Analyse af IFRS for SME’s anvendelighed for danske selskaber i softwareudviklingsbranchen

Christopher Ulrich Pedersen & Rasmus Emil Dehn Larsen

Student thesis: Master thesis


The objective of this thesis is to assess whether the IFRS for SMEs is applicable to enterprises in the software development business. The IFRS for SMEs is a new international accounting standard designed for use by small and medium-sized enterprises. The target group of the standard is all unlisted enterprises, and therefore many Danish software development enterprises are in the target group of the standard. This thesis addresses the treatment of the enterprises’ main accounting items under the IFRS for SMEs and subsequently compares the treatment with that of the Danish Financial Statements Act and IFRS. Moreover, the thesis addresses the consequences for selected enterprises of a transition, if any, to preparing financial statements under this standard and the main stakeholders’ assessment of the standard. The main accounting items of software development enterprises include intangible assets and revenue, and these are basically treated similarly under the three sets of rules. The main difference of the three sets of rules is that under the IFRS for SMEs it is not allowed to capitalise development projects. In addition to this, the disclosure requirements of course differ materially as the individual standards apply to different target groups. As software development enterprises’ main fixed asset constitutes development costs, a transition to the IFRS for SMEs is of material importance in this respect as these must be written down upon transition to this standard. For many enterprises in this line of business the result will be negative equity. In the thesis it has, however, been examined how the main stakeholders of the business relate to these development projects and the perspectives seen by these in the new standard. The main stakeholders of the enterprises in the business are investors and banks. These provide the enterprises with capital, and in connection with our analysis it has been examined whether these attach importance to the financial statements when deciding on investments and loans, respectively. For both parties the financial statements constitute a main part of their basis of decision. Both state, however, that they do not attach importance to the capitalised development costs when deciding on investments and loans. This is an interesting aspect as, if this is not the case, a transition to the SME standard does not materially change the basis of the stakeholders’ assessments. If they have already set off the enterprises’ equity when making their assessments, writedown of the capitalised development projects, as required by the SME standard, does not change the basis of the stakeholders’ assessments. Moreover, the investors have stated that they assess that their exit possibilities and price fixing in this connection will be positively affected if the financial statements are prepared under the IFRS for SMEs. Moreover, they are of the opinion that it will be easier for the software development enterprises to attract foreign capital if the financial statements are prepared under the SME standard. In connection with a transition, if any, Management also needs to consider costs and benefits in this respect. In addition to the issues mentioned above in respect of attracting capital and exits and any negative equity upon transition, Management must also consider that other competencies of the staff in the accounts department are required. Moreover, the transition will be subject to expenses for advisers. The considerations concerning transition for the enterprises must be made as an overall assessment of all issues involved, and it is not possible to give an unambiguous answer as to whether the SME standard is suited for use by the enterprises in the software development business. The applicability of the standard depends to a great extent on the enterprises’ perspectives and business plans as the financial statements prepared under the SME standard will be of an international character and it will consequently be easier to exit the investment made and attract foreign capital. On the other hand, the enterprises in the business must be prepared for a transition being of significant importance to the size of equity and the possibility of obtaining bank financing as a result of this. The standard is therefore applicable to enterprises in the software development business and may in some instances place the enterprises in a more favourable position; however, it will always depend on an actual assessment of the enterprises’ circumstances

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2011
Number of pages116