General observations about the adequacy of the proposed ED IFRS for SMEs issued by IASB as a suitable accounting framework for SMEs

The goal of this document is to analyse the main structural features of the Exposure Draft of a proposed International Financial Reporting Standards for Small and Medium Sized Entities – ED IFRS for SMEs [ED], to find out if the some of its basic assumptions are consistent with the targeted entities to which it is addressed. With its ED IFRS for SMEs, IASB has made a strong effort towards the creation of a set of high-quality, harmonized accounting standards for Small and Medium-Sized entities as a mean to reduce differences among the various accounting framework currently in use worldwide, however the results achieved are not completely satisfactory fot the time being. The major criticisms that this working paper moves to the architecture of the standard deal with i) the lack of consistency between the real information needs of SMEs Financial Statements users and the method chosen by IASB in determining its actual content (paragraph 1), (ii) the actual stand-aloneness of the ED as a consequence of the choices made by IASB in terms of relationship between the definition of SME and the content of the ED (paragraph 2). A tentative conclusion of the criticisms made is to carry out a University Research among SMEs and their major stakeholders in order to identify the actual needs of the users of SMEs Financial Statements and to establish the real compliance of the framework used by IASB in drafting the proposed ED with them. The third paragraph shows the potential relationships between the proposed ED once issued and the EU accounting legislation so as to underline the need for a strong reform of the present structure of EU Accounting directives, the content of which has been notably complicated because of the various changes which from time to time were due to the advances in accounting theories and resulted in adding new options in representation, recognition and measurement of the transactions and other events to the formers. The risk, which is at present only a far threat, is to underestimate at EU level the urge for a change in the text of the accounting directives delaying the reduction of the above-mentioned options (and the multiplied effect they can have in spreading heterogeneity in the actual content of the accounting legislation which introduces their rules at national level) because of the lack of agreement among Member States about the simplifications to be made. In the mid term, such a stalemate situation, added to the need for really harmonised standards in order to ease the creation of the EU Internal Market, could force EU institutions to adopt the version of the IFRS for SMEs at that time issued and enacted as the framework for non listed limited liability companies, by means of a Regulation immediately enacted and adoptable in each Member State. It could happen the same process which led in ten years to the adoption of Full IFRSs for the preparation and presentation of consolidated Financial Statements for listed companies in the EU financial markets.