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

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 < 4 400 000€ Net turnover < 8 800 000€ Employees < 50 (not exceeding two of the three criteria) 1New 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 < 17 500 000€ Net turnover < 35 000 000€ Employees < 250 (not exceeding two of the three criteria) 1New 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 Foreignlisted

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 A B

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