IFRS for SMEs: What the 2025 Third Edition Changes

The IFRS for SMEs is the simplified accounting standard most South African private companies use, and its 2025 third edition is the largest revision in over a decade.

On 27 February 2025 the International Accounting Standards Board (IASB) issued the third edition of the IFRS for SMEs Accounting Standard. It is effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. The standard was first issued in 2009 and last revised in 2015, so this is the first substantive change in ten years.

For South African finance directors, this is not an offshore technicality. The IFRS for SMEs sits inside the Companies Act 71 of 2008 reporting regime, and the entities that apply it are the owner-managed and mid-market companies that make up most of the country's corporate base. The work to prepare starts now, not in 2027.

What the IFRS for SMEs is, and who applies it

The IFRS for SMEs Accounting Standard is a self-contained standard built from full IFRS but simplified for entities without public accountability. It omits topics that are not relevant to typical small and medium entities, restricts policy choices, simplifies recognition and measurement, cuts disclosure, and is written in plainer language.

Eligibility turns on public accountability, not size. An entity has public accountability if its debt or equity instruments trade in a public market, or if it holds assets in a fiduciary capacity for a broad group of outsiders as a primary business — banks, insurers, collective investment schemes and the like. Such entities must use full IFRS; everyone else without public accountability may use the IFRS for SMEs.

In South Africa the link is statutory. The Companies Regulations, 2011, made under the Companies Act 2008, prescribe a reporting framework according to each company's public interest (PI) score, calculated under Regulation 26(2) from employee numbers, third-party liabilities, turnover and the number of shareholders. The IASB's own jurisdiction profile records that South Africa has adopted the IFRS for SMEs without any modification, with the Financial Reporting Standards Council advising the Minister, and Johannesburg Stock Exchange-listed companies required to apply full IFRS.

The alignment approach the IASB used

The third edition is the outcome of the IASB's second comprehensive review. The board did not import full IFRS wholesale. It tested each potential change against three principles: relevance to SMEs, simplicity, and faithful representation, weighing costs against benefits and the limited resources of smaller entities.

In practice that meant asking three questions of every topic: would the change make a difference to the decisions of users of SME financial statements — mainly lenders; can an appropriate simplification be made for SMEs; and does the result faithfully represent the underlying economics. Only where a topic cleared the first test did the board proceed to simplify and align. The effect is a standard that tracks full IFRS more closely on the topics that matter to lenders, while keeping the reliefs that make it workable for a small finance team.

The third edition does not turn the IFRS for SMEs into full IFRS. It aligns the standard where alignment helps the people who read SME accounts — and leaves the simplifications where they earn their keep.

The changes that matter most

Six sections carry the weight of the revision. The first two — revenue and fair value — will demand the most preparation, because they change how numbers are produced, not merely how they are disclosed.

Revenue: a five-step model (Section 23)

Section 23, Revenue from Contracts with Customers, is rewritten around the five-step model of IFRS 15: identify the contract, identify the performance obligations, determine the transaction price, allocate it to the obligations, and recognise revenue as each obligation is satisfied. The IASB has retained simplifications for SMEs, but the underlying discipline is the same as full IFRS. Entities with bundled deliverables, variable consideration or long-term contracts will need to reassess when and how much revenue they recognise.

Fair value: one place, one method (Section 12)

A new Section 12, Fair Value Measurement, gathers the requirements for measuring fair value and the related disclosures into a single section, based on IFRS 13. Previously this guidance was scattered. Consolidating it gives a consistent definition of fair value and a clearer disclosure set wherever the standard requires or permits a fair value measurement.

Financial instruments (Section 11)

Section 11 aligns with certain principles of IFRS 9, and the option some entities used to apply the recognition and measurement requirements of the older IAS 39 has been removed. Importantly, the IASB kept the incurred-loss model for impairing financial assets at amortised cost rather than imposing the expected-credit-loss model of full IFRS. New disclosures arrive: an ageing analysis of financial assets and a maturity analysis of financial liabilities, so that credit and liquidity risk are visible.

Control, consolidation and business combinations (Sections 9 and 19)

Section 9, Consolidated and Separate Financial Statements, adopts a single basis for assessing control drawn from IFRS 10: an investor controls an investee when it is exposed to variable returns and has the power to affect those returns. Groups with structured arrangements or less-than-obvious control should expect to re-test what they consolidate. Section 19, Business Combinations, brings in the acquisition method, changing how an acquirer measures and presents what it buys.

Section 2, Concepts and Pervasive Principles, has also been updated to help preparers develop accounting policies for matters the standard does not address directly. Below, the practical shape of the four headline changes:

• Revenue (Section 23): from the older sale-of-goods and services split to a single five-step model aligned with IFRS 15 — affects the timing and measurement of recognised revenue.
• Fair value (Section 12): from guidance dispersed across the standard to one consolidated section aligned with IFRS 13 — a single definition and disclosure set.
• Financial instruments (Section 11): the IAS 39 option removed and alignment with certain IFRS 9 principles, but the incurred-loss impairment model retained — plus new ageing and maturity disclosures.
• Control (Section 9): from the older power-to-govern definition to the single IFRS 10 control model — may change which entities are consolidated.

Why this matters in the South African reporting regime

Whether a company even reaches an audit depends on the same machinery. Under the Companies Regulations, a company's PI score, together with how its financial statements are compiled, determines whether it faces an audit, an independent review, or neither, and whether it files financial statements with the Companies and Intellectual Property Commission (CIPC) in iXBRL.

For companies that apply the IFRS for SMEs and are independently reviewed or audited, the third edition changes the figures the reviewer or the Independent Regulatory Board for Auditors (IRBA)-registered auditor will examine — revenue cut-off, fair value inputs, the consolidation boundary. The South African Institute of Chartered Accountants (SAICA) typically issues implementation guidance and training for its members ahead of an effective date, and finance teams should track it.

There is also a covenant dimension. Banks lend to SMEs against reported revenue, net asset value and gearing. Where the new revenue or fair value rules move those numbers, loan covenants framed on the old basis can be breached without any change in the business. Engaging lenders early, with restated comparatives, is part of the transition, not an afterthought.

What finance teams and auditors should do before 2027

The effective date looks distant, but transition normally requires restated comparatives, so the practical runway is shorter than 1 January 2027 suggests. A company with a December year-end that does not apply early will first report under the third edition for the year ending 31 December 2027 — with 2026 figures restated. Six steps matter now.

1. Confirm eligibility: re-test public accountability and recalculate the public interest score, so you know the standard and the assurance level that apply.
2. Scope the gap: map current accounting against the third edition section by section, concentrating on revenue, fair value, financial instruments and consolidation.
3. Re-paper revenue: review material contracts against the five-step model and decide where timing or measurement shifts.
4. Plan the transition: identify the comparative period to restate, quantify opening-balance adjustments, and document the judgements.
5. Talk to lenders and auditors early: test loan covenants against restated numbers and agree the approach with your reviewer or IRBA-registered auditor.
6. Build capability: use the IASB's supporting materials and SAICA guidance to train the finance team before the first reporting period, not during it.

Early application is permitted, and for some companies it is the better choice — particularly where adopting the five-step revenue model improves comparability with larger customers or funders already on full IFRS. That is a decision to take deliberately, with the auditor, rather than to back into.

The third edition is an alignment, not an upheaval. But alignment with full IFRS on revenue, fair value and control touches the most judgement-heavy parts of a set of accounts. The companies that scope the change in 2026 will treat 2027 as a reporting date; those that wait will treat it as a deadline.