The South African Institute of Chartered Accountants (SAICA) has developed an SME guide for applying the International Financial Reporting Standard.
SAICA said in a statement this was in response to the requests from the accounting profession servicing the SME market and micro entities across South Africa for guidance that will simplify and reduce the cost to prepare financial statements for micro entities.
This guide is in the form of an easy-to-use electronic toolkit that comprises a user checklist, an application guide with practical examples, illustrative financial statements, and a disclosure checklist. The guide is aimed primarily at assisting micro entities such as close corporations and companies with a public interest score (as determined by the Companies Act) below 100 points, partnerships and sole-proprietorships, with the practical application of the IFRS for SMEs standard. The guide may also be useful for entities with a public interest score between 100 and 350 points.
SAICA’s Project Director of Financial Reporting Sue Ludolph this guide would assist entities in complying with legislative requirements. “In particular, the Companies Act of 2008 and the Companies Regulations 2011 which became effective from 1 May 2011, provides that companies with a public interest score below 350 may apply IFRS for SMEs provided that the scope requirements of the standard are met. Companies as defined in the Companies Act now encompass close corporations”.
Developed in conjunction with W.consulting, the guide enhances the user’s understanding of how to apply the standard to a micro entity by focusing on the most expedient accounting policies permitted and by reducing emphasis on the many elements of the standard that are not likely to be applicable for a micro entity. Basing the guide on an electronic platform allows the user to easily navigate through the guide by making use of the in-built search function and allows for live updates.
While these companies may apply IFRS, in most instances, IFRS for SMEs would be preferable as it is far simpler. The guide on Applying IFRS for SMEs for Micro Entities (also referred to as GAAP for Micros) would mainly be aimed at these companies.
South Africa was the first country in the world to adopt the Exposure Draft on the IFRS for SMEs for use by local companies, when it was issued by the International Accounting Standards Board (IASB) in 2007. The intention of the early adoption of the standard at the time was to provide immediate relief for limited interest companies under the then pending Corporate Laws Amendment Act of 2007.
“As a result of the early adoption of the standard in South Africa, SAICA provided significant feedback to the IASB on the practical issues identified by local companies in implementing the standard, which helped shape the final IFRS for SMEs standard,” says Ludolph, adding that SAICA will continue to take a leadership role in international financial reporting standards.
South Africa is the first in the world to develop this form of application guidance specifically designed to assist micro entities to apply IFRS for SMEs. The IASB has just recently announced their intention to take IFRS for SMEs and cut out the sections not applicable to a typical micro entity and issue this as a guide on how to use the IFRS for SMEs for a micro entity. They will be looking at what SAICA has done to assist them. This has vindicated SAICA’s solution and again shows that South Africa is a world leader.
Bruce Mackenzie of W.consulting, who is also a member of SAICA’s Accounting Practices Committee sub-committee on SMEs and the IASB’s SME Implementation Group, explains that the guide is designed to result in compliance with IFRS for SMEs. This innovative approach of working within the constraints of an approved and recognised international reporting framework, whilst simplifying it for the majority of micro entities, results in an incredibly practical and flexible tool for users.
In short, benefits for a micro entity in using the toolkit are:
- A textbook approach with case studies;
- A robust and stable reporting framework which can be used as the entity grows;
· The basis of preparation for your accounts is IFRS for SMEs , which is understood and accepted in South Africa and internationally;
· The accounts are prepared in terms of a recognised framework that can be audited or independently reviewed;
· Makes use of all the relevant exemptions and expedient options permitted by the IFRS for SMEs standard, making it easy to apply in practice.
This electronic guide is available not only to SAICA members but to everyone involved in preparing financial statements for micro entities. SAICA will be conducting seminars countrywide on how to apply IFRS for SMEs to Micro Entities.