The third edition of the IFRS for SMEs Accounting Standard applies to financial years beginning on or after 1 January 2027. For most owner-managed companies the biggest change is how and when revenue is recognised. This is the first in a short series.
The International Accounting Standards Board issued the third edition of the IFRS for SMEs Accounting Standard in February 2025. It is effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted. For a company with a February year-end, the first mandatory year is the year ending 29 February 2028, with the year ending 28 February 2027 as the comparative.
The change that will affect the most clients sits in Section 23, Revenue. The revised section introduces a simplified five-step model based on the principles of IFRS 15: identify the contract, identify the performance obligations, determine the transaction price, allocate it, and recognise revenue as each obligation is satisfied. It moves away from the previous approach, which recognised revenue on the transfer of risks and rewards for goods and on a stage-of-completion basis for services and construction contracts. For straightforward cash sales little changes. For anything involving deposits, milestones, bundled goods and services, or work performed over time, the point at which revenue is recognised can move.
The transition provisions in Appendix A allow the revised section to be applied retrospectively or, in certain respects, prospectively, so comparative revenue is not automatically restated. The approach has to be chosen, applied consistently and disclosed.
The timing of revenue matters beyond the financial statements, but the link to tax is not automatic. A change in accounting revenue does not by itself change taxable income. Receipts, accruals and the specific timing provisions of the Income Tax Act 58 of 1962 have to be assessed separately, and any differences may also affect deferred tax. The same change can affect bank covenants, earn-outs and anything that keys off reported turnover or profit.
Getting this mapped before the first reporting period, rather than during it, is the difference between a planned transition and a scramble. In the next parts of this series we will work through which of your contracts are affected, the transition options, and the transition disclosures required in the financial statements, together with the implications for lenders. If you want us to look at a specific contract type in your business now, send it through.
Sources: IASB announcement (February 2025); IFRS for SMEs Accounting Standard (third edition, 2025), Section 23 and Appendix A; Income Tax Act 58 of 1962.
Technical review: 19 October 2026. General information, not advice; confirm your own facts before acting.