IASB Decmeber 2006

At its meeting in October 2006, the Board directed the staff to prepare a pre-ballot draft of an Exposure Draft of an IFRS for SMEs. In early November, the staff sent the pre-ballot draft to the Board for written comments. (This draft is also publicly available to download on the IASB’s Website.)

Some Board members questioned whether paragraph 10.3 of the pre-ballot draft properly reflected a decision regarding the GAAP hierarchy in the IFRS for SMEs. Paragraph 10.3 said:

In making the judgement described in paragraph 10.2, management shall refer to, and consider the applicability of, the following sources in descending order:

(a) the requirements and guidance in this IFRS dealing with similar and related issues; and

(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses and the pervasive principles in Section 2 Concepts and Pervasive Principles; and

(c) the requirements and guidance in full IFRSs and Interpretations of full IFRSs dealing with similar and related issues.

Several Board members recalled that in October, the Board had decided to move subparagraph (c) of paragraph 10.3 to paragraph 10.4. Paragraph 10.4 identifies other non-mandatory sources of guidance that entities may use. The Board’s reasons for that decision were:

• SMEs are likely, in most cases, to conclude that they can find answers using (a) and (b), so (c) is unlikely to be invoked;
• requiring SMEs to look to full IFRSs imposes on an entity two sets of standards with some recognition and measurement differences; and
• leaving (c) in paragraph 10.3 creates a potential conflict between auditors—who are likely to be aware of the provisions of full IFRSs—and SME managers—who are responsible for preparing the financial statements and may have done so solely on the basis of the IFRS for SMEs.

The staff asked the Board to confirm its decision, so that paragraph 10.4 would then say:

In making the judgement described in paragraph 10.2, management may also consider the requirements and guidance in full IFRSs and Interpretations of full IFRSs dealing with similar and related issues. If additional guidance is needed to make the judgment described in paragraph 10.2, management may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in paragraph 10.3.

The Board concurred that paragraph 10.4 as revised reflected the decision reached in October 2006.