Florin Toma, member of the International Federation of Accountant's Small and Medium Practices (SMP) Committee provides a look at the future of financial reporting for micro-entities.

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The Future of Micro-Entity
Financial Reporting
Florin Toma,
Member, IFAC Small and Medium
Practices (SMP) Committee
OTOC – EFAA Conference
Porto, Portugal
December 5, 2011

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The Future of Micro-Entity Financial Reporting
Agenda
• IFAC Perspectives on the IFRS for SMEs
• Current EU Situation
• Case Study – Romania
• Some Personal Remarks

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IFAC’s Mission
“… is to serve the public interest by: contributing to the
development, adoption and implementation of high-
quality international standards and guidance;
contributing to the development of strong professional
accountancy organizations and accounting firms, and to
high-quality practices by professional accountants;
promoting the value of professional accountants worldwide;
and speaking out on public interest issues where the
accountancy profession’s expertise is most relevant.”
IFAC Perspectives on IFRS for SMEs

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Importance of SMEs and SMPs
IFAC Perspectives on IFRS for SMEs
• SMEs are key to sustainable growth and public interest
• High quality, internationally comparable financial reporting
will help SME sector
• SMPs provide a range of high-quality professional
services to SMEs
• SMPs bring choice & competition into market

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IFAC SMP Committee – Strategic Objectives
IFAC Perspectives on IFRS for SMEs
• Participate in policy-making and regulatory dialogue
(proportionate, stable, relevant)
• Input to development of international standards
(proportionate, stable, relevant)
• Raise awareness of importance of SME sector and role of
SMPs (voice and visibility)
• Provide practical support to SMPs (capacity building)

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IFAC’s Role in Development of IFRS for SMEs
• Closely monitored project and regular input:
– 2004 Discussion Paper
– 2005 Staff Questionnaire
– 2006 IASB Roundtable participation
– 2007 Exposure Draft
• IFAC Board publicly supported project
• Micro entity reporting research (two papers)
IFAC Perspectives on IFRS for SMEs

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IFAC’s View of Outcome
IFAC Perspectives on IFRS for SMEs
“This global accounting standard represents a very
significant step on the path to global convergence of financial
reporting practices by SMEs. It will contribute to enhancing
the quality and comparability of SME financial statements
around the world and assist SMEs in gaining access to
finance. The beneficiaries will be not only SMEs, but also
their customers, clients, and all other users of SME financial
statements” (IFAC Press Release, July 2009)

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IFAC’s View of Outcome
• IASB followed thorough and open due process
• Significant simplification from full IFRS – addresses many
concerns raised on exposure
• SMO (Statement of Membership Obligation) 7: IFRS under
revision:
– may encourage member bodies to consider the use of IFRS for
SMEs for non-public interest entities
• IFRS Foundation’s implementation support (free training
materials, train the trainer workshops etc.) very useful
IFAC Perspectives on IFRS for SMEs

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Micro-Entities
• SMP Committee keeping watching brief
• Some have questioned suitability (e.g., Nexia)
• Exclude from the requirement to prepare and publish
financial reports? (like the US?)
• If no exclusion then use IFRS for SMEs or Micro-GAAP?
IFAC Perspectives on IFRS for SMEs

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Current EU Situation
• Smaller SMEs allowed to present “abridged” financial
statements if Member State implements this option
(abridged FS presentation is still based on same EU
accounting requirements and local GAAPs)
• Many Member States have compulsory filing and
publication requirements for SME financial statements;
some Member States strongly oppose
• No Member State has yet adopted IFRS for SMEs yet; UK
and Ireland plan to adopt
• Awareness amongst SMEs is patchy
Adoption and Implementation

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Current EU Situation
Adoption and Implementation
• EU Commission (EC) review of 4th and 7th Company Law
Directives (‘Accounting Directives’) with aim of reducing
administrative burden for SMEs, improving clarity, and
enhancing international comparability
• EC consultation on IFRS for SMEs: evidence that some
Member States are willing to implement IFRS for SMEs,
while others are not interested or against adoption
• Micros entities a hot issue: proposals might lead to reduced
or no requirements for filing and publication of FS (possibly
just simplified balance sheet on request)

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Case Study - Romania
Entities by EU Size Classification
Micro entities 91.4
Small entities 7.0
Medium entities 1.3
Large entities 0.3
Total 100.0%

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Case Study - Romania
Applicable Standards
a. Full IFRS
– mandatory as unique set of financial statements for banks stating
in 2012
– voluntary application, as a 2nd set of financial statements for
public interest entities
– mandatory for consolidated accounts
b. EU Directives compliant regulations
– mandatory for all SMEs (as single set of financial reporting)

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Study Case - Romania
Applicable Standards cont…
c. Simplified accounting
– for micro entities (with total assets and total sales under 350,000
EUR), introduced this year as part of the EU simplification project
d. IFRS for SMEs
– Romania among the first countries to translate and disseminate the
IFRS for SMEs throughout profession
– regulatory authority (Ministry of Finance) does not envisage
adoption for the time being
– CECCAR project is looking at building SME reporting standards
based on the IFRS for SMEs (adaptation, not adoption).

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Some Personal Remarks
Impediments to EU Adoption of IFRS for SMEs
• IFRS for SMEs simplified version of full IFRS; not
necessarily tailored to needs of SMEs and stakeholders
• Difficulty reconciling with national tax requirements
• Other
– Institutional and political
– Level of development of the local profession
– Level of changes necessary to local regulations (especially tax)

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SMP Quick Poll
• Quarterly poll on challenges and issues faced by SMPs
• Important platform for SMPs to make voice heard
• Results posted at www.ifac.org/smp and SMP eNews
• Only three minutes to complete online
• Portuguese language version for you to have a say at
http://www.research.net/s/SMPQuickPoll-Nov-Dec2011

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Thank You
Questions?