A proposed change to the IFRS for SMEs Accounting Standard could affect how some groups prepare consolidated financial statements. The proposal is being considered by the IFRS Foundation’s SME Implementation Group, which discussed the matter on 5 October 2026. It is not yet an approved amendment, so South African businesses should not change their accounting policies solely because of the proposal.

The development is relevant to SMEs that sit between an investment entity parent and one or more subsidiaries. These groups should understand the possible impact, document their current reporting basis and monitor further announcements before making changes.

What is being proposed?

The Exposure Draft proposes an exception for an SME that is an intermediate parent of an investment entity. Under the proposal, the intermediate parent would not have to prepare consolidated financial statements if its investment entity parent prepares financial statements under full IFRS Accounting Standards and measures its investments in subsidiaries at fair value through profit or loss in line with IFRS 10.

The IFRS Foundation says the comment period for the Exposure Draft closed on 9 September 2026. Feedback was then scheduled for discussion by the SME Implementation Group in October, with the IASB expected to consider the matter later in the month. The current stage remains a standard-setting project rather than an effective accounting requirement. Read the IFRS Foundation’s update.

Who may be affected?

The proposal is narrow. It is not a general exemption from consolidation for all small and medium-sized businesses. It may matter where:

  • the reporting entity qualifies to use the IFRS for SMEs Accounting Standard;
  • the entity is an intermediate parent in a group structure;
  • the ultimate or higher-level parent is an investment entity; and
  • the investment entity prepares full IFRS financial statements and measures subsidiary investments at fair value through profit or loss.

Groups outside these circumstances would not automatically qualify for the proposed exception. The final wording, effective date and transition requirements would also need to be confirmed before any implementation decision can be made.

What should South African businesses check?

Finance teams should begin with a group-structure review rather than changing their financial statements. Map the ownership chain, identify which entities prepare consolidated accounts and confirm which reporting framework each entity uses.

Businesses should also check whether their existing accounting policies clearly explain the basis for consolidation, the role of any investment entity parent and the treatment of subsidiaries. If a group is considering a transaction or restructuring, the possible proposal may be worth discussing with its accounting advisers, but it should not be treated as settled guidance.

Practical next steps

  • Keep the current consolidation process in place until a final amendment is issued and becomes effective.
  • Document the group’s ownership structure and reporting frameworks.
  • Ask whether the parent entity meets the investment-entity conditions in full IFRS.
  • Review draft financial statements for clear disclosures about consolidation judgments.
  • Monitor the IFRS Foundation’s October 2026 discussions and any subsequent formal publication.

The key message for South African SMEs is preparedness, not immediate change. A proposed exception may reduce duplication for some qualifying groups in future, but businesses should continue applying the requirements currently in force. YFP can assist businesses with bookkeeping, management accounts and financial reporting processes through its accounting and advisory services.

Editorial note: This article summarises a developing international standard-setting proposal. It is not personal accounting advice, and the proposal may change or may not be finalised.