Question

Pros and cons for adopting IFRS for SMEs

Answer 1

Pros:
1. To small and medium-sized entities, there are generally several benefits in adopting the new set of accounting standard. As the accounting rules in IFRS for SMEs are prepared in a simplified format, it is easier for entities to read and understand.

2. The IFRS for SMEs provides users of accounts the improved comparability.

3. Entity’s financial statements that prepared in different jurisdictions are easier to be compared. This had encourages more cross-border trade and merger and acquisition activity.

4. The simplified IFRS enhances the overall confidence in the accounts of SMEs. This is because it is easier to follow than full IFRS.

5. The IFRS for SMEs helps in reducing the costs of maintaining standards on both a national and international basis.For starters, the adoption helps in reducing the costs of regulatory compliance on SMEs. Apart from that, audit costs would be lower too.

Therefore, generally, SMEs which adopt the new standard will have more time, money and resources to focus on their business operations; this will eventually helps in enhancing the company’s production activity.

Cons:

1. The IFRS for SMEs is not suitable for internal management as it would increase the cost of preparation and audit of individual company accounts and the increased disclosure requirements in the simplified IFRS could potentially put companies at a competitive disadvantage to firms using less stringent accounting rules.

2. Management of the entity would have to redesign internal processes and train staff on new accounting systems.

3. Many small companies that are lack of accounting expertise would need to enlist professional help in this, huge amount of initial adoption costs would incur whenever the standard was revised.

4. Some complex topics such as deferred tax, finance leases and etc have been brought into IFRS for SMEs in order to increase the comparability. Usually, smaller company accounts do not include these.