SME standards set for adoption across the globe

Written by Mario Christodoulou

Hunting in packs is often the most effective way for the smaller guys to get their way. It is even the case in the gentrified world of accounting. At least 35 countries have said they will use international accounting rules for smaller businesses within three years, which places pressure on the world’s developed nations to take on the new standards. The countries – many from developing and emerging economies – have indicated they will either require or permit the use of the international financial reporting standards (IFRS) for small and medium-sized businesses (SMEs) by 2013.

Paul Pacter, director of standards for SMEs at the International Accounting Standards Board (IASB), conducted the straw poll during a meeting of standard setters in September 2009 – just two months after the release of the new rules.

The IASB’s seven-year project to produce a consistent set of accounting rules for SMEs culminated in the release of a 230-page booklet last July. The booklet, designed for 99% of the world’s unlisted companies, was welcomed by the World Bank and other international organizations as a means to bring capital into emerging economies. With consistent global accounting rules it is hoped investors will be able to better understand the value of a company, where ever it may exist across the world.

Indeed, it came as little surprise to Pacter that emerging nations – among them Brazil, El Salvador and Swaziland – were among the most eager to adopt the standards. «The little companies in those countries say “we need to have access to capital», – he said. – «For this standard we have a whole new constituency».

Also on the list was the world’s largest economy, the United States, and European states like Denmark and Cyprus. Europe was among those who first supported the idea of international accounting standards for SMEs in 2004, which helped convince a reluctant IASB to begin work on the project. Six years on and the situation has reversed. There are voices in Europe today expressing reluctance to adopt the new rules while the IASB is attempting to promote global adoption.

Reluctance in Europe owes much to objections from France and Germany. At the EU’s headquarters in Brussels, debate revolves around whether to make the new rules voluntary or mandatory. Germany and France both rely on their accounting systems for tax collection, which is fuelling reluctance to support the standards. Ken Wild, senior technical partner with Deloitte, said the situation would delay adoption in Europe. «It’s creating pressure away from adopting the standards, but it’s a pity because it is undermining the quality of accounts for those standards», – he said.

With 55 different SME accounting codes in operation across Europe’s 30 nations there is, however, mounting pressure to adopt the standards, with the UK already consulting on the subject with a view to bring in the rules by the end of the year. In a blow to the IASB’s plans, Pacter’s survey also revealed reluctance from a number of nations. Joining France and Germany on the list was Netherlands, Poland, Malta, Slovenia and Switzerland.

Countries which indicated they plan to require accounting rules within three years:
Bahamas, Bahrain, Brazil, Malaysia, Mongolia, Panama, Saudi Arabia, Cyprus, El Salvador, Ireland, Kosovo, Lebanon, Malawi, Singapore, Swaziland, South Africa, Turkey, Uganda, United Kingdom

Plan to permit within three years:
Argentina, Austria, Chile, Nigeria, Sri Lanka, Tanzania, Denmark, Israel, Namibia, United States, Uzbekistan

May require or permit:
Albania, Australia, Hong Kong, Norway, Romania, Slovakia, Iceland, Moldova, New Zealand, Sweden, Taiwan

No plan to require or permit:
Canada, France, Germany, Mexico, Netherlands, Poland, Japan, Malta, Slovenia, Switzerland