Quoted companies already use IFRS, but so called “Non public Interest” or unquoted companies will have to adapt IFRS for SME in 2012/2013.

Reported profits will be different under the new rules, for some businesses it will be higher and some lower; it depends on what business the company is undertaking, explained Aidan Clifford, ACCA’s (Association of Chartered Certified Accountants) Advisory Services manager.

For example, a company with a lot of intellectual property will have a different affect on their profits to a property owning company. Assets and liabilities will be measured differently and some new assets and liabilities will appear on an IFRS for SME balance sheet that were not there under UK rules. For example, property may be re-valued to market value under UK rules but must stay at cost under IFRS for SME; some financial instruments such as derivatives were “off balance sheet” under UK rules but will be included at fair value under IFRS for SME. The former example will tend to show lower building valuations and lower depreciation and higher profits under IFRS for SME and the latter example will accelerate profits in the short term and reduce long term profits under IFRS for SME.

A newly published guide (The new Irish GAAP – how would the numbers look? – A report on whether the IFRSfor SMEs will affect the reported profits of Irish companies), produced by ACCA identifies the major accounting and tax differences and the opportunities the change will bring.

“It is important for companies to identify where the change might be an issue for their business at the earliest opportunity. Performance related pay and bank loan covenants being breached could be an issue simply because of the different way of measuring profits and assets and liabilities. ACCA’s publication identifies the accounting and taxation implications of the change and whether profits would be higher or lower under IFRS for SME for different types of businesses,” said Mr Clifford.

Other useful guides to IFRS include:

http://ireland.accaglobal.com/pubs/ireland/members/tech_info/accounting/tech_afb_nig.pdf

http://www.accountancyireland.ie/Archive/2008/December-2008/IFRS-for-Private-Entities-A-Practical-Guide/

http://www.cpaireland.ie/UserFiles/File/Flyer%204%202.pdf

http://www.cpaireland.ie/UserFiles/File/Sep%20Articles/Acc%20Plus%20Aut09_Fiona%20Hackett.pdf

Roger Brownlie, for Vistage

Firms can do themselves a big favour with their suppliers and financiers where they can prove to everyone’s satsifaction that their accounts present a full and fair picture of the state of the Company.
Writing recently in Finance Dublin, Brendan Sheridan of Deloittes observes that “disclosures should be more detailed than in times of economic growth.”
He notes that the UK Financial Reporting Review Panel recently reviewed 326 financial statements. It found that “the current standard of reporting remains good, with evidence of continuing improvement.” However, it drew attention to a number of areas including principal risk, liquidity and asset impairment as areas requiring particular attention.
As Mr Sheridan observes : “the robustness  of corporate strategies and the fundamental assumptions on which financial statements are produced have been significantly tested and questions do exist as to whether the marketplace has been adequately informed regarding the extent of change that this has brought about.”

The International Accounting Standards Board, meanwhile, is on course to introduce simplified accounting standards for SMEs. The new regime will seek to take account of the fact that users of SME financial statements are more interested in current liquidity issues, and short term cash flows than in longer term forecasts.

PriceWaterhouseCooper has produced an interesting analysis.

According to PWC, under current proposals from the accounting standards board, the current Irish and UK reporting regime may case to exist by 2012.
It warns that the new regime, or IFRS ( international reporting standard ) for SMEs could present a challenge ( not to mention plenty of new opportunities for accountancy firms.
Under IFRS, for example, firms will no longer have an opportunity to revalue tangible fixed assets in their accounts. There will be increased recognition of intenglible assets while the requirement to present cash flow statements will be extended to all companies ( under the current rules, an exemption applies to 90% plus subdidiaires. )
Written by Kyran Fitzgerald