No, IFRS 16 Leases does not currently apply to entities using the IFRS for SMEs Standard. The SME standard still follows the older guidance in Section 20, which differentiates between operating and finance leases. While the IASB is reviewing alignment, IFRS 16’s single-lessee model is not part of the current SME standard.
Under IFRS 16 Leases, companies are required to report all leases with terms longer than 12 months on their balance sheets, with some exceptions, and disclose more details about their lease obligations. Even for small businesses with a limited lease portfolio, managing the impacts of this standard can be difficult.
In terms of the Company's Act a company only needs to apply IFRS if the company is a state-owned company as defined by the Act or if the company is a public company listed on an exchange such as the JSE or AltX for example, all other companies are able to apply IFRS for SMEs.
Is an entity preparing financial statements in terms of the IFRS for SMEs Standard required to apply IFRS 9, IFRS 15 and IFRS 16? No. IFRS 9, IFRS 15 and IFRS 16 which became effective during 2018 and 2019 are applicable to entities applying IFRS.
This is the first set of international accounting requirements developed specifically for small and medium-sized entities (SMEs). It has been prepared on IFRS foundations but is a stand-alone product that is separate from the full set of International Financial Reporting Standards (IFRSs).
All entities apart from public companies, state- owned companies and certain non-profit companies are allowed to apply the IFRS for SMEs. Profit companies, other than state owned or public companies, whose public interest score for the particular financial year is at least 350.
Agenda reference: 30D
25. Unlike IFRS 19, which is a disclosure-only Standard, the IFRS for SMEs Accounting Standard is a stand-alone Standard that includes recognition, measurement, presentation and disclosure requirements.
IFRS 15 does not apply to wholly unperformed contracts where all parties have the enforceable right to end the contract without penalty. These contracts do not affect an entity's financial position until either party performs under the contract.
IFRS 16 replaces IAS 17. It provides a single lessee accounting model to be applied to all leases, whilst retaining a two model approach for lessors. Lessees recognise a right-of-use asset and a lease liability on the commencement of a lease.
The third edition of the IFRS for SMEs® Accounting Standard, issued in February 2025 and effective from January 2027, brings several key amendments compared to the second edition issued in 2015.
A subsidiary that is part of a consolidated group that uses full IFRSs is not prohibited from using the IFRS for SMEs in its individual financial statements, provided that the subsidiary itself does not have public accountability.
The IASB has determined that any entity that does not have public accountability may use the IFRS for SMEs Accounting Standard.
🔹 Less Complexity – Accounting rules are more straightforward and easier to apply. 🔹 Lower Costs – With fewer reporting requirements, SMEs spend less on compliance and auditing fees. 🔹 Easier to Understand – Business owners and non-accounting staff can grasp the financials without needing a finance degree.
IFRS allows for the recognition of internally generated intangible assets where certain conditions are met. IFRS for SMEs does not allow for the recognition of these intangible assets. Borrowing costs under IFRS for SMEs are expensed as opposed to IFRS which requires them to be capitalised where applicable.
The exception is variable payments that depend on an index or a rate, which are included in the initial measurement of a lease liability and the right-of-use asset. There are optional recognition exemptions when the lease term is 12 months or less or when the underlying asset has a low value when new.
A recap. IFRS 16 and Topic 842 became effective for IFRS Accounting Standards preparers and US GAAP public companies in 2019, and US private entities (including most not-for-profit entities) in 2022. Both IFRS 16 and Topic 842 require lessees to report most of their leases on-balance sheet, as assets and liabilities.
The lease term is greater than or equal to 75% of the asset's estimated useful life. The present value of the lease payments is greater than or equal to 90% of the fair value of the asset. Ownership of the asset may be transferred to the lessee at the end of the lease.
While IFRS compliance is not mandatory for all companies, certain entities are required to follow Ind-AS, including: Listed companies. Unlisted companies with a net worth of Rs. 250 crore or more.
IFRS 16 sets out the recognition, measurement, presentation and disclosure requirements for leases. A lessee recognises a leased asset and lease obligation for all leases that are not subject to specific exemptions. Lessors continue to distinguish between operating and finance leases.
In addition, there are certain accounting treatments that are not allowable under the SMEs Standard. Examples of these disallowable treatments are the revaluation model for property, plant and equipment and intangible assets, and proportionate consolidation for investments in jointly controlled entities.
13. IFRS 15 and IFRS 16 have different requirements for determining the duration of the contract term versus the lease term and variable consideration versus variable lease payments.
The third edition of the IFRS for SMEs Accounting Standard issued in February 2025 amended and revised sections of the IFRS for SMEs Accounting Standard. An entity shall apply the amended and revised sections for annual periods beginning on or after 1 January 2027.
The option that does not represent an example of a simplified International Financial Reporting Standard for small and medium-sized enterprises is d) the option of choosing between price and replacement scheme for assets, infrastructure, and machinery.
The PFRS for SMEs must be used by any other entity that has total assets of between P3,000,000 and P350,000,000 (US$70,000 to $8,000,000) or total liabilities of between P3 million and P250 million (US$70,000 to $5,500,000).