At its 17th session in July 2000, the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) identified a number of obstacles that small and medium-sized enterprises (SMEs) were facing in applying accounting standards that had been issued by various standard-setting bodies, both national and international. It was agreed that a project should be undertaken to identify possible approaches that would meet the accounting and financial reporting needs of such enterprises.

The SMEGA-Level 3 that ISAR has developed is set out in the this publication.It would apply to the smallest entities that are often owner-managed and have few employees.

The approach proposed is a simple accruals-based accounting, based on that set out in international accounting standards, but closely linked to cash transactions.

National regulators may permit a derogation for newly formed businesses or new entrants to the formal economy to use cash accounting for a limited time.

How exactly the boundaries between the three levels should be specified is a matter that cannot be dealt with adequately without knowledge of the specific economy in which the enterprises operate.

The recommendation of ISAR is that there should be a system with at least three levels, but how these levels are defined must be determined by each member State that chooses to apply this approach, taking into account the prevailing economic, legal and social circumstances, particularly the member State´s enterprise structure.