IFRS for SMEs 2025: Updates and Preparation Guide Before 2027

The IASB officially published the updated standard on 27 February 2025. This revision aims to simplify and modernise financial reporting for small and medium-sized entities while integrating relevant concepts from full IFRS. The update was also endorsed by the European Union through Regulation (EU) 2025/1047.

Effective date: Applicable to accounting periods starting on or after 1 January 2027. Early adoption is allowed.

One of the most impactful changes is the overhaul of Section 11, which now merges basic and other financial instruments. The standard no longer allows fallback to IAS 39; instead, it fully embraces the measurement principles from IFRS 9. The incurred loss model remains, with clearer guidance on amortised cost, derecognition, and hedge accounting.

A key clarification was introduced: if the contractual cash flows of a debt instrument are limited solely to principal and interest, it shall be classified as basic and measured at amortised cost.

• Section 7 (Cash Flow Statements):
  Entities must now disclose a reconciliation of changes in liabilities from financing activities, including supplier financing arrangements.
• Section 9 (Consolidated and Separate Financial Statements):
  The definition of “control” aligns with IFRS 10, reinforcing the presumption that holding a majority of voting rights indicates control.
• Fair Value Measurement & Revenue Recognition:
  Fair value guidance is consolidated into its own section, while revenue recognition now mirrors the five-step model found in IFRS 15.
• Other impacted areas:
  Amendments also cover business combinations, employee benefits and income tax provisions.

• Train your accounting team on Sections 7, 9 and 11.
• Review accounting systems to ensure they can handle new reconciliation and classification requirements.
• Consider early adoption to become familiar with the changes ahead of 2027.
• Analyse tax implications, as accounting adjustments could affect taxable income.
• Update contracts and cash flow controls in line with enhanced transparency obligations.

• Improved international comparability through closer alignment with full IFRS.
• Greater financial transparency, especially regarding financial instruments and group structures.
• Easier access to investors and lenders via standardised and reliable financial reporting.
• Tax control advantages by streamlining valuation and accounting policies.

The June 2025 update marks a milestone on the path toward more globally consistent accounting standards, while maintaining a practical approach for SMEs. Early adaptation will allow for an orderly transition and avoid tax or legal complications in 2027.