Abstract
This chapter considers whether a new accounting solution is needed to help achieve the Capital Market Union’s (CMU) ambitions for the successful development of the quoted SME sector. It is important to know the present state of play and of some of the various options for moving forward. The optic is IFRS-based and shall consider firstly whether IFRS is sufficiently scalable, and secondly whether the core information objective on which IFRS is founded is optimised for quoted SMEs.
According to the CMU Action Plan, which seeks to make it easier for SMEs to list their shares on public markets, a new accounting solution could play a role in creating the conditions for future growth. From this point of view, a fair approach requires finding a balance between consumer protection, the decision usefulness of information for investors and a regulatory regime that is not excessively burdensome to SMEs. Financial reporting requirements are highly relevant; therefore, arguments for all quoted companies, including quoted SMEs, to use ‘full’ IFRS are considered.
Andrew Watchman is Chairman of the Technical Expert Group of the European Financial Reporting Advisory Group (EFRAG) and EFRAG CEO. The views expressed are entirely his own.
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Notes
- 1.
The European Commission issued on 18 June 2015 its report on the evaluation of Regulation (EC) No. 1606/2002 (the ‘IAS Regulation’ or Regulation on the application of International Financial Reporting Standards). The report can be found at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2015:301:FIN
- 2.
In this chapter I use the term ‘quoted SMEs’ in a broad sense to refer to smaller companies listed on any public market. This term is not intended to necessarily correspond to a particular legal definition of ‘SME’ or category of stock market.
- 3.
See World Federation of Exchanges, https://www.world-exchanges.org/home/index.php/research/wfe-research
- 4.
SME Growth Markets are expected to comprise a sub-category of multilateral trading facilities that meet specified criteria, in particular that at least 50% of the issuers whose financial instruments are traded are SMEs as defined.
- 5.
FRC. (2015). Consultation: Improving the Quality of Reporting by Smaller Listed and AIM Quoted Companies. Available at https://www.frc.org.uk/Our-Work/Publications/FRC-Board/Consultation-Improving-the-Quality-of-Reporting-b-File.pdf
- 6.
From the response of the Investment Association to the FRC’s 2015 Discussion Paper ‘Improving the Quality of Reporting by Smaller Listed and AIM Quoted Companies’.
- 7.
European Commission. (2017). On the Mid-Term Review of the Capital Markets Union Action Plan. Available at URL https://ec.europa.eu/info/sites/info/files/staff-working-document-cmu-mid-term-review-june2017_en.pdf
- 8.
EFRAG. (2016). Professional investors and the decision usefulness of financial reporting. Available at http://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2FProfessional%2520investors%2520and%2520the%2520decision%2520usefulness%2520of%2520financial%2520reporting.pdf
- 9.
The ongoing projects have recently been reclassified under the heading of the IASB’s even broader “Better Communication in Financial Reporting” initiative.
- 10.
ANC. (2010). Consultation sur la norme internationale d’information financière pour les petites et moyennes entreprises. Available at http://www.anc.gouv.fr/files/live/sites/anc/files/contributed/ANC/1.%20Normes%20fran%C3%A7aises/Travaux%20autres/CE_12mars2010_Lettre_Consultation_sur_la_norme_IFRS_pour_les_PME.pdf
- 11.
European Commission. (2015). Feedback Statement on the Green Paper “Building a Capital Markets Union”. Available at http://ec.europa.eu/finance/consultations/2015/capital-markets-union/docs/summary-of-responses_en.pdf
- 12.
European Commission. (2017). On the Mid-Term Review of the Capital Markets Union Action Plan. Available at https://ec.europa.eu/info/sites/info/files/communication-cmu-mid-term-review-june2017_en.pdf
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Watchman, A. (2019). Financial Reporting by Quoted SMEs. In: Kaili, E., Psarrakis, D., van Hoinaru, R. (eds) New Models of Financing and Financial Reporting for European SMEs. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-02831-2_10
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