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Definition of IFRS for SME
They are a set of accounting standards adopted globally for the financial statements of small to medium-sized companies with the goal of ensuring transparency, reliability, and comparability of the companies’ financial information.
They were issued by the International Accounting Standards Board (IASB), an independent organization based in London, composed of a group of experts with the function of defining accounting principles, preparing, reviewing, or using financial statements, and in accounting training.
When the IASB releases a new standard, there must be approval from the European Union, in the specific approval process, the responsibility lies with the European Commission with other consumptive entities.
IFRS Purposes
The main purpose is to create a common accounting framework for most companies operating within the European Community, offering the advantage of greater simplicity and transparency in relation to the balance sheets and financial information.
The objectives are characterized in various aspects as follows:
Transparency:
provide stakeholders with clear and detailed information on the company's financial status and performance.
Reliability:
financial reports that correspond to the business reality and are trustworthy.
Uniformity:
to report financial information that is comparable on a global scale.
Relevance:
to ensure that important information is provided to potential investors and other stakeholders.
Fundamental Principles IFRS SME
The characteristics of IFRS standards are based on principles as explained below:
Full Disclosure
All relevant information must be fully disclosed.
Substance over Form Principle
Transactions must be accounted for and presented based on their economic substance and reality, not just their legal form.
Principle of Prudence
Uncertainties and risks must be duly considered.
Fair Value Measurement
Numerous balance sheet items must be measured at their fair value, rather than at their historical cost.
Qualitative characteristics of financial information
Understandability
The presentation of financial statement information should be understandable in terms of the company’s commercial and economic activities. This principle does not allow for the omission of important information as it would become difficult to understand for some users.
Comparability
Information about an entity is useful if it can be compared with similar information from other entities. This characteristic allows stakeholders to identify and understand similarities and differences in business accounting realities.
Verifiability
Verifiability helps ensure a faithful representation of the company’s accounting and financial information. Quantified accounting information does not necessarily have to be an exact estimate to be verifiable.
Timeliness
Timeliness means having information available in time to make decisions. In this sense, the older the information, the less useful it is. There are exceptions, it is emphasized that for some information it can also be less timely since there is an evaluation over a longer period of time to study and identify trends.