Keywords: small and medium-sized enterprises, SMEs, taxable income, International Financial Reporting Standards, IFRS, cash flow, tax, accounting standards, financial statements
The application of an accounting standard for SMEs
Small and medium-sized companies have a very important position in the European Union (EU) economy, mainly in the area of employment. Their activities in the internal market are limited by a great deal of obstacles. The most important obstacles are the different national accounting and tax systems. At present, it is obvious that a certain degree of accounting and tax harmonisation has to take place. International Financial Reporting Standards (IFRS) for Small- and Medium-sized Enterprises (SMEs) is designed to apply to the general-purpose harmonised financial statements of all profit-oriented SMEs. General-purpose financial statements are directed toward the common information needs (an entity's financial position, performance, cash flow) of a wide range of users (shareholders, creditors, employees). Determining taxable income requires special-purpose financial statements designed to comply with the tax laws and regulations in a particular jurisdiction. An entity's taxable income is defined by the laws and regulations of the country or other jurisdictions in which it is domiciled. Tax authorities are also important external users of the financial statements of SMEs. Profit or loss recognised under IFRS for SMEs could be a starting point for determining taxable income.