IFRS for SMEs® updated

Global Corporate Reporting Institute | IFRS Today

(This article was published on 29 September 2022 and updated on 27 February 2025)

Highlights

– Effective date – 1 January 2027

The third edition of the IFRS for SMEs Accounting Standard reflects updates that now largely align it with IFRS Accounting Standards. Some areas of divergence remain – the International Accounting Standards Board (IASB) has notably opted to defer alignment with IFRS 16 Leases – but the updated SMEs Accounting Standard now broadly reflects:

IFRS 3 Business Combinations;
IFRS 10 Consolidated Financial Statements;
IFRS 15 Revenue from Contracts with Customers; and
other relevant changes made to IFRS Accounting Standards since 2015.

Brian O'Donovan

Global IFRS and Corporate Reporting Leader

KPMG International

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The IASB’s goal in updating the SMEs Accounting Standard was to minimise the differences from IFRS Accounting Standards while keeping it simple. This has been largely achieved, though deferring alignment with IFRS 16 feels like a missed opportunity.

Brian O’Donovan

Global IFRS and Corporate Reporting Leader

KPMG International

Main areas of change

The IASB has made changes to all sections of the standard. However, many of these are editorial in nature. The following table summarises some of the more important updates.

Section	Changes made
Section 2 Concepts and Pervasive Principles	Revised to align with the 2018 Conceptual Framework for Financial Reporting.
Section 9 Consolidated and Separate Financial Statements	Changed to align with IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosures of Interests in Other Entities. The changes include an amendment to the definition of control and new requirements relating to the loss of control of a subsidiary.
*Section 11 Basic Financial Instruments* and Section 12 Other Financial Instruments**	These sections have been combined and renamed Section 11 Financial Instruments, and changes have been made to reflect the requirements of IFRS 9 (with appropriate simplifications and some exceptions). The amendments include: removing the option to apply the recognition and measurement requirements of IAS 39 Financial Instruments: Recognition and Measurement; and introducing a supplementary principle for classifying debt instruments based on their contractual cash flow characteristics.
Section 12 Fair Value Measurement	A new section on measuring fair value and disclosing information about fair value measurements based on IFRS 13 Fair Value Measurement.
Section 19 Business Combinations and Goodwill	Changed to reflect new requirements in IFRS 3 Business Combinations, including amendments: to the definition of a business; requiring application of the acquisition rather than the purchase method; requiring initial and subsequent recognition of contingent consideration at fair value; and adding requirements for a business combination achieved in stages.
Section 23 Revenue	Revised to align with IFRS 15. Introduces a new revenue recognition model, which is a simplified version of IFRS 15’s five-step model. Transition relief allows companies to apply their current revenue recognition policy to contracts already in progress.
Section 28 Employee Benefits	Changed to require a more detailed reconciliation of the opening and closing balances of a defined benefit obligation, plan assets, and any recognised reimbursement rights.

Areas where differences remain

There are a number of topic areas in which the IASB has not made changes, including the following.

Standard/Topic	Reason for no change
IFRS 16 Leases	The IASB believes that aligning the SMEs Accounting Standard with IFRS 16 now will impose an undue burden on SMEs. It will reconsider its decision in the next comprehensive review of the SMEs Accounting Standard.
IFRS 14 Regulatory Deferral Accounts	IFRS 14 will be replaced when the IASB issues its forthcoming accounting standard, Regulatory Assets and Regulatory Liabilities. The IASB will consider whether to include requirements for regulatory assets and regulatory liabilities in a future review of the SMEs Accounting Standard.
Expected credit loss model for impairment of financial assets	There is no alignment with IFRS 9’s expected credit loss (ECL) model for impairment of financial assets, because the IASB concluded that the model is not relevant for many companies in scope of the SMEs Accounting Standard. It received feedback suggesting that, for those SMEs holding only trade receivables, moving to an ECL model could involve substantial implementation costs. However, the IASB has amended Section 11 Financial Instruments to add a requirement for SMEs to disclose an analysis of financial assets by due date.

Effective date – 1 January 2027

The amended and revised sections of the SMEs Accounting Standard are effective for annual reporting periods beginning on or after 1 January 2027. Earlier application is permitted.