Companion Guide for (IFRS for SMEs)

Companion Guide for Not-for-profits to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs)

About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. It offers business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. ACCA supports its 178,000 members and 455,000 students in 181 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 92 offices and centres and more than 7,110 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. It believes that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. ACCA's core values are aligned to the needs of employers in all sectors and it ensures that through its range of qualifications, it prepares accountants for business. ACCA seeks to open up the profession to people of all backgrounds and remove artificial barriers, innovating its qualifications and delivery to meet the diverse needs of trainee professionals and their employers. More information is available at:

? The Association of Chartered Certified Accountants October 2015

The objective of this Guide is to provide assistance to not-forprofit entities that may wish to prepare reports on the basis of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs).

NIGEL DAVIES ? PRINCIPAL AUTHOR Nigel Davies, is Head of Accountancy Services at the Charity Commission and since July 2014 Joint Chair of the Charities SORP Committee. He regularly speaks at UK events and conferences on charity accounting issues and publishes articles on charity accountancy matters. He also responds on behalf of the Charity Commission to IPSASB and IASB consultations. Nigel was also the Technical Secretary to the UK Charities SORP Committee (2006-2014).

RICHARD MARTIN ? EDITOR Richard Martin is Head of Corporate Reporting at ACCA. He is a member of the Accounting Working Party of the Federation of European Accountants (FEE) and of FEE's Corporate Reporting Policy Group. He is Chairman of the Accounting Expert Group at EFAA the European Federation of Accountants and Auditors for SMEs. For the ISAR group at UNCTAD he was a member of the working party which developed their accounting guidance for SMEs.

Companion Guide for Not-for-profits to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs)

Including a foreword from the International Accounting Standards Board (IASB)

Nigel Davies Head of Accountancy Services, Charity Commission for England and Wales Richard Martin Head of Corporate Reporting, ACCA

Foreword from IASB

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Financial reporting provides preparers, investors, regulators and other stakeholders with a consistent way to describe and understand the financial performance of an entity.

INTERNATIONAL FINANCIAL REPORTING STANDARD FOR SMALL AND MEDIUM-SIZED ENTITIES (THE SME STANDARD)

Financial reporting provides preparers, investors, regulators and other stakeholders with a consistent way to describe and understand the financial performance of an entity. However, this reporting is not just about presenting the measurement of the activities of that entity. It also facilitates more directly beneficial activities such as the raising of capital, the granting of financing and the enhancement of accountability, as well as providing a starting point for the broader measurement of activities within an economy. International Financial Reporting Standards (IFRS Standards) provide preparers of financial statements with a globally consistent set of principles to use when preparing an entity's accounts, facilitating standardisation both within, and across, markets.

The SME Standard, issued in 2009, recognises the need for smaller, nonpublicly accountable entities, to prepare financial statements, but acknowledges that these entities may need simpler Standards. The SME Standard represents a considerable simplification over the full IFRS Standards, is self-contained, tailored to the needs and capabilities of smaller businesses, and is understandable across borders. The International Accounting Standards Board (IASB) has developed, and continues to develop, educational and other supplementary material to assist entities in applying the SME Standard.

The International Financial Reporting Standards Foundation (the Foundation) has in recent years developed and posted profiles about the use of IFRS Standards in individual jurisdictions. By June 2015, the Foundation had completed profiles for 140 jurisdictions, including all the G20 jurisdictions. 73 of those jurisdictions require or permit the use of the SME Standard. The SME Standard is also currently under consideration in a further 14 jurisdictions. This widespread uptake for a standard that has only been in existence for six years is evidence both that the SME Standard addresses a real need, and that it is successful in doing so.

IFRS STANDARDS FOR NOT-FOR-PROFIT ENTITIES (NFPs)

The focus of the IASB to date has been to develop standards for private sector for-profit entities. In 2012, the Trustees of the Foundation, the body that oversees the IASB, published a report following a thorough review, acknowledging the need for standardised reporting for NFPs, However, it concluded that, given resource limitations, the Foundation would only consider developing such standards at a later date. At the time, the Trustees noted that their next review would provide an opportunity to reconsider an expansion of the scope of the IFRS Standards.

In its most recent strategic review, published in July 2015, the Trustees noted that, in developing the SME Standard, the IASB had already accepted the relevance of differentiated reporting, concluding that supporting the objective of a single set of standards was not inconsistent with agreeing that circumstances can differ depending on the type and size of entities. The Trustees also stated their own continued strong support of the need for transparent financial reporting requirements for the not-for-profit sector, and given the demand for standards for that sector, requested constituent views on whether the scope of the organisation's mandate should be expanded to encompass not-for-profit reporting.

USE OF IFRS FOR SMEs

Although not written for NFPs, it is clear that the SME Standard contains principles for recognition, measurement and presentation that are relevant to the preparation of financial statements by these entities. Since the SME Standard requires additional disclosures when compliance with its specific requirements are insufficient to enable users to understand the effect of particular transactions, events and conditions, providing additional not-for-profit specific information forms part of compliance with the SME Standard. Finally, the simplicity of the SME Standard lends itself to application in this sector.

Companion Guide for Not-for-profits

Foreword from IASB

5

to the IFRS for SMEs

The SME Standard provides a well supported, well understood, simplified and almost wholly appropriate set of accounting standards for the not-for-profit sector.

These factors, together with the credibility and ease of use which comes from applying a recognised international standard, has resulted in a significant number of NFPs choosing to use the SME Standard for reporting their financial results. This has, over time, had the desirable consequence that a body of practice is developing to assist in the application of the SME Standard in this sector. Additionally, some private and public bodies are adding mandatory or voluntary guidance, which together with development of practice, is encouraging a greater degree of consistency in the application of the SME Standard.

In a limited number of circumstances, applying the recognition and measurement requirements of the SME Standard in an NFP does not provide appropriate accounting. This is because, in those circumstances, the activities of the NFP are so different to that of a for-profit entity, that the recognition and measurement outcomes may have the potential to create confusion. This confusion is generally overcome using the tools available in the SME Standard, including descriptions of the activities and enhanced disclosures. None the less, this is not an optimal outcome.

COMPANION GUIDE FOR NFPs

This Companion Guide addresses these gaps. The guide uses as its foundation the existing IFRS for SMEs, allowing NFPs to benefit from the robustness of an internationally accepted accounting framework, and from the considerable body of supporting and educational material that accompanies the Standard. For most of the activities of NFPs, the SME Standard will be applied as written.

ADHERENCE WITH THE IFRS FOR SMEs

Entities that follow the guide may not be able to claim adherence with the SME Standard. This is because, in certain circumstances, applying the guide will involve specifically overriding requirements of the Standard. None the less, applying this guide allows entities to continue to achieve many of the benefits of applying the SME Standard.

CONCLUSION

The SME Standard provides a well supported, well understood, simplified and almost wholly appropriate set of accounting standards for the not-for-profit sector. However, as a consequence of the IASB's focus on for-profit organisations, there are times when the outcome of applying the SME Standard to NFPs will not provide a perfect representation of the results of those entities. The Foundation is currently (September 2015) in the process of considering whether it would be appropriate for the IASB to expand its mandate to include the not-for-profit sector, however, this decision, and its consequential change to the IFRS Standards, is likely to take time.

In the meantime, there continues to be a lack of formal guidance to help these organisations prepare their financial accounts under a robust, but appropriate framework. I welcome any initiatives that seek to fill this gap and foster the development of reporting in the NFP sector.

Darrel Scott IASB Board Member International Accounting Standards Board London, September 2015

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