.

²The members of the EAA FRSC are: Günther Gebhardt, Johann Wolfgang Goethe-Universität Frankfurt (chair); Graeme Dean, University of Sydney; Roberto DiPietra, University of Siena; Lisa Evans, University of Stirling; Martin Hoogendorn, Erasmus University Rotterdam and Ernst and Young; Jan Marton, Göteborg University; Araceli Mora, University of Valencia; Ken Peasnell, Lancaster University; Frank Thinggaard, Aalborg University; Alfred Wagenhofer, University of Graz.

³Some minor amendments and corrections were made to this version after submission of the comment letter to the IASB.

⁴This earlier comment letter is available at: www.iasb.org/Archive + Information/Archive + IASB + Project + Comment + Letters.htm (comment letter number CL 72). The literature review was published in Evans, L., et al. (2005) ‘Problems and Opportunities of an International Financial Reporting Standards for Small and Medium-Sized Entities. The EAA FRSC's Comment on the IASB Discussion Paper’, Accounting in Europe, 2, pp. 23–45.

⁵For a general discussion on the complexity of differential reporting see Eierle (2005).

⁶On behalf of the American Accounting Association's Financial Accounting Standards Committee.

⁷Note also that where only one set of accounts is produced which also serves tax purposes, companies are likely to exploit accounting choices and engage in earnings management to reduce taxation. This also applies to SMEs (see Garrod et al., 2007) and is unlikely to cease with the adoption of IFRS (Nobes, 2006). Garrod et al. (2008) show, for small private companies in a transitional economy (Slovenia), ‘incremental influence of economic incentives over prescriptions from accounting standards by financial statement preparers in a code-law setting with high alignment between financial and tax reporting and no agency problems’.

⁸For example, normal trade accounts and receivables and payables, bank loans, investments in non-convertible debt instruments (ED.11.10).

⁹For example, investments in equity instruments with published price quotations; interest rate swaps, options and forward contracts, investments in convertible debt, etc. (ED.11.11).

¹⁰Some additional insights are provided in Eierle et al. (2007, 2008). As these were not included in our response to the IASB's questions we felt it inappropriate to do so now. The literature review however has been updated to include these references.

Additional information

Notes on contributors

On Behalf Of The European Accounting Association's Financial Reporting Standards Committee

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