Second Comprehensive Review of the IFRS for SMEs Standard

The IASB met on 14 December 2021 to discuss whether and, if so, how to propose amendments to the IFRS for SMEs Standard.

Towards an exposure draft—IFRS 3 Business Combinations (Agenda Paper 30A)

The IASB tentatively decided to propose amendments to Section 19 Business Combinations and Goodwill of the IFRS for SMEs Standard.

The proposals would align the definition of a business in the IFRS for SMEs Standard with the amended definition of a business issued in the amendments to IFRS 3 Business Combinations in October 2018 by reproducing, in a new appendix to Section 19, application guidance that includes:

1. the optional concentration test set out in paragraphs B7A–B7B of IFRS 3;
2. a decision tree to assess whether an acquired process is substantive; and
3. the application guidance for the assessment set out in paragraphs B8⁠–⁠B12D of IFRS 3, alongside some illustrative examples.

Eleven of 12 IASB members agreed with this decision.

The proposals would also partially align Section 19 with the requirements for acquisition-related costs and contingent consideration, as set out in IFRS 3, requiring an entity:

1. to recognise acquisition-related costs as an expense at the time of the acquisition. Ten of 12 IASB members agreed with this decision.
2. to recognise contingent consideration at fair value and subsequently measure it at fair value at each reporting date, with changes in fair value recognised in profit or loss (except for the subsequent measurement of any contingent consideration that meets the definition of an equity instrument). If measuring contingent consideration at fair value would involve undue cost or effort, an entity would be required to measure the contingent consideration using a ‘best estimate’ (the most likely outcome)—with changes in the subsequent measurement being recognised in profit or loss—and provide the related disclosures. Eight of 12 IASB members agreed with this decision.

The proposals would also add the requirements set out in IFRS 3 on accounting for an acquisition achieved in stages (step acquisitions). The IASB also tentatively decided to ask for further views on these requirements in the invitation to comment. All 12 IASB members agreed with these decisions.

The proposals would as well introduce guidance (in the new appendix to Section 19) for a new entity formed in a business combination, as set out in paragraph B18 of IFRS 3 and the application guidance set out in paragraphs B13–B17 of IFRS 3. All 12 IASB members agreed with this decision.

Finally, the IASB tentatively decided to retain unchanged the requirement in Section 19 that an entity measure any non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Seven of 12 IASB members agreed with this decision.

Towards an exposure draft—IFRS 10 Consolidated Financial Statements (Agenda Paper 30B)

The IASB tentatively decided to propose amendments to Section 9 Consolidated and Separate Financial Statements of the IFRS for SMEs Standard to align partially with IFRS 10 Consolidated Financial Statements, by:

1. aligning the definition of control in Section 9 with that in IFRS 10;
2. retaining and updating the rebuttable presumption in paragraph 9.5 of the IFRS for SMEs Standard relating to the assessment of control; and
3. not introducing in the IFRS for SMEs Standard the requirement that an investment entity measures its investments in subsidiaries at fair value through profit and loss.

All 12 IASB members agreed with these decisions.

Towards an exposure draft—IFRS 11 Joint Arrangements (Agenda Paper 30C)

The IASB tentatively decided to propose amendments to Section 15 Investments in Joint Ventures of the IFRS for SMEs Standard to align partially with IFRS 11 Joint Arrangements, by:

1. aligning the definition of joint control in Section 15 with that in IFRS 11. All 12 IASB members agreed with this decision.
2. retaining the classifications of joint arrangements: ‘jointly controlled operations’, ‘jointly controlled assets’ and ‘jointly controlled entities’. Eleven of 12 IASB members agreed with this decision.
3. retaining the accounting requirements of Section 15, including the accounting policy election for jointly controlled entities. All 12 IASB members agreed with this decision.

Towards an exposure draft—IFRS 9 Financial Instruments (Agenda Papers 30D–30E)

The IASB tentatively decided to propose amendments to Section 11 Basic Financial Instruments of the IFRS for SMEs Standard by adding the definition of a ‘financial guarantee contract’ from IFRS 9. All 12 IASB members agreed with this decision.

At the meeting, the IASB also provided direction to the staff for developing an expected credit loss model in Section 11. This model will be considered at a future meeting, together with the measurement requirements for issued financial guarantee contracts.

Towards an exposure draft—Amendments to IFRS Standards and IFRIC Interpretations (Agenda Paper 30F–30J)

The IASB tentatively decided:

1. to propose amendments to the IFRS for SMEs Standard to align it with:
   1. Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), with an exemption so that if, at initial recognition, separation of the bearer plants from the produce growing on bearer plants would involve undue cost or effort, an entity would not be required to separate bearer plants from the produce growing on bearer plants. Ten of 12 IASB members agreed with this decision.
   2. a package of amendments to IAS 1:
      1. Definition of Material (Amendments to IAS 1 and IAS 8);
      2. Disclosure Initiative (Amendments to IAS 1); and
      3. Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2). All 12 IASB members agreed with this decision.
   3. the amendments discussed in Agenda Paper 30I and listed as items 2–7, 9–12 in the table in Appendix A to Agenda Paper 30F. All 12 IASB members agreed with this decision.
2. to retain the IFRS for SMEs Standard unchanged for the amendments discussed in Agenda Paper 30J and listed as items 15–30 in the table in Appendix A to Agenda Paper 30F. All 12 IASB members agreed with this decision.
   

Towards an exposure draft—Other topics with amendments recommended (Agenda Paper 30K)

The IASB tentatively decided:

1. to retain paragraph 22.7(a) of the IFRS for SMEs Standard unchanged. Seven of 12 IASB members agreed with this decision.
2. to propose amendments to Section 26 Share-based Payment of the IFRS for SMEs Standard to include scope exclusions similar to those in paragraph 5 of IFRS 2 Share-based Payment. All 12 IASB members agreed with this decision.
3. to retain the requirements in Section 26 on share-based payments with settlement options unchanged. All 12 IASB members agreed with this decision.