SMEs advised to prepare for proposed fiancial reporting changes

SMEs need to get ready for the “enormous” impact proposed changes to the financial reporting system will have.

The new reporting system – the International Financial Reporting System (IFRS) for Small and Medium-Sized Entities – looks set to become the UK standard accouting practice from January 2012.

According to Craig Burton, assurance director at Grant Thornton in Sheffield, IFRS for SMEs as the proposed reporting system has been nicknamed, will have a dramatic impact on smaller firms.

Mr Burton said: “The IFRS for SMEs will be the biggest change in the UK accounting system for 30 years.

“It will impact on more than 400 companies in the Sheffield areas alone and could cost the region up to £5m in management time and professional fees.”

Mr Burton said the proposed changes were far more than just a change to the presentation of financial statements.

“It will have implications for loan covenants, bonus schemes, dividend payments and corporation tax bills and will affect reported results and business performance across the board,” he contined.

Although IFRS for SMEs is currently in the consultation period and is up for discussion until February 1 2010, Grant Thornton does not expect any major objections to the proposal and expects the system to be introduced.

If approved, Grant Thornton said it will result in a simpler and more accessible accounting standard and although disruptive in the short-term will make things easier in the future.

Mr Burton said that it was important to remember the amount of time needed to make the transition between systems.

“If the IFRS for SMEs is introduced it may require staff training and system changes, and our experience has shown us that starting to think about these issues early on can save time and reduce problems at a later date,” he added.