ACCA Strategic Business Reporting (SBR) Practice Exam

Which of the following is a disadvantage of IFRS for SMEs?

1. It simplifies the reporting process for all companies

2. It may not suit very small entities due to its complexity

3. It eliminates the requirement for group accounts

4. It standardizes reporting across different countries

The correct answer is: It may not suit very small entities due to its complexity

The assertion that the IFRS for SMEs may not suit very small entities due to its complexity accurately identifies a potential drawback of this reporting framework. While IFRS for SMEs was designed to simplify financial reporting for small and medium-sized enterprises compared to full IFRS, it can still be complex for the smallest entities which may lack the resources or expertise to comply fully with its requirements. This complexity can result in these entities finding it challenging to adopt these standards, leading to increased costs or difficulties in the preparation of financial statements. In contrast, the other options present features of IFRS or denote advantages rather than disadvantages. For instance, the simplification of the reporting process is a core intention of the IFRS for SMEs, aiming to reduce the burden on smaller companies. Additionally, the elimination of the requirement for group accounts is generally seen as a benefit since many small entities do not have subsidiaries or related entities, allowing them to avoid the complexities associated with consolidated financial statements. Finally, the standardization of reporting across different countries is an advantage intended to enhance comparability and reduce the confusion that can arise from varying national regulations. Thus, while IFRS for SMEs serves many small businesses effectively, its complexity can pose a significant challenge for the smallest of entities.