world bank sme financial reporting josé maria bové fee vice-president, sme/smp matters

World Bank

SME Financial Reporting

José Maria Bové

FEE Vice-President, SME/SMP MattersChairman, FEE SME/SMP Working Party

FEE – European Federation of Accountants

Fédération des Experts Comptables Européens – representative organisation for the accountancy profession in Europe

44 Member Bodies of professional accountants

– From 32 countries– With over 500.000 members

Located in Brussels, Belgium

Created in 1987

www.fee.be

FEE Active in the SME/SMP Area

FEE SME/SMP Working Party

Works closely with IFAC SMP Permanent Task Force

EFRAG: Joint EFRAG FEE Working Group IFRS for SMEs

Conferences and Seminars

FEE SME/SMP Working Party Publications

How SMEs Can Reduce the Risk of Fraud ? (October 2005)

Avoiding Business Failure – A Guide for SMEs (October 2004)

How to Prepare to Successful Sale of an Established Family Business

Business Valuation: A Guide for SMEs

Keeping it in the Family – SME Family Business Succession

Directory of FEE Member Body Publications on SME and SMP matters

FEE SME/SMP Working PartyActive Projects

Guide on European Accounting Networks

SME/SMP Aspects of Auditing Standards

IFRS for SMEs

Financial Reporting for SMEs in the EU

What is an SME?

Thresholds Accounting Directives

Small1: Balance sheet total < 4 400 000€

Net turnover < 8 800 000€

Employees < 50

(not exceeding two of the three criteria)

1 New amounts as adopted in December 2005, but not yet published in the Official Journal

Financial Reporting for SMEs in the EU

Medium1: Balance sheet total < 17 500 000€

Net turnover < 35 000 000€

Employees < 250

(not exceeding two of the three criteria)

1 New amounts as adopted in December 2005, but not yet published in the Official Journal

Accounting Directives

Fourth Directive (1978): individual accounts

Seventh Directive (1983): consolidated accounts

Reporting requirements all limited liability companies

Simplification for small and medium sized companies

Simplifications (Member State Option)

Small:

Permission to draw up abridged balance sheets

Permission to publish abridged balance sheet and abridged notes

Permission not to publish profit and loss account, annual report and audit report

Exemption from audit

Simplifications (Member State Option)

Medium:

Permission to adopt different lay-out for profit and loss account

Permission to publish abridged balance sheet and abridged notes

No audit exemption

Background to EU LegislationEU Legislation on Financial Reporting and Auditing

National companieswith statutory audit

Small companies

Listed companies

National “auditable” entities

Specific sector

4th, 7th and 8th Directives

Partnership Directive

Other legal forms Transparency Prospectus

Directives and IAS Regulation

Foreign listedDirectives on financial

institutions

Some EU Data:

Over 20 million companies

Over 4.5 million covered by Accounting Directives

Some 8 000 listed companies (of which some 1400 foreign companies)

National Requirements

In many EU countries financial reporting standards for SMEs are in development or in place

Best known example: FRSSE UK

Need for an IFRS?

Will an IFRS for SMEs in some future replace the Accounting Directives?

IFRS – Changing Accounting

N a tio na l ju risd ic t io ns co u ldre q u ire /a llo w o th e rs (s in g le )co m pa n ies o r co n so lida te d)

to m o ve to IF R S

IF R S re q u ire d fo rco n so lid a te d f in an c ia ls ta tem en ts fo r lis tedse cu rit ie s co m pa n ies

E C Re g u la tionN ° 16 06 /20 02

N a tio na l ju risd ic t io nsm a y w ish to m ove to

IF R S ove r t im e

B a se d o n E U 4 th an d 7 thC o m p a ny L a w D ire c tive s -

su b je c t to ch an g e v iaD ire c tive

N a tion a l G A A P

T w o R o u tesBA

IAS Regulation (2002)

Scope:

Requirement to use endorsed IAS for consolidated accounts of EU listed companies

Optional:

– Consolidated accounts of unlisted companies

– Individual accounts

Endorsement infrastructure:

– EU Accounting Regulatory Committee

– EFRAG (European Financial Reporting Advisory Group)

EFRAG

Set up in 2001

Private sector organisation

Founding fathers:

– UNICE and ERT Business (preparers)

– FEE (accountants)

– Banking organisations (FBE, ESBG, ECBG)

– EFFAS (financial analysts)

– CEA (insurers)

– FESE (securities exchanges)

– UEAPME/EFAA (SMEs)

EFRAG

Main objectives:

Proactive contribution to the work of IASB and IFRIC: Contribute to and influence IASB standard setting process BEFORE a standard is issued

Endorsement advice to the Commission Technical assessment of IFRS and IFRIC interpretation AFTER they are issued

Advising on changes to the EU Accounting Directives

Advisory Forum to discuss

IAS Regulation

Impact on SMEs:

SMEs listed on a stock exchange

Voluntary basis

National standards

IFRS for SMEs ?!

– EU: several millions

– Legal requirements

– National standards for SMEs

– Translation

Reduce the financial reporting burden on SMEs

Need for Global Standards for SMEs

If IFRS are not followed by unlisted company, national GAAP is followed

But, no two national GAAPs are the same

- All look to IFRS to varying degrees. Selective adoption

Danger of 28 “SME GAAPs” in Europe alone

But, need for genuine simplification

Way forward

Criticism of European members of IASB Advisory Group

Alternative EFRAG proposals to arrive at real simplification

Why to Apply IFRS for SMEs ?

World Bank

SME Financial Reporting

José Maria Bové

FEE Vice-President, SME/SMP MattersChairman, FEE SME/SMP Working Party