International Financial Reporting Standards for Small and Medium-Sized Entities: An Update for the Commercial Loan Officer

Compared to US generally accepted accounting principles (GAAP), International Financial Reporting Standards (IFRS) are seen as more principles-based accounting standards. Accounting for leases provides an example of the difference between rules-based and principles-based standards. GAAP applies to all businesses, publicly or privately owned, large or small; thus, one GAAP fits all. Although initially IFRS were also one-size-fits-all, the International Accounting Standards Board (IASB) recognized that small and privately owned businesses did not have the same reporting needs as large and publicly owned businesses. In July 2009, the IASB released International Financial Reporting Standards for Small and Medium-sized Entities (SME). To address the issue of what accounting standards small businesses now use and what they might use in the future, a survey of certified public accountants who service small businesses was conducted. Overall, the participants slightly favor separate standards for private companies, 4.99 on a scale of 1 to 7, where 4 is neutral. Understanding the differences between IFRS for SMEs and GAAP prepares the loan officer to be a better reader of financial statements.