2. Financial Statements under IFRS for SMEs: Structure, Consolidation, and Unique Simplifications (Sections 3–10, 31–33)

1. IFRS for SMEs: Foundation and Entry Rules (Sections 1, 2, 35).
2. IFRS for SMEs: Presentation of Financial Statements (Sections 3–10, 31–33).
3. IFRS for SMEs: Accounting for Non-financial Assets (Sections 13–20, 27, 34).
4. IFRS for SMEs: Financial Instruments and Equity (Sections 11–12, 22).
5. IFRS for SMEs: Income, Liabilities, and Taxes (Sections 21, 23–26, 28–30).

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Reporting as a Business Interface: More Substance, Less Form

If recognition and measurement of assets is the “internal mechanics” of accounting, then the presentation of financial statements is its “interface,” the only way to communicate business results to the outside world. In the second part of our overview of the IFRS for SMEs Standard, we focus on Sections 3–10, 31–33, which form the structure of financial reports and disclosure rules.

The IFRS for SMEs Standard offers a unified but flexible approach to forming a complete set of financial statements. Unlike the rigid regulation of National Standards (UA GAAP), where form (templates) prevails, the international standard prioritizes substance – Fair Presentation. This allows companies to adapt report titles and line item structures to best reflect their specifics, provided comparability is maintained.

In Part 1, we determined who is eligible for the ‘privileged ticket’ to the world of IFRS. Now let’s look at the result – the complete package of financial statements. Is it really simpler than Full IFRS?

In this block, I will analyze:

• Fundamental Principles: From the Going Concern assumption to the selection of Accounting Policies (Sections 3, 10).
• Financial Statement Forms: Detailed analysis of the structure of the Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, and Statement of Cash Flows (Sections 4–8), as well as the unique option for SMEs to present a single Statement of Income and Retained Earnings.
• Consolidation Perimeter: Requirements for Consolidated and Separate Financial Statements (Section 9).
• Critical Disclosures: How to report Events after the Reporting Period, Related Party Disclosures, and Hyperinflation (Sections 31–33).

The goal of this section is to provide a toolkit for building reporting that not only complies with the Standard but is also understandable and useful for users – lenders, investors, and business owners.

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Section 3: Financial Statement Presentation

Section 3 “Financial Statement Presentation” of the IFRS for SMEs Standard is the conceptual analogue of IAS 1 “Presentation of Financial Statements”. It establishes the “rules of the game” for forming the reporting package, defining requirements for fair presentation, frequency of reporting, and consistency.

The Concept of Fair Presentation and Compliance

Financial statements shall present fairly the financial position, financial performance, and cash flows of an entity (Para 3.2). Fair presentation requires the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria set out in Section 2 “Concepts and Pervasive Principles”.

In the system of Full IFRS Standards (IAS 1, Para 15), the concept of “Fair Presentation” is identical in substance; however, the context of its application differs. In Full IFRS, this concept is closely intertwined with the requirements of the Conceptual Framework, which was significantly updated in 2018. The IFRS for SMEs Standard (2015 version) is based on the older version of the Conceptual Framework (1989/2010), creating subtle but important discrepancies in the interpretation of concepts such as “asset” or “liability” in borderline cases.

Paragraph 3.3 of the IFRS for SMEs Standard requires that an entity whose financial statements comply with the IFRS for SMEs Standard shall make an explicit and unreserved statement of such compliance in the notes.

Critical Provision: Financial statements shall not be described as complying with the IFRS for SMEs Standard unless they comply with all the requirements of this Standard.

This provision serves as a barrier to “partial” application of the Standard, which is often found in national practices where companies may attempt to mix IFRS norms with national rules.

The “True and Fair Override” Mechanism

Paragraphs 3.4 – 3.6 describe the procedure for departing from a requirement of the Standard in “extremely rare circumstances” when compliance with a specific requirement would be so misleading that it would conflict with the objective of financial statements.

