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IFRS for SMEs may be an attractive alternative for some construction contractors, but there will be challenges in the conversion.
For decades small business owners, accountants, and others have argued the need for different accounting standards to be used by smaller privately held companies as a replacement for the complex and burdensome standards issued by the Financial Accounting Standards Board (FASB). Opponents, on the other hand, have argued for only one set of accounting standards, pleading that multiple accounting standards could only lead to confusion and a lack of credibility for issuers of financial statements prepared under "lesser" standards.
Compelling arguments can be made by both camps, but the practical portion of the argument has, in recent years, tilted in favor of some version of "Little GAAP." The continued proliferation of complex and controversial standards, some of which are costly and difficult to apply, has led the American Institute of Certified Accountants (AICPA) and the FASB to increase their efforts regarding this difficult issue.
Two years ago, the FASB established the Private Company Financial Reporting Committee (PCFRC), and on December 17, 2009, the AICPA and the FASB jointly announced the formation of a "Blue-Ribbon Panel" to address standards for private companies. Although the membership of the Blue-Ribbon Panel has not yet been appointed and its efforts to date obviously limited, the PCFRC has recently issued a significant statement suggesting that the International Financial Reporting Standards for Small and Medium-Sized Entities (IFRS for SMEs) represent an "attractive alternative for U.S. private companies." While the U.S. has waited, the rest of the world has concluded that different standards are appropriate, and in July 2009, the International Accounting Standards Board (IASB) issued, in final format, IFRS for SMEs.
Use by U.S. companies
IFRS for SMEs are intended for companies that do not have publicly traded stock or debt. Further, companies that report in accordance with IFRS for SMEs cannot be deemed public entities if they are holding assets in a fiduciary capacity. In other words, IFRS for SMEs are not permitted for banks, broker dealers, credit unions, or other similar entities, including certain not-for-profit organizations, depending on how the organization's jurisdiction is defined. By establishing the IFRS for SMEs, the IASB has recognized that users of...