IASB Proposes to Extend Consolidation Exception for Eligible SMEs

The IASB has published an Exposure Draft proposing narrow-scope amendments to the IFRS for SMEs Accounting Standard that would extend the existing consolidation exception to a wider group of eligible small and medium-sized entities. The proposal responds to feedback from preparers and national standard-setters who identified consolidation requirements as a disproportionate burden for smaller entities with relatively straightforward group structures.

Background: The Current Consolidation Exception

The IFRS for SMEs Standard already contains a consolidation exception, but its scope is limited. Under the current rules, only entities whose parent prepares publicly available consolidated financial statements under full IFRS (or IFRS for SMEs) may qualify. This leaves many SMEs — particularly those in jurisdictions where parent-level reporting differs — unable to benefit.

The IFRS 10 Consolidated Financial Statements framework under full IFRS also contains a similar exception, but that standard is not applicable to SMEs. The proposed amendment effectively aligns relief available at the SME level with the principles already established for larger entities.

What the ED Proposes

Under the proposed amendments, an SME would be exempt from preparing consolidated financial statements if it meets a set of cumulative criteria, which are expected to include:

• The entity is itself a subsidiary, and its ultimate or intermediate parent prepares consolidated financial statements that are publicly available
• The entity's debt or equity instruments are not publicly traded
• The entity and its subsidiaries together do not exceed quantitative thresholds (to be confirmed in the final standard)

Where the exception applies, the SME would still be required to disclose that it has taken advantage of the exemption and identify the parent whose consolidated statements are publicly available.

Implications for Preparers

For finance teams at SME-level subsidiaries of larger groups, this amendment could eliminate a significant and costly reporting obligation. The preparation of consolidated financial statements requires consolidation adjustments, intercompany eliminations, and often additional audit scope — work that may add little informational value when the parent already produces group accounts.

Entities currently preparing SME-level consolidated statements should assess whether they would qualify under the proposed criteria. It is also worth engaging with auditors and regulators early, as some jurisdictions may impose additional local requirements that limit the practical availability of the exception even after adoption.

The comment period provides an opportunity to flag implementation concerns, particularly around the proposed thresholds and the treatment of intermediate holding companies.