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IFRS for SMEs
in South Africa

Supporting the entrepreneur.

What is IFRS for SMEs?

International Financial Reporting Standards (IFRS) is a set of global accounting standards that is implemented to ensure transparency, accountability and efficiency in different financial markets around the world, including South Africa. IFRS for SMEs concerns the accounting standards that have been specifically developed with small companies in mind, and it focuses on the information that may be required by creditors, lenders, and other authorities that may use SMEs’ financial statements. IFRS for SMEs is, by comparison, less complex and burdensome.

Which reporting framework applies to your company?

This is a question most often posed, and arguably most often incorrectly answered, than any other in South African financial reporting.
IFRS for SMEs

Public accountability is the deciding test

IFRS for SMEs is available to entities without public accountability that prepare general purpose financial statements. A company has public accountability if its debt or equity instruments are publicly traded, or if it holds assets in a fiduciary capacity for a broad group of third parties as one of its primary businesses, which covers banks, insurers, securities brokers and similar institutions.
According to the Companies Act, companies only need to apply full IFRS if they are state-owned as defined within the Act, or when they are listed on stock exchanges, such as the JSE. Other companies can apply IFRS for SMEs, provided they fall within its scope.

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Where the public interest score does and does not matter

There is persistent confusion about the role of the public interest score (PIS) here, and both extremes are wrong.

Your PIS does not decide whether you are eligible for IFRS for SMEs, public accountability does that. A company can have a very high PIS and still use IFRS for SMEs, provided it is not listed, not state-owned and does not hold assets in a fiduciary capacity as a primary business.

But PIS is not irrelevant either. It features in the financial reporting standards table in the Companies Act, which sets out the framework options available to each category of company, and it determines whether your annual financial statements need an audit, an independent review, or neither. It shapes what you must do with your statements even where it does not dictate the framework you prepare them under.

The PIS is calculated by taking certain factors into consideration. Some of these factors include the number of parties with interests in the company, total turnover within a financial year, the number of employees, and third-party liabilities at the end of a financial year.

Your MOI, your shareholders and your group

Before making a change to your company’s accounting framework, there are factors that need to be considered. You should determine whether your Memorandum of Incorporation (MOI) requires you to follow specific accounting guidelines and further establish whether there is a specific framework required by your shareholders.
Another factor that may play a role is if your company forms part of a group of companies – all of which apply the IFRS framework – then you would most likely need to apply the same framework to ensure uniformity.

1 January 2027 is the effective date of the third edition

The IASB issued the third edition of the IFRS for SMEs Accounting Standard on 27 February 2025. It applies to annual reporting periods beginning on or after 1 January 2027, and early application is permitted. For a company with a February year-end, that means the financial year starting 1 March 2027.
This is the first substantial revision of the standard in over a decade, and it is not a tidying exercise.

What Is Changing

Revenue (Section 23) has been rewritten around a simplified five-step model aligned with IFRS 15 — identify the contract, identify the performance obligations, determine the transaction price, allocate it, and recognise revenue as obligations are satisfied.

Fair value measurement moves into a new dedicated section aligned with IFRS 13, with a single definition and a three-level hierarchy. It applies prospectively.

Consolidation (Section 9) adopts the IFRS 10 control model — power, exposure to variable returns, and the ability to use that power to affect them.

Business combinations (Section 19) align the definition of a business with IFRS 3. Contingent consideration is measured at fair value and acquisition costs are expensed rather than capitalised.

Financial instruments: the two sections merge into one, and the option to apply IAS 39 falls away. The incurred loss impairment model is retained, and new maturity analysis disclosures apply to financial liabilities.

Most of these changes apply retrospectively, with transition reliefs available for several sections to reduce the burden.

What you should be doing now

Work out which changes impact your business. For many SMEs the revenue and fair value sections will be the entirety of it; for others, consolidation or a past acquisition will matter more.

Check whether your revenue arrangements — bundled goods and services, variable consideration, long-term contracts — are affected by the five-step model.

Establish what comparative information you will need, since most sections apply retrospectively.

Decide whether early adoption suits you. It can be worth it where the new revenue model gives a fairer picture, or where a group wants all entities on the same basis simultaneously.

Talk to us about a Third Edition impact assessment. We will identify which sections affect your business, what the transition requires, and what your comparatives need to look like, well before your first affected reporting period begins.

