Mr Paul Pacter
Chairman, SME Implementation Group
30 Cannon Street
London
EC4M 6XH |
1 December 2011
Dear Mr Pacter
Draft Q&A General, Issue 1: Application of the IFRS for SMEs for financial periods ending before the IFRS for SMEs was issued
Draft Q&A General, Issue 2: Interpretation of ‘undue cost or effort’ and ‘impracticable’
Draft Q&A Section 3, Issue 1: Jurisdiction requires fallback to full IFRS
Draft Q&A Section 3, Issue 2: Departure from a principle in the IFRS for SMEs
Draft Q&A Section 3, Issue 3: Prescription of the format of financial statements by local regulation
We are pleased to respond to the SME Implementation Group’s invitation to comment on the above draft Q&As. Following consultation, this letter summarises the views of the BDO network 1.
As an overall comment, we are not convinced that it is appropriate to issue the draft Q&As. Principal reasons are:
- We do not consider that the issues covered by the Q&As are sufficiently judgemental, with an associated lack of guidance in the IFRS for SMEs and risk of inconsistency in practice, to justify their publication. While it may be the case that these questions have been raised by constituents, this does not by itself give sufficient reason to issue guidance.
- We consider that it is inappropriate for a large number of Q&As to be issued. In this context, we note that 11 draft Q&As have been issued since February 2011. We believe that unless an issue is urgent, and gives rise to widespread application issues with an associated risk of substantial divergence in practice, it should be dealt with during the periodic updates of the IFRS for SMEs itself.
With regard to Draft Q&A General, Issue 2: Interpretation of ‘undue cost or effort’ and ‘impracticable’, we believe that it is wholly inappropriate for the SMEIG to issue a Q&A that covers a topic that is, or could be, relevant to full IFRS. We acknowledge that the draft Q&As (and any final Q&As that are issued) state that they relate to the IFRS for SMEs.
However, there is a significant risk that these Q&As might be viewed as being appropriate guidance to be applied for the purposes of full IFRS where the guidance is not clear, via the hierarchy in IAS 8.10-12. For those, instead of developing a Q&A, the SMEIG might refer them to the IFRS Interpretations Committee.
As a further general comment, we note that the Q&As are not subject to due process to the extent that would be expected of documents issued by the IASB. While we acknowledge that the guidance in Q&As is not mandatory, there is a significant risk that this is how they will be perceived and applied in practice. Consequently, we consider that any Q&As that are to be issued in final form should be debated at an IASB Board meeting and formally approved. However, the addition of appropriate due process re-emphasises why it is wholly inappropriate for an IFRS for SMEs Q&A to cover a topic that is, or could be, relevant to full IFRS. This is because appropriate due process would make it seem clear that the IFRS for SMEs Q&A could be viewed as a valid interpretation of full IFRS.
We have the following specific comments:
Draft Q&A General, Issue 2: Interpretation of ‘undue cost or effort’ and ‘impracticable’
If it is decided, despite our strong objections, to issue the Q&A in final form, we suggest that paragraph 4 could be deleted, as we do not believe that it provides further clarification of the approach to be followed.
Draft Q&A Section 3, Issue 1: Jurisdiction requires fallback to full IFRS
We agree that in some circumstances, where the recognition and measurement requirements for a particular transaction, other event or condition are not specifically covered by the IFRS for SMEs but they are covered in full IFRS, if a jurisdiction requires an SME to follow the recognition and measurement requirements in full IFRS for that transaction, event or condition the SME can still claim compliance with the IFRS for SMEs.
However, this will not always be the case. This is because paragraph 10.5 requires the application of guidance in the IFRS for SMEs that deals with similar and related issues, with paragraph 10.6 only permitting consideration of the requirements of full IFRS. Consequently, where the IFRS for SMEs does not deal specifically with a particular transaction, event or other condition but does have guidance that deals with similar and related issues, and that guidance conflicts with full IFRS, the SME would be unable to claim compliance with the IFRS for SMEs if it followed full IFRS for that transaction, event or condition.
We hope that you will find our comments and observations helpful. If you would like to discuss any of them, please contact Andrew Buchanan at +44 (0)20 7893 3300.
Yours sincerely
Andrew Buchanan
Global Head of IFRS
BDO IFR Advisory Limited
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