Essay On IFRS

1820 Words8 Pages
Small, medium enterprises (SMEs) are largest types business in the world, making up an estimated 99.7% of business. According to the Federation of Small Businesses (FSB) there are nearly five million existing businesses in the UK as of 2013. SMEs are a key contributor towards economic growth in terms of creating more employment, stimulating innovation and promoting social unity. SMEs are responsible for 47% of private sector employment, yet despite such global present there is still no agreed definition of a SME (Storey 1994). Bolton (1971) attempted to define them through a statistical and economic analysis. Classifications which are based on criteria, such as number of employees or annual turnover, however, do not remain consistent across borders. Given their size, smaller companies tend to be more intent on survival rather than expansion and profit maximisation. Smaller sized firms have always felt that the current reporting framework for IFRS is tailored more for the needs of larger companies and that the heavy cost burden it imposes upon them may not be entirely justified. In response to these concerns, the IASB subsequently issued the IFRS for Small and Medium-sized Entities (IFRS for SMEs) in July 2009. This standard offers an alternative framework which can be adopted by entities in place of the already extant full set of IFRSs or local national requirement standards.(Holt 2010) This essay will critically evaluate the impact of the IFRS for SME’s and whether or not it stands as the most suitable framework available for SMEs to use. IFRS for SMEs was created for any company that does not have public accountability. IFRS for SMEs avoids a quantified size test but assumes a public accountability principle, so no dispute ab... ... middle of paper ... ...pt. That is however, not to say that it is without its problems, as previously discussed, it can possibly lead to a two tier system of reporting, despite reducing complexity its flexibility can limit comparability and place a heavy onus in terms of judgement of the preparer. Finally its simplifications may perhaps infringe upon the ease of which a private entity wishes to become public listed company. However, the disadvantages of adopting the standard are fat outweighed by the potential benefits it offers. As more time goes on, we will no doubt see more countries and companies adopting the standard. If capital providers (primarily banks) clearly understand and have confidence in the financial statements prepared under the guidance of the standard; then an SMEs ability to obtain the capital it need improves. Ultimately the economy in which it operates improves.
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