IFRS for SMEs 2025 Update: Key Changes and Why They Matter

The International Accounting Standards Board (IASB) has released the third edition of the IFRS for SMEs Accounting Standard on 27 February 2025, marking a significant milestone for small and medium-sized entities (SMEs) worldwide. This update introduces critical enhancements to align the Standard with recent developments in full IFRS Accounting Standards while preserving its fundamental objective: simplicity and usability for SMEs.

The IFRS for SMEs is a comprehensive, stand-alone framework tailored to the needs and resources of SMEs. These updates ensure SMEs remain compliant, transparent, and comparable in an ever-evolving financial landscape.

Why Were the Changes Made?

The IASB recognized the need to reflect significant improvements in full IFRS while considering the cost-benefit constraints faced by SMEs. The objective was twofold:

• Relevance: Ensure SMEs’ financial reporting remains globally comparable and meets users’ information needs.

• Simplicity: Retain simplified approaches for ease of application without compromising quality.

Key Updates at a Glance

Here’s a quick overview of the major changes introduced in the 2025 edition:

1. Section 7 – Statement of Cash Flows

   • New disclosure: Reconciliation of changes in liabilities arising from financing activities, including both cash and non-cash movements.

   • Additional disclosure: Supplier finance arrangements.

2. Section 9 – Consolidated and Separate Financial Statements

   • Definition of control aligned with IFRS 10.

   • Rebuttable presumption for control based on majority voting rights clarified and retained.

3. Section 11 – Financial Instruments

   • Merged Sections 11 and 12 into a single financial instruments section.

   • Removed option to apply IAS 39.

   • Incorporated selected principles from IFRS 9.

   • New disclosure requirements: Ageing analysis of financial assets and maturity analysis of liabilities.

4. Section 12 – Fair Value Measurement (New)

   • Consolidates all fair value guidance into one section, based on IFRS 13.

   • Relocates measurement and disclosure requirements from other sections.

5. Section 19 – Business Combinations and Goodwill

   • Aligned with IFRS 3 Business Combinations for definition of a business.

   • Acquisition costs recognized in profit or loss (not capitalized).

   • Retained goodwill amortization requirement.

   • Contingent consideration measured at fair value if practicable.

6. Section 23 – Revenue from Contracts with Customers

   • Introduced a five-step model, aligned with IFRS 15.

   • Simplified application for SMEs with transition relief.

What Was Not Updated?

Certain complex topics remain unchanged for now, including:

• IFRS 14 – Regulatory Deferral Accounts

• IFRS 16 – Leases

• Cryptocurrency Accounting

These will be considered in future reviews, expected approximately every three years.

Effective Date and Transition

The revised Standard becomes mandatory for periods beginning on or after 1 January 2027, with retrospective application required under Section 10 (Accounting Policies, Estimates, and Errors). Transition relief options are provided to ease the burden on SMEs.

Who is Impacted?

All entities currently applying the IFRS for SMEs will be affected. Key implications include:

• Adjustments to accounting policies and processes.

• Additional data collection and system updates.

• Enhanced disclosure requirements.

How Dawgen Global Can Help

At Dawgen Global, we understand that compliance is more than ticking boxes—it’s about future-proofing your business. Our team of experts can assist you in:

• Gap Analysis: Identifying the impact of changes on your current reporting framework.

• System and Process Updates: Ensuring seamless integration of new requirements.

• Staff Training: Building internal capacity for sustained compliance.

• Transition Planning: Designing an effective roadmap to meet the 2027 deadline.

Next Step!