The International Accounting Standards Board (IASB) has decided to proceed with a targeted amendment to the IFRS for SMEs Accounting Standard. The proposed change would introduce a consolidation exception for eligible small and medium-sized entities that have an investment entity parent. The IASB expects to issue the amendment before the end of 2026, with the change applying to reporting periods beginning on or after 1 January 2027. Read the IASB’s October 2026 decision.

The decision follows stakeholder support for giving qualifying IFRS for SMEs reporters access to similar cost savings already available to entities applying full IFRS Accounting Standards. However, the amendment has not yet been issued as a final requirement. Businesses should therefore treat this as a development to monitor, rather than an immediate change to their accounting policies.

What the proposed relief would address

Under the IASB’s decision, eligible SMEs with an investment entity parent could use a consolidation exception in specified circumstances. Rather than consolidating subsidiaries that fall within the relevant requirements, a qualifying entity could potentially apply the relief and reduce the cost and complexity of group reporting.

The final amendment is also expected to require disclosures. An SME using the exception would need to disclose that it has applied the relief and provide details about the investment entity parent. This means that the proposed simplification would not remove the need for transparent group-structure information in the financial statements.

Who may be affected

The development is most relevant to South African entities that:

  • prepare financial statements using the IFRS for SMEs Accounting Standard;
  • form part of a group with an investment entity parent; and
  • could meet the detailed eligibility conditions in the final amendment.

It is not a general exemption for every privately owned group. The final wording, definitions and conditions will determine which entities qualify. Businesses applying full IFRS Accounting Standards should also avoid assuming that this particular amendment automatically changes their reporting requirements.

What finance teams should check now

Although no immediate accounting entry is required solely because of the IASB decision, finance teams can use the lead time to review their group reporting arrangements. Start by identifying the reporting framework used by each entity in the group and documenting the ownership structure, including any investment entity parent.

Teams should also assess the current cost of consolidation, the information collected from subsidiaries and the disclosures already included in the annual financial statements. This will help the finance function estimate whether the eventual amendment could reduce reporting effort or change the information that needs to be presented.

Practical next steps for SMEs

  • Confirm whether each group entity applies full IFRS or IFRS for SMEs.
  • Map the group structure and identify any investment entity parent.
  • Ask the reporting accountant or auditor to assess potential eligibility once the final amendment is issued.
  • Monitor the expected publication of the amendment before changing accounting policies.
  • Update the year-end reporting timetable if additional disclosure or transition work is required.

For South African businesses, the immediate priority is preparation rather than implementation. Finance teams should wait for the final IASB wording and consider how any relevant local adoption or reporting requirements affect their financial statements. Businesses seeking support with reporting processes and year-end preparation can explore Your Financial Partner’s accounting and advisory services.