Converting to IFRS for SMEs: What is involved

Converting to an IFRS-friendly system is about more than just your company’s accounts. It also affects many of your daily operations. If you look at it as an opportunity to evaluate and improve certain systems in your business, you might benefit greatly from the changes. Unfortunately, the conversion process and initial reporting phase can be challenging.

How MMS Group supports IFRS for SMEs

With our team of qualified and experienced individuals, who enjoy staying ahead of the latest advancements, including IFRS and IFRS for SMEs, clients can have confidence in our abilities to assist your business in an efficient manner, and to ensure that all reporting standards are met. We can assist in the fields of accounting, transition methodology, tax, valuations, treasury, and overall project management.

Transition Support

To fully assist our clients with their IFRS requirements, especially IFRS for SMEs, we offer the following services to help companies transition to IFRS standards:

  • We objectively evaluate your business’ processes, control systems and deliverables to determine the changes required to meet IFRS requirements
  • We assist with the entire IFRS transition, offering project management support
  • We provide advice on how to adapt processes, data, manuals, and systems
  • We advise on how to engage with key stakeholders regarding the changes commencing in your business

IFRS Reporting

On the accounting side, we offer advice and support and will assist our clients by:

  • Assisting with the identification of differences between pre-IFRS accounting systems and the current IFRS system to implement the necessary changes
  • Determining what disclosures are required (financial and non-financial)
  • Advising on employee benefits
  • Supporting clients with valuations and impairment testing

Ongoing Support

Once you are reporting under IFRS for SMEs, we stay involved, preparing and reviewing your annual financial statements each year, advising as the standard changes, and flagging the amendments that affect your business before they take effect.

To talk to us about your company’s IFRS requirements, please feel free to contact us directly via phone or email.

Frequently Asked Questions about IFRS for SMEs

What is IFRS for SMEs?

IFRS for SMEs is a self-contained accounting standard issued by the International Accounting Standards Board for entities that do not have public accountability. It covers the same ground as full IFRS but with simplified recognition and measurement requirements and substantially fewer disclosures, which makes it far less burdensome for a smaller business to apply. It is required or permitted in 85 jurisdictions, including South Africa, which has adopted it without modification.

Who can use IFRS for SMEs in South Africa?

Any company without public accountability that prepares general purpose financial statements. You have public accountability if your debt or equity instruments trade in a public market such as the JSE, or if holding assets in a fiduciary capacity for a broad group of outsiders is one of your primary businesses (which covers banks, insurers and securities brokers). State-owned companies as defined in the Companies Act and listed companies apply full IFRS. Most other South African companies may choose IFRS for SMEs.

What is the difference between IFRS and IFRS for SMEs?

They share the same conceptual foundation, but IFRS for SMEs is a single, much shorter standard with simplified requirements. It removes topics irrelevant to private companies, simplifies recognition and measurement in areas such as financial instruments, goodwill and borrowing costs, and cuts disclosure requirements by roughly 90%. Full IFRS is mandatory for listed and state-owned companies; IFRS for SMEs is an option for those without public accountability. A company eligible for IFRS for SMEs may still choose full IFRS, and some do, usually for group consistency or investor expectations.

When does the third edition of IFRS for SMEs take effect?

The third edition was issued on 27 February 2025 and applies to annual reporting periods beginning on or after 1 January 2027, with early application permitted. For a company with a February year-end, the first affected period is the financial year beginning 1 March 2027.

What is changing in the third edition of IFRS for SMEs?

The five significant changes are a rewritten revenue section built on a simplified five-step model aligned with IFRS 15; a new dedicated fair value measurement section aligned with IFRS 13; a revised definition of control aligned with IFRS 10; changes to business combinations, including fair value measurement of contingent consideration and expensing of acquisition costs; and the merger of the two financial instruments sections, with the IAS 39 option removed. Most changes apply retrospectively, with transition reliefs available for several sections.

Can we switch from full IFRS to IFRS for SMEs?

Usually yes, if you are within the scope of IFRS for SMEs. Before switching, check whether your Memorandum of Incorporation prescribes a framework, whether your shareholders or lenders expect full IFRS, and whether you form part of a group that reports under full IFRS — group uniformity is the most common reason a company that could switch decides not to. The change is a change in accounting framework and needs to be planned, with comparatives restated.

Does using IFRS for SMEs mean we do not need an audit?

No — the two are separate questions. Your reporting framework determines how the financial statements are prepared; your public interest score and how the statements are compiled determine whether they need an audit, an independent review, or neither. A company reporting under IFRS for SMEs may still require a full audit, and a company that needs no assurance at all must still prepare annual financial statements.

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