World Bank

1

• World Bank
• SME Financial Reporting
• José Maria Bové
• FEE Vice-President, SME/SMP Matters
• Chairman, FEE SME/SMP Working Party

2
FEE European Federation of Accountants

• Fédération des Experts Comptables Européens
  representative organisation for the accountancy
  profession in Europe
• 44 Member Bodies of professional accountants
• From 32 countries
• With over 500.000 members
• Located in Brussels, Belgium
• Created in 1987
• www.fee.be

3
FEE Active in the SME/SMP Area

• FEE SME/SMP Working Party
• Works closely with IFAC SMP Permanent Task Force
• EFRAG Joint EFRAG FEE Working Group IFRS for
  SMEs
• Conferences and Seminars

4
FEE SME/SMP Working Party Publications

• How SMEs Can Reduce the Risk of Fraud ? (October
  2005)
• Avoiding Business Failure A Guide for SMEs
  (October 2004)
• How to Prepare to Successful Sale of an
  Established Family Business
• Business Valuation A Guide for SMEs
• Keeping it in the Family SME Family Business
  Succession
• Directory of FEE Member Body Publications on SME
  and SMP matters

5
FEE SME/SMP Working PartyActive Projects

• Guide on European Accounting Networks
• SME/SMP Aspects of Auditing Standards
• IFRS for SMEs

6
Financial Reporting for SMEs in the EU

• What is an SME?
• Thresholds Accounting Directives
• Small1 Balance sheet total lt 4 400 000
• Net turnover lt 8 800 000
• Employees lt 50
• (not exceeding two of the three criteria)
• 1 New amounts as adopted in December 2005, but
  not yet published in the Official Journal

7
Financial Reporting for SMEs in the EU

• Medium1 Balance sheet total lt 17 500 000
• Net turnover lt 35 000 000
• Employees lt 250
• (not exceeding two of the three criteria)
• 1 New amounts as adopted in December 2005, but
  not yet published in the Official Journal

8
Accounting Directives

• Fourth Directive (1978) individual accounts
• Seventh Directive (1983) consolidated accounts
• Reporting requirements all limited liability
  companies
• Simplification for small and medium sized
  companies

9
Simplifications (Member State Option)

• Small
• Permission to draw up abridged balance sheets
• Permission to publish abridged balance sheet and
  abridged notes
• Permission not to publish profit and loss
  account, annual report and audit report
• Exemption from audit

10
Simplifications (Member State Option)

• Medium
• Permission to adopt different lay-out for profit
  and loss account
• Permission to publish abridged balance sheet and
  abridged notes
• No audit exemption

11
Background to EU LegislationEU Legislation on
Financial Reporting and Auditing
National auditable entities
4th, 7th and 8th Directives
Small companies
National companies with statutory audit
Other legal forms
Transparency Prospectus Directives and IAS
Regulation
Listed companies
Partnership Directive
Specific sector
Directives on financial institutions
Foreign listed
12
Some EU Data

• Over 20 million companies
• Over 4.5 million covered by Accounting Directives
• Some 8 000 listed companies (of which some 1400
  foreign companies)

13
National Requirements

• In many EU countries financial reporting
  standards for SMEs are in development or in place
• Best known example FRSSE UK
• Need for an IFRS?
• Will an IFRS for SMEs in some future replace the
  Accounting Directives?

14
IFRS Changing Accounting
B
A
15
IAS Regulation (2002)

• Scope
• Requirement to use endorsed IAS for consolidated
  accounts of EU listed companies
• Optional
• Consolidated accounts of unlisted companies
• Individual accounts
• Endorsement infrastructure
• EU Accounting Regulatory Committee
• EFRAG (European Financial Reporting Advisory
  Group)

16
EFRAG

• Set up in 2001
• Private sector organisation
• Founding fathers
• UNICE and ERT Business (preparers)
• FEE (accountants)
• Banking organisations (FBE, ESBG, ECBG)
• EFFAS (financial analysts)
• CEA (insurers)
• FESE (securities exchanges)
• UEAPME/EFAA (SMEs)

17
EFRAG

• Main objectives
• Proactive contribution to the work of IASB and
  IFRIC Contribute to and influence IASB standard
  setting process BEFORE a standard is issued
• Endorsement advice to the Commission Technical
  assessment of IFRS and IFRIC interpretation AFTER
  they are issued
• Advising on changes to the EU Accounting
  Directives
• Advisory Forum to discuss

18
IAS Regulation

• Impact on SMEs
• SMEs listed on a stock exchange
• Voluntary basis
• National standards
• IFRS for SMEs ?!
• EU several millions
• Legal requirements
• National standards for SMEs
• Translation
• Reduce the financial reporting burden on SMEs

19
Need for Global Standards for SMEs

• If IFRS are not followed by unlisted company,
  national GAAP is followed
• But, no two national GAAPs are the same
• - All look to IFRS to varying degrees.
  Selective adoption
• Danger of 28 SME GAAPs in Europe alone
• But, need for genuine simplification

20
Way forward

• Criticism of European members of IASB Advisory
  Group
• Alternative EFRAG proposals to arrive at real
  simplification

21

• Why to Apply IFRS for SMEs ?

22

• World Bank
• SME Financial Reporting
• José Maria Bové
• FEE Vice-President, SME/SMP Matters
• Chairman, FEE SME/SMP Working Party