Comparative Analysis with IAS 1:

IAS 1 (Paragraph 19) contains a similar provision. However, in practice, the application of this mechanism in the Full IFRS environment is subject to extremely close scrutiny by securities regulators (e.g., ESMA in the EU or the SEC in the USA, although the SEC does not permit such departures for foreign issuers).

For SMEs, where supervision may be less strict, the existence of such a rule (Para 3.5) creates a risk of abuse, where management might try to justify deviations from the Standard by a subjective view of “fair presentation.” The Standard attempts to mitigate this risk by requiring the disclosure of detailed information about the nature, reason, and financial effect of the departure.

Going Concern

The requirement of Paragraph 3.8 obliges management to assess the entity’s ability to continue as a going concern. This assessment must cover a period of at least twelve months from the reporting date.

Differences and Nuances: Although the wording in IFRS for SMEs and IAS 1.25 is almost identical, the context for SMEs is specific. Small entities often have limited access to external financing and rely more on owner support. In Full IFRS, there is additional pressure from auditing standards (ISA 570) and liquidity risk disclosure requirements (IFRS 7). IFRS for SMEs, having less detailed risk disclosure requirements in Sections 11/12, makes Paragraph 3.9 (disclosure of material uncertainties) the primary mechanism for warning users about going concern issues.

Complete Set of Financial Statements and the “Hybrid” Statement

IFRS for SMEs defines a complete set of financial statements (Para 3.17), which includes:

1. Statement of Financial Position.
2. Statement of Comprehensive Income (or separate Statement of Profit or Loss and Statement of Comprehensive Income).
3. Statement of Changes in Equity.
4. Statement of Cash Flows.
5. Notes.

Key Architectural Difference: The most radical difference from IAS 1 is the provision of Paragraph 3.18. It allows an entity to present a single Statement of Income and Retained Earnings in place of two statements: the Statement of Comprehensive Income and the Statement of Changes in Equity.

This option is available only if the only changes to equity during the periods for which financial statements are presented arise from:

• Profit or loss;
• Payment of dividends;
• Corrections of prior period errors;
• Changes in accounting policy.

In the Full IFRS system (IAS 1), this option is absent. IAS 1 requires the mandatory presentation of the Statement of Changes in Equity as a separate component of the financial statements, regardless of the simplicity of equity transactions. This simplification in IFRS for SMEs is a significant relief for small businesses, which often have a stable ownership structure without complex transactions (such as share issues, treasury share transactions, or OCI components).

Note: For most SMEs in Ukraine that do not have complex instruments (hedging, actuarial calculations, or translation of foreign operations), Other Comprehensive Income (OCI) simply does not arise. Therefore, their ‘Statement of Comprehensive Income’ effectively looks like a regular Statement of Profit or Loss (P&L) ending with the line “Net Profit.”

Absence of the “Third Balance Sheet” Requirement

IAS 1 (Paras 10(f) and 40A) requires entities to present a statement of financial position as at the beginning of the preceding period (“third balance sheet”) if the entity applies an accounting policy retrospectively, makes a retrospective restatement of items, or reclassifies items, and this has a material effect on the information in the statement of financial position.

IFRS for SMEs (Para 3.14) requires only comparative information for the previous period for all amounts presented in the current period’s financial statements. The requirement to present a third balance sheet is absent from Section 3. This significantly reduces the workload during the first-time adoption of the Standard or when changing accounting policies, as it does not require full formatting and presentation of balances at the date preceding the comparative period.

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Section 4: Statement of Financial Position

Section 4 regulates the structure of the document traditionally called the balance sheet. The Standard permits the use of the title “Balance Sheet,” although the official title is “Statement of Financial Position” (Para 4.1).

Current and Non-current Distinction

According to Paragraph 4.4, an entity shall present assets and liabilities classified as current and non-current, except when a presentation based on liquidity provides information that is reliable and more relevant (e.g., for financial institutions).

The classification criteria (Paras 4.5–4.8) generally correspond to IAS 1. Assets are classified as current if they are expected to be realized in the normal operating cycle, held for trading, or expected to be realized within 12 months.

