Beyond Habit: Why UAE Chartered Accountants Must Champion IFRS for SMEs

Introduction: A Profession at a Crossroads 

Across the UAE, a silent misconception continues to shape financial reporting for thousands of enterprises: that full IFRS is the default and therefore the only acceptable framework for credible reporting. This belief persists even when the entities involved are decidedly not the type of businesses for whom full IFRS was designed. 

This is the paradox: 
SMEs, which constitute more than 94% of the UAE’s registered businesses, often apply a reporting framework tailored for publicly listed or otherwise publicly accountable entities. 

Why does this continue? 
Not because full IFRS is better. Not because the regulator mandates it. 
But because our profession, collectively, has not yet challenged the inertia. 

For UAE chartered accountants, this is an opportunity to lead not merely by compliance, but by advisory thought leadership. IFRS for SMEs is a high-quality, globally recognised framework that aligns the cost of reporting with the actual needs of SMEs. 

This article aims to equip practitioners with both the strategic narrative and the technical depth to confidently advocate for the adoption of IFRS for SMEs. 

1 The “Why”: The Compelling Case for Adoption 

1.1 Eligibility in the UAE: Wider Than Most Practitioners Assume 

Although globally the IFRS for SMEs Standard is principles-based, UAE practice has developed its own widely accepted thresholds. An entity is generally considered an SME if it meets two out of the following three quantitative criteria: 

• Total Assets ≤ AED 50 million 

• Annual Revenue ≤ AED 100 million 

• Employee Count ≤ 200 

These thresholds are not rigid statutory limits; rather, they are applied by UAE banks, auditors, and free zones to determine the “size” of entities for practical IFRS for SMEs application. 

What practitioners often overlook: 

• A business with AED 150m assets but only 30 employees may still qualify. 

• A business with AED 20m revenue but 300 employees may still qualify. 

Many UAE enterprises already operating at scale—particularly established family businesses—fall within the intended scope of IFRS for SMEs. 

1.2 Why the Market Has Not Shifted: The Triangular Inertia 

1. Auditors: The Comfort of the Familiar 

Full IFRS is deeply embedded in audit methodologies, training, templates, and software. The habitual use of IFRS 9 models, IFRS 16 lease capitalization, or complex OCI/segment reporting often continues even when these topics are irrelevant for SMEs. 

2. Banks & Investors: Perception Over Substance 

Many credit officers assume full IFRS is superior. In reality: 

• IFRS for SMEs eliminates unnecessary complexity 

• Provides clearer information for private businesses 

• Avoids incorrect application of ECL models and hedge accounting 

A well-prepared IFRS for SMEs set is often far superior to a poorly applied full IFRS set. 

3. SME Owners: The Conversation That Never Happens 

Owners believe “IFRS is IFRS.” If the accountant does not initiate the discussion, the owner will never know that a more suitable option exists. 

1.3 The Strategic Upside: A Framework That Speaks SME Language 

Cost Efficiency 

• No IFRS 9 models 

• No IFRS 16 lease liabilities 

• Reduced disclosures 

Better Management Insight 

• Cleaner statements 

• Less volatility 

• Easier budgeting 

Improved Stakeholder Confidence 

• Globally recognised 

• Principles-based 

• Consistent and comparable 

This is not a “light” standard this is a fit-for-purpose standard. 

The “What”: Technical Depth on Key Simplifications 

2.1 A Purpose-Built Framework: Thoughtful Omissions 

IFRS for SMEs intentionally removes areas such as EPS, interim reporting, segment reporting, and complex hedge accounting. This allows financial statements to stay focused on matters relevant to SMEs. 

2.2 Financial Instruments: A Major Simplification (Section 11 & 12) 

Financial instruments under IFRS for SMEs are designed to be practical and easy for SMEs to apply. 

A. Two Measurement Categories Simple and Clear 

The Standard avoids IFRS 9’s complicated SPPI tests, business-model assessments, and expected credit loss models. 

Instead, it uses two categories: 

1. Basic Financial Instruments (Section 11) 

Measured at amortised cost. 
Includes: 

• Trade receivables and payables 

• Cash and bank balances 

• Simple loans 

• Basic debt instruments 

This model removes the burden of ECL calculations and avoids fair value volatility. 
2. Other Financial Instruments (Section 12) 

Measured at fair value through profit or loss. 
Includes: 

• Derivatives 

• Equity investments 

• Complex debt instruments 

Fair value guidance is simplified, with fewer disclosure requirements. 

Why It Matters 

This classification avoids the traps SMEs fall into under IFRS 9 and results in: 

• Lower technical effort 

• Lower audit cost 

• Fewer errors 

• Clearer reporting 

A meaningful, high-impact simplification for UAE businesses. 

2.3 Intangible Assets: Cost Model Only 

• All intangibles have finite lives 

• If useful life cannot be determined → max 10 years 

• Revaluation model prohibited 

(C) Goodwill: Mandatory Amortisation With a 10-Year Rebuttable Cap 

• Must be amortised over useful life 

• If unknown → presumed not more than 10 years 

• No annual mandatory impairment test 

(D) Inventory: Borrowing Costs Expensed 

SMEs avoid the modelling burden of capitalising interest costs. 

(E) Leases: IAS 17 Lives On 

• Operating leases remain off-balance-sheet 

• No right-of-use assets 

• No discount rate complexities 

• No reassessment rules 

This is a major operational relief compared to IFRS 16. 

Implementation, Judgment, and Advisory Leadership 

3.1 Employee Benefits: Understanding “Current Termination Amount” 

Under Section 28, defined benefit obligations can be measured using the current termination amount, meaning: 

• Amount payable if all employees were terminated on reporting date 

• Based on current salary only 

• No future increases or actuarial projections 

• Minimal complexity 

This reduces actuarial cost and simplifies audits. 

3.2 Consolidation Reliefs: Proportionate NCI and Limited Disclosures 

• NCI only using proportionate share method 

• Only basic disclosures required 

• No extensive IFRS 12-style reporting 

This is especially useful for groups with multiple SPVs. 

3.3 Transitioning From Full IFRS to IFRS for SMEs 

Yes transition is fully permitted. 

Key steps: 

1. Determine transition date 

2. Prepare opening IFRS for SMEs balance sheet 

3. Apply Standard retrospectively (with exemptions) 

4. Provide reconciliations 

5. Update policies and notes 

This is simpler than maintaining full IFRS each year. 

3.4 Beyond Compliance: Leading the Mindset Shift 

Accountants should: 

1. Initiate the conversation with SME clients 

2. Educate banks 

3. Promote principle-based reporting 

Conclusion: The Profession’s Opportunity 

When 90% of the world’s entities are SMEs, they should not carry the weight of standards written for the remaining 10%. 

This is not simplification. 
This is optimisation. 
And it is time the profession embraces it.