Second Comprehensive Review of the IFRS for SMEs Accounting Standard

The IASB met on 22 June 2022 to discuss whether and, if so, how to propose amendments to the IFRS for SMEs Accounting Standard as a part of the second comprehensive review.

Towards an exposure draft—Guidance on public accountability (Agenda Paper 30A)

The IASB tentatively decided:

1. not to include guidance on public accountability from Module 1 Small and Medium-sized Entities in the IFRS for SMEs Accounting Standard;
2. not to include guidance on public accountability from Module 1 in the proposed Accounting Standard Subsidiaries without Public Accountability: Disclosures when it is finalised; but
3. to make Module 1 separately available on the IFRS Foundation’s website as educational material to support the proposed Accounting Standard Subsidiaries without Public Accountability: Disclosures, when that Accounting Standard is finalised.

Eight of 10 IASB members agreed with this decision.

Towards an exposure draft—Additional simplifications to IFRS 15 Revenue from Contracts with Customers (Agenda Paper 30B)

The IASB tentatively decided to propose amendments to the IFRS for SMEs Accounting Standard to align Section 23 Revenue of the Standard with IFRS 15 Revenue from Contracts with Customers, with simplifications for:

1. Customer options for additional goods or services—an SME would be required to:
   1. account for an option that provides a material right to the customer (excluding contract renewal options) as a separate performance obligation when the effect of doing so is significant to the individual contract; and
   2. account for contract renewal options based on the expected contract term and the corresponding expected consideration.
2. Principal-versus-agent considerations—an SME would be determined to be acting as a principal if:
   1. it controls the distinct good or service (or a distinct bundle of goods or services) to be provided to a customer before the good or service (or the distinct bundle) is transferred to the customer; or
   2. it is primarily responsible for fulfilling the promise to provide that good or service.
3. Warranties—if a contract with a customer includes a warranty and the customer does not have the option to purchase a warranty separately an SME would be required, if the warranty is significant to the contract, to assess whether the warranty provides the customer with a service in addition to the assurance that the product complies with agreed-upon specifications.
4. Licensing—a licence would be determined to provide a customer with a right to access an SME’s intellectual property if the SME expects to undertake activities that either:
   1. would significantly affect the benefit the customer obtains from the intellectual property by changing the substance of the intellectual property; or
   2. could significantly affect the benefit the customer obtains from the intellectual property by directly exposing the customer to any positive or negative effects of those activities.
5.  Allocating discounts and variable consideration—an SME would be required to allocate discounts and variable consideration to the performance obligations in a contract on a relative stand-alone selling price basis, unless this basis did not depict the amount of consideration to which the SME expects to be entitled in exchange for satisfying each separate performance obligation. In such a case, the SME would instead be required to use a method that reflects the amount of consideration to which the SME expects to be entitled in exchange for satisfying each separate performance obligation.
6. Allocating variable consideration—when an SME transfers distinct goods or services promised in a series of distinct goods or services that forms part of a single performance obligation, the SME would be required to allocate variable consideration to all the distinct goods or services that form part of the single performance obligation, unless this does not depict the amount of consideration to which the SME expects to be entitled in exchange for transferring the promised goods or services to the customer. In such a case, the SME would instead be required to use a method that reflects the amount of consideration to which the SME expects to be entitled in exchange for transferring the promised goods or services to the customer.

All 10 IASB members agreed with these decisions.

The IASB also decided to revisit the tentative decision it made in February 2022 and tentatively decided to propose amendments to Section 23 of the IFRS for SMEs Accounting Standard to require, rather than permit, an SME to account for a promise to transfer a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer as a separate performance obligation, in line with the requirement in IFRS 15 (that is, without any simplification).

All 10 IASB members agreed with this decision.

The IASB also tentatively decided to propose amendments to Section 23 of the IFRS for SMEs Accounting Standard to require an SME to disclose:

1. revenue recognised from contracts with customers disaggregated into categories, showing separately, at a minimum, revenue arising from:
   1. the sale of goods;
   2. the rendering of services;
   3. royalties;
   4. commissions; and
   5. any other significant types of revenue; and
2. when the SME typically satisfies its performance obligations (based on paragraph 119(a) of IFRS 15).

All 10 IASB members agreed with this decision.

The IASB also tentatively decided not to introduce into Section 23 of the IFRS for SMEs Accounting Standard disclosure requirements based on paragraphs 89, 90, 93 and 97 of the Exposure Draft Subsidiaries without Public Accountability: Disclosures.

All 10 IASB members agreed with this decision.

Towards an exposure draft—Transition to the third edition of the IFRS for SMEs Accounting Standard (Agenda Paper 30C)

The IASB tentatively decided to propose transition requirements for:

1. the amendments to the IFRS for SMEs Accounting Standard that would align the Standard with IFRIC Interpretations and amendments to full IFRS Accounting Standards; and
2. guidance for first-time adopters of the IFRS for SMEs Accounting Standard.

The transition requirements to be proposed in the IFRS for SMEs Accounting Standard are based on the transition requirements for the related IFRIC Interpretations and amendments to full IFRS Accounting Standards, with the exception of:

1. an option to apply retrospectively the amendments to Section 16 Investment Property and Section 26 Share-based Payment of the Standard that the IASB plans to propose. The IASB tentatively decided to propose not to include such an option; therefore, an entity would be required to apply the amendments to Section 16 and Section 26 prospectively.
2. a relief from providing comparative disclosures of the changes in liabilities arising from financing activities. The IASB tentatively decided not to propose such a relief. An entity applying the amendments to Section 7 Statement of Cash Flows of the Standard that the IASB plans to propose would, therefore, be required to provide comparative disclosures of changes arising from financial activities, including changes arising from cash flows and non-cash flows.

All 10 IASB members agreed with these decisions.

Due process and permission to begin the balloting process (Agenda Paper 30D)

The IASB tentatively decided to set a comment period of 180 days for the exposure draft being developed for the project.

Nine of 10 IASB members agreed with this decision.

The IASB discussed the due process steps—including permission to begin the balloting process—for the exposure draft.

All 10 IASB members confirmed they were satisfied that the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the exposure draft.

No IASB member indicated an intention to dissent from the proposals in the exposure draft.