IFRS for SMEs: Third Edition (2025) — What Changed
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Sai Manikanta Pedamallu
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5 min read
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IFRS Update | IFRS for SMEs: Third Edition (2025) — What Changed and What It Means for You
Tagged: IFRS Update | Source: IFRS Foundation | Effective: 1 January 2027 (early adoption permitted)
What This Update Is About
The IASB issued the third edition of the IFRS for SMEs Accounting Standard in February 2025. The second edition dates to 2015. A decade is a long gap, and the third edition reflects changes in full IFRS over that period, simplified for SME application.
The standard itself remains under 330 pages. The IASB's philosophy has not changed: one self-contained document, revised no more than once every three years, designed for the 95%-plus of companies worldwide that are not publicly accountable.
The third edition is effective for annual periods beginning on or after 1 January 2027. Entities can adopt early or continue applying the 2015 edition until the effective date.
Key Changes in the Third Edition
The IASB published a marked-up version and a Feedback Statement in February 2025, which detail every amendment. The substantive changes cluster around four areas.
1. Alignment with newer full IFRS requirements (selectively)
Several amendments bring the SME standard closer to post-2015 full IFRS, but only where the IASB judged the change appropriate for SMEs. This includes updated requirements on lease accounting, reflecting the direction of IFRS 16, though the SME version retains a simplified approach compared to the full standard.
2. Revised financial instruments section
The third edition updates the financial instruments sections to address areas where the 2015 edition created practical difficulties. The undue cost or effort exemptions remain available, but their scope and application have been clarified.
3. Updated disclosure requirements
Even with the 90% reduction in disclosures compared to full IFRS, the third edition rationalises some requirements further. A few disclosures considered irrelevant or duplicative for SMEs have been removed or streamlined.
4. Plain-English redrafting
Several sections received language improvements. The standard's accessibility to entities without large accounting teams was always the point. The third edition continues that.
Ind AS vs. IFRS for SMEs: The Indian Context
India does not apply IFRS for SMEs. The MCA prescribes Ind AS for listed companies and companies above specified net worth or turnover thresholds. Smaller companies use Accounting Standards (AS) notified by ICAI, which are broadly aligned with old Indian GAAP rather than IFRS for SMEs.
| Feature | IFRS for SMEs (3rd Edition) | Ind AS (Full IFRS-aligned) | Indian AS (for smaller companies) |
|---|---|---|---|
| Goodwill treatment | Amortised (max 10 years if life uncertain) | Impairment only, no amortisation | Amortised |
| Borrowing costs | Expensed in full | Capitalised for qualifying assets (IAS 23) | Capitalised (revised AS 16) |
| Development costs | Expensed in full | Capitalised when criteria met (Ind AS 38) | Capitalised when criteria met |
| Lease accounting | Simplified approach | Full Ind AS 116 (mirrors IFRS 16) | Operating/finance distinction (old AS 19) |
| Associates | Cost model permitted | Equity method required | Equity method required |
The gap between Indian AS and IFRS for SMEs is smaller than most people expect in some areas (goodwill amortisation, for instance), but significant in others. Indian companies expanding internationally or preparing for cross-border investment sometimes ask whether IFRS for SMEs applies to them. For Indian-incorporated entities, the answer is no. IFRS for SMEs remains relevant as a benchmark and for subsidiaries of Indian groups operating in jurisdictions that have adopted it.
Why This Matters for Dip IFRS Candidates
The Dip IFRS syllabus covers full IFRS, not IFRS for SMEs. The exam does not test SME-specific requirements directly. However, two areas of the exam benefit from understanding the SME standard.
First, comparison questions. Examiners sometimes ask candidates to explain how a principle applies under full IFRS, and the contrast with simplified SME treatment helps demonstrate understanding of why the full standard takes the approach it does. Goodwill impairment versus amortisation is a classic example. The SME standard amortises goodwill. Full IFRS requires annual impairment testing per IAS 36. Knowing both treatments and their rationale deepens your answer.
Second, conceptual framework questions. The IASB designed the SME standard using the same conceptual foundation as full IFRS, with deliberate simplifications for cost-benefit reasons. Understanding those design choices strengthens your grasp of the Conceptual Framework, which does appear on the Dip IFRS exam.
For exam preparation, treat IFRS for SMEs as background knowledge that enriches your understanding of full IFRS rather than as testable content.
Big 4 Audit Focus
Big 4 firms audit entities across jurisdictions that have adopted IFRS for SMEs. In practice, this affects assurance engagements in parts of Africa, Latin America, Southeast Asia, and some European jurisdictions where regulators apply IFRS for SMEs to non-publicly accountable entities.
For audit trainees and managers working on group engagements with subsidiaries in such jurisdictions, the third edition changes the audit evidence landscape in two areas.
Goodwill: Under the third edition, the firm must assess whether the 10-year maximum amortisation life (used when useful life cannot be reliably estimated) has been appropriately applied, and whether the entity has performed impairment testing where indicators exist. The trigger-based impairment test in IFRS for SMEs differs from the mandatory annual test under IAS 36.
Leases: The simplified lease model in the third edition means fewer right-of-use assets and lease liabilities will appear on SME balance sheets compared to IFRS 16 entities. Auditors need to verify that the entity has correctly assessed which leases qualify for the simplified treatment and has not inadvertently applied the full Ind AS 116 or IFRS 16 model.
Group auditors consolidating IFRS for SMEs subsidiaries into a full IFRS parent also face the conversion adjustment task, which requires judgment on goodwill, development costs, and lease reclassifications.
Supporting Materials Available
The IASB has released the following alongside the third edition:
- Marked-up version showing every change from the 2015 edition (April 2025)
- Feedback Statement and Effects Analysis (February 2025)
- Project Summary (February 2025)
- Training modules covering section-by-section application (first batch released May 2025)
- Webcast series for practitioners (March 2025 onwards)
All materials are available at ifrs.org/supporting-implementation/2025-ifrs-for-smes-supporting-materials.
Related Posts in the Global Fin X IFRS Series
If you are building your full IFRS foundation alongside this update, these posts from our 100-post series are directly relevant:
- Goodwill and Impairment: See our post on IAS 36 Impairment of Assets: Complete Guide to Compliance and Calculation 2026.
- Borrowing Costs: Our IAS 23 post covers the capitalisation requirements that IFRS for SMEs bypasses entirely.
- Leases: The IFRS 16 post explains the full model against which the SME simplified approach is best understood.
- Conceptual Framework: The foundation post in our series covers the IASB's framework, which underpins both full IFRS and IFRS for SMEs.