[Global Financial Insights] IFRIC June 2025 and IFRS for SMEs Update

Editorial Team – [2025] 176 Taxmann.com 303 (Article)

Global Financial Insights is a weekly feature for the Accounts and Audit Module subscribers of Taxmann.com. It provides you with the latest updates on financial reporting and auditing practices from across the globe. Here is this week’s financial update:

1. IFRIC Update – June 2025

The IFRS Interpretations Committee met in June 2025 and discussed a range of important issues aimed at promoting the consistent application of IFRS Standards. The meeting covered both new submissions and ongoing matters, with particular attention to the implications of IFRS 9, Financial Instruments and the recently issued IFRS 18, Presentation and Disclosures in Financial Statements (which replaces IAS 1 and parts of IAS 8).

One of the key discussions involved two tentative agenda decisions under IFRS 9. The first concerned the determination of transaction costs, specifically whether certain costs incurred in connection with financial instruments qualify as transaction costs under IFRS 9 and how these should be accounted for when measuring financial assets and liabilities. The second agenda item examined the treatment of an embedded prepayment option, focusing on whether such options meet the ‘solely payments of principal and interest’ (SPPI) criterion required for amortised cost classification.

Under the scope of IFRS 18, which brings a renewed focus on disaggregation and clear classification principles, the committee examined multiple issues:

• Segment disclosures (IFRS 8) – The Committee addressed concerns about how entities should disclose segment-level information, particularly when operating in complex multi-segment environments.
• Restricted-use demand deposits (IAS 7) – A discussion was held on whether deposits subject to contractual restrictions on use qualify for classification as cash and cash equivalents in the statement of cash flows.
• Subsequent expenditure on biological assets (IAS 41) – The Committee considered whether and how subsequent costs, such as fertilisers or labour, should be capitalised or expensed when related to bearer or consumable biological assets.
• Presentation of changes in financing liabilities (IAS 7) – Clarification was provided regarding how entities should present changes in liabilities arising from financing activities, including the disclosure of non-cash movements.
• Physical settlement of contracts (IFRS 9) – A technical issue was addressed concerning contracts to buy or sell a non-financial item that are settled physically, whether these should be accounted for as derivatives or executory contracts under IFRS 9.

A significant area of focus was the classification of liabilities in reverse factoring arrangements. The Committee evaluated how to present obligations under such arrangements, either as trade payables or as borrowings, by analysing their nature and terms. The importance of the classification principles introduced by IFRS 18, such as aggregation, disaggregation, and assessment of nature versus function, was emphasised in determining the appropriate financial statement presentation.

The Committee’s June 2025 meeting reflects an active and responsive approach to complex accounting matters. Stakeholders are encouraged to review the tentative decisions and submit comments before finalisation as per the dates mentioned in the update. These discussions are expected to shape guidance and practice in critical areas of financial reporting, particularly as entities transition to the requirements of IFRS 18.

Source – International Financial Reporting Standards

2. Update on 2025 IFRS for SMEs supporting materials modules

The International Financial Reporting Standards (IFRS) Foundation has initiated the update of its suite of supporting materials modules to align with the amendments incorporated in the 2025 edition of the IFRS for SMEs Accounting Standard. Each section-specific module is being revised, with priority given to chapters that have undergone substantial changes, to ensure consistency with the newly revised Standard. These updates aim to support users in understanding and applying the revised requirements effectively.
Each supporting materials module is carefully structured to provide comprehensive guidance and practical insight. The contents of each module include:

• Full text of the section – The complete and updated text of the relevant section from the IFRS for SMEs Standard, including any transition provisions, is provided to guide implementation.
• Explanatory notes – Simplified explanations are included to assist users in interpreting the principles and applying the requirements in practice.
• Illustrative examples – Real-world examples demonstrate how specific requirements are applied in typical SME scenarios.
• Significant judgments and estimates – Key areas requiring professional judgment or estimation are highlighted to enhance preparers’ understanding of critical considerations.
• Comparison with full IFRS standards – A concise comparison is provided to show differences and similarities between the IFRS for SMEs section and the corresponding full IFRS Standard.
• Multiple-Choice Questions (MCQs) – Knowledge-check questions are included to assess understanding and reinforce key concepts, making the modules valuable for self-learning.
• Case Studies with solutions – Each module features practical case studies that reflect real-life SME issues, followed by detailed solutions to promote applied learning.
• Educational purpose disclaimer – A disclaimer is included to clarify that the modules are intended for educational purposes and have not been officially approved by the IASB.
• Terms of use and copyright notice – Each module outlines the applicable terms of use and copyright conditions to ensure proper usage.

Together, these modules serve as an essential educational resource for preparers, auditors, educators, and learners engaged with the IFRS for SMEs Accounting Standard.

Source – International Financial Reporting Standards

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