The Issue of Liability Classification upon Covenant Breach:

In IAS 1, there are very specific and rigid requirements regarding the classification of long-term loans as current if loan conditions (covenants) are breached at the reporting date, even if the lender agreed not to demand repayment after the reporting date but before the financial statements were authorized for issue. Recent amendments to IAS 1 (effective from 2024) have further detailed this issue, focusing on the right to defer settlement existing at the end of the reporting period.

In IFRS for SMEs (Para 4.7), the requirement is formulated more simply: a liability is current if the entity does not have an unconditional right to defer settlement for at least 12 months. Although the principle is similar, the lack of rigid instructions (as in IFRS) in practice gives SMEs more room for professional judgment when classifying distressed debt.

Specific Presentation Requirements

Paragraph 4.2 contains a list of mandatory line items. IFRS for SMEs introduces specific granularity for assets that can be measured differently, requiring separate lines for:

• Investment property at cost (Para 4.2(ea)).
• Investment property at fair value (Para 4.2(f)).
• Biological assets at cost (Para 4.2(h)).
• Biological assets at fair value (Para 4.2(i)).

Difference from Full IFRS: IAS 1 does not impose such rigid segregation directly in the list of minimum line items, relying on general requirements for disclosing sub-classifications. In IFRS for SMEs, this is due to the fact that the Standard often allows a choice of model (or imposes the cost model if fair value cannot be measured without undue cost or effort), so it is important for the user to see this distribution directly on the “face” of the balance sheet.

Absence of the “Assets Held for Sale” Category

The most significant structural difference of Section 4 from IAS 1 lies in the absence of the category “Non-current assets held for sale.”

In Full IFRS (IFRS 5), assets the entity plans to sell are presented in a separate line of the balance sheet, are not depreciated, and are measured at the lower of carrying amount and fair value less costs to sell.

In IFRS for SMEs (Para 4.11(b)), inventories may be held for sale, but for property, plant and equipment or intangible assets, there is no special category on the balance sheet. Instead:

• The decision to sell is considered an indicator of impairment (Section 27).
• Assets continue to be depreciated until derecognition.
• Information about binding sale agreements is disclosed in the notes (Para 4.14).

This simplification eliminates the need for complex remeasurement and reclassification procedures required by IFRS 5 but may reduce the predictive value of the balance sheet for users who do not analyze the notes.

Analytical View: Value Signals and Structural Stability

The balance sheet structure in IFRS for SMEs is optimized to reflect solvency. The requirement to separate investment property by measurement method directly in the balance sheet is a “red flag” (or signal flag) for the user: it immediately shows which part of the assets is measured “at market” and which at historical cost, which is critical for assessing the real coverage of debts by assets. The absence of the complex IFRS 5 (Held for Sale) category also reduces balance sheet volatility, allowing users to see assets where they are accustomed to seeing them (in PPE) until their actual disposal.

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Section 5: Statement of Comprehensive Income and Income Statement

This section regulates the presentation of financial performance. The Standard retains the concept of “Total Comprehensive Income”, which comprises Profit or Loss and Other Comprehensive Income (OCI).

Restricted Composition of “Other Comprehensive Income” (OCI)

In Full IFRS Standards (IAS 1), the list of OCI components is open and constantly expanding (e.g., revaluation of financial instruments under IFRS 9). In IFRS for SMEs (Para 5.4(b)), the list of items included in OCI is strictly limited:

1. Exchange differences on translating the financial statements of a foreign operation (Section 30).
2. Changes in the fair value of hedging instruments (only for the effective portion of a cash flow hedge) (Section 12).
3. Actuarial gains and losses on defined benefit pension plans (Section 28).
4. Changes in revaluation surplus for property, plant and equipment (Section 17) – this option was added specifically in the 2015 edition.

This limitation significantly simplifies the structure of the statement and the understanding of sources of equity formation. If an entity has none of these four items, it does not present a Statement of Comprehensive Income, but limits itself to an Income Statement (Statement of Profit or Loss) (Para 5.7).

Classification of Expenses

Paragraph 5.11 requires an analysis of expenses using a classification based on either the nature of expenses (e.g., depreciation, materials, employee benefits) or their function (cost of sales, distribution, administrative). The choice depends on which method provides information that is reliable and more relevant.

Important Difference from Full IFRS: In IAS 1, if the “function of expense” method is selected, the entity is required to disclose additional information on the nature of expenses (specifically depreciation, amortization, and employee benefits expense). In IFRS for SMEs, Section 5 does not contain such a strict requirement, simplifying note preparation. However, for SMEs, the “nature of expense” method often remains preferable due to its simplicity and transparency, as it avoids subjective allocation of costs among functions.

Prohibition of Extraordinary Items

Paragraph 5.10 (like IAS 1.87) explicitly prohibits classifying any items of income or expense as “extraordinary items” in the statement of comprehensive income (or in the income statement, if presented) or in the notes. This is a unified approach aimed at preventing manipulation of “normalized” earnings figures.

Summary: Balancing Simplification and Informativeness

The regulation of Section 5 clearly demonstrates the pragmatic approach of IFRS for SMEs: the Standard maintains conceptual integrity with Full IFRS (via the comprehensive income model) but significantly simplifies technical implementation. The rigid limitation of OCI items (“closed list”) and the absence of the requirement for double disclosure of expenses under the functional method significantly reduce the administrative burden on accounting staff. For the vast majority of small entities, this means the ability to stay within the familiar and understandable format of the Income Statement, avoiding complexities inherent in public company reporting.

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Section 6: Statement of Changes in Equity

This section contains the already mentioned unique simplification – the option to replace the full statement of changes in equity with a Statement of Income and Retained Earnings (Para 6.4).

Structure and Content

For entities that do not use the simplification (Para 6.3), the Statement of Changes in Equity must present:

• Total comprehensive income for the period.
• The effects of retrospective application or retrospective restatement (in accordance with Section 10).
• A reconciliation between the carrying amount at the beginning and the end of the period for each component of equity, separately disclosing profit or loss, OCI, and transactions with owners (contributions, dividends).

Comparison with IAS 1: In Full IFRS Standards, the structure of the report (IAS 1, Para 106) is analogous. However, IAS 1 requires more detailed disclosure of dividends (amount per share) either in the statement or in the notes. IFRS for SMEs (Para 6.5) requires presenting dividends in the Statement of Income and Retained Earnings if that format is chosen.

Unique Option: If the only changes to equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy, the Standard permits not presenting a separate Statement of Changes in Equity, but including this data in the combined Statement of Income and Retained Earnings. Full IFRS Standards do not offer this option.

Summary

Section 6 is an example where the principle of simplicity prevails over rigid standardization. By allowing a combined statement, the IASB recognizes that for many SMEs, equity is primarily accumulated profit (retained earnings), rather than a complex set of financial instruments. This saves preparation time and facilitates audit.

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Section 7: Statement of Cash Flows

Section 7 is based on IAS 7, but offers a simplified approach to some complex issues.

Bank Overdrafts

Paragraph 7.2 recognizes bank overdrafts as a component of cash and cash equivalents if they are repayable on demand and form an integral part of the entity’s cash management. In IAS 7 (Para 8), the approach is similar. However, in the practice of applying Full IFRS Standards (especially after IFRIC decisions), the criteria for recognizing overdrafts as part of “cash equivalents” are becoming increasingly strict, requiring evidence that the balance often fluctuates from positive to negative. IFRS for SMEs does not contain such a deep body of interpretations, potentially offering more flexibility.

Presentation of Operating Activities: Direct vs. Indirect Method

The Standard permits the use of the direct method or the indirect method (Para 7.7). It is worth noting that IAS 7 (Para 19) encourages the use of the direct method as providing more useful information. IFRS for SMEs refrains from explicit encouragement, leaving it to the entity’s discretion. In practice, the vast majority of SMEs use the indirect method due to the ease of deriving it from accounting records.

Classification of Interest and Dividends

Paragraph 7.15 offers a choice of classification:

• Interest paid: Operating or financing activities.
• Interest and dividends received: Operating or investing activities.

This flexibility is identical to IAS 7. However, to ensure comparability, the chosen policy must be applied consistently.

Absence of Requirement to Disclose Changes in Liabilities Arising from Financing Activities

A significant difference is that IAS 7 (after the 2016 amendments) requires disclosure enabling users to evaluate changes in liabilities arising from financing activities (often called the “net debt reconciliation”). IFRS for SMEs (2015 version) does not contain this requirement in Section 7, which is a significant relief, as preparing such a reconciliation is often labor-intensive.

Summary

The identity of the Cash Flow Statement structure in both systems confirms the thesis: “Cash is King.” Regardless of company size, liquidity analysis remains universal. The flexibility in classifying interest/dividends allows SMEs to adapt the report to their business models (e.g., presenting interest paid in operating activities to arrive at “net operating cash flow” available for investment).

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Section 8: Notes to the Financial Statements

Section 8 defines the structure of the notes:

1. Statement of compliance.
2. Summary of significant accounting policies.
3. Supporting information for items presented in the financial statements (in the order in which each statement and each line item is presented).
4. Other disclosures (contingent liabilities, dividends, etc.).

Requirements for systematic presentation (Para 8.3) and cross-referencing are standard.

Accounting Policies: “Significant” vs. “Material”

As of 2015, both the IFRS for SMEs Standard (Para 8.5) and IAS 1 required the disclosure of “significant” accounting policies. It is worth noting that recent amendments to IAS 1 (effective from 2023) replaced the term “significant” with “material”, focusing on entity-specific information rather than regurgitating standard text. IFRS for SMEs (2015) remains on the old terminology, which may encourage SMEs to use “boilerplate” policy descriptions.

Judgments and Sources of Uncertainty

Paragraphs 8.6 and 8.7 require disclosure of:

1. Judgments that management has made (apart from those involving estimations) that have the most significant effect on the amounts recognized in the financial statements (e.g., whether a lease is a finance lease, or whether the entity controls an investee).
2. Key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Comparison with IAS 1: The requirements of Paras 8.6 and 8.7 almost verbatim repeat IAS 1 (Paras 122, 125). This confirms that transparency regarding uncertainty is a fundamental requirement that cannot be neglected even in simplified reporting.

Disclosure Volume

This is the area of greatest simplification. Full IFRS Standards contain about 3,000 disclosure requirements (data points), whereas IFRS for SMEs contains about 300 (even taking into account the new 2025 requirements).

• Capital Management: IAS 1 requires extensive disclosures about capital management objectives, policies, and processes (Paras 134–136), which are absent in Section 8 of IFRS for SMEs.
• Financial Instruments: Full IFRS (IFRS 7) requires complex sensitivity analysis (Value at Risk) and detailed liquidity analysis. IFRS for SMEs (Sections 11 and 12) reduces these requirements to a minimum, focusing on actual debts rather than theoretical risk modeling.
• Fair Value: IFRS 13 requires a vast amount of information about valuation techniques (Levels 1, 2, 3). IFRS for SMEs contains only basic requirements in specific sections.

Cost Savings: Reducing notes by 10 times is the main cost saving for SMEs. For example, preparing disclosures under IFRS 7 “Financial Instruments: Disclosures” often costs more than the accounting for the instruments themselves. Section 8 relieves SMEs from the need to generate pages of text about theoretical risks, focusing on real debts and assets.

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Section 9: Consolidated and Separate Financial Statements

This section contains the most fundamental conceptual differences from current Full IFRS practice.

1. Definition of Control: The Old Model

Paragraph 9.4 defines control as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. This definition is based on the old version of IAS 27 (pre-2011).

Ukrainian Context: In Ukraine, ownership structures are often convoluted (nominal owners). The IFRS 10 model requires judgment “in substance,” which is complex and risky for the accountant. The IFRS for SMEs model (50%+) gives the accountant an “ironclad” legal argument not to consolidate a business owned by a “friend of the owner” if there is no formal link. This protects the Chief Accountant.

Contrast with IFRS 10: Full IFRS Standards (IFRS 10) use a single control model based on three elements:

1. Power over the investee.
2. Exposure, or rights, to variable returns from involvement with the investee.
3. The ability to use power over the investee to affect the amount of the investor’s returns.

The IFRS 10 model is significantly broader and allows for the recognition of control even with ownership of less than 50% of voting rights (de facto control), if other shareholdings are widely dispersed. IFRS for SMEs (Para 9.5) uses a simpler presumption: control exists if the parent owns more than half of the voting power, or has legally enforceable rights (agreements, statute) to govern policy. This significantly simplifies the analysis for SMEs, avoiding complex subjective assessments of “de facto” control.

Implication for CFOs: This resolves disputes regarding “structured entities” and forces the consolidation of entities where control is exercised through contractual arrangements or factual circumstances (de facto control), even if the parent legally holds less than 50% of the voting rights.

Using the previous edition (2015), many companies manipulated reporting by not consolidating Special Purpose Entities (SPEs), arguing that they did not legally own them. Now, according to the updated Para 9.11, if an entity’s activities are predetermined by contracts for your benefit – this is consolidation without options.

2. Consolidation Nuances: Industry Issues

The Agency Problem

IFRS for SMEs uses the definition of control borrowed from the old IAS 27, focusing on the existence of power (authority to govern). This creates a problem for legal entities that professionally manage other people’s assets (e.g., Asset Management Companies of investment funds).

• Risk under IFRS for SMEs: Since the Asset Management Company makes all investment decisions, the Standard may interpret this as the existence of “control.” Consequently, the Management Company may be obliged to consolidate (include in its balance sheet) the assets and liabilities of the Fund it manages. This distorts the company’s reporting, inflating its balance sheet with assets belonging to clients, not to itself.
• Advantage of Full IFRS (IFRS 10): The Standard introduces the concept of an “Agent.” If a Management Company has power but acts on behalf of third parties (investors) and receives primarily fixed remuneration, it is deemed an Agent. IFRS 10 clearly establishes: an Agent does not consolidate the assets it manages. IFRS 10 analyzes not only power but also who receives the significant variable returns (link). This avoids the consolidation of assets held merely in fiduciary capacity.

Investment Entities

This is a critical moment for Private Equity and Venture Capital funds.

• IFRS 10: Contains clear exceptions (consolidation exemption). Investment entities do not consolidate their subsidiaries (portfolio companies) but measure them at fair value through profit or loss (FVTPL). This is logical, as the fund’s goal is capital appreciation, not the operational management of a plant or factory.
• IFRS for SMEs (2015): Does not contain such an exception. A fund applying this Standard is obliged to consolidate all its investments (Para 9.2). This makes the 2015 Standard practically unsuitable for the Private Equity sector or forces double accounting: one set for investors (at fair value), another for formal compliance with the Standard (consolidation).

3. Specific Entities and Situations

Special Purpose Entities (SPEs)

Paragraph 9.10 contains specific requirements for the consolidation of Special Purpose Entities (often called SPVs in practice), based on indicators of risks and rewards (who receives the benefits, who bears the risks). This corresponds to the old SIC-12 approach.

Important Note: In Full IFRS Standards, the term SPE/SPV has effectively fallen out of use: IFRS 10 and IFRS 12 replaced it with the concept of a “Structured Entity,” which focuses not on form but on the substance of control. Therefore, the existence of separate rules for SPEs in IFRS for SMEs is somewhat of an archaism, although it provides a clearer algorithm for simple situations (e.g., auto lending through a separate legal entity).

Temporary Control (Investment held for sale)

Paragraph 9.3A permits not consolidating a subsidiary if it was acquired with the intention of selling or disposing of it within one year. Such an entity is accounted for as a financial instrument (at fair value through profit or loss).

Difference from IFRS 5: In Full IFRS (IFRS 10 and IFRS 5), an entity is obliged to consolidate such a subsidiary until the moment of sale, but present its assets and liabilities as separate line items classified as “held for sale.” The IFRS for SMEs approach radically simplifies reporting, eliminating the need for full consolidation of assets and liabilities that will soon leave the group.

Loss of Control

Here, the approaches of both standards coincide (harmonization occurred in 2015). Upon the loss of control of a subsidiary, an entity:

1. Derecognizes the assets and liabilities of the subsidiary.
2. Recognizes any retained investment at fair value.
3. Recognizes the full gain or loss on disposal in profit or loss.

4. Separate Financial Statements

In the separate financial statements of a parent entity, investments in subsidiaries may be accounted for (Para 9.26):

1. At cost less impairment.
2. At fair value through profit or loss (FVTPL).
3. Using the Equity Method.

The Equity Method option was added in 2015, synchronizing IFRS for SMEs with amendments to IAS 27. This allows parent companies to reflect the performance of subsidiaries in their separate statements, which is often required by national legislation for calculating distributable profits (dividends).

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Section 10: Accounting Policies, Estimates and Errors

This section establishes the hierarchy of sources that management uses to select an accounting policy if the Standard does not specifically address a transaction.

Hierarchy of Sources

According to Paras 10.5–10.6, the decision-making sequence is as follows:

1. Priority 1: The requirements of this Standard (IFRS for SMEs) dealing with similar and related issues.
2. Priority 2: The definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in Section 2 “Concepts and Pervasive Principles.”
3. Priority 3: The requirements and guidance in Full IFRS Standards (IAS/IFRS).

Changes in Estimates vs. Errors

Both standards require a retrospective approach (restatement) for correcting errors. However, IFRS for SMEs (Para 10.12) contains a relief – the caveat “to the extent practicable.” In SME practice, this is interpreted even more broadly thanks to the pervasive principle of “undue cost or effort,” allowing entities to avoid complex historical data reconstruction if it is too expensive.

Summary

Paragraph 10.6 is strategically designed as an opportunity for SMEs to be “modern” (voluntarily adopting best practices from Full IFRS) without forcing them to do so. However, in Ukrainian realities, due to translation peculiarities, this paragraph turns into a regulatory trap requiring the Chief Accountant to possess knowledge of the full suite of IFRS Standards.

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Section 31: Hyperinflation

Section 31 is an adaptation of IAS 29 “Financial Reporting in Hyperinflationary Economies.”

Indicators and Methodology

Paragraph 31.2 provides qualitative and quantitative indicators of hyperinflation (cumulative inflation over three years approaches 100%, prices quoted in foreign currency, etc.). These indicators are identical to IAS 29.3. The requirement to restate financial statements in terms of the measuring unit current at the reporting date (Para 31.3) and the use of a general price index (Para 31.4) fully correspond to the methodology of IAS 29.

Impact on SMEs: Although the methodology is identical, the restatement process can be technically complex for SMEs. The Standard does not offer simplifications in the restatement mechanism itself (e.g., monetary items are not restated, non-monetary items are restated from the date of acquisition). This is one of the areas where the “lite” version of the Standard does not mean easier accounting if the economic environment is complex.

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Section 32: Events after the Reporting Period

Section 32 is a mirror image of IAS 10 “Events after the Reporting Period.”

Types of Events

• Adjusting events: provide evidence of conditions that existed at the reporting date (Para 32.2(a)). Examples: settlement of a court case, bankruptcy of a customer, discovery of fraud or errors.
• Non-adjusting events: are indicative of conditions that arose after the reporting date (Para 32.2(b)). Examples: a fire at a warehouse after the reporting date, a decline in market value of investments.

Dividends

Paragraph 32.8 contains a mandatory rule: dividends declared after the reporting date (but before the financial statements are authorized for issue) are not recognized as a liability at the end of the reporting year.

This approach fully corresponds to the requirements of Full Standards (Para 12 of IAS 10). The logic of both standards is unified:

• A liability arises only at the moment of official approval (declaration) of payments.
• Since the decision had not yet been made at the reporting date, a balance sheet liability is absent.

