IASB Proposes Smaller Consolidation Burden for SME Groups
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The International Accounting Standards Board (IASB) has published a proposed amendment to the IFRS for SMEs Accounting Standard. The change is small in wording but practical in effect. It removes a costly anomaly that has forced certain SME groups to prepare full consolidated financial statements even when full IFRS would let them skip the exercise.
What is being proposed
The IASB wants to add a new exemption to Section 9 of the IFRS for SMEs Accounting Standard. The exemption would let an intermediate parent that is itself an SME avoid preparing consolidated financial statements in one specific situation.
The situation is this. The SME intermediate parent sits inside a bigger group. Higher up the chain, the ultimate parent (or another intermediate parent) is an investment entity. That investment entity does not prepare consolidated financial statements. Instead, it measures all its subsidiaries at fair value through profit or loss, as IFRS 10 requires investment entities to do.
In that scenario, the SME intermediate parent currently has to prepare its own set of consolidated financial statements. Under the proposed change, it would not have to. It would no longer be required to present consolidated financial statements.
Why this matters
An investment entity is a particular kind of company. Think private equity fund, venture capital fund, or certain pooled investment vehicles. By design, these entities do not consolidate the businesses they own. They show those businesses on their balance sheet at fair value. The accounting reflects the investment nature of what they do.
Full IFRS already recognises that consolidating subsidiaries in that kind of group structure adds cost without giving users better information. So IFRS 10 already gives the same kind of exemption to intermediate parents in groups headed by an investment entity.
IFRS for SMEs never got the matching exemption. That left a gap. An SME intermediate parent in a private equity or investment fund structure was doing extra consolidation work that a similar full-IFRS entity simply did not have to do.
The proposed amendment closes the gap.
Timeline
The consultation is open until 9 September 2026. The IASB has set a 120 day comment period. If the amendment is finalised, it would apply to annual periods beginning on or after 1 January 2027. That date lines up with the effective date of the third edition of the IFRS for SMEs Accounting Standard. SMEs that early adopt the third edition would be allowed to apply the new exemption at the same time.
How it would change the accounting
If approved, the change would mean three things in practice.
First, qualifying SME intermediate parents would no longer have to consolidate their subsidiaries. They would prepare separate financial statements only.
Second, they would save real money and time. Consolidation work involves intercompany eliminations, uniform accounting policies, alignment of reporting dates, and disclosures that the SME currently has to do every year.
Third, SME accounting in these specific group structures would line up with full IFRS. That makes life easier for groups that mix full IFRS reporting at the top with IFRS for SMEs reporting in the middle of the structure.
The amendment is narrow. It does not change consolidation requirements for ordinary SME parent companies. It only helps the small group of SME intermediate parents that sit under an investment entity.
Note: South Africa permits IFRS for SMEs for non-listed entities. Many SA businesses sit under private equity ownership or investment fund structures. If you have a client that is an SME intermediate parent in that kind of group, this proposal could remove a meaningful annual compliance burden.
