July 2021

Hard work could pay dividends if this subject comes up in the next Strategic Business Reporting exam – and Martin Jones expects that it might just do so…

It appears that this subject has come back on the radar for ACCA SBR students. The subject has been on the syllabus since the standard was first issued in 2009. But since the early years this subject has been rarely examined. However, a recent article on the ACCA SBR webpages and a recent exam question appear to indicate we can expect more from this subject.

The subject is largely just learning. So if you can cram a flavour of this knowledge into your head and get lucky with an exam question on the subject then you can expect to score good marks.

The ACCA article starts with this quote and we will use this to get the ball rolling: “The SMEs Standard is self-contained, incorporating accounting principles based on extant IFRS Standards which have been simplified to suit the entities that fall within its scope.”

So the IFRS for SMEs is simplified accounting in theory available to companies that are not public interest entities.


In practice, however, the availability is restricted, because the IFRS for SMEs has not been widely adopted across the world following issue despite being widely demanded before issue. Essentially, the IFRS for SMEs is only available to SMEs in the UK. Even the UK SME accounting is only loosely based upon the IFRS for SMEs.


Despite the name ‘International Financial Reporting Standard for Small and Medium Entities’ the definition of an SME has nothing to do with size. In fact, the IFRS for SMEs does not define ‘SME’ at all, it simply recommends a definition based upon limited public interest and leaves the actual definition down to the governments of each country as that country adopts the IFRS for SMEs.

The IFRS for SMEs recommended definition is that an SME is an entity with no publicly traded instruments that operates outside of the finance industry. So HSBC would fail this definition twice; once because HSBC is in the finance industry and again because HSBC is listed. But Asda would qualify as an SME despite its size because it is not a bank and all its shares are held by the parent Walmart.


The IFRS for SMEs was developed essentially by taking the full IFRS and taking some stuff out (exclusions) and dumbing down other elements (simplifications).


The main exclusions are elements of financial reporting that apply to listed finance entities.

Since an entity cannot be listed or financial these elements can be safely removed from the IFRS for SMEs as follows:

• earnings per share
• interim financial reporting
• segmental reporting
• insurance
• assets held for sale


Some of the main simplifications in the IFRS for SMEs are as follows:

1: Goodwill recognition
Partial method is required.

2: Goodwill amortisation
Amortisation is required (over 10 years) to avoid the annual impairment test.

3: Borrowing costs
The capitalisation of finance cost on PPE is not allowed.

4: Development costs
Development is written off like research.

5: Financial Instruments
FI are generally held at amortised cost except derivatives which are carried at fair value.

6: Associates and Joint Ventures
These can be carried at cost.


The IASB are fond of saying that the IFRS for SMEs is only 10% of the full IFRS and thus is a 90% reduction in the burden upon SMEs.

This somewhat bizarre statistic is actually a reference to the number of words in the IFRS for SMEs as compared with the words in the full IFRS. In practice, SMEs must still do most of the accounting that full IFRS expects including cash flow statements and deferred tax and share based payment accounting.

So the reality is that the IFRS for SMEs is not quite such a spectacular reduction in burden to SMEs.

Exam advice

The trick with this subject is to reread the above and try to get a flavour of the IFRS for SMEs. Then if you are faced with a question in the exam on the IFRS for SMEs then try to play with what you remember to score marks. It is highly unlikely that you will need to remember everything. So go for flavour recall.

• Martin Jones is a lecturer at the London School of Business & Finance