IFRS for SMEs: scope, simplifications and 2027 changes

What the IFRS for SMEs Accounting Standard is

The IFRS for SMEs Accounting Standard is a single, self-contained standard issued by the IASB for entities without public accountability that publish general purpose financial statements. It takes full IFRS as its base and simplifies recognition, measurement and disclosure. It matters because it gives private companies internationally recognised statements at a fraction of the cost of full IFRS.

The Standard runs to a few hundred pages organised in numbered sections, against several thousand pages of full IFRS, and it does not change automatically when full IFRS changes. The IASB updates it through periodic comprehensive reviews. The third edition, issued on 27 February 2025, applies to periods beginning on or after 1 January 2027, so as of September 2026 most users are preparing their transition. For how the full standards are organised, see our guide on what IFRS is.

Who may use it

The IASB defines eligibility by public accountability, not by size. An entity has public accountability if its debt or equity instruments are traded in a public market, or it is in the process of issuing them, or if it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses, as banks, credit unions, insurers, securities brokers and investment funds do. Everyone else may use the Standard, provided the local law or regulator allows it.

That final condition is the decisive one. Whether a company may, must or cannot use the IFRS for SMEs Standard is decided by each jurisdiction, and some add size tests or restrict it to unlisted companies. The IFRS Foundation reported that 85 of 168 jurisdictions it profiled required or permitted the Standard as of August 2024. A subsidiary of an IFRS group may also use it for its own statements, while providing full IFRS figures to the parent for consolidation.

Five kinds of simplification

The IASB describes the Standard's simplifications in five groups. Knowing which group a difference belongs to helps you judge whether it will ever affect you.

• Topics omitted because they rarely matter to SMEs: earnings per share, segment reporting, interim reporting and specialised insurance accounting
• Fewer accounting policy options, where full IFRS offers a choice the IASB judged unnecessary for SMEs
• Simplified recognition and measurement: goodwill amortised, all development costs expensed, all borrowing costs expensed
• Substantially fewer disclosures, tailored to what lenders and other users of SME statements ask for
• Plainer language, written for preparers who are not IFRS specialists

Key differences from full IFRS

The list below covers the differences a finance team meets most often. Several reflect deliberate choices by the IASB to trade some information for lower cost, and they remain in the third edition.

• Goodwill and other intangible assets are amortised over their useful lives; if a useful life cannot be estimated reliably it is limited to ten years. Full IFRS does not amortise goodwill but tests it annually
• Research and development costs are all expensed; IAS 38 requires capitalisation of development costs that meet its criteria
• Borrowing costs are all expensed; IAS 23 requires capitalisation on qualifying assets
• Leases follow the older finance and operating lease model; the third edition was not aligned with IFRS 16, so operating leases stay off the balance sheet
• Impairment of financial assets at amortised cost uses an incurred-loss model rather than the IFRS 9 expected credit loss model covered in our guide on IFRS 9
• Investment property is measured at fair value only when fair value can be measured reliably without undue cost or effort; otherwise it is treated as property, plant and equipment
• Property, plant and equipment may be carried under a cost model or, since the 2015 amendments, a revaluation model
• No separate held-for-sale classification; the plan to sell is an impairment indicator and a disclosure instead

What the third edition changes

The third edition is the result of the IASB's second comprehensive review, which considered requirements in full IFRS Accounting Standards with an effective date on or before 1 January 2019, including IFRS 9, 10, 13, 15 and 16, and the 2018 Conceptual Framework. It is effective for periods beginning on or after 1 January 2027, with earlier application permitted and disclosed. The changes are applied retrospectively, with reliefs listed in the transition section.

Three topics were explicitly left for the next review: leases (IFRS 16), regulatory deferral accounts (IFRS 14) and cryptocurrency. For preparers this means the lease figures stay on the familiar operating and finance lease basis for now, while revenue, fair value and business combinations move closer to full IFRS.

• Section 23 is renamed Revenue from Contracts with Customers and follows a simplified version of the IFRS 15 five-step model; it speaks of promises rather than performance obligations, and costs to obtain a contract are expensed
• A new Section 12 Fair Value Measurement brings the fair value guidance together and aligns it with IFRS 13
• Sections 11 and 12 on financial instruments are merged into one Section 11; the option to apply IAS 39 is removed; the incurred-loss impairment model is kept
• Section 9 aligns the definition of control with IFRS 10, and a retained interest after loss of control is remeasured at fair value
• Section 19 aligns the definition of a business with IFRS 3, expenses acquisition costs and measures contingent consideration at fair value where possible without undue cost or effort
• Section 7 adds a reconciliation of liabilities from financing activities and disclosure of supplier finance arrangements
• Section 2 is aligned with the 2018 Conceptual Framework

Worked example: revenue under the new Section 23

A machinery dealer in the Netherlands sells a packing machine with a two-year maintenance contract for a single price of EUR 10,800, excluding VAT. It sells the machine alone for EUR 9,000 and the maintenance alone for EUR 3,000, so the bundle carries a discount of 1,200 against the combined stand-alone prices of 12,000.

Under the five-step model the contract contains two promises, the Standard's plainer word for performance obligations. The price is allocated in proportion to stand-alone selling prices: the machine receives 10,800 x 9,000 / 12,000 = 8,100 and the maintenance receives 10,800 x 3,000 / 12,000 = 2,700. The dealer recognises 8,100 when the machine is delivered and control passes, and 2,700 over the 24 months of service, which is 112.50 a month.

On delivery, assuming the customer pays in full up front, the entry is Dr Cash 10,800 / Cr Revenue 8,100 / Cr Contract liability 2,700, and each month Dr Contract liability 112.50 / Cr Revenue 112.50. The second edition gave little guidance on allocating a bundle discount between components; the third edition sets a principle for it. Our guide on IFRS 15 explains the full model.

Worked example: goodwill and borrowing costs

An Irish distributor applying the IFRS for SMEs Standard buys a competitor and recognises goodwill of EUR 900,000. Management cannot estimate the goodwill's useful life reliably, so it is amortised over ten years: Dr Amortisation expense 90,000 / Cr Accumulated amortisation 90,000 each year, plus an impairment test when there is an indicator. Under full IFRS the same goodwill would stay at 900,000 unless an annual impairment test showed a loss; our guide on goodwill and intangible assets explains that test.

The same company borrows EUR 2,000,000 at 6 percent to build a warehouse that takes a year to complete. The year's interest of 120,000 is an expense under the IFRS for SMEs Standard. Under IAS 23 it would be capitalised into the warehouse's cost and depreciated over the building's life. In year one, profit is 120,000 lower under the SME standard; over the building's life the difference reverses through lower depreciation.

Where it applies: the EU, the UK and Canada

The European Union has not endorsed the IFRS for SMEs Standard for statutory accounts. Individual company accounts in the EU are governed by the Accounting Directive (2013/34/EU) and national GAAP, and endorsed full IFRS is required only for the consolidated accounts of listed groups under Regulation (EC) 1606/2002, with member states free to permit or require it more widely. A European SME can still prepare IFRS for SMEs statements for a lender or investor, but not usually as its filed statutory accounts.

The United Kingdom and the Republic of Ireland did not adopt the Standard directly, but FRS 102, their main GAAP for unlisted entities, was derived from it and has since diverged, most visibly on leases and revenue from 2026. Canada chose its own ASPE for private enterprises rather than the IFRS for SMEs Standard. Our guides on FRS 102 vs IFRS and IFRS vs ASPE cover those frameworks.

Preparing for the 2027 transition

For a calendar-year company, the first annual period under the third edition starts on 1 January 2027, and comparatives for 2026 are restated unless a relief applies. Start with the areas most likely to move numbers or require new data. Agree the transition adjustments with your auditor or reviewer well before the first year end, because retrospective application changes the opening balance sheet of the comparative year, which for a calendar-year company is 1 January 2026.

• Revenue: list contract types with bundled goods, services, discounts or variable prices, and document stand-alone selling prices; Section 23 may be applied prospectively, which limits restatement of existing contracts
• Consolidation: recheck control over every investee under the IFRS 10-based definition
• Business combinations: acquisition costs will be expensed and contingent consideration measured at fair value for acquisitions from the date of initial application
• Fair value: map every fair value measurement to the new Section 12 hierarchy and disclosures, applied prospectively
• Financial instruments: if you applied IAS 39 measurement, plan the move to Section 11
• Cash flow statement: set up tracking of movements in borrowings and any supplier finance arrangements
• Disclosures: update the note templates and the chart of accounts where new subtotals or analyses are needed

Applying the Standard in Skyline Nexus ERP

Skyline Nexus ERP records transactions in a single double-entry general ledger, so the choice of the IFRS for SMEs Standard is expressed through the chart of accounts, account mapping and your posting policies. Account types carry reporting classifications for the P&L category, current or non-current position and cash flow activity, which feed the Trial Balance, Income Statement, Balance Sheet and Cash Flow reports.

Several SME-specific treatments map onto existing features. The Asset Management module supports straight-line, declining balance, sum-of-years-digits and units-of-production depreciation, with revaluation and impairment postings. Goodwill amortisation, contract liabilities under Section 23 and other policy entries are posted as manual journals, which must balance, and monthly releases such as the 112.50 above fit naturally into the month-end close. Fiscal years and periods can be closed and locked once the period's entries are complete.