I recently accompanied a group of University of Liverpool students to the International Accounting Standards Board (IASB) in London for a presentation from a board member and one of the technical staff.
Surprisingly little bribery from my side (OK, a free lunch) was required to get the students there, where they heard about the programmes the IASB had in place.
During the discussions, it was noted that the progress of the International Sustainability Standards Board (ISSB) had been impressively quick, issuing two standards within 18 months of being formed.
It was jokingly suggested that the pressure to respond to the ISSB had lit a fire under the IASB
This contrasted with the gap of almost seven years between the issue of IFRS 17, Insurance Contracts, and IFRS 18, Presentation and Disclosure in Financial Statements, which was the longest gap between IFRS Accounting Standards being issued.
It was jokingly suggested that the pressure to respond to the ISSB had lit a fire under the IASB, with IFRS 19, Subsidiaries without Public Accountability: Disclosures, being issued within a month of IFRS 18. While another full new IFRS Accounting Standard could indeed be issued in the second half of 2025, the IASB has managed to publish another major standard in the meantime by releasing the finalised update of the IFRS for SMEs Accounting Standard.
Currently, 147 jurisdictions require IFRS Accounting Standards for all or most domestic publicly accountable entities. In comparison, the IFRS for SMEs Accounting Standard is either permitted or required in 85 jurisdictions, and is being considered by another 12. Each jurisdiction must determine which entities should use the standard, but entities that have public accountability should not use it.
The guidance regarding calculations of fair value is greatly expanded now
The recent release of the updated IFRS for SMEs Standard is its third edition. This self-contained standard omits topics not relevant to SMEs and simplifies principles of recognition and measurement relating to others. The third edition is effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.
The main changes in the latest update are outlined here.
Consolidations
The definition of control has been updated to align with IFRS 10, Consolidated Financial Statements. Control is now present if the investor has all the following:
- power over the investee
- exposure, or rights, to variable returns from its involvement with the investee
- the ability to use its power over the investee to affect the amount of the investor’s returns.
Alongside the introduction of the IFRS 10 definition of control, the section about special purpose entities has been removed, meaning there is a single model for control regardless of the entity.
The IFRS 15 principles will be the one area that preparers will need to look at
The standard retains the rebuttable presumption that control exists when the parent owns more than half of the voting power of the entity, unless any of the above criteria can be shown not to be met. The IASB did not introduce into the standard the requirement in IFRS 10 for a parent that is an investment entity to measure its investments in subsidiaries at fair value through profit or loss.
Financial instruments
Sections 11, Basic Financial Instruments, and 12, Other Financial Instrument Issues, have now been combined into a single section, which is now section 11, Financial Instruments. This merge doesn’t contain significant changes that would alter decisions by many preparers.
Although the option to apply IAS 39, Financial Instruments: Recognition and Measurement, has been removed, it was felt that very few entities utilised this option. There were proposals to move to an expected-loss model in respect of impairment of financial assets, but these were dropped and the existing retained-loss model has been kept.
Fair value
The guidance regarding calculations of fair value is greatly expanded now to bring them in line with IFRS 13, Fair Value Measurement. This new section is much longer than the original standard. It now includes guidance on the three levels of the fair value hierarchy and three widely used valuation approaches, namely the market approach, cost approach and income approach.
Revenue
The Revenue from Contracts with Customers section has undergone the most significant change, and now applies the five-step approach in line with IFRS 15.
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the promises in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the promises in the contract.
Step 5: Recognise revenue when (or as) the entity fulfils a promise.
While there may be some simplifications to IFRS 15, this very much mirrors the IFRS 15 principles and will comfortably be the one area that preparers will need to look at. Applying this standard led to some larger entities having larger changes to revenue than they maybe thought initially, so this is the one to examine closely.
Leases
Notably, the IASB has chosen not to align the SME standard to IFRS 16, Leases, citing concerns of over-complexity and implementation costs. This has been a divisive issue, with numerous voices calling for it to be changed in the next iteration.
Watch and learn
See Adam Deller’s series of videos explaining the fundamentals of IFRS Accounting Standards