Presentation: Such dividends are disclosed in the Notes to the financial statements or may be presented as a separate component of equity (allocation of profit), but not as debt.

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Section 33: Related Party Disclosures

Section 33 is based on the principles of IAS 24, but contains significant simplifications regarding the volume of disclosure.

Definition of a Related Party

The definition in Para 33.2 was updated in 2015 to align with IAS 24 (2009 version). It includes a detailed list of relationships: control, joint control, significant influence, key management personnel, and close members of the family of such individuals.

Disclosure Simplification: Management Compensation

The most significant difference is found in Para 33.7. IFRS for SMEs requires disclosing information about Key Management Personnel compensation only in total.

In contrast, IAS 24.17 requires detailing compensation by category:

1. Short-term employee benefits.
2. Post-employment benefits.
3. Other long-term benefits.
4. Termination benefits.
5. Share-based payment.

Privacy Protection: The absence of such a requirement for detailed breakdown in IFRS for SMEs protects confidentiality in small businesses, where detailed figures could allow easy calculation of the salary of specific directors.

Aggregation and Government-related Entities

Paragraph 33.10 permits aggregating items by types of related parties, instead of disclosing by each separate counterparty. Also, Para 33.11 provides an exemption from disclosing transactions with the government and government-related entities, requiring only a general description of the relationship, which aligns with IAS 24.

Conclusions

The analysis performed demonstrates that the IFRS for SMEs Standard (2015 edition) is a coherent system which, although derived from Full IFRS Standards, has its own philosophy of “simplification where possible without loss of information value.”

Key Takeaways for Users:

1. Static vs. Dynamic: The IFRS for SMEs (2015) froze the IFRS methodology at the state of approximately 2010–2012. This creates stability for SMEs but leads to a growing gap with Full IFRS Standards (especially in the areas of financial instruments, revenue, leases, and consolidation), where Full Standards have moved far ahead (IFRS 9, 15, 16, 10).
2. Procedural Economy: The absence of requirements for a third balance sheet (Section 3), a separate statement of changes in equity (when using the combined statement, Section 6), and simplified consolidation (Section 9) genuinely save accounting time and resources.
3. Reduced Risk Transparency: Simplifications in disclosures (Section 8, Section 33) and the absence of a separate category for assets held for sale (Section 4) make the financial statements less detailed regarding future risks and sensitive information, representing a compromise in favor of confidentiality and simplicity of preparation.

The table below summarizes the critical differences:

Area of Comparison	IFRS for SMEs (2015)	Full IFRS Standards (IAS/IFRS)	Implication for SMEs
Reporting Composition	Option to replace two statements with a single Statement of Income and Retained Earnings.	Prohibited. All 4 statements + notes are mandatory.	Significant simplification for simple entities.
Consolidation (Control)	Old definition: “power to govern financial and operating policies.” SPEs based on risks/rewards.	Single Control Model (IFRS 10): Power, Variable Returns, Link.	Simpler legalistic approach to defining the group perimeter.
Temporary Control	Subsidiaries acquired for sale (within 1 year) are not consolidated (measured at FV).	Consolidated, but classified as “Held for Sale” (IFRS 5).	“Lighter” group balance sheet, avoidance of consolidating temporary assets.
Assets Held for Sale	No separate category on the balance sheet. Disclosure in notes.	Separate classification “Non-current assets held for sale” (IFRS 5).	Fewer reclassifications in the balance sheet.
OCI (Other Comprehensive Income)	Closed list (4 items).	Open list, significantly broader.	Less complexity in accounting for performance.
Management Compensation	Disclosure in total only.	Disclosure detailed by 5 categories (IAS 24).	Higher confidentiality of directors’ salaries.
Third Balance Sheet	Not required for retrospective changes.	Required (IAS 1.40A).	Reduction of technical work when changing policies.

This overview confirms that the transition from IFRS for SMEs to Full IFRS Standards (e.g., in preparation for an IPO) will require not just expanding disclosures, but a significant change in accounting policies and consolidation procedures